<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1997
REGISTRATION NO. 33-86154
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
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 INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
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
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE FEE(2)
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<S> <C> <C> <C> <C>
Common Stock ($.01 par value)...... 4,600,000 $26.00 $119,600,000 $37,332
</TABLE>
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(1)Includes 600,000 shares of Common Stock which the Underwriters have the
right to purchase to cover over-allotments.
(2) Calculated pursuant to Rule 457(o). Of this amount, $20,819.00 was paid
with the initial filing of the Registration Statement on November 9, 1994,
$5,318 was paid on October 18, 1996, $9,801 was paid on December 20, 1996,
and $1,394 (based on the increase in the proposed maximum aggregate
offering price from $115,000,000 to $119,600,000) 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.
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<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
PROSPECTUS PRELIMINARY PROSPECTUS DATED JANUARY 29, 1997
4,000,000 SHARES
[LOGO OF BRYLANE]
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 $24.00 and $26.00 per share. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price of the Common Stock.
Upon consummation of the Offering, FS&Co. and The Limited (each as defined)
will own 43.8% and 25.7% of the Company's Common Stock, respectively. 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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................... $ $ $
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Total (3)........................ $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(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
$1,250,000.
(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 600,000 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 February ,
1997.
-----------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
J.P. MORGAN & CO.
-----------
The date of this Prospectus is February , 1997.
<PAGE>
[INSIDE FRONT COVER]
[LOGO OF BRYLANE]
[PHOTO 1]
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>
[INSIDE FRONT COVER FOLDOUT]
WHERE MILLIONS OF CUSTOMERS
FIND QUALITY APPAREL AT GREAT PRICES!
[PHOTO 2] [PHOTO 3] [PHOTO 4] [PHOTO 5] [PHOTO 6] [PHOTO 7]
[PHOTO 8] [PHOTO 9] [PHOTO 10] [PHOTO 11] [PHOTO 12] [PHOTO 13]
WOMEN'S SPECIAL SIZES MEN'S MISSES'
LANE BRYANT ROAMAN'S KING SIZE SUE BRETT LERNER CHADWICK'S
<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 Brylane Inc. will acquire, directly,
and indirectly through the acquisition of wholly-owned subsidiaries, a 100%
ownership interest in the Partnership in exchange for shares of the Common
Stock of the Company (the "Incorporation Plan"). In connection with the
Incorporation Plan, the Partnership will retain all of its assets, operations
and liabilities. 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 the 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
3
<PAGE>
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 $7.6
billion, while overall retail women's apparel sales increased by approximately
1% to $81.0 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
6.2% to $3.4 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
4
<PAGE>
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 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 has been improving 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.
5
<PAGE>
. 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.
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 its sales growth rate to 2.0%, an increase in
operating expenses and a substantial decline in profitability between fiscal
1993 and fiscal 1994. In response, Chadwick's management team was reorganized
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 to $26.4 million in fiscal 1995 from $5.5 million in fiscal 1994, and,
for the thirty-nine weeks ended October 26, 1996, Chadwick's achieved record
income from operations of $34.4 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company................ 4,000,000 shares
Common Stock to be outstanding after the Offering
(1)............................................... 19,471,445 shares
Use of proceeds.................................... The Company intends to use the esti-
mated $92.0 million net proceeds from
the Offering to prepay borrowings and
accrued interest outstanding under
the Term Loans of the Bank Credit Fa-
cility (as defined herein). In addi-
tion, upon consummation of the Offer-
ing, the Company intends to use a
substantial amount of its excess cash
to further prepay indebtedness out-
standing under the Term Loans. See
"Use of Proceeds" and "Unaudited Pro
Forma Financial Statements".
New York Stock Exchange Symbol..................... BYL
</TABLE>
- --------
(1) Does not include an aggregate of 1,109,188 shares of 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
4,000,000 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 common law 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 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........ 54,212
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
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 PRO FORMA FINANCIAL DATA
The summary unaudited pro forma financial data for the Company set forth
below has been derived from the unaudited pro forma financial information
included elsewhere in this Prospectus and gives effect to (i) the KingSize
Acquisition, (ii) the Chadwick's Acquisition and the financing thereof,
including the issuance of the Convertible Note and borrowings under the Bank
Credit Facility, (iii) the Offering and the application of net proceeds
therefrom to prepay borrowings and accrued interest outstanding under the Term
Loans of the Bank Credit Facility, and (iv) the application of existing cash to
further prepay indebtedness outstanding under the Term Loans, as if those
transactions had occurred on January 29, 1995 with respect to the statements of
operations data and operating and other data, and as of November 2, 1996 with
respect to the balance sheet. The summary unaudited pro forma 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 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.................................... 520,401 410,714
Operating income................................ 70,625 65,644
Interest expense, net........................... 31,613 22,658
Income before income taxes...................... 39,012 42,986
Net income...................................... 24,578 27,081
Net income per share............................ $ 1.25 $ 1.36
Weighted average shares outstanding............. 19,640 19,886
OPERATING AND OTHER DATA:
Gross profit 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)
BALANCE SHEET DATA:
<S> <C>
Cash and cash equivalents............................................. $ 13,641
Working capital....................................................... 83,610
Total assets.......................................................... 731,649
Long-term debt (including current portion)............................ 325,337
Stockholders' equity.................................................. 204,319
</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, (ii) The Limited in the event of
(x) a breach by Brylane of any of its material obligations under the Trademark
Agreement or (y) certain bankruptcy or insolvency events involving Brylane,
(iii) ten years after the earliest date that the direct or indirect ownership
interests of affiliates of FS&Co. or the ownership interests of affiliates of
The Limited in Brylane drop below certain specified levels, or (iv) subject to
certain extensions, (x) two years after any competitor of The Limited acquires
"control" of Brylane (as defined in the Trademark Agreement), or (y) two or
four years after the 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 (including cash dividends), incur liens, make capital
expenditures and make investments or acquisitions. As a result of these
covenants, the ability of the Company to secure additional financing, if
needed, is restricted, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. See
"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, 43.8% of the Company will be beneficially
owned by affiliates of FS&Co., and 25.7% 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. 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".
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
14
<PAGE>
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
19,471,445 shares of Common Stock, assuming the issuance of 4,000,000 shares
of Common Stock offered by the Company. All of the 4,000,000 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 1,067,938 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. 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 the Purchase Agreement (as defined). In addition, the
Company
15
<PAGE>
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 on behalf of the Representatives (as defined herein).
However, sales in the future of substantial amounts of Common Stock by the
Company could result in a dilution in the ownership and voting control of the
Company by existing stockholders.
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 $33.29 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 a $20.0 million Convertible Note due 2006 of the Partnership. In order to
fund a portion of the cash paid in connection with the Chadwick's Acquisition
and to repay its 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, and the TJX
17
<PAGE>
Noteholder will exchange the $20.0 million Convertible Note due 2006 of the
Partnership for a similar security of the Company. The Partnership will retain
all of its assets, operations and liabilities. Upon consummation of the
Offering and the Incorporation Plan, FS&Co., The Limited, Leeway & Co., NYNEX,
WearGuard and management of the Company will own 43.8%, 25.7%, 2.6%, 2.6%,
2.0% and 2.5% of the Company's Common Stock, 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 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
(deficiency) per share of Common Stock after giving effect to the Offering and
the Incorporation Plan. "Pro forma 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)........ $25.00
Pro forma net tangible book value (deficiency) per share
before the Offering(2)(3).............................. $(16.37)
Increase per share attributable to new investors........ 8.08
-------
Pro forma net tangible book value (deficiency) per share
after the Offering(3)(4)................................. (8.29)
------
Dilution per share to new investors....................... $33.29
======
</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 1,109,188 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 19,471,445 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 79.5% $ 182,210 64.6% $ 11.78
New investors................ 4,000,000 20.5 100,000 35.4 25.00
---------- ----- ----------- -------
Total...................... 19,471,445 100.0% $ 282,210 100.0%
========== ===== =========== =======
</TABLE>
19
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization (a) of the
Partnership and its consolidated subsidiaries (i) at November 2, 1996, and
(ii) pro forma to reflect the Chadwick's Acquisition, and (b) of the Company
pro forma to reflect (i) 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 (ii) 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
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
CHADWICK'S THE COMPANY
HISTORICAL ACQUISITION PRO FORMA
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 10,659 $ 23,641 $ 13,641
========= ========= =========
Current portion of long-term debt............. $ 14,395 $ 26,000 $ 10,521
Long-term debt, net of current portion:
Old bank credit facility.................... 77,960 -- --
Bank Credit Facility........................ -- 257,000 170,479
Senior Subordinated Notes due 2003.......... 124,337 124,337 124,337
Convertible Subordinated Note due 2006...... -- 20,000 20,000
--------- --------- ---------
Total long-term debt...................... 202,297 401,337 314,816
--------- --------- ---------
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. 128,392 180,590 291,640
Reduction for predecessor cost carryover
basis(1)................................... (152,067) (152,067) (152,067)
Retained earnings........................... 67,882 66,335 64,746
--------- --------- ---------
Total partnership/stockholders'
equity(1)(2)............................. 44,207 94,858 204,319
--------- --------- ---------
Total capitalization...................... $ 260,899 $ 523,695 $ 531,156
========= ========= =========
</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 1,109,188 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. In connection with the
Incorporation Plan, all partnership units in the Partnership and all
shares of common stock of VP Holding Corporation, an entity that
indirectly owns partnership units in the Partnership ("VP Holding"), will
be exchanged on a one-to-one basis for an aggregate of 15,471,445 shares
of Common Stock of the Company. In addition, the TJX Noteholder will
exchange the Partnership Note (as defined) for the Convertible Note, and
certain members of management and others will exchange all of their shares
of VP Holding Preferred Stock (as defined) on a one-to-one basis for
shares of the Series A Preferred Stock. Finally, all options to purchase
partnership units of the Partnership will be exchanged on a one-to-one
basis for options to purchase shares of Common Stock of the Company. See
"The Incorporation Plan", "Certain Relationships and Related
Transactions--The Chadwick's Acquisition" and "Management--Option Plans".
20
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma 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
and as of 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 and as of 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 financial
statements and that they are properly applied in the pro forma financial
statements, and provide a reasonable basis for presenting all of the
significant effects of the acquisitions by Brylane of Chadwick's and KingSize
and of the Offering. The acquisition related adjustments include (i) the
historical financial statements of KingSize to the extent not already included
in Brylane's historical statement of operations for the year ended February 3,
1996, (ii) the historical financial statements of Chadwick's and the financing
thereof by the Partnership, and (iii) the allocation of the purchase price for
each acquisition as appropriate. The Offering related adjustments include (i)
the effects of the Incorporation Plan, (ii) the Offering and the application
of the $92.0 million of estimated net proceeds to be received therefrom to
prepay borrowings and accrued interest outstanding under the Term Loans, and
(iii) the application of existing cash of $10.0 million to further prepay
indebtedness outstanding under the Term Loans. The pro forma statements of
operations exclude certain non-recurring items, including the estimated
inventory charge of $9.6 million related to the increase to fair value of the
Chadwick's inventory as described in the notes to the unaudited pro forma
financial statements. Also excluded from the pro forma 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 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. Management expects
that the significant assets in the final allocation will be goodwill,
inventory and customer lists and that there will be no significant additional
liabilities. The actual allocation may differ from that reflected in the
unaudited pro forma financial statements after Chadwick's closing balance
sheet as of December 7, 1996 has been finalized and after valuations 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 financial statements set forth below.
The unaudited pro forma financial statements and summary table provided on
the next page should be read in conjunction with the respective financial
statements of the Partnership, Chadwick's and KingSize and notes thereto
included elsewhere in this Prospectus. Certain reclassifications among line
items have been made to the Chadwick's historical income statement and balance
sheet to conform with Brylane's financial statement presentation. The
unaudited pro forma statements of operations and unaudited pro forma 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 FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE COMPANY
-----------------------
FISCAL YEAR THIRTY-NINE
ENDED WEEKS ENDED
FEB. 3, NOV. 2,
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
Non-recurring inventory charge.......................... 569 --
---------- --------
Gross profit............................................ 520,401 410,714
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........................................ 70,625 65,644
Interest expense, net................................... 31,613 22,658
---------- --------
Income before income taxes.............................. 39,012 42,986
Provision for income taxes.............................. 14,434 15,905
---------- --------
Net income.............................................. $ 24,578 $ 27,081
========== ========
Net income per share.................................... $ 1.25 $ 1.36
Weighted average shares outstanding..................... 19,640 19,886
</TABLE>
<TABLE>
<CAPTION>
AT NOV. 2, 1996
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 13,641
Working capital................................................. 83,610
Total assets.................................................... 731,649
Long-term debt (including current portion)...................... 325,337
Stockholders' equity............................................ 204,319
</TABLE>
- --------
(1)Includes a 53-week period for Brylane and a 52-week period for Chadwick's.
22
<PAGE>
BRYLANE INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------------------------------------------------------
BRYLANE, L.P. CHADWICK'S
HISTORICAL HISTORICAL PRO FORMA
FIFTY-TWO KINGSIZE FIFTY-TWO CHADWICK'S PRO FORMA FISCAL YEAR
WEEKS ENDED ACQUISITION WEEKS ENDED ACQUISITION AFTER OFFERING ENDED
FEB. 3, 1996 ADJUSTMENTS(1) JAN. 27, 1996(5) ADJUSTMENTS ACQUISITIONS ADJUSTMENTS FEB. 3, 1996
------------- -------------- ---------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $601,055 $23,627 $462,667 $ $1,087,349 $ $1,087,349
Cost of goods sold...... 298,414 11,204 257,184 (423)(6) 566,379 566,379
Non-recurring inventory
charge................. 569 -- 569 569
-------- ------- -------- -------- ---------- ------- ----------
Gross profit............ 302,072 12,423 205,483 423 520,401 520,401
Operating expenses:
Catalog and advertising
expense............... 174,446 5,250 94,607 274,303 274,303
Fulfillment expense.... 37,333 1,934 56,472 95,739 95,739
Support services
expense............... 37,024 1,217 (2) 28,069 2,668 (7) 68,978 68,978
Intangibles and
organization cost
amortization.......... 4,707 935 (3) -- 5,114 (8) 10,756 10,756
-------- ------- -------- -------- ---------- ------- ----------
Total operating
expenses............... 253,510 9,336 179,148 7,782 449,776 449,776
-------- ------- -------- -------- ---------- ------- ----------
Operating income........ 48,562 3,087 26,335 (7,359) 70,625 70,625
Interest expense, net... 20,624 1,823 (4) 6,807 16,757 (9) 39,643 (7,526)(14) 31,613
(893)(10)
(6,807)(11)
1,332 (12) (504)(15)
-------- ------- -------- -------- ---------- ------- ----------
Income before income
taxes.................. 27,938 1,264 19,528 (17,748) 30,982 8,030 39,012
Provision for income
taxes.................. 88 -- 7,854 (7,854)(13) 88 14,346 (16) 14,434
-------- ------- -------- -------- ---------- ------- ----------
Net income before
extraordinary items.... $ 27,850 $ 1,264 $ 11,674 $ (9,894) $ 30,894 $(6,316) $ 24,578
======== ======= ======== ======== ========== ======= ==========
Net income per
share(17).............. $ 1.25
Weighted average shares
outstanding(17)........ 19,640
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
----------------------------------------------------------------------------------------
BRYLANE, L.P. CHADWICK'S
HISTORICAL HISTORICAL PRO FORMA
THIRTY-NINE THIRTY-NINE CHADWICK'S PRO FORMA THIRTY-NINE
WEEKS ENDED WEEKS ENDED ACQUISITION AFTER OFFERING WEEKS ENDED
NOV. 2, 1996 OCT. 26, 1996(5) ADJUSTMENTS ACQUISITIONS ADJUSTMENTS NOV. 2, 1996
------------- ---------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $467,009 $368,243 $ 835,252 $ $ 835,252
Cost of goods sold ..... 225,708 196,993 1,837 (6) 424,538 424,538
-------- -------- -------- ------- -------- ---------
Gross profit............ 241,301 171,250 (1,837) 410,714 410,714
Operating expenses:
Catalog and advertising
expense............... 135,390 77,070 212,460 212,460
Fulfillment expense.... 29,057 36,917 65,974 65,974
Support services
expense............... 32,995 22,872 2,704 (7) 58,571 58,571
Intangibles and
organization cost
amortization.......... 4,229 -- 3,836 (8) 8,065 8,065
-------- -------- -------- ------- -------- ---------
Total operating
expenses............... 201,671 136,859 6,540 345,070 345,070
-------- -------- -------- ------- -------- ---------
Operating income........ 39,630 34,391 (8,377) 65,644 65,644
Interest expense, net... 16,200 4,474 11,855 (9) 28,383 (5,347)(14) 22,658
(670)(10) (378)(15)
(4,475)(11)
999 (12)
-------- -------- -------- ------- -------- ---------
Income before income
taxes.................. 23,430 29,917 (16,086) 37,261 5,725 42,986
Provision for income
taxes.................. 125 12,355 (12,355)(13) 125 15,780 (16) 15,905
-------- -------- -------- ------- -------- ---------
Net income ............. $ 23,305 $ 17,562 $ (3,731) $37,136 $(10,055) $ 27,081
======== ======== ======== ======= ======== =========
Net income per
share(17).............. $ 1.36
Weighted average shares
outstanding(17)........ 19,886
</TABLE>
(Notes begin on page 25)
23
<PAGE>
BRYLANE INC.
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PARTNERSHIP CHADWICK'S
HISTORICAL HISTORICAL CHADWICK'S PRO FORMA PRO FORMA
NOV. 2, OCT. 26, ACQUISITION AFTER OFFERING NOV. 2,
1996 1996 ADJUSTMENTS ACQUISITIONS ADJUSTMENTS 1996
----------- ---------- ----------- ------------ ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 10,659 $ 6,751 $ 12,982 (18) $ 23,641 $ (10,000)(23) $ 13,641
(6,751)(19)
Accounts receivable......... 8,122 93,105 (88,732)(19) 12,495 12,495
Inventories................. 93,286 106,469 9,564 (20) 209,319 209,319
Paper inventory............. 10,729 6,944 17,673 17,673
Catalog costs............... 22,328 8,144 (450)(20) 30,022 30,022
Other....................... 5,370 548 5,918 5,918
--------- -------- -------- --------- --------- ---------
Total current assets...... 150,494 221,961 (73,387) 299,068 (10,000) 289,068
Property & equipment, net..... 28,303 48,627 76,930 76,930
Organization & deferred
financing costs.............. 7,082 -- 7,005 (12) 11,631 (2,522)(15) 9,109
(2,456)(10)
Intangibles & other assets.... 162,463 -- 168,187 (20) 335,650 335,650
5,000 (20)
Deferred income taxes......... -- 1,061 (1,061)(19) 909 19,050 (24) 20,892
909 (10) 933 (15)
--------- -------- -------- --------- --------- ---------
Total assets.............. $ 348,342 $271,649 $104,197 $ 724,188 $ 7,461 $ 731,649
========= ======== ======== ========= ========= =========
<CAPTION>
LIABILITIES & PARTNERSHIP/
STOCKHOLDERS' EQUITY
--------------------------
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable............ $ 62,467 $ 46,817 $ $ 109,284 $ $ 109,284
Accrued interest............ 2,478 -- (533)(21) 1,945 1,945
Accrued expenses............ 11,871 49,956 6,855 (21) 68,682 68,682
Reserve for returns......... 5,071 9,955 15,026 15,026
Federal and state taxes..... -- (320) 320 (19)
Current portion of long-term
debt....................... 14,395 -- 11,605 (22) 26,000 (15,479)(23)(25) 10,521
--------- -------- -------- --------- --------- ---------
Total current liabilities. 96,282 106,408 18,247 220,937 (15,479) 205,458
--------- -------- -------- --------- --------- ---------
Long-term debt................ 202,297 -- 199,040 (22) 401,337 (86,521)(23)(25) 314,816
Deferred income taxes......... -- 2,422 (2,422)(19) -- 0
Other long-term liabilities... 5,556 88,586 (88,586)(19) 5,556 5,556
--------- -------- -------- --------- --------- ---------
Total liabilities......... 304,135 197,416 126,279 627,830 (102,000) 525,830
--------- -------- -------- --------- --------- ---------
Series A Convertible
Redeemable Preferred Stock... -- -- 1,500 1,500 1,500
--------- -------- -------- --------- --------- ---------
Partnership/Stockholders'
equity:
Partners' capital, 12,905
units...................... 130,882 -- 51,328 (18) 182,210 (182,210)(26) --
Reduction for predecessor
cost-carryover basis....... (152,067) -- (152,067) (152,067)
Common stock, $.01 par value
40,000 shares authorized;
shares issued and
outstanding pro forma...... -- -- -- 195 (26) 195
Additional paid in capital,
net of loans to management
investors.................. (2,490) -- 870 (20) (1,620) 182,055 (26) 291,445
91,960 (26)
19,050 (24)
Retained earnings........... 67,882 74,233 (68,377)(20) 66,335 (1,589)(15) 64,746
(5,856)(19)
(1,547)(10)
--------- -------- -------- --------- --------- ---------
Total
partnership/stockholders'
equity................... 44,207 74,233 (23,582) 94,858 109,461 204,319
--------- -------- -------- --------- --------- ---------
Total liabilities &
partnership/stockholders'
equity................... $ 348,342 $271,649 $104,197 $ 724,188 $ 7,461 $ 731,649
========= ======== ======== ========= ========= =========
</TABLE>
24
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA 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) Excludes $1,077,000 in administrative overhead allocated to the KingSize
catalog division by WearGuard.
(3) 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.
(4) Includes interest expense on the $35,000,000 of indebtedness incurred to
finance the KingSize Acquisition at 7.81%.
(5) 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.
(6) 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.
(7) 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 receivables balance at the end
of the month for the corresponding period.
(8) 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.
(9) 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 22)
(10) 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 ($1,547,000 net of tax) with a related future tax
benefit of $909,000. 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.
(11) Reflects the elimination of interest expense related to the advances
from TJX.
(12) Represents amortization of deferred financing fees related to the Bank
Credit Facility of $7,005,000 over the term of the debt.
(13) Amounts reflect adjustments for federal and state income taxes as if
Chadwick's had been taxed as a Partnership during these periods.
(14) Reduction of interest expense of $7,526,000 and $5,347,000 for the
fifty-three weeks ended February 3, 1996 and the thirty-nine weeks ended
November 2, 1996, respectively, as a result of the prepayment
25
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
of $102,000,000 of indebtedness outstanding under the old 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.
(15) 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
($1,589,000 net of tax) with a related future tax benefit of $933,000, 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 balance sheet but
has not been included in the pro forma statements of operations. The annual
reduction of amortization expense attributable to the write-off is
approximately $504,000.
(16) 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 37.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Certain Tax
Matters".
(17) Pro forma net income per share has been calculated for all periods
presented assuming that 4,000,000 shares issued in connection with the
Offering and 915,334 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. Weighted
average shares used to calculate net income per share for the year ended
February 2, 1996 are 15,640,403 shares prior to the Offering and 19,640,403
shares after the Offering. For the thirty-nine weeks ended November 2, 1996,
weighted average shares are 15,886,343 shares prior to the Offering and
19,886,343 shares after the Offering.
(18) 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 old
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 old bank credit facility (including accrued in-
terest)...................................................... (92,888)
Payment of financing fees..................................... (7,158)
Cash paid to TJX.............................................. (222,800)
---------
$ 12,982
</TABLE>
(19) 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>
26
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(20) 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)
-------
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 Chadwick's 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 were
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>
(21) 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.
(22) Reflects the incurrence of indebtedness to finance the Chadwick's
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>
(23) 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.
(24) Establishment of an estimated deferred tax asset of $19,050,000,
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
Partnership's assets at the closing of the Brylane
27
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
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.
(25) Net proceeds of $92,000,000 from the issuance of 4,000,000 shares of
Common Stock at an assumed initial public offering price of $25.00 per share
are applied to the prepayment of indebtedness outstanding under the Bank
Credit Facility.
(26) The exchange of partnership units and shares of common stock of VP
Holding for shares of Common Stock of the Company having a par value of $.01
per share, and the net proceeds from the sale of shares of Common Stock of the
Company having a par value of $.01 per share to the public at an assumed
initial offering price of $25.00 per share. See "The Incorporation Plan".
28
<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 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 include 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........ $ 1.34 $ 1.10
Weighted average units
outstanding............. 13,125 13,371
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.......... $ 31,536 $ 23,112 $ 27,544 27,380 42,074 41,635 33,717 54,212
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)
29
<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.
30
<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 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...... 106,111 183,186 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- -------- -------- --------
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 4,492
-------- -------- -------- -------- -------- -------- --------
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.
31
<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 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
32
<PAGE>
rapid sales growth, resulting in a decline in its sales growth rate to 2.0%,
an increase in operating expenses and a substantial decline in profitability
between fiscal 1993 and fiscal 1994. In response, Chadwick's management team
was reorganized 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 to $26.4 million in fiscal 1995 from $5.5 million in
fiscal 1994, and, for the thirty-nine weeks ended October 26, 1996, Chadwick's
achieved record income from operations of $34.4 million.
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 certain
intangible assets, and may reflect additional depreciation expense associated
with the write-up of Chadwick's fixed assets. In addition, the Company's
results of operations will reflect a non-recurring inventory charge related to
the write-up of Chadwick's inventory of approximately $7.0 million to be
incurred through the first half of fiscal 1997. Any such expenses will be
deductible for tax purposes. The amount of such amortization and depreciation
expense cannot be determined precisely at this time. Furthermore, Brylane
entered into an agreement whereby a third party has committed to purchase
certain accounts receivable generated by Chadwick's deferred billing programs.
Consequently, accounts receivable related to the Chadwick's catalog in the
future will be significantly lower than in Chadwick's historical periods, and
the Company's operating expenses will increase due to costs associated with
the sale of such receivables. See "Certain Relationships and Related
Transactions--Additional Agreements--Accounts Receivable Purchase Agreement".
Interest expense will also increase as a result of the financing arrangements
entered into in connection with the Chadwick's Acquisition. See "Unaudited Pro
Forma 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
Financial Statements" and "Selected Financial Data".
33
<PAGE>
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 as well as the write-off of approximately
$2.5 million in deferred financing fees related to the repayment of certain
amounts outstanding under the Term Loans of the Bank Credit Facility. 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 Financial Statements".
34
<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)
35
<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.
36
<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
37
<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
38
<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.
39
<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.
40
<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...... 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- --------
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 (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 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.
41
<PAGE>
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. 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 and
lower overall borrowings.
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.
42
<PAGE>
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 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 operations. 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
43
<PAGE>
by each of the Company's subsidiaries (the "Bank Credit Facility"), which
consists of (i) a $213.0 million five-year term loan (the "Tranche A Term
Loan"), (ii) a $70.0 million six-year and 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") (as amended, the "Receivables
Purchase Agreement") pursuant to which ADS has agreed to purchase from the
Company eligible customer accounts receivable generated through Chadwick's
deferred billing programs. ADS' commitment to purchase receivables is limited
to $100.0 million outstanding at any time. ADS will purchase the receivables on
a limited recourse basis at a discount from face value. The Company will pay
transaction costs including a fee of $0.03 per purchased account, and carrying
costs equal to, at the Company's election, LIBOR plus 95 basis points or the
lesser of (a) a defined prime rate plus 15 basis points and (b) the federal
funds rate plus 110 basis points. The receivables purchase facility has a
three-year term and is subject to early termination upon occurrence of certain
events, including chargebacks and customer default ratios above specified
levels or an uncured default by the Partnership under its 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
44
<PAGE>
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", "Unaudited Pro Forma 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 Financial Statements".
45
<PAGE>
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 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 $19.1 million. See "Unaudited Pro Forma 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.
46
<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 $7.6
billion, while overall retail women's apparel sales increased by approximately
1% to $81.0 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
47
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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 6.2% to $3.4 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
48
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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.
. 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.
49
<PAGE>
. 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 has been improving 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 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.
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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.
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 are not 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.
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SUE BRETT. The Sue Brett catalog targets mature regular size women who wear
sizes 8 to 24. Brylane believes that the median age of the Sue Brett customer
is 45, and that the average Sue Brett customer has an income level somewhat
above the national average. As of 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.
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
52
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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): 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.
53
<PAGE>
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.
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 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 generally assumes all risks associated with the
collection of receivables generated by credit card sales without recourse to
the Company. 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 voluntarily terminated to July 2006. See "Certain
Relationships and Related Transactions--Additional Agreements--Credit Card
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
54
<PAGE>
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
has been improving 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 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.
Brylane's telemarketing operations are conducted at Indianapolis, Indiana,
Greenwood, Indiana and San Antonio, Texas. Chadwick's telemarketing operations
are conducted at 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.
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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 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
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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 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 three years.
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
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Bryant and Roaman's catalogs, for distribution to customers of Sears, Roebuck
and Co. Brylane has also been mailing catalogs based on Brylane's Lerner
catalog (Smart Choice) since the first quarter of 1994, and the Sue Brett
catalog (Classics) since the third quarter of 1994, to these customers. In
October 1995, in connection with the KingSize Acquisition, Brylane and Sears
expanded the Sears Agreement to include an exclusive license to produce and
distribute the Sears Big & Tall catalog, based on Brylane's KingSize catalog,
to customers of Sears, Roebuck and Co. The Woman's View, Smart Choice,
Classics and Big & Tall catalogs are currently being mailed to individuals who
are not existing customers of Brylane and 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 renewed by the parties for
additional one year terms thereafter; provided, that either of the parties may
terminate the agreement upon twelve months' notice prior to the end of the
initial term or any renewal thereof. Under the Sears Agreement, the catalogs
mailed are substantially similar to Brylane's comparable catalogs, but have a
Sears logo and a different name. The merchandise is identical to that
contained in Brylane's comparable catalogs, which allows Brylane to fill
incremental customer orders by increasing the amount of merchandise that it
purchases, rather than increasing the number of different kinds of merchandise
categories that it keeps in inventory. This approach limits Brylane's
incremental inventory risk. Customers' calls are answered by telemarketing
representatives using the Sears Shop at Home name for the women's and men's
apparel catalogs, and customers can pay for their purchases using a Sears
credit card or various bank credit cards. Brylane performs all merchandising,
fulfillment, telemarketing, and management information functions through its
existing facilities. In the event that the Sears Agreement terminates, Brylane
will retain the names of all customers who have purchased through the Sears
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
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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 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" and "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 the Brylane catalogs. The
executive offices of the Company's KingSize operations are located in Hingham,
Massachusetts in approximately 8,000 square feet of leased office space. In
addition, the executive offices, telemarketing center, warehouse and
fulfillment center of
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the Company's Chadwick's operations are located in a Company-owned facility in
West Bridgewater, Massachusetts that contains approximately 580,000 square
feet of space. The Company leases an additional 126,000 square foot facility
in West Bridgewater, Massachusetts for returns processing and customer service
related to Chadwick's. The Company also leases from TJX approximately 11,000
square feet and 12,500 square feet of retail space for Chadwick's outlet
stores in Brockton, Massachusetts and Nashua, New Hampshire, respectively, and
has an arrangement with TJX whereby it has access to use a 7,500 square foot
buying office located in New York, New York. See "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, 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, and
indirectly through the acquisition of wholly-owned subsidiaries, a 100%
ownership interest in the Partnership in exchange for shares of the Common
Stock of 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
4,000,000 shares of Common Stock for cash consideration equal to an assumed
initial public offering price of $25.00 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 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 expired pursuant to its
terms.
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 three years. In addition, Brylane
entered into an inventory purchase agreement with TJX pursuant to which TJX
has committed to purchase certain amounts of Chadwick's excess inventory
through January 29, 2000.
In connection with the Chadwick's Acquisition, the Partnership received an
aggregate of approximately $51.3 million in new equity from 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 relating to Chadwick's New York buying office. C.O.B.
Management also employs approximately 80 employees of the Company's Chadwick's
division who work out of the New York buying office during part of each week.
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 as of August 20,
1993 acquires control of the Business, and (iv) if the Company is party to a
business combination voted against by The Limited or any of its affiliates,
(A) two years after such event (or ten years after such event if The Limited
has sold either of its Lane Bryant or Lerner retail businesses prior to such
event with respect to the Trademarks used in the businesses sold by The
Limited) if the other party in such combination competes with The Limited or
any of its affiliates or (B) four years after such event (or ten years after
such event if The Limited has sold either of its Lane Bryant or Lerner retail
businesses prior to such event with respect to the Trademarks used in the
businesses sold by The Limited) in any other circumstance; provided, however,
that for purposes of calculating whether The Limited and its affiliates own
less than 10% of the then outstanding partnership units in the Partnership (or
stock in 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. 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".
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 in
the Company or the ownership percentage in the Company of The Limited and its
affiliates, a sale of stock or other equity interests in any affiliate of the
Limited Stockholder which, directly or indirectly, owns stock in the Company
or other entity holding the Business or any direct or indirect parent of the
Company or any such entity (any such affiliate, an "Equity Owner"), shall
constitute a sale of a corresponding percentage of stock in the Company or
other entity holding the Business owned, directly or indirectly, by the
Limited Stockholder or any such Equity Owner, as the case may be. This
provision does not apply to sales of stock of The Limited.
In addition to the Trademark Agreement, the Partnership became a party to an
Electronic Media Trademark License Agreement pursuant to which the Licensors
granted to the Partnership a non-exclusive right, permission and privilege to
use the Trademarks in connection with the promotion, distribution and sale of
special size women's apparel, moderately priced fashion apparel and related
accessories through television and other electronic media, subject to prior
reasonable determination by The Limited that any proposed electronic marketing
activity would not disparage or diminish the stature, image or quality of such
Trademarks or cause confusion or deception among Lerner or Lane Bryant retail
customers.
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CREDIT CARD AGREEMENT. In connection with the Brylane Acquisition, Brylane
entered into the Credit Card Agreement (as amended on July 1, 1995) with World
Financial, a joint venture 60% owned by 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% of net sales generated using these credit
cards. In the event of a legislated or judicial reduction in the annual
percentage rate that may be charged by World Financial to cardholders, Brylane
and World Financial have agreed to negotiate in good faith an increase in the
fee. In addition, in the event that the aggregate amount of receivables
generated through the use of the credit cards exceeds $525 million, the fee
shall be adjusted to reimburse World Financial for its borrowing costs with
respect to such receivables in excess of $525 million. Furthermore, the fee
may be adjusted every six months based on the average finance charges per
cardholder statement. However, the fee may not exceed 2.5% (subject to certain
exceptions). Aggregate fees paid to World Financial by Brylane under the
Credit Card Agreement during fiscal 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 without recourse to the Company. In the event
that the Credit Card Agreement should terminate as described below, however,
Brylane would be obligated to repurchase from World Financial certain then-
outstanding Lerner and Lane Bryant mail order account balances, and all
Roaman's, Sue Brett and KingSize account balances, at the face amount thereof
(subject to certain exceptions).
Pursuant to the terms of the Credit Card Agreement, Brylane is obligated to
use its best efforts to promote the use of credit cards in the Business and to
acquire new cardholders through, among other things, "instant credit", pre-
approved solicitations and applications inserted into catalogs. World
Financial has the right to review and approve any credit marketing materials
used in these promotional activities prior to their use, which approval shall
not be unreasonably withheld. The cost of these credit solicitation activities
are shared equally by Brylane and World Financial. In addition, the Credit
Card Agreement requires World Financial to provide without charge to Brylane a
list of all Lerner and Lane Bryant retail cardholders on no more than one
occasion per month. Brylane is authorized to use the lists for the purpose of
increasing its catalog mailing lists.
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 95 basis points or the lesser of (a) a
defined prime rate plus 15 basis points and (b) the federal funds rate plus
110 basis points. In addition, Brylane will pay a commitment fee and a fee on
the unused portion of the commitment from time to time. The Receivables
Purchase Agreement specifies a commitment period through December 31, 1999,
subject to earlier termination (on a prospective basis only) by the purchaser
under certain specified circumstances (including (i) that bad debt experience
in prior programs exceeded 7.5%, (ii) that Brylane fails to maintain a
specified minimum net worth or (iii) that Brylane fails to comply with the
financial covenants contained in the new Bank Credit Facility (as it may be
modified or amended from time to time)). In connection with the
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Receivables Purchase Agreement, Brylane also entered into a service agreement
with ADS pursuant to which it has agreed to act as servicing agent to process
the purchased accounts and submit them for acceptance by the credit card
issuers on the applicable deferred billing dates offered to Chadwick's
customers. All payments by the credit card issuers will be made directly to a
bank account owned by ADS. ADS can terminate Brylane's appointment as servicing
agent at any time with or without cause. The Company will account for the
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, at
price points substantially similar or lower than those for the comparable
products offered by the Company's KingSize catalogs as of the date of the
Stockholders Agreement. The Company has no current plans to expand its business
beyond these core areas in competition with The Limited. In addition, The
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 printed women's or men's apparel
catalogs which are substantially similar to the "Chadwick's of Boston" catalog.
TJX is permitted, however, to (i) sell merchandise through the Internet and
other electronic media, (ii) use print advertising for apparel and merchandise
sold through stores and electronic media even if such items may be purchased by
mail or telephone, and (iii) print catalogs in which less than 10% of the
merchandise is men's or women's apparel. Also, TJX may acquire a company that
conducts a competitive business if such competitive business accounts for less
than 25% of such acquired company's annual revenues and TJX uses its
commercially reasonable efforts to, within one to two years of such
acquisition, divest itself of any competitive business which 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
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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 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 formation of the Company and the exchange of
partnership units of the Partnership and shares of VP Holding common stock for
shares of Common Stock of the Company as contemplated by the Incorporation
Plan, the Company has paid 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 by such entities pursuant to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
For a description of certain other related party transactions, see Note (14)
"Related Party Transactions" of the Brylane, L.P. Notes to Financial
Statements on page F-17 hereof, and Note A. "Related Party Transactions" of
the Chadwick's, Inc. Notes to Combined Financial Statements on page F-24
hereof.
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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................... 52 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................. 48 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 the Company have an average of approximately 14
years of experience in the catalog retail apparel 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(3)
---------------
ANNUAL COMPENSATION OPTIONS TO
NAME AND --------------------- PURCHASE COMMON ALL OTHER
PRINCIPAL POSITION PERIOD SALARY(1) BONUS(1)(2) STOCK(4) COMPENSATION(5)
------------------ ------------------ --------- ----------- --------------- ---------------
<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>
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- --------
(1) Included in the aggregate of salary and bonus is an amount of compensation
that was deferred at the election of each Named Executive Officer. For
fiscal 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.
(2) 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.
(3) For each of the periods set forth in the table above, no Named Executive
Officer received aggregate Other Annual Compensation in excess of the
lesser of $50,000 or 10% of the total of such officer's salary and bonus,
nor did any such Named Executive Officer receive any restricted stock
award, stock appreciation right or payment under any long-term incentive
plan.
(4) 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".
(5) 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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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. 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, 2008 to
August 30, 2002, and to change the term of such options from 16 years to 10
years. The 1993 Option Plan was amended as well to provide that options
granted thereunder may have a term no longer than 10 years. The Board of
Directors of the Company has authorized a similar amendment to the form of
option agreement under the 1996 Brylane Performance Option Plan and to the
1996 Brylane Performance Option Plan itself. In addition, the exercise price
of the options outstanding under the 1993 Option Plan was increased from
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$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 $2.4 million of this expense will be incurred in the fourth
quarter of fiscal 1996 and the remaining $0.7 million 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 (as amended, the "1995 Option Plan"). As amended, an aggregate of
1,700,000 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. 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 1,700,000 units are 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 amendments to the 1995 Option Plan to (i)
increase the number of partnership units which may be issued pursuant to the
exercise of options granted under the 1995 Option Plan from 500,000 to
1,700,000; (ii) permit the Board or the Committee (as defined) to grant
options with a term of up to 10 years; and (iii) permit the Board or the
Committee, in the case where the Partnership acquires a new company or
business, to grant substitute options under the 1995 Option Plan (the
"Substitute Options") in exchange for options granted to a Participant (as
defined) by the Participant's former employer, with such term, exercise price
and vesting criteria as are necessary to preserve the economic value of the
options being exchanged therefor. The Board of Directors of the Company has
authorized similar changes to the Brylane 1996 Option Plan.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership granted 130,250 options to purchase partnership units under
the 1995 Option Plan, at a price of $20.00 per unit, to certain
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key employees of Chadwick's. Such options vest in three equal annual
increments on the first, second and third anniversaries of the date of grant
and expire on December 9, 2006. Of such 130,250 options, Mr. Rao and
Ms. Meyrowitz were each granted an option to purchase 25,000 partnership
units.
In addition, in connection with the Chadwick's Acquisition, the Board of
Representatives of the Partnership granted 15,696 Substitute Options under the
1995 Option Plan, at a price of $9.92 per unit, to certain key employees of
Chadwick's in exchange for certain of their options to purchase TJX common
stock. Such options vest in whole on September 20, 1997 and expire on
September 20, 2004. Of such 15,696 Substitute Options, Mr. Rao and Ms.
Meyrowitz were granted options to purchase 2,269 and 1,861 partnership units,
respectively.
Also in connection with the Chadwick's Acquisition, the Board of
Representatives of the Partnership granted 47,908 Substitute Options under the
1995 Option Plan, at a price of $5.67 per unit, to certain key employees of
Chadwick's in exchange for certain of their options to purchase TJX common
stock. Such options vest in equal 50% increments on September 6, 1997 and
September 6, 1998, and expire on September 6, 2005. Of such 47,908 Substitute
Options, Mr. Rao and Ms. Meyrowitz were granted options to purchase 6,033 and
4,536 partnership units, respectively.
As of 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 130,250 partnership units at a purchase price of $20.00 per
unit, Substitute Options for the purchase of 15,696 partnership units at a
purchase price of $9.92 per unit, and Substitute Options for the purchase of
47,908 partnership units at a purchase price of $5.67 per unit were
outstanding under the 1995 Option Plan, and options for the purchase of
1,235,396 shares remained available for issuance. As of December 9, 1996, no
options had been exercised under the 1995 Option Plan.
The following table sets forth information concerning options granted to the
Named Executive Officers of the Company during fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(5)
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#)(1)(2) YEAR ($/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.
(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
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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 0/3,950,000
Sheila R. Garelik....... -- -- 0/53,750 0/756,250
Robert A. Pulciani...... -- -- 0/42,459 0/606,885
Jules Silbert........... -- -- 0/26,000 0/360,000
Bruce G. Clark.......... -- -- 0/39,875 0/570,625
</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
$25.00 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 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.
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<PAGE>
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 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.
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<PAGE>
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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<PAGE>
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 (1) (3) (4)
------------------------
NAME AND ADDRESS SHARES BEFORE AFTER
OF ENEFICIAL OWNER (1)B BENEFICIALLY OWNED (2) OFFERING OFFERING
- ----------------------- ---------------------- ---------- ----------
<S> <C> <C> <C>
Freeman Spogli & Co.
Incorporated (5)(6)........ 8,527,000 55.1% 43.8%
The Limited, Inc. (7)....... 5,000,000 32.3 25.7
Peter J. Canzone............ 106,667(8) * *
Sheila R. Garelik........... 43,333(9) * *
Robert A. Pulciani.......... 27,000(10) * *
Jules Silbert............... 22,000(11) * *
Bruce G. Clark.............. 26,833(12) * *
Ronald P. Spogli (6)........ -- -- --
John M. Roth (6)............ -- -- --
Mark J. Doran (6)........... -- -- --
Samuel P. Fried............. -- -- --
William K. Gerber........... -- -- --
William C. Johnson.......... 38,333(13) * *
All directors and executive
officers of Brylane as a
group (20 persons)......... 8,917,666(14) 57.5% 45.7%
</TABLE>
- --------
* Less than 1%.
(1) 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.
(2) 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.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) 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 2,479,584 shares of Company Common Stock. See
"Management--Option Plans".
(5) 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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<PAGE>
(6) 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.
(7) 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.
(8) Includes 6,667 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(9) Includes 3,333 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(10) Includes 2,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(11) Includes 2,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(12) Includes 1,833 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(13) Includes 8,333 shares of Common Stock issuable with respect to options
exercisable within 60 days of December 9, 1996.
(14) Includes 31,499 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
19,471,445 shares of Common Stock, assuming the issuance of 4,000,000 shares
of Common Stock offered by the Company and no exercise of the Underwriters'
over-allotment option. Of these shares, the 4,000,000 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
83
<PAGE>
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 (194,714 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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<PAGE>
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 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 the Purchase
Agreement.
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 & Co. 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. Unless the Holder making such demand registration consents in
writing, 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 1,109,188 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 47,908 of such options are not exercisable prior to September 6,
1997; an aggregate of 15,696 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; an aggregate of 130,250 of such options are not
exercisable prior to December 9, 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 and the liquidation preference of the Series A
Preferred Stock. 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 (i) the other
(in the case of FS&Co. or The Limited), or (ii) both FS&Co. and The Limited
(in the case of Leeway & Co., NYNEX 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 FS&Co. and The
Limited, 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. 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 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
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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, WearGuard, 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, the Indenture, the Partnership Note (and the
Convertible Note) contain provisions with respect to a change of control of
the Partnership and the Company. See "Description of Certain 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 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 (including cash dividends), 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 (including cash
dividends); (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 will deliver the Partnership Note to the Company,
and in exchange therefor, the Company and the Partnership will jointly issue
to the TJX Noteholder the Convertible Note (collectively with the Partnership
Note, the "Subordinated Notes") that contains terms substantially similar to
the Partnership Note. 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 103.6%, 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 (the "Purchase Agreement"), 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............................................................ 4,000,000
=========
</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 30
days from the date of this Prospectus to purchase up to an additional 600,000
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 4,000,000 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.,
93
<PAGE>
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 the
Purchase Agreement.
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 issued or 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 200,000
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.
94
<PAGE>
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, for
which each received customary fees. 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.
In connection with the prepayment, in part, of amounts outstanding under the
Bank Credit Facility with the net proceeds of the Offering, Morgan Guaranty
and Merrill Lynch Capital will, together in the aggregate, receive more than
10% of the net proceeds of the Offering. Because over 10% of the net proceeds
of the Offering is intended to be paid to associated or affiliated persons of
members of the National Association of Securities Dealers, Inc. ("NASD")
participating in the distribution of the Offering, the underwriting
arrangements for the Offering will comply with the requirements of Rule
2710(c)(8) of the Conduct Rules of the NASD. Those requirements provide that,
in such circumstances, the price of the securities must be determined by a
"qualified independent underwriter". Accordingly, Lazard Freres & Co. LLC (the
"Independent Underwriter") is acting as a qualified independent underwriter
for purposes of determining the price of the Common Stock offered in this
Offering and has conducted due diligence in connection with its
responsibilities as a qualified independent underwriter. The price at which
the Common Stock is being sold to the public in the Offering is no higher than
the price recommended by the Independent Underwriter.
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.
95
<PAGE>
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 balance sheet of the Predecessor (a division of The Limited
consisting of the entities described in Note 2 of Notes to Financial
Statements) as of July 31, 1993 and the combined statements of operations,
cash flows and stockholders equity for the twenty-six weeks ended July 31,
1993, the consolidated balance sheets of the Partnership as of January 28,
1995 and February 3, 1996, and the consolidated statements of operations, cash
flows and partnership equity 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, given on the authority of that firm
as experts in accounting and auditing, as set forth in their report dated
March 19, 1996, which report is also appended hereto.
The combined balance sheets of Chadwick's, Inc. 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.
The balance sheets of the KingSize division of WearGuard Corporation as of
October 1, 1994 and September 30, 1995 and the statements of revenues,
expenses and net assets and cash flows for each of the years then ended,
appended hereto as part of this Prospectus, have been audited by Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing, as set forth in their report dated
December 7, 1995, which report is also appended hereto.
96
<PAGE>
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.
97
<PAGE>
BRYLANE, L.P. / CHADWICK'S, INC. / KINGSIZE DIVISION
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, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-19
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-20
Combined Balance Sheets as of January 28, 1995 and January 27, 1996; and
October 26, 1996 (unaudited)............................................ F-21
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-22
Notes to Combined Financial Statements................................... F-23
KINGSIZE DIVISION FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-29
Balance Sheets as of October 1, 1994 and September 30, 1995.............. F-30
Statements of Revenues, Expenses and Net Assets for the years ended
October 1, 1994 and September 30, 1995.................................. F-31
Statements of Cash Flows for the years ended October 1, 1994 and
September 30, 1995...................................................... F-32
Notes to the Financial Statements........................................ F-33
</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
Catalog costs............................ 18,649 18,131 22,328
Other.................................... 4,371 4,559 5,370
--------- --------- ---------
Total current assets................... 132,512 125,275 150,494
Property and equipment, net................ 24,392 28,223 28,303
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
========= ========= =========
LIABILITIES AND EQUITY
----------------------
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
January 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
----------- -----------------------------------------------------------
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>
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 4)......... $ 1.34 $ 1.10
Supplemental weighted
average shares
outstanding
(see Note 4)......... 13,125,313 13,371,254
</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
----------- -----------------------------------------------------------
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>
Operating activities:
Net income (loss)...... $ 16,492 $ (1,901) $ 33,154 $ 27,850 $ 18,595 $ 23,305
Impact of other
operating 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
operating activities... 14,059 7,512 38,958 33,562 25,205 24,356
-------- --------- -------- --------- -------- --------
Investing activities:
Cash payments in
connection 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
investing 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
issuance 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
overdraft............. (572) (3,272) -- -- -- --
Acquisition related
fees & expenses paid
at closing............ (837)
-------- --------- -------- --------- -------- --------
Net cash (used in)
provided by financing
activities............. (13,894) 298,393 (15,255) 5,955 8,626 (18,007)
-------- --------- -------- --------- -------- --------
Cash and cash
equivalents, at
beginning of period.... -- -- 10,035 28,495 28,495 7,469
-------- --------- -------- --------- -------- --------
Cash and cash
equivalents, at end of
period................. $ -- $ 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
presented 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, and therefore, that
information provided in separate financial statements of the subsidiary
guarantors is not deemed material to the readers of the financial statements.
Effective July 6, 1996, 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 and an indirect wholly-owned entity of Brylane ("KingSize
Partnership"), 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).
Catalog Costs
Catalog costs primarily consist of catalog production and mailing costs that
have not yet been fully amortized. Catalog costs are amortized over the
expected revenue stream, which is approximately three months from the date
catalogs are mailed as determined based on management's estimates.
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging principally
from 10-30 years for buildings and improvements, 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.
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 partnership units and common equivalent units
outstanding. In accordance with Securities and Exchange Commission rules,
options granted in the one year period prior to the filing of the registration
statement related to the initial public offering are included as outstanding
for all periods presented using the treasury stock method assuming an offering
price equivalent to $25 per unit.
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").
Amounts outstanding under long-term debt agreements are as follows (in
thousands):
<TABLE>
<CAPTION>
JANUARY 28, FEBRUARY 3, NOVEMBER 2,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Bank credit facility term loan (the "Term
Loans"), bearing interest at the rate of
LIBOR plus 2.0% adjusted to the current
rate at intervals of one to six months
based on Brylane's operating cash flow to
net debt ratio. At February 3, 1996 and
November 2, 1996, the margin was 2.0%.
Various maturities through October 2000.. $ 90,000 $102,476 $ 92,355
Bank credit facility revolving loan (the
"Revolving Credit Facility"), maximum
borrowings of $40,000, sublimit for let-
ters of credit of $30,000................ 0 0 0
Senior subordinated notes, bearing inter-
est at the rate of 10.0% per annum, ma-
turing September 1, 2003................. 125,000 125,000 125,000
-------- -------- --------
215,000 227,476 217,355
Discount on senior subordinated notes..... (832) (736) (663)
-------- -------- --------
214,168 226,740 216,692
-------- -------- --------
Less current portion...................... (22,524) (13,720) (14,395)
-------- -------- --------
$191,644 $213,020 $202,297
======== ======== ========
</TABLE>
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. 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. Accordingly, the
principal amount outstanding of the Term Loans approximated the fair market
value at January 28, 1995, February 3, 1996 and November 2, 1996.
Based on quoted market prices at January 28, 1995, February 3, 1996 and
November 2, 1996, the fair market value of the Notes was approximately $123.4
million, $111.9 million and $124.4 million, respectively. The change in fair
market value is primarily attributable to changes in market interest rates.
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
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)
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.
The Bank Credit Facility was refinanced on December 9, 1996 (see Note 16).
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.
At February 3, 1996, annual maturities of long-term debt by fiscal year are
as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................ $ 13,720
1997............................................................ 15,632
1998............................................................ 24,629
1999............................................................ 30,995
2000............................................................ 17,500
Thereafter...................................................... 125,000
---------
Total debt...................................................... $ 227,476
=========
</TABLE>
(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") whereby
officers, key employees, certain members of the Board of Representatives of
the Partnership and consultants of Brylane (or its Subsidiaries) may be
granted the right to purchase an aggregate of up to 779,584 partnership units
in Brylane. The options were issued at fair market value at the date of the
grant based on the capital contributed by FS&Co. and The Limited.
Option activity for fiscal 1994, fiscal 1995 and the thirty-nine weeks ended
November 2, 1996 follows:
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF OPTION PRICE
UNITS PER UNIT
------- ------------
<S> <C> <C>
Options outstanding, January 29, 1994............... 559,584 $10.00
Activity during 1994:
Granted........................................... 65,000 10.00
Cancelled......................................... (9,375) 10.00
------- ------
Options outstanding, January 28, 1995............... 615,209 10.00
Activity during 1995:
Granted........................................... 15,000 10.00
Cancelled......................................... (7,500) 10.00
------- ------
Options outstanding, February 3, 1996............... 622,709 10.00
Activity during 1996:
Granted........................................... 25,000 15.00
Cancelled......................................... (3,125) 10.00
------- ------
Options outstanding, November 2, 1996............... 644,584 $10.19
======= ======
</TABLE>
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 (if not sooner due to termination of employment).
(10) 1995 OPTION PLAN:
On July 15, 1995, Brylane adopted its 1995 Partnership Unit Option Plan (the
"1995 Option Plan") whereby officers, key employees, certain members of the
Board of Representatives of the Partnership and consultants of Brylane (or its
Subsidiaries) may be granted the right to purchase an aggregate of up to
500,000 partnership units in Brylane.
Option activity for fiscal 1995 and the thirty-nine weeks ended November 2,
1996 follows:
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF OPTION PRICE
UNITS PER UNIT
------- ------------
<S> <C> <C>
Options outstanding, January 28, 1995................ 0
Activity during 1995:
Granted............................................ 123,750 $15.00
------- ------
Options outstanding, February 3, 1996................ 123,750 15.00
Activity during 1996:
Granted............................................ 147,000 18.89
------- ------
Options outstanding, November 2, 1996................ 270,750 $17.11
======= ======
</TABLE>
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)
All options become exercisable in three equal installments on the first,
second and third anniversaries of the date of grant. All options terminate
seven years from the date of grant (if not sooner due to termination of
employment).
(11) STOCK SUBSCRIPTION PLAN:
Brylane has a stock subscription plan (the "Subscription Plan") whereby
officers, certain key employees and a member of the Board of Representatives
may purchase interests in an entity that indirectly owns interests in the
Partnership. Pursuant to the Subscription Plan, this entity acquires
additional interests in the Partnership using the proceeds received in
connection with such purchases. The portion of the purchase price received in
the form of promissory notes is recorded as a reduction of partnership equity.
The price at which the units are purchased is set at fair value at the date of
issuance as determined by the Company from analyses and outside purchases.
Activity under the Stock Subscription Plan for fiscal 1994, fiscal 1995 and
the thirty-nine weeks ended November 2, 1996 follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER PRICE
OF PER
UNITS UNIT
------- -------
<S> <C> <C>
Units outstanding, January 29, 1994...................... 453,000 $10.00
Activity during 1994:
Issued................................................. 60,000 10.00
Repurchased............................................ (12,500) 10.00
------- ------
Units outstanding, January 28, 1995...................... 500,500 10.00
Activity during 1995:
Issued................................................. 15,000 15.00
Repurchased............................................ (10,000) 12.10
------- ------
Units outstanding, February 3, 1996...................... 505,500 10.15
Activity during 1996:
Issued................................................. 7,500 15.00
Repurchased............................................ (5,000) 12.10
------- ------
Units outstanding, November 2, 1996...................... 508,000 $10.22
======= ======
</TABLE>
(12) RETIREMENT PLAN:
Effective August 30, 1993, Brylane adopted the Brylane, L.P. Savings and
Retirement Plan (the "Retirement Plan"). All of the Company's employees who
have attained twenty-one years of age and have completed one year of service
are eligible to participate in the Retirement Plan. Eligible employees can
contribute up to the lesser of $9,500 or ten percent of their compensation to
the Retirement Plan on a pre-tax basis. Brylane will match up to three percent
of the participants' eligible compensation. Brylane is required to make
additional contributions to the Retirement Plan equal to four percent of each
participant's compensation up to the Social Security taxable wage base, and
equal to seven percent of each participant's compensation which exceeds that
amount. An additional one percent of compensation is contributed on behalf of
those participants who have completed at least five years of service.
Brylane's contributions begin to vest after three years of service, at which
time such contributions are 20% vested. Thereafter, the contributions vest at
a rate of 20% each year so that Brylane's contributions are fully vested after
seven years of service. 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,
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)
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, respectively, 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.
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
F-17
<PAGE>
BRYLANE, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED JULY 29, 1995 AND AUGUST 3,
1996 IS UNAUDITED)
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 substantially all
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 a new bank credit facility and $51.3 million
of equity financing.
On December 9, 1996, in contemplation of an initial public offering, the
Company, certain affiliates of FS&Co., The Limited, Lane Bryant Direct,
WearGuard, Leeway & Co., NYNEX and the TJX Noteholder entered into a First
Amended and Restated Incorporation and Exchange Agreement (the "Exchange
Agreement") whereby the ownership interests of these entities in the
Partnership other than the TJX Noteholder will be exchanged for 14,926,778
shares of Common Stock in Brylane Inc., a newly formed corporation, and the
TJX Noteholder will exchange the $20.0 million Convertible Note due 2006 of
the Partnership for a similar security of the Company. Additionally, pursuant
to their respective stock subscription agreements with VP Holding, an entity
that indirectly owns partnership units in the Partnership, certain management
investors and others will exchange their shares of common stock of VP Holding
for an aggregate of 544,667 shares of Common Stock of the Company. In
connection with the Incorporation Plan, all options to purchase partnership
units of the Partnership will be exchanged on a one-to-one basis for options
to purchase shares of Common Stock of the Company.
As a result of certain amendments to the Partnership's 1993 Option Plan made
in conjunction with the acquisition of Chadwick's, a new measurement date was
created with respect to certain options under the 1993 Option Plan. As a
result, the Partnership currently anticipates that it will incur non-cash
compensation expense of approximately $3.1 million. The Partnership estimates
that approximately $2.4 million of this expense will be incurred in the fourth
quarter of fiscal 1996 and the remaining $0.7 million will be incurred through
fiscal 1997.
F-18
<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-19
<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 the financial statements.
F-20
<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
recoverable............................. 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
amortization............................ 18,888 25,594 30,544
-------- -------- --------
53,123 52,300 48,628
-------- -------- --------
Total assets........................... $177,625 $199,215 $272,914
======== ======== ========
LIABILITIES AND NET ASSETS
--------------------------
Current liabilities:
Accounts payable......................... $ 41,961 $ 36,889 $ 46,817
Accrued expenses and other current
liabilities............................. 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 the financial statements.
F-21
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF CASH FLOWS
<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>
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 the financial statements.
F-22
<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-23
<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-24
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Management believes that the Company's historical financial statements
reflect its historical costs of doing business.
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-25
<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-26
<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-27
<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-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Representatives of Brylane, L.P.
We have audited the accompanying balance sheets of the KingSize division
(the Division) of WearGuard Corporation as of October 1, 1994 and September
30, 1995, and the related statements of revenues, expenses and net assets and
cash flows for each of the years then ended. These financial statements are
the responsibility of the Division'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 out audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the KingSize division of
WearGuard Corporation as of October 1, 1994 and September 30, 1995, and the
results of its operations and cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
December 7, 1995
F-29
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 508 $ 525
Accounts receivable, net.............................. 94 158
Inventories........................................... 8,296 8,075
Prepaid catalog costs................................. 1,194 1,391
Intercompany account with WearGuard................... 902 2,794
Other prepaid expenses................................ 189 19
------- -------
Total current assets................................ 11,183 12,962
------- -------
Property and equipment, net............................. 685 678
Intangible assets, net.................................. 3,229 3,085
------- -------
Total assets........................................ $15,097 $16,725
======= =======
<CAPTION>
LIABILITIES AND NET ASSETS
--------------------------
<S> <C> <C>
Current liabilities:
Cash overdraft........................................ $ 632 $ 129
Accounts payable...................................... 6,153 2,797
Accrued expenses...................................... 969 852
Reserve for returns................................... 414 323
------- -------
Total liabilities................................... 8,168 4,101
------- -------
Net assets.............................................. 6,929 12,624
------- -------
Total liabilities and net assets.................... $15,097 $16,725
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
STATEMENTS OF REVENUES, EXPENSES AND NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales.............................................. $27,404 $38,396
Cost of goods sold..................................... 13,252 18,030
------- -------
Gross margin....................................... 14,152 20,366
Operating expenses:
Catalog and advertising.............................. 4,663 7,902
Fulfillment.......................................... 2,712 3,125
Support services..................................... 1,349 1,900
Administrative overhead allocation from WearGuard.... 1,270 1,600
Intangibles amortization............................. 144 144
------- -------
Total operating expenses........................... 10,138 14,671
Earnings before income taxes........................... 4,014 5,695
Net assets, beginning of year.......................... 2,915 6,929
------- -------
Nets assets, end of year............................. $ 6,929 $12,624
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Earnings before income taxes........................ $4,014 $5,695
Adjustments to reconcile earnings before income
taxes to net cash provided by operating activities:
Depreciation...................................... 120 141
Amortization...................................... 144 144
Reserve for returns............................... 279 (91)
Change in operating assets and liabilities:
Accounts receivable............................. 10 (64)
Inventories..................................... (3,405) 221
Prepaid catalog costs........................... (573) (197)
Other prepaid expenses.......................... (105) 170
Accounts payable................................ 4,968 (3,356)
Accrued expenses................................ 210 (117)
------ ------
Total adjustments................................. 1,648 (3,149)
------ ------
Net cash provided by operating activities......... 5,662 2,546
------ ------
Cash flows from investing activities:
Additions to property and equipment................. (94) (134)
------ ------
Net cash used in investing activities............. (94) (134)
Cash flows from financing activities:
Net intercompany account with WearGuard............. (5,037) (1,892)
Decrease in cash overdraft.......................... (127) (503)
------ ------
Net cash used in financing activities............. (5,164) (2,395)
------ ------
Net increase in cash and cash equivalents......... 404 17
Cash and cash equivalents, beginning of year.......... 104 508
------ ------
Cash and cash equivalents, end of year............ $ 508 $ 525
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(1)BUSINESS OPERATIONS AND BASIS OF PRESENTATION:
KingSize (the Division) is a division of WearGuard Corporation (WearGuard),
a wholly-owned subsidiary of Aramark Corporation (Aramark). The Division is a
catalog business devoted to big and tall men's apparel, footwear and related
accessories.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
The Division's fiscal year ends on the Saturday closest to September 30.
Cash and Cash Equivalents
The Division considers investments with initial 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.
Prepaid Catalog Costs
Catalog costs primarily consist of mailed and unmailed catalog production
and mailing costs that have not been fully amortized over the expected revenue
stream, which is approximately three months from the date catalogs are mailed.
Advertising Costs
The cost of advertising is generally expensed when incurred. Advertising
expense was approximately $1,367,000 in 1994 and $728,000 in 1995.
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 of ten years for
leasehold improvements and three to ten years for other property and
equipment. Repairs and maintenance are charged to expense as incurred;
renewals and betterments which extend service lives are capitalized.
The cost of assets sold or retired and the related amounts of accumulated
depreciation are eliminated from the accounts in the year of sale or
retirement, with any gain or loss reflected in income.
Intangible Assets
Intangible assets consist of goodwill, customer list and other intangibles
which are amortized over an estimated composite life of 25 years. Accumulated
amortization at October 1, 1994 and September 30, 1995 was approximately
$371,000 and $515,000, respectively.
F-33
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Sales are recorded at the time of shipment. The Division provides a reserve
for the estimated merchandise returns, based on its prior customer returns
experience.
Income Taxes
The Division is included in the federal and state income tax returns of
Aramark. The Division is not charged for income taxes by WearGuard or Aramark.
Therefore, no provision for income taxes has been included in the statements
of revenues, expenses and net assets.
(3)RELATED-PARTY TRANSACTIONS:
The Division's cash receipts are transferred to WearGuard, and cash
disbursements are made by WearGuard on behalf of the Division. The balance of
the intercompany account with WearGuard is the net of these cash transfers and
disbursements as well as administrative and occupancy cost allocations to the
Division from WearGuard. The Division does not charge WearGuard interest on
the intercompany balance, and WearGuard does not charge the Division interest
on the Division's net assets.
The Division shares certain administrative overhead and occupancy costs with
WearGuard and WearGuard's other division. These costs are allocated among the
Division, WearGuard and WearGuard's other division without a premium.
Allocation of these costs to the Division is based on its estimated usage of
administrative services or square footage.
WearGuard participates in Aramark's self-insurance program for general
liability and workers' compensation. Premiums allocated by WearGuard to the
Division for general liability and workers' compensation are based on the
Division's estimated payroll as a percentage of WearGuard's total payroll.
Costs allocated to the Division were approximately $112,000 in 1994 and
$110,000 in 1995.
The Division is included in WearGuard's medical, dental, life and accidental
death and dismemberment insurance policies and is charged for premiums related
to its employees. Premiums charged to the Division were approximately $156,000
in 1994 and $227,000 in 1995.
F-34
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(4)PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment consist
of:
<TABLE>
<CAPTION>
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures and equipment................... $899 $1,033
Leasehold improvements.............................. 46 46
---- ------
945 1,079
Accumulated depreciation and amortization........... 260 401
---- ------
Property and equipment, net..................... $685 $ 678
==== ======
</TABLE>
(5)LEASES:
The Division operates a retail store which sells merchandise that is no
longer sold through its catalogs. The Division leases the related space under
an operating lease that expires on August 31, 1997. Future minimum lease
obligations are as follows:
<TABLE>
<S> <C>
1996................................................................. $34,500
1997................................................................. 31,625
-------
$66,125
=======
</TABLE>
Rent expense was approximately $31,750 in 1994 and $34,500 in 1995.
(6)BENEFIT PLANS:
The Division participates in the WearGuard 401(k) Super Saver Plan (the
Plan). All employees who have attained 18 years of age and have completed one
year or 1,000 hours of service are eligible for the Plan. Employees can
contribute up to 15% of their salaries to the Plan on a pre-tax basis, subject
to Internal Revenue Service limitations. The Division will match up to 6% of
the participants' plan contribution based on years of plan participation for
each employee. The Division's costs under the Plan were approximately $49,000
in 1994 and $54,000 in 1995.
F-35
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(7)INCOME TAXES:
The Division is included in the federal and state income tax returns of
Aramark. There was no provision for federal and state income taxes allocated
to the Division during fiscal years 1994 and 1995. There were no outstanding
income taxes payable to WearGuard and Aramark at October 1, 1994 and
September 30, 1995.
(8)COMMITMENTS AND CONTINGENCIES:
The Division is involved in various legal proceedings that are incidental to
the conduct of its business. In the opinion of management, any liability with
respect to these proceedings will not be material.
(9)SUBSEQUENT EVENT:
In October 1995, KingSize Catalog Sales, L.P., an indirect wholly owned
entity of Brylane, L.P. (Brylane), completed the acquisition of the assets of
the Division (the Acquisition).
The Acquisition was accounted for under the purchase method of accounting.
In connection with the Acquisition, Brylane paid to WearGuard $52.5 million in
cash and issued to WearGuard 350,000 limited partnership units in Brylane in
return for the assets, net of the assumption of certain liabilities, relating
to the Division.
F-36
<PAGE>
[INSIDE BACK COVER FOLDOUT]
[PHOTO 15]
Implementing
State of the Art Technology,
Chadwick's Telemarketing [PHOTO 14]
[PHOTO 16]
54' High Stacker,
Brylane Inventory Management
High Speed Tilt-Tray Sorter,
Brylane Order Fulfillment
[PHOTO 17]
Innovative Hanging Conveyor System,
Chadwick's Order Fulfillment
SUPERIOR CUSTOMER SERVICE THROUGH
SOPHISTICATED TELEMARKETING, ORDER FULFILLMENT
AND INVENTORY MANAGEMENT
<PAGE>
[INSIDE BACK COVER]
[PHOTO 18]
[PHOTO 19]
<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 Financial Statements.................................. 21
Selected Financial Data................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 47
The Incorporation Plan.................................................... 61
Certain Relationships and Related Transactions............................ 63
Management................................................................ 69
Security Ownership........................................................ 82
Shares Eligible for Future Sale........................................... 83
Description of Capital Stock.............................................. 87
Description of Certain Financing Arrangements............................. 90
Underwriting.............................................................. 93
Legal Matters............................................................. 96
Experts................................................................... 96
Available Information..................................................... 97
Index to Historical Financial Statements.................................. F-1
</TABLE>
----------------
UNTIL MARCH , 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
J.P. MORGAN & CO.
FEBRUARY , 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.......................................... $ 37,332
NASD filing fee............................................... 12,460
NYSE filing fee............................................... 149,000
Blue sky fees and expenses.................................... 20,000
Printing and engraving expenses............................... 200,000
Legal fees and expenses....................................... 350,000
Accounting fees and expenses.................................. 300,000
Transfer agent and registrar fees............................. 10,000
Miscellaneous................................................. 171,208
----------
Total....................................................... $1,250,000
==========
</TABLE>
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. In
addition, the Company is currently evaluating whether it will obtain director
and officer insurance.
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
------- -----------
<S> <C>
1.1ttttt 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 , 1997.
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 , 1997 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 , 1997 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.
5.1ttttt 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
------ -----------
<S> <C>
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
------------------
<S> <C>
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
HHH 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 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 9, 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.
10.80ttttt Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
11.1ttttt Brylane, L.P.--Computation of Net Income Per Common Share.
21.1tttt Subsidiaries of Brylane.
23.1ttttt Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2ttttt Consent of Coopers & Lybrand L.L.P. regarding Brylane, L.P.
23.3ttttt Consent of Coopers & Lybrand L.L.P. regarding Chadwick's, Inc.
23.4ttttt Consent of Coopers & Lybrand L.L.P. regarding KingSize Division.
24.1*** Powers of Attorney.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
23.4ttttt Consent of Coopers & Lybrand L.L.P. regarding KingSize Division.
24.1*** Powers of Attorney.
24.2tttt Powers of Attorney.
27.1tttt Financial Data Schedule.
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 and incorporated by
reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's Registration
Statement on Form S-4 (Registration No. 33-69532) on November 9, 1993 and
incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's Registration
Statement on Form S-4 (Registration No. 33-69532) on November 23, 1993 and
incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual Report on
Form 10-K for the fiscal year ended January 29, 1994 and incorporated by
reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly Report
on Form 10-Q for the quarterly period ended April 30, 1994 and incorporated
by reference herein.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-86154) on November 9, 1994 and incorporated by
reference herein.
**** 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 and
incorporated by reference herein.
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") and incorporated by reference herein.
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) and incorporated by
reference herein.
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")
and incorporated by reference herein.
tttt
Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996 and
incorporated by reference herein.
ttttt
Filed herewith.
H Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter Form
10-Q (as defined herein) and are the subject of a request for confidential
treatment with respect thereto.
HH Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as defined
herein) and are the subject of a request for confidential treatment with
respect thereto.
HHH Certain portions of this exhibit have been omitted from the copies filed as
part of Amendment No. 2 to this Registration Statement on Form S-1 and are
the subject of a request for confidential treatment with respect thereto.
++ To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
The following schedule is filed as part of this Registration Statement:
Schedule II--Chadwick's Inc.--Valuation and Qualifying Accounts.
All other 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. 3 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 29th day of January 1997.
BRYLANE INC.
By: /s/ Robert A. Pulciani
___________________________________
Robert A. Pulciani
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
Pursuant to the requirements of the Securities Act, this Amendment No. 3 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>
* President, Chief Executive January 29, 1997
____________________________________ Officer and Director
Peter J. Canzone (Principal Executive
Officer)
/s/ Robert A. Pulciani Executive Vice President, January 29, 1997
____________________________________ Chief Financial Officer,
Robert A. Pulciani Secretary and Treasurer
(Principal Financial and
Accounting Officer)
* Director January 29, 1997
____________________________________
Ronald P. Spogli
* Director January 29, 1997
____________________________________
John M. Roth
* Director January 29, 1997
____________________________________
Mark J. Doran
* Director January 29, 1997
____________________________________
Samuel P. Fried
* Director January 29, 1997
____________________________________
William K. Gerber
* Director January 29, 1997
____________________________________
William C. Johnson
</TABLE>
*By:_/s/ Robert A. Pulcian__ i
__________________________
Robert A. Pulciani
Attorney-in-Fact
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, presents 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
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1ttttt 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 , 1997.
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
NUMBER DESCRIPTION
------- -----------
<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 , 1997 by
and among the Company, FSEP II, FSEP III, FSEP
International, Lane Bryant Direct, WearGuard, Chadwick's,
Leeway & Co. and NYNEX.
4.11++ Stockholders Agreement dated as of , 1997 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.
5.1ttttt 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
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.12tttt Credit Agreement dated as of December 9, 1996 (the "Credit
Agreement") among the Partnership, the Lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New York
("Morgan Guaranty"), as Administrative Agent, and Merrill Lynch
Capital Corporation ("Merrill Lynch"), as Documentation Agent.
10.13tttt 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").
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 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 9, 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.79tttt Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
10.80ttttt Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
11.1ttttt Brylane, L.P.--Computation of Earnings Per Common Share.
21.1tttt Subsidiaries of Brylane.
23.1ttttt Consent of Riordan & McKinzie (contained in Exhibit 5.1).
23.2ttttt Consent of Coopers & Lybrand L.L.P. regarding Brylane, L.P.
23.3ttttt Consent of Coopers & Lybrand L.L.P. regarding Chadwick's, Inc.
23.4ttttt Consent of Coopers & Lybrand L.L.P. regarding KingSize Division.
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 and incorporated by
reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's Registration
Statement on Form S-4 (Registration No. 33-69532) on November 9, 1993 and
incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's Registration
Statement on Form S-4 (Registration No. 33-69532) on November 23, 1993 and
incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994 and incorporated
by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly Report
on Form 10-Q for the quarterly period ended April 30, 1994 and
incorporated by reference herein.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-86154) on November 9, 1994 and incorporated by
reference herein.
**** 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 and
incorporated by reference herein.
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") and incorporated by reference herein.
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) and incorporated by
reference herein.
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")
and incorporated by reference herein.
tttt
Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996 and
incorporated by reference herein.
ttttt
Filed herewith.
H Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter Form
10-Q (as defined herein) and are the subject of a request for confidential
treatment with respect thereto.
HH Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as
defined herein) and are the subject of a request for confidential
treatment with respect thereto.
<PAGE>
HHH Certain portions of this exhibit have been omitted from the copies filed
as part of Amendment No. 2 to this Registration Statement on Form S-1 and
are the subject of a request for confidential treatment with respect
thereto.
ii To be filed by amendment.
<PAGE>
GRAPHICS APPENDIX
INSIDE FRONT COVER:
PHOTO 1: Picture of model wearing suit.
INSIDE FRONT COVER FOLDOUT:
PHOTO 2: Picture of front cover of Lane Bryant catalog.
PHOTO 3: Picture of front cover of Roaman's catalog.
PHOTO 4: Picture of front cover of KingSize catalog.
PHOTO 5: Picture of front cover of Sue Brett catalog.
PHOTO 6: Picture of front cover of Lerner catalog.
PHOTO 7: Picture of front cover of Chadwick's of Boston, Ltd. catalog.
PHOTO 8: Picture of page of merchandise in Lane Bryant catalog.
PHOTO 9: Picture of page of merchandise in Roaman's catalog.
PHOTO 10: Picture of page of merchandise in KingSize catalog.
PHOTO 11: Picture of page of merchandise in Sue Brett catalog.
PHOTO 12: Picture of page of merchandise in Lerner catalog.
PHOTO 13: Picture of page of merchandise in Chadwick's of Boston, Ltd.
catalog.
INSIDE BACK COVER FOLDOUT:
PHOTO 14: Background picture of high speed tilt-tray sorter at Brylane's
order fulfillment center.
PHOTO 15: Inset picture of state of the art technology at Chadwick's
telemarketing center.
PHOTO 16: Inset picture of 54' high stacker related to Brylane's inventory
management.
PHOTO 17: Inset picture of hanging conveyor system at Chadwick's
order fulfillment center.
INSIDE BACK COVER:
PHOTO 18: Background picture of blazers.
PHOTO 19: Inset picture of seated model wearing blazer.
<PAGE>
EXHIBIT 1.1
================================================================================
BRYLANE INC.
(a Delaware corporation)
4,000,000 Shares of Common Stock
PURCHASE AGREEMENT
------------------
Dated: February , 1997
----
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
PURCHASE AGREEMENT......................................................... 1
SECTION 1. Representations and Warranties........................... 5
------------------------------
(a) Representations and Warranties by the Company............ 5
(i) Compliance with Registration Requirements....... 5
-----------------------------------------
(ii) Independent Accountants......................... 6
-----------------------
(iii) Financial Statements............................ 6
--------------------
(iv) No Material Adverse Change in Business.......... 7
--------------------------------------
(v) Good Standing of the Company, Holding, the General
--------------------------------------------------
Partner, VLP and the Partnership................ 7
--------------------------------
(vi) Good Standing of Subsidiaries................... 7
-----------------------------
(vii) Capitalization of Holding....................... 8
-------------------------
(viii) Securities Ownership of Partnership............. 8
-----------------------------------
(ix) Authorization of Exchange Agreement............. 9
-----------------------------------
(x) Authorization of Management Subscription
----------------------------------------
Documents..................................... 9
(xi) Authorization of the Transaction Agreements..... 9
-------------------------------------------
(xii) Authorization of Registration Rights Agreement.. 10
----------------------------------------------
(xiii) Authorization of Stockholders Agreement......... 10
---------------------------------------
(xiv) Restated Partnership Agreement.................. 10
------------------------------
(xv) Capitalization of the Partnership and the
-----------------------------------------
Company....................................... 11
(xvi) Authorization of Agreement...................... 11
--------------------------
(xvii) Authorization and Description of Securities..... 11
-------------------------------------------
(xviii) Absence of Defaults and Conflicts............... 11
---------------------------------
(xix) Absence of Labor Dispute........................ 12
------------------------
(xx) Absence of Proceedings.......................... 13
----------------------
(xxi) Accuracy of Exhibits............................ 13
--------------------
(xxii) Possession of Intellectual Property............. 13
-----------------------------------
(xxiii) Absence of Further Requirements................. 14
-------------------------------
(xxiv) Possession of Licenses and Permits.............. 14
----------------------------------
(xxv) Title to Property............................... 15
-----------------
(xxvii) Environmental Laws.............................. 15
------------------
(xxviii) Registration Rights......................... 16
-------------------
(xxix) Filings of Tax Returns.......................... 16
----------------------
(xxx) Maintenance of Internal Controls................ 17
--------------------------------
(xxxi) Maintenance of Insurance........................ 17
------------------------
(xxxii) No Violations of Regulations G, T, U or X 17
-----------------------------------------
(xxxiii) Exchange Agreement.......................... 17
------------------
(xxxiv) Transaction Agreements...................... 17
----------------------
(b) Officer's Certificates................................... 17
<PAGE>
SECTION 2. Sale and Delivery to Underwriters; Closing............... 18
------------------------------------------
(a) Initial Securities....................................... 18
(b) Option Securities........................................ 18
(c) Payment.................................................. 18
(d) Denominations; Registration.............................. 19
(e) Appointment of Qualified Independent Underwriter......... 19
SECTION 3. Covenants of the Company................................. 19
------------------------
(a) Compliance with Securities Regulations and Commission
Requests................................................. 19
(b) Filing of Amendments..................................... 20
(c) Delivery of Registration Statements...................... 20
(d) Delivery of Prospectuses................................. 20
(e) Continued Compliance with Securities Laws................ 20
(f) Blue Sky Qualifications.................................. 21
(g) Rule 158................................................. 21
(h) Use of Proceeds.......................................... 21
(i) Listing.................................................. 21
(j) Restriction on Sale of Securities........................ 21
(k) Reporting Requirements................................... 22
(l) Compliance with NASD Rules............................... 22
(m) Compliance with Rule 463................................. 22
SECTION 4. Payment of Expenses...................................... 22
-------------------
(a) Expenses................................................. 22
(b) Termination of Agreement................................. 23
SECTION 5. Conditions of Underwriters' Obligations.................. 23
---------------------------------------
(a) Effectiveness of Registration Statement.................. 23
(b) Opinion of Counsel for Company........................... 23
(c) Opinion of Counsel for Underwriters...................... 24
(d) Officers' Certificate.................................... 24
(e) Accountant's Comfort Letter.............................. 24
(f) Bring-down Comfort Letter................................ 25
(g) Approval of Listing...................................... 25
(h) No Objection............................................. 25
(i) Lock-up Agreements....................................... 25
(j) Receipt of Waivers....................................... 25
(k) Execution of Exchange Agreement.......................... 25
(l) Execution of Management Subscription Documents........... 25
(m) Execution of Transaction Agreements...................... 25
(p) Additional Documents..................................... 26
(q) Termination of Agreement................................. 27
SECTION 6. Indemnification.......................................... 27
---------------
(a) Indemnification of Underwriters.......................... 27
(b) Indemnification of Company, Directors and Officers....... 28
(c) Actions against Parties; Notification.................... 29
<PAGE>
(d) Settlement without Consent if Failure to Reimburse....... 29
(e) Indemnification for Reserved Securities.................. 30
SECTION 7. Contribution............................................. 30
------------
SECTION 8. Representations, Warranties and Agreements to Survive
------------------------------------------------------
Delivery. 31
--------------------
SECTION 9. Termination of Agreement................................. 32
------------------------
(a) Termination; General..................................... 32
(b) Liabilities.............................................. 32
SECTION 10. Default by One or More of the Underwriters. ............ 32
------------------------------------------
SECTION 11. Notices................................................. 33
-------
SECTION 12. Parties................................................. 33
-------
SECTION 13. GOVERNING LAW AND TIME.................................. 33
----------------------
SECTION 14. Effect of Headings...................................... 34
------------------
SCHEDULE A.......................................................Sch A-1
SCHEDULE B.......................................................Sch B-1
SCHEDULE C.......................................................Sch C-1
Exhibit A............................................................A-1
Exhibit B............................................................B-1
<PAGE>
Draft of January 28, 1997
BRYLANE INC.
(a Delaware corporation)
4,000,000 Shares of Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
------------------
February , 1997
----
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LAZARD FRERES & CO. LLC
J.P. MORGAN SECURITIES INC.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Brylane Inc., a Delaware corporation (the "Company") and Brylane,
L.P., a Delaware limited partnership (the "Partnership"), confirm their
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Lazard Freres & Co. LLC ("Lazard Freres"),
J.P. Morgan Securities Inc. ("JPMSI") are acting as representatives (in such
capacity, the "Representatives"), with respect to the issue and sale by the
Company and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.01 per
share, of the Company ("Common Stock") set forth in said Schedule A, and with
respect to the grant by the Company to the Underwriters, acting severally and
not jointly, of the option described in Section 2(b) hereof to purchase all or
any part of 600,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 4,000,000 shares of Common Stock (the
"Initial Securities") to be purchased by the Underwriters and all or any part
of the 600,000 shares of Common Stock subject to the option described in
Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities".
1
<PAGE>
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company and the Underwriters agree that up to 200,000 shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities")
shall be reserved for sale by the Underwriters to certain eligible employees
and persons having business relationships with the Company, as part of the
distribution of the Securities by the Underwriters, subject to the terms of
this Agreement, the applicable rules, regulations and interpretations of the
National Association of Securities Dealers, Inc. and all other applicable laws,
rules and regulations. To the extent that such Reserved Securities are not
orally confirmed for purchase by such eligible employees and persons having
business relationships with the Company by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to
the public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 33-86154) covering the
registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely
upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term
sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule
424(b). The information included in such prospectus or in such Term Sheet, as
the case may be, that was omitted from such registration statement at the time
it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and schedules thereto at
the time it became effective and including the Rule 430A Information and the
Rule 434 Information, as applicable, is herein called the "Registration
Statement." Any registration statement filed pursuant to Rule 462(b) of the
1933 Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final prospectus in the
form first furnished to the Underwriters for use in connection with the
offering of the Securities is herein called the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the preliminary prospectus
dated January 29, 1997 together with the Term Sheet and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the Prospectus or any Term Sheet or any amendment
or
2
<PAGE>
supplement to any of the foregoing shall be deemed to include the copy filed by
the Company with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
Pursuant to the terms of that certain First Amended and Restated
Incorporation and Exchange Agreement, dated as of December 9, 1996 (the
"Exchange Agreement") among FS Equity Partners II, L.P. ("FSEP II"), FS Equity
Partners III, L.P. ("FSEP III"), FS Equity Partners International, L.P. ("FSEP
Int." and, together with FSEP II and FSEP III, the "FS Entities"), Lane Bryant
Direct Holding, Inc. ("LBDHI"), The Limited Inc. ("The Limited"), WearGuard
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 & Co."), NYNEX Master Trust, a trust governed by the
laws of the State of New York ("NYNEX"), Chadwicks, Inc. (the "TJX
Noteholder"), a wholly-owned subsidiary of the TJX Companies, Inc. ("TJX") and
the Company, prior to the Closing Time (as defined herein), (i) the Company
will issue 8,527,000 shares of its Common Stock in exchange for all the shares
of common stock of VP Holding Corporation, a Delaware corporation ("Holding")
held by the FS Entities; (ii) the Company will issue 5,000,000 shares of its
Common Stock in exchange for all the units of limited partnership interest in
the Partnership held by LBDHI; (iii) the Company will issue 399,778 shares of
its Common Stock in exchange for all the units of limited partnership interest
in the Partnership held by WearGuard; (iv) the Company will issue 500,000
shares of its Common Stock in exchange for all the units of limited partnership
interest in the Partnership held by Leeway & Co.; (v) the Company will issue
500,000 shares of its Common Stock in exchange for all the units of limited
partnership interest in the Partnership held by NYNEX; and (vi) assuming that
the TJX Noteholder does not convert the $20 million aggregate principal amount
of the 6% Convertible Subordinated Note Due 2006 issued by the Partnership in
favor of the TJX Noteholder (the "Partnership Note") into partnership units in
the Partnership, the Company and the Partnership will issue in exchange for the
Partnership Note a substitute Convertible Subordinated Note Due 2006 on
substantially the same terms and conditions as the Partnership Note. Pursuant
to the terms of the Exchange Agreement, in the event that the TJX Noteholder
converts all or a portion of the Partnership Note into partnership units in the
Partnership prior to the offering of the Securities, the Company will issue
shares of Common Stock to the TJX Noteholder in an amount equal to the number
of partnership units acquired pursuant to the conversion. In addition,
pursuant to the terms of the Brylane Inc. 1996 Senior Management Stock
Subscription Plan and the Brylane Inc. 1996 Stock Subscription Plan (the "Stock
Subscription Plans") adopted by the Company, the Company will enter into Stock
Subscription Agreements (the "Stock Subscription Agreements") pursuant to which
it will issue to certain individuals (who include certain members of management
of the Company (collectively, the "Management Investors")) an amount not to
exceed 653,000 shares of the Company's Common Stock in exchange for the
surrender to Holding by such individuals of the shares of Holding common stock
they hold. Pursuant to the Brylane Inc. 1996 Performance Stock Option Plan and
the Brylane Inc. 1996 Stock Option Plan (collectively, the "Stock Option Plans"
and, together with the Stock Subscription Plans and the Stock Subscription
Agreements, the "Management Subscription Documents") to be adopted by the
Company, the Company will issue to certain of the Management Investors options
to purchase an aggregate of 2,479,584 shares of
3
<PAGE>
the Company's Common Stock in exchange for the surrender to the Partnership by
such individual of the options to purchase units of limited partnership
interest in the Partnership they hold.
Upon consummation of the foregoing transactions, (i) the General Partner
will own all the general partnership interests in the Partnership, (ii) VLP
Corporation, a Delaware corporation ("VLP") will own all the limited
partnership interests in the Partnership, (iii) Holding will own all the equity
of the General Partner and VLP, and (iv) the Company will own all the equity of
Holding. In addition, upon consummation of the offering of the Securities, the
parties to the Exchange Agreement will enter into a Registration Rights
Agreement (the "Registration Rights Agreement") and a Stockholders Agreement
(the "Stockholders Agreement") (copies of which are exhibits to the Exchange
Agreement) and will amend and restate the Agreement of Limited Partnership of
the Partnership dated as of August 30, 1993, as amended to date (the "Restated
Partnership Agreement"). The parties to the Exchange Agreement previously have
effected certain amendments to the Agreement of Limited Partnership of the
Partnership dated as of August 30, 1993, which amendments consist of Amendment
No. 1 dated November 22, 1993, Amendment No. 2 thereto dated January 28, 1994,
Amendment No. 3 thereto dated March 16, 1994, Amendment No. 4 thereto dated
October 14, 1994, Amendment No. 5 thereto dated September 22, 1995, Amendment
No. 6 thereto dated October 16, 1995, Amendment No. 7 thereto dated as of
October 14, 1996 and Amendment No. 8 thereto dated as of December 5, 1996 (as
so amended, the "Partnership Agreement").
On October 19, 1996, the Partnership entered into that certain
Asset Purchase Agreement with TJX and the TJX Noteholder, as amended by
Amendment No. 1 thereto dated as of December 9, 1996 (as amended, the "Asset
Purchase Agreement"). Pursuant to the Asset Purchase Agreement, the
Partnership purchased the assets (the "Chadwick's Acquisition") (excluding
substantially all of the accounts receivable) of the TJX Noteholder used in the
Chadwick's of Boston catalog business ("Chadwick's"), for an aggregate purchase
price of $242.8 million (subject to certain post-closing adjustments).
Concurrently with the Chadwick's Acquisition, the Partnership entered into: (i)
an asset purchase agreement with CDM Corp. (the "CDM Agreement"), (ii) an
agreement and license of trademarks agreement with TJX, the TJX Noteholder, and
CDM Corp. (the "CDM Trademark Agreement"), and (iii) a Trademark License
Agreement with TJX (the "TJX Trademark Agreement"), pursuant to which the
Partnership purchased or licensed certain trademarks and tradenames previously
used by Chadwick's. In addition, the Partnership entered into with TJX: (i) a
services agreement (the "Services Agreement") pursuant to which TJX agreed to
provide services relating to Chadwick's for approximately one year, and (ii) an
inventory purchase agreement (the "Inventory Agreement") pursuant to which TJX
agreed to purchase certain excess inventory of Chadwick's through January 29,
2000. In connection with the Chadwick's Acquisition, the Partnership entered
into a Credit Facility (the "Bank Credit Facility") with Morgan Guaranty Trust
Company of New York, as administrative agent, Merrill Lynch Capital
Corporation, as documentation agent, and certain lenders named therein which
consists of: (i) a $213 million five-year term loan, (ii) a $70 million
six-year and one-quarter term loan, and (iii) a $125 million five-year
revolving credit facility with a $75 million sublimit for letters of credit.
4
<PAGE>
The Asset Purchase Agreement, the CDM Agreement, the CDM Trademark
Agreement, the TJX Trademark Agreement, the Services Agreement, the Inventory
Agreement, and the Bank Credit Facility (including the agreements creating
security interests in the assets of the Partnership for the benefit of the
holders of indebtedness arising thereunder) are sometimes referred to in this
Agreement, individually, as a "Transaction Agreement" and, collectively, as the
"Transaction Agreements."
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company and the
Partnership jointly and severally represent and warrant to each Underwriter as
of the date hereof, as of the Closing Time referred to in Section 2(c) hereof,
and as of each Date of Delivery (if any) referred to in Section 2(b) hereof,
and agrees with each Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and did not and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. Neither the Prospectus nor any
amendments or supplements thereto (including any prospectus wrapper), at
the time the Prospectus or any such amendment or supplement was issued
and at the Closing Time (and, if any Option Securities are purchased, at
the Date of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration Statement at
the time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.
5
<PAGE>
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when
so filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed by the Company with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(ii) Independent Accountants. The accountants who certified
-----------------------
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The historical financial
--------------------
statements with respect to the Partnership and its predecessor (the
"Predecessor") included in the Registration Statement and the Prospectus
present fairly the financial position of the Partnership and its
subsidiaries and the combined financial statements of the Predecessor as
at the dates indicated and the results of their operations and cash flow
for the periods specified, except as otherwise stated in the Registration
Statement; the historical financial statements with respect to Chadwick's
included in the Registration Statement and the Prospectus, together with
the related schedules and notes, present fairly the financial position of
Chadwick's at the dates indicated and the statement of operations,
stockholders' equity and cash flows of Chadwick's for the periods
specified, except as otherwise stated in the Registration Statement; the
historical financial statements with respect to WearGuard included in the
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of WearGuard
at the dates indicated and the statement of operations, stockholders'
equity and cash flows of WearGuard for the periods specified, except as
otherwise stated in the Registration Statement; all said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved in all material respects. The supporting schedules
to the historical financial statements included in the Registration
Statement present fairly in accordance with GAAP the information required
to be stated therein. The selected financial data and the summary
financial information included in the Prospectus present fairly the
information shown therein and have been compiled on a basis consistent
with that of the audited financial statements included in the
Registration Statement. The pro forma financial statements and other pro
forma financial information and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements and
have been properly compiled on the bases described therein, and, in the
opinion of each of the Company and the Partnership, the assumptions used
in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.
6
<PAGE>
(iv) No Material Adverse Change in Business. Since the
--------------------------------------
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company, the Partnership and their subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect"), (B) there have been no transactions entered
into by the Company, the Partnership or any of their subsidiaries, other
than those in the ordinary course of business, which are material with
respect to the Company, the Partnership and their subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company or Holding on any class of
its capital stock and except for distributions in respect of accrued tax
liabilities of the partners determined pursuant to the terms of the
Partnership Agreement, there has been no distribution of any kind
declared, paid or made by the Partnership on any of its partnership
interests.
(v) Good Standing of the Company, Holding, the General Partner,
------------------------------------------------------------
VLP and the Partnership. (A) Each of the Company, Holding, VGP
-----------------------
Corporation, a Delaware corporation (the "General Partner") and VLP has
been duly organized and is validly existing as a corporation in good
standing under the laws of the State of Delaware and has corporate power
and authority to own, lease and operate their respective properties and to
conduct their respective businesses as described in the Prospectus and to
enter into and perform their respective obligations under this Agreement;
and each of the Company, Holding, the General Partner and VLP is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(B) The Partnership has been duly organized and is validly
existing as a limited partnership under the laws of the State of Delaware
with the partnership power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under this Agreement; for
United States Federal income tax purposes, the Partnership has been and
is currently classified as a partnership, and not as an association
taxable as a corporation; and the Partnership is duly qualified as a
foreign partnership to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership of leasing of property or the conduct of such business,
except where the failure to so qualify would not have a Material Adverse
Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the
-----------------------------
Partnership has been duly organized and is validly existing as a
corporation or partnership, as the case may be, in good standing under
the laws of the jurisdiction of its organization, has the corporate or
partnership power and authority to own, lease and operate its properties
and
7
<PAGE>
to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation or partnership, as the case may be, to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a Material
Adverse Effect. Except as otherwise disclosed in the Registration
Statement, (x) all of the issued and outstanding capital stock of each
subsidiary of Holding and the Partnership that is a corporation
(including without limitation the General Partner and VLP) has been duly
authorized and validly issued, is fully paid and non-assessable and was
not issued in violation of any preemptive rights arising from operation
of law, under the Partnership Agreement, the charter or by-law of each
such subsidiary or under any agreement to which the Company, Holding, the
Partnership or any such subsidiary is a party, (y) all of the issued and
outstanding partnership interests in each such subsidiary of Holding and
the Partnership that is a partnership (including without limitation the
Partnership) have been duly authorized and validly issued and, for United
States Federal income tax purposes, each subsidiary of the Company that
is a partnership has been and is currently classified as a partnership,
and not as an association taxable as a corporation, and (z) other than
such partnership interests owned by the FS Entities, LBDHI, WearGuard,
Leeway & Co. and NYNEX as described in the Prospectus, prior to the
Closing Time all such capital stock (other than the capital stock of
Holding) and partnership interests of such subsidiaries shall be owned by
Holding, and at the Closing Time, other than such capital stock owned by
the FS Entities, LBDHI, WearGuard, Leeway & Co. and NYNEX as described in
the Prospectus, all such capital stock and partnership interests shall be
owned by the Company, in each case directly or through subsidiaries, free
and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity, except as described in the Prospectus and except for
restrictions on transfer imposed under federal or state securities law.
The only subsidiaries of the Company are (a) the subsidiaries listed on
Exhibit 21.1 to the Registration Statement and (b) certain other
subsidiaries which, considered in the aggregate as a single subsidiary,
do not constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X.
(vii) Capitalization of Holding. All of the issued and
-------------------------
outstanding capital stock of Holding has been duly authorized and validly
issued and is fully paid and non-assessable and was not issued in
violation of any preemptive right arising by operation of law, under the
charter or by-laws or any document or under any agreement to which the
Company, Holding or the Partnership is a party; at the Closing Time, all
such capital stock shall be owned by the Company directly, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity, except as described in the Prospectus and except for restrictions
on transfer imposed under federal or state securities law.
(viii)Securities Ownership of Partnership. At the Closing
-----------------------------------
Time, the Partnership will not hold or beneficially own any securities
(stock, debt, general or limited partnership interests, or other forms of
ownership) in any corporation, partnership or
8
<PAGE>
other association except for its ownership of all the outstanding capital
stock or partnership interests in its subsidiaries.
(ix) Authorization of Exchange Agreement. The Company and, to
-----------------------------------
the best knowledge of the Company and the Partnership, the other parties
thereto each have the requisite corporate power and authority to execute,
deliver and perform their respective obligations under the Exchange
Agreement; the Exchange Agreement (A) will be substantially in the form
heretofore delivered to the Representatives, (B) has been duly and
validly authorized, executed and delivered by all the parties thereto and
creates valid and binding obligations of the Company and, to the best
knowledge of the Company and the Partnership, the other parties thereto
and (C) is enforceable against the Company and, to the best knowledge of
the Company and the Partnership, the other parties thereto in accordance
with its terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium, reorganization, or other similar laws affecting
creditors' rights generally or by general principals of equity
(regardless of whether such enforcement is considered in a proceeding in
equity or at law). The terms of the Exchange Agreement conform in all
material respects to the description thereof contained in the Prospectus.
(x) Authorization of Management Subscription Documents. The
--------------------------------------------------
Company and, to the best knowledge of the Company and the Partnership,
the other parties thereto, have the requisite corporate power and
authority to execute, deliver and perform their respective obligations
under the Management Subscription Documents; the Management Subscription
Documents (A) will be substantially in the form heretofore delivered to
the Representatives, (B) have been duly and validly authorized, and, at
the Closing Time, will be duly and validly executed and delivered by the
Company and will create valid and binding obligations of the Company and,
to the best knowledge of the Company and the Partnership, the other
parties thereto and (C) will be enforceable against the Company and, to
the best knowledge of the Company and the Partnership, the other parties
thereto in accordance with their terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization, or other
similar laws affecting creditors' rights generally or by general
principals of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law). The terms of the
Management Subscription Documents conform in all material respects to the
descriptions thereof contained in the Prospectus.
(xi) Authorization of the Transaction Agreements. (A)
-------------------------------------------
The Partnership and, to the best knowledge of the Company and the
Partnership, the other parties thereto, each have the requisite corporate
or partnership power and authority to execute, deliver and perform their
respective obligations under the Transaction Agreements; each of the
Transaction Agreements (A) will be substantially in the form heretofore
delivered to the Representatives, (B) has been duly and validly
authorized, executed and delivered by all the parties thereto and creates
valid and binding obligations of the Partnership and, to the best
knowledge of the Company and the Partnership, the other parties thereto,
and (C) is enforceable against the Partnership and, to the best knowledge
of the Company and the
9
<PAGE>
Partnership, the other parties thereto, in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting creditors'
rights generally or by general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity). The
terms of the Transaction Agreements and the Chadwick's Acquisition
conform in all material respects to the description thereof contained in
the Prospectus.
(xii) Authorization of Registration Rights Agreement. The
----------------------------------------------
Company and, to the best knowledge of the Company and the Partnership,
the other parties thereto each have the requisite power and authority to
execute, deliver and perform their respective obligations under the
Registration Rights Agreement; the Registration Rights Agreement (A) will
be substantially in the form heretofore delivered to the Representatives,
(B) has been duly and validly authorized, and, at the Closing Time, will
be duly and validly executed and delivered by all the parties thereto and
will create valid and binding obligations of the Company and, to the best
knowledge of the Company and the Partnership, the other parties thereto
and (C) will be enforceable against the Company and, to the best
knowledge of the Company and the Partnership, the other parties thereto
in accordance with its terms, except as such enforcement may be limited
by bankruptcy, insolvency, moratorium, reorganization, or other similar
laws affecting creditors' rights generally or by general principals of
equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law). The terms of the Registration Rights
Agreement conform in all material respects to the description thereof
contained in the Prospectus.
(xiii)Authorization of Stockholders Agreement. The Company
---------------------------------------
and, to the best knowledge of the Company and the Partnership, the other
parties thereto, each have the requisite corporate power and authority to
execute, deliver and perform their respective obligations under the
Stockholders Agreement; the Stockholders Agreement (A) will be
substantially in the form heretofore delivered to the Representatives,
(B) has been duly and validly authorized, and. at the Closing Time, will
be duly and validly executed and delivered by the Company and will create
valid and binding obligations of the Company and, to the best knowledge
of the Company and the Partnership, the other parties thereto and (C)
will be enforceable against the Company and, to the best knowledge of the
Company and the Partnership, the other parties thereto in accordance with
its terms, except as such enforcement may be limited by bankruptcy,
insolvency, moratorium, reorganization, or other similar laws affecting
creditors' rights generally or by general principals of equity
(regardless of whether such enforcement is considered in a proceeding in
equity or at law). The terms of the Stockholders Agreement conform in
all material respects to the description thereof contained in the
Prospectus.
(xiv) Restated Partnership Agreement. The Company and, to the
------------------------------
best knowledge of the Company and the Partnership, the other parties
thereto, each have the requisite corporate power and authority to
execute, deliver and perform their respective obligations under the
Restated Partnership Agreement; the Restated Partnership Agreement (A)
will be substantially in the form heretofore delivered to the
Representatives, (B) has been duly
10
<PAGE>
and validly authorized and, at the Closing Time will be duly and validly
executed and delivered by the Company and will create valid and binding
obligations of the Company and, to the best knowledge of the Company and
the Partnership, the other parties thereto, and (C) will be enforceable
against the Company and, to the best knowledge of the Company and the
Partnership, the other parties thereto in accordance with its terms,
except as such enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting creditors'
rights generally or by general principals of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at
law). The terms of the Partnership Agreement, as amended, conform in all
material respects to the description thereof contained in the Prospectus.
(xv) Capitalization of the Partnership and the Company. The
-------------------------------------------------
Partnership had, at the date indicated in the Prospectus a duly
authorized and outstanding capitalization as set forth in the Prospectus
in the column entitled "The Partnership Historical" under the caption
"Capitalization;" at the Closing Time, the issued and outstanding capital
stock of the Company (including for this purpose the Initial Securities)
will be as described in the Prospectus under the caption "The
Incorporation Plan;" and at the Closing Time, there will also be
outstanding options to purchase an additional [ ] shares of Common
Stock, which will be held as described in the Prospectus.
(xvi) Authorization of Agreement. This Agreement has been duly
--------------------------
authorized, executed and delivered by each of the Company and the
Partnership.
(xvii)Authorization and Description of Securities. The
-------------------------------------------
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid and
non-assessable; the other shares of Common Stock that will be issued at
the Closing Time as contemplated in the Exchange Agreement and the
Management Subscription Documents have been duly authorized for issuance
and, when issued and delivered by the Company in the manner contemplated
in the Exchange Agreement or the Management Subscription Documents, as
the case may be, against payment of the consideration therefor, will be
validly issued and fully paid and non-assessable; the Common Stock
conforms to all statements relating thereto contained in the Prospectus
and such description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights
of any securityholder of the Company.
(xviii)Absence of Defaults and Conflicts. None of the Company,
---------------------------------
Holding, the Partnership or any of their subsidiaries is in violation of
its charter or by-laws or other organizational document or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in the Bank Credit Facility or in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease
or
11
<PAGE>
other agreement or instrument to which the Company, Holding, the
Partnership or any of their subsidiaries is a party or by which it or any
of them may be bound, or to which any of the property or assets of the
Company, Holding, the Partnership or any of their subsidiaries is subject
(collectively, "Agreements and Instruments") except for such violations
or defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement, the Exchange
Agreement, the Management Subscription Documents, the Restated
Partnership Agreement, the Registration Rights Agreement, the
Stockholders Agreement and the Transaction Agreements and the
consummation of the transactions contemplated herein and therein and in
the Registration Statement (including, but not limited to, the issuance
and sale of the Securities and the use of the proceeds from the sale of
the Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company, Holding, the Partnership and
their subsidiaries with their respective obligations hereunder have been
duly authorized by all necessary corporate action or partnership action,
as the case may be, and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute
a breach of, or default or, except with respect to that portion of the
Bank Credit Facility that is required to be repaid in connection with the
issuance and sale of the Securities, a Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or
encumbrance ("Lien") upon any property or assets of the Company, Holding,
the Partnership or any of their subsidiaries pursuant to the Agreements
and Instruments (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not result in a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws or other organizational document of
the Company, Holding, the Partnership or any of their subsidiaries or,
except for violations that would not result in a Material Adverse Effect,
any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company, Holding, the
Partnership or any of their subsidiaries or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company, Holding, the Partnership or
any of their subsidiaries.
(xix) Absence of Labor Dispute. No labor dispute with the
------------------------
employees of the Company, Holding, the Partnership or any of their
subsidiaries exists or, to the knowledge of the Company or the
Partnership, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in either case and in any circumstance contemplated
by this clause (xix), may reasonably be expected to result in a Material
Adverse Effect.
12
<PAGE>
(xx) Absence of Proceedings. There is no action, suit,
----------------------
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company or the Partnership, threatened, against or
affecting the Company, Holding, the Partnership or any of their
subsidiaries, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably be
expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of the transactions contemplated in
this Agreement, the Transaction Agreements, the Exchange Agreement, the
Restated Partnership Agreement, the Registration Rights Agreement, the
Stockholders Agreement or the Management Subscription Documents or the
performance by the Company, the General Partner, VLP or the Partnership,
as the case may be, of their respective obligations hereunder or
thereunder; the aggregate of all pending legal or governmental
proceedings to which the Company, Holding, the Partnership or any of
their subsidiaries is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation incidental
to the business, could not reasonably be expected to result in a Material
Adverse Effect.
(xxi) Accuracy of Exhibits. There are no contracts or
--------------------
documents of the Company, Holding, the Partnership or any of their
subsidiaries which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which have
not been so described and filed as required.
(xxii)Possession of Intellectual Property. The Company,
-----------------------------------
Holding, the Partnership and their subsidiaries own or possess or have
the right to use, or can acquire or acquire the right to use on
reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") necessary to carry on
the business now operated by them, except where the failure to own,
possess or have the right to use or to have the ability to acquire or to
acquire the right to use any such intellectual property would not have a
Material Adverse Effect and neither the Company, Holding, the Partnership
nor any of their subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company, Holding, the
Partnership or any of their subsidiaries therein, and which infringement
or conflict (if the subject of any unfavorable decision, ruling or
finding) or invalidity or inadequacy, singly or in the aggregate, would
result in a Material Adverse Effect. The continued use of the trademarks
(the "Trademarks") transferred or licensed to the Partnership pursuant to
the Trademark Agreement, the CDM Agreement, the CDM Trademark Agreement,
the TJX Trademark Agreement, and the License Agreement with Sears Shop at
Home Services, Inc. which enables the
13
<PAGE>
Company to market its catalogs under the Sears name to Sears Roebuck &
Co. customers (the "Sears Agreement") (as such Trademarks have heretofore
been used by the business and as currently planned by the Company and the
Partnership) will not result in any infringement of the rights of others
in the United States, and the Company and the Partnership have no
knowledge of any such claim as to the Trademarks transferred or licensed
to the Partnership pursuant to the Trademark Agreement, the CDM
Agreement, the CDM Trademark Agreement, the TJX Trademark Agreement, or
the Sears Agreement registered in any foreign countries. As of the date
hereof, to the best of the knowledge of the Company and the Partnership,
(x) affiliates of The Limited are the sole and legal owners of such
Trademarks transferred or licensed to the Partnership pursuant to the
Trademark Agreement in the United States, (y) affiliates of Sears are the
sole and legal owners of such Trademarks licensed to the Partnership
pursuant to the Sears Agreement in the United States, and (z) affiliates
of TJX are the sole and legal owners of such Trademarks transferred or
licensed to the Partnership pursuant to the CDM Agreement, the CDM
Trademark Agreement and the TJX Trademark Agreement, and, as of the date
hereof, the Company and the Partnership have no knowledge of any claim by
any other person that such other person is the legal owner of the
Trademarks and to the best knowledge of the Company and the Partnership,
affiliates of The Limited, TJX or Sears, as the case may be, have not
granted any license or right to any other person to use any Trademarks in
connection with a mail-order catalog business for women's and men's
special size apparel, off-price women's apparel, moderately priced
fashion apparel and related accessories.
(xxiii)Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required in connection with the transactions contemplated
by (i) the Exchange Agreement, (ii) the Management Subscription
Documents, (iii) the Transaction Agreements, (iv) the Restated
Partnership Agreement, (v) the Registration Rights Agreement, (vi) the
Stockholders Agreement, (vii) the offering, issuance or sale of the
Securities hereunder or (viii) the consummation of the transactions
contemplated by this Agreement, except (x) such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws, (y) such as have been obtained or
may be required under the laws and regulations of jurisdictions outside
the United States in which the Reserved Securities are offered or (z)
those that if not obtained would not reasonably be expected to result in
a Material Adverse Effect. The applicable waiting period as a result of
any filings made by any of the Company, The Limited, any of the FS
Entities or any of their respective affiliates pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to the
formation of the Company or the transaction contemplated by the Exchange
Agreement has expired or has been the subject of early termination.
(xxiv)Possession of Licenses and Permits. The Company,
----------------------------------
Holding, the Partnership and their subsidiaries possess such permits,
licenses, approvals, consents, certificates and other authorizations
(collectively, "Governmental Licenses") issued by
14
<PAGE>
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to own or possess such licenses, certificates,
authorities or permits would not have a Material Adverse Effect; the
Company, Holding, the Partnership and their subsidiaries are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and none of the Company, Holding, the
Partnership nor any of their subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(xxv) Title to Property. The Company, Holding, the Partnership
-----------------
and their subsidiaries have good and marketable title to all real
property owned by the Company, Holding, the Partnership and their
subsidiaries, as applicable, and good title to all other properties owned
by them, in each case, free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any kind,
except such as (a) are described in the Prospectus or (b) do not, singly
or in the aggregate, materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property
by the Company, Holding, the Partnership or any of their subsidiaries;
and all of the leases and subleases material to the business of the
Company, Holding, the Partnership and any of their subsidiaries,
considered as one enterprise, and under which the Company, Holding, the
Partnership or any of their subsidiaries holds properties described in
the Prospectus, are in full force and effect, and, except as would not,
singly or in the aggregate, result in a Material Adverse Effect, neither
the Company, Holding, the Partnership nor any of their subsidiaries has
any notice of any claim of any sort that has been asserted by anyone
adverse to the rights of the Company, Holding, the Partnership or any of
their subsidiaries under any of the leases or subleases mentioned above,
or affecting or questioning the rights of the Company, Holding, the
Partnership or any of their subsidiaries to the continued possession of
the leased or subleased premises under any such lease or sublease.
(xxvi)Investment Company Act. None of the Company, Holding,
----------------------
the General Partner, VLP or the Partnership is, and upon the issuance and
sale of the Securities as herein contemplated and the application of the
net proceeds therefrom as described in the Prospectus will be, an
"investment company" or an entity "controlled" by an "investment company"
as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
(xxvii) Environmental Laws. Except as described in the
------------------
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) none of the Company,
Holding, the Partnership and their subsidiaries are in violation
15
<PAGE>
of any federal, state, local or foreign statute, law, rule, regulation,
ordinance, code or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of human
health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating to
the release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "Environmental Laws"), (B)
the Company, Holding, the Partnership and their subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or, to the best knowledge of the Company and the
Partnership, threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigation or proceedings relating to any Environmental
Law against the Company, Holding, the Partnership or any of their
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company, Holding,
the Partnership or any of their subsidiaries relating to Hazardous
Materials or any Environmental Laws.
(xxviii)Registration Rights. There are no persons with
-------------------
registration rights or other similar rights, other than disclosed in the
Registration Statement, to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(xxix) Filings of Tax Returns. The Company, Holding, the
----------------------
Partnership and their subsidiaries have duly and properly filed, or will
duly and properly file, on a timely basis, all tax returns (including,
without limitation, Federal, state, local and foreign returns) which were
or will be required to be filed by them for all periods ending on or
before the Closing Time or including the Closing Time. All such tax
returns and amendments thereto filed on or after August 30, 1993 and, to
the knowledge of the Company, Holding, the General partner, VLP and the
Partnership, all such tax returns filed before August 30, 1993 are (or
will be) true, correct and complete in all material respects when filed,
and all taxes (including, without limitation, withholding taxes,
penalties and interest) due and payable by the Company and its
subsidiaries have been (or will be) paid, other than those being
contested in good faith and for which an adequate reserve or accrual has
been established in accordance with generally accepted accounting
principles. Neither the Company nor the Partnership is aware of any
audit by a tax authority that is pending or threatened with respect to
any such tax returns that would, singly or in the aggregate, result in a
Material Adverse Effect. No material deficiency or adjustment for any
taxes has been threatened, proprosed, asserted or assessed against
16
<PAGE>
the Company, Holding, the Partnership or their subsidiaries. There are no
tax liens upon any of the properties or assets, real or personal,
tangible or intangible, of the Company, Holding, the Partnership or any
of their subsidiaries, except for statutory liens for taxes not yet due
or delinquent.
(xxx) Maintenance of Internal Controls. The Company and its
--------------------------------
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (C)
access to assets is permitted only in accordance with management's
generally or specific authorization, and (D) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xxxi) Maintenance of Insurance. The Company and its
------------------------
subsidiaries maintain insurance of the types of and in the amounts that
are reasonable for the business conducted by them.
(xxxii) No Violations of Regulations G, T, U or X. Neither the
-----------------------------------------
issuance, sale or delivery of the Securities nor the application of the
proceeds thereof by any of the Company, Holding, the General Partner, VLP
or the Partnership as set forth in the Prospectus will violate
Regulations G, T, U, or X of the Boards of Governors of the Federal
Reserve System or any other regulation of such Board of Governors.
(xxxiii)Exchange Agreement. Each of the parties to the
------------------
Exchange Agreement has performed or will perform all of such party's
obligations under the Exchange Agreement required to be performed on or
prior to the date hereof.
(xxxiv)Transaction Agreements. Each of the parties to each of
----------------------
the Transaction Agreements has performed or will perform all of such
party's obligations under each Transaction Agreement required to be
performed on or prior to the date hereof.
(xxxv) Partnership Agreement. The Partnership Agreement is
---------------------
currently in full force and effect, and each of the parties thereto has
performed all of such party's obligations under the Partnership Agreement
required to be performed on or prior to the date hereof.
(b) Officer's Certificates. Any certificate signed by any officer of
the Company, Holding, the General Partner, VLP or the Partnership or any of
their subsidiaries delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the applicable
entity to each Underwriter as to the matters covered thereby.
17
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SECTION 2. Sale and Delivery to Underwriters; Closing.
------------------------------------------
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
600,000 shares of Common Stock at the price per share set forth in Schedule B,
less an amount per share equal to any dividends or distributions declared by
the Company and payable on the Initial Securities but not payable on the Option
Securities. The option hereby granted will expire 30 days after the date
hereof and may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon [written] notice by
the Representatives to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery (a "Date of Delivery") shall be determined by
the Representatives, but shall not be later than seven full business days after
the exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined, unless otherwise agreed by the Company and the
Representatives. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of Option Securities then
being purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities, subject in each case to such adjustments as the Representatives in
their discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, NY 10022,
or at such other place as shall be agreed upon by the Representatives and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Eastern time) on any given day) business day after the
date hereof (unless postponed in accordance with the provisions of Section 10),
or such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Company (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option
18
<PAGE>
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Representatives and the Company, on each Date of
Delivery as specified in the written notice from the Representatives to the
Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery
to the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Representatives may request in writing at
least one full business day before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representatives in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
(e) Appointment of Qualified Independent Underwriter. The Company
hereby confirms its engagement of Lazard Freres as, and Lazard Freres hereby
confirms its agreement with the Company to render services as, a "qualified
independent underwriter" within the meaning of Rule 2720 of the Conduct Rules
of the National Association of Securities Dealers, Inc. with respect to the
offering and sale of the Securities. Lazard Freres, solely in its capacity as
qualified independent underwriter and not otherwise, is referred to herein as
the "Independent Underwriter".
SECTION 3. Covenants of the Company. The Company covenants with
------------------------
each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been filed,
(ii) of the receipt of any comments from the Commission, (iii) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
19
<PAGE>
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect any filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either the prospectus included in the
Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representatives, without charge, a
conformed copy of the Registration Statement as originally filed and of each
amendment thereto (without exhibits) for each of the Underwriters. The copies
of the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed by the Company with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed by the Company with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion
of the distribution of the Securities as contemplated in this Agreement and in
the Prospectus. If at any time when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the Securities,
20
<PAGE>
any event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the Underwriters or for the Company,
to amend the Registration Statement or amend or supplement the Prospectus in
order that the Prospectus will not include any untrue statements of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the time
it is delivered to a purchaser, or if it shall be necessary, in the opinion of
such counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements, and the
Company will furnish to the Underwriters such number of copies of such
amendment or supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representatives may designate and to
maintain such qualifications in effect for a period of not less than one year
from the later of the effective date of the Registration Statement and any Rule
462(b) Registration Statement; provided, however, that the Company shall not,
as a consequence thereof, be obligated to file any general consent to service
of process or to qualify as a foreign corporation or as a dealer in securities
in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is not
otherwise so subject. In each jurisdiction in which the Securities have been
so qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".
(i) Listing. The Company will use its best efforts to effect the
listing of the Common Stock (including the Securities) on the New York Stock
Exchange.
(j) Restriction on Sale of Securities. During a period of 180 days
from the date of this Agreement, the Company will not, without the prior
written consent of Merrill Lynch, on behalf of the Representatives, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or
21
<PAGE>
any securities convertible into or exercisable or exchangeable for Common Stock
or file any registration statement under the 1933 Act with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder, (B) any
shares of Common Stock issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectus, (C) any shares of Common Stock issued or options
to purchase Common Stock granted pursuant to existing employee benefit plans of
the Company referred to in the Prospectus or (D) any shares of Common Stock
issued pursuant to any non-employee director stock plan or dividend
reinvestment plan.
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
use its best efforts to file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by the
1934 Act and the rules and regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it will
use its best efforts to ensure that the Reserved Securities will be restricted
as required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of this
Agreement. The Underwriters will notify the Company as to which persons will
need to be so restricted. At the request of the Underwriters, the Company will
direct the transfer agent to place a stop transfer restriction upon such
securities for such period of time. Should the Company release, or seek to
release, from such restrictions any of such Reserved Securities, the Company
agrees to reimburse the Underwriters for any reasonable expenses (including,
without limitation, legal expenses) they incur in connection with such release.
(m) Compliance with Rule 463. The Company will file with the
Commission such reports on Form SR as may be required pursuant to Rule 463 of
the 1933 Act Regulations.
SECTION 4. Payment of Expenses. (a)Expenses. The Company will pay
-------------------
all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation and
delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale, issuance or delivery of the Securities, (iii) the
preparation, issuance and delivery of the certificates for the Securities to
the Underwriters, including any stock or other transfer taxes and any stamp or
other duties payable upon the sale, issuance or delivery of the Securities to
the Underwriters, (iv) the fees and disbursements of the Company's counsel and
accountants, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees
and the reasonable fees and disbursements of counsel for the Underwriters in
connection
22
<PAGE>
therewith and in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriters of
copies of each preliminary prospectus, any Term Sheets and of the Prospectus
and any amendments or supplements thereto, (vii) the preparation, printing and
delivery to the Underwriters of copies of the Blue Sky Survey and any
supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities, (x) the fees and expenses
incurred in connection with the listing of the Securities on the New York Stock
Exchange and (xi) all costs and expenses of the Underwriters, including the
fees and disbursements of counsel for the Underwriters, in connection with
matters related to the Reserved Securities which are designated by the Company
for sale to employees and others having a business relationship with the
Company.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations
---------------------------------------
of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule
434, a Term Sheet shall have been filed with the Commission in accordance with
Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Riordan & McKinzie, counsel for the Company, in form and substance
satisfactory to counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters to the effect set forth
in Exhibit A hereto and to such further effect as counsel to the Underwriters
may reasonably request. In giving such opinion such counsel may rely, as to all
matters governed
23
<PAGE>
by the laws of jurisdictions other than the law of the State of California, the
federal law of the United States and the General Corporation Law of the State
of Delaware, upon the opinions of counsel satisfactory to the counsel for the
Underwriters. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii) (solely
as to the Purchase Agreement), (ix), (x) (solely as to preemptive or other
similar rights arising by operation of law or under the charter or by-laws of
the Company), (xii) (solely as to the Purchase Agreement), (xiii), (xiv), (xvi),
(xviii) (solely as to the information in the Prospectus under "Description of
Capital Stock--Common Stock") and (xxvi) of Exhibit A hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Representatives. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company, the Partnership and their subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, and
the Representatives shall have received a certificate of the President and the
chief financial officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct with
the same force and effect as though expressly made at and as of Closing Time,
except to the extent that such representation or warranty is expressly stated
as of an earlier time, (iii) the Company, Holding, and the Partnership have
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or, to the
best of their respective knowledge, are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Coopers & Lybrand a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial
24
<PAGE>
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(f) Bring-down Comfort Letter. At the Closing Time, the
Representatives shall have received from Coopers & Lybrand a letter,
dated as of the Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (e) of this Section, except
that the specified date referred to shall be a date not more than three
business days prior to Closing Time.
(g) Approval of Listing. At the Closing Time, the Securities shall
have been approved for listing on the New York Stock Exchange, subject only to
official notice of issuance.
(h) No Objection. At the Closing Time, the NASD shall have confirmed
that it has not raised any objection with respect to the fairness and
reasonableness of the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit B hereto signed by each of the persons and entities listed on Schedule
C hereto.
(j) Receipt of Waivers. At the Closing Time the Representatives shall
have received (i) evidence of waiver by the TJX Noteholder of its right to
convert the Partnership Note into partnership units of the Partnership and (ii)
evidence of the waiver by the holders of the Company's Series A Preferred Stock
of their right to convert their shares of Series A Preferred Stock of the
Company into shares of Common Stock of the Company, and (iv) evidence of the
termination of the waiting period under the HSR Act.
(k) Execution of Exchange Agreement. Each of the parties to the
Exchange Agreement has performed all of such party's obligations under the
Exchange Agreement required to be performed on or prior to the Closing Time.
(l) Execution of Management Subscription Documents. Each of the
parties to each of the Management Subscription Documents has performed all of
such party's obligation under each of such Management Subscription Documents
required to be performed on or prior to the Closing Time.
(m) Execution of Transaction Agreements. Each of the parties to each
of the Transaction Agreements has performed all of such party's obligations
under each of such Transaction Agreements required to be performed on or prior
to the Closing Time.
(n) Execution of Restated Partnership Agreement, Registration Rights
Agreement and Stockholders Agreement. The Company and the Partnership, and to
the best knowledge of the Company and the Partnership, each of the other
parties to each of the Restated Partnership Agreement, the Registration Rights
Agreements and the Stockholders Agreement has duly and
25
<PAGE>
validly authorized, executed and delivered each of such agreements and has
performed all of such parties obligations under each of the such agreements
required to be performed on or prior to the Closing Time.
(o) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates
furnished by the Company or any subsidiary of the Company hereunder shall be
true and correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President of the Company and of the chief financial
officer of the Company confirming that the certificate delivered at the
Closing Time pursuant to Section 5(d) hereof remains true and correct as
of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Riordan & McKinzie, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, dated such Date
of Delivery, relating to the Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
-----------------------------------
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Coopers &
Lybrand, in form and substance satisfactory to the Representatives
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representatives pursuant to
Section 5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(p) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the
Representatives and counsel for the Underwriters.
26
<PAGE>
(q) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by written notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party
to any other party except as provided in Section 4 and except that Sections 1,
6, 7 and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriters. (1) Each of the Company and the
Partnership agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the Rule 430A Information
and the Rule 434 Information, if applicable, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of
any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission; provided that (subject to
Section 6(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the nature referred to in Section 6(a)(1)(ii)(A) hereof, to the extent
that any such expense is not paid under (i) or (ii) above;
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provided, however, that this indemnity agreement shall not apply to any
-------
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) and,
provided, further, that the Company will not be liable to an
-------
Underwriter with respect to any Preliminary Prospectus to the extent that such
loss, liability, claim, damage or expense resulted from the fact that such
Underwriter, in contravention of this Agreement or applicable law, sold
Securities to a person to whom such Underwriter failed to send or give, at or
prior to the Closing Date, a copy of the Prospectus as then amended and
supplemented if (i) the Company has previously furnished copies thereof
(sufficiently in advance of the Closing Date to allow distribution by the
Closing Date) to the Underwriters and the loss, liability, claim, damage or
expense of such Underwriter resulted from an untrue statement or omission or
alleged untrue statement or omission of a material fact contained in or omitted
from the Preliminary Prospectus which was corrected in the Prospectus and (ii)
such failure to give or send such Prospectus by the Closing Date to the party
or parties asserting such loss, liability, claim, damage or expense would have
constituted the sole defense to the claim asserted by such person.
(2) In addition to and without limitation of the Company's obligation to
indemnify Lazard Freres as an Underwriter, the Company also agrees to indemnify
and hold harmless the Independent Underwriter and each person, if any, who
controls the Independent Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, from and against any and all loss,
liability, claim, damage, and expense whatsoever, as incurred, incurred as a
result of the Independent Underwriter's participation as a "qualified
independent underwriter" within the meaning of Rule 2720 of the Conduct Rules
of the National Association of Securities Dealers, Inc. in connection with the
offering of the Securities.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, 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 against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a)(1) of this Section, as incurred, but only with respect to untrue statements
or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
28
<PAGE>
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 6(a) (1) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall
not (except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances;
provided, that, if indemnity is sought pursuant to Section 6(a)(2), then, in
addition to the fees and expenses of such counsel for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees and expenses of
not more than one counsel (in addition to any local counsel) separate from its
own counsel and that of the other indemnified parties for the Independent
Underwriter in its capacity as a "qualified independent underwriter" and all
persons, if any, who control the Independent Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of 1934 Act in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances if, in the
reasonable judgment of the Independent Underwriter, there may exist a conflict
of interest between the Independent Underwriter and the other indemnified
parties. Any such separate counsel for the Independent Underwriter and such
control persons of the Independent Underwriter shall be designated in writing
by the Independent Underwriter. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse
the indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(1)(ii) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying
29
<PAGE>
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of eligible employees of the Company to pay
for and accept delivery of Reserved Securities which, by the end of the first
business day following the date of this Agreement, were subject to a properly
confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one hand and
of the Underwriters on the other hand in connection with the statements or
omissions, which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
the Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that Lazard Freres will not
receive any additional benefits hereunder for serving as the Independent
Underwriter in connection with the offering and sale of the Securities.
30
<PAGE>
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 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 above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the 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 any 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.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, 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
shall have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
------------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
31
<PAGE>
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company, the
Partnership or any of their subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business, or (ii) if there has
occurred any material adverse change in the financial markets in the United
States, any outbreak of hostilities or escalation thereof or other calamity or
crisis or any change or development involving a prospective change in national
or international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the New York Stock
Exchange, or if trading generally on the American Stock Exchange or the New
York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full force
and effect.
SECTION 10. Default by One or More of the Underwriters. If one or
------------------------------------------
more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Representatives
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which
32
<PAGE>
occurs after the Closing Time, the obligation of the Underwriters to purchase
and of the Company to sell the Option Securities to be purchased and sold on
such Date of Delivery shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option
Securities, as the case may be, either the Representatives or the Company shall
have the right to postpone Closing Time or the relevant Date of Delivery, as
the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives c/o Merrill Lynch at
North Tower, World Financial Center, New York, New York 10281-1201, attention
of [ ]; with copies to Skadden, Arps, Slate, Meagher &
Flom LLP, 300 South Grand Avenue, 34th Floor, Los Angeles, California 90071,
attention: Gregg A. Noel, Esq.; and notices to the Company shall be directed
to it at Brylane, 463 Seventh Avenue, 21st Floor, New York, New York 10018,
attention: Chief Financial Officer, with copies to Freeman Spogli & Co.,
Incorporated, 599 Lexington Avenue, 18th Floor, New York, New York 10022, and
Riordan & McKinzie, 300 South Grand Avenue, 29th Floor, Los Angeles, California
90071, attention: Roger H. Lustberg, Esq.
SECTION 12. Parties. This Agreement shall each inure to the benefit
-------
of and be binding upon the Underwriters and the Company, the Partnership, and
their respective successors. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any person, firm or corporation,
other than the Underwriters and the Company, Holding, the General Partner, VLP,
the Partnership and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained. This Agreement
and all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company, Holding, the General
Partner, VLP, the Partnership and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
No purchaser of Securities from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
----------------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
33
<PAGE>
STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
34
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
BRYLANE INC.
By:
---------------------------------------
Name:
Title:
BRYLANE, L.P.
By: VGP Corporation,
General Partner
By:
-----------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
LAZARD FRERES & CO. LLC
J.P. MORGAN SECURITIES INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
-----------------------------------------
Authorized Signatory
For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.
35
<PAGE>
SCHEDULE A
Number of
Initial
Name of Underwriter Securities
------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Lazard Freres & Co. LLC................................
J.P. Morgan Securities Inc..............................
------------
Total ..................................................... 4,000,000
Sch A-1
<PAGE>
SCHEDULE B
BRYLANE INC.
Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $[ ].
2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $[ ], being an amount equal to the initial
public offering price set forth above less $[ ] per share; provided, that
the purchase price per share for any Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be
reduced by an amount per share equal to any dividends or distributions declared
by the Company and payable on the Initial Securities but not payable on the
Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
[TO COME]
---------
Sch C-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) Each of the Company, Holding, the General Partner and VLP has
the been duly incorporated and is validly existing as a corporation in
good standing under the laws of the State of Delaware.
(ii) Each of the Company, Holding, the General Partner and VLP has
the corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
to enter into and perform its obligations under the Purchase Agreement,
the Exchange Agreement, the Management Subscription Documents and the
Transaction Agreements.
(iii) The Partnership has been duly organized and is validly
existing as a limited partnership in good standing under the laws of the
State of Delaware.
(iv) The Partnership has the partnership power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under the Purchase Agreement.
(v) The Partnership Agreement constitutes the legal, valid and
binding obligation of the parties thereto enforceable against the parties
thereto in accordance with its terms, except as such enforcement may be
limited by bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally or by general
principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or a law).
(vi) For United States Federal income tax purposes, the
Partnership has been and is currently classified as a partnership, and
not as an association taxable as a corporation.
(vii) To the best of such counsel's knowledge, each of the Company,
Holding, the General Partner and VLP is duly qualified as a foreign
corporation, and the Partnership is qualified as a foreign partnership,
to transact business and is in good standing in each jurisdiction in
which such qualification is required, except for such jurisdictions in
which the failure to be so duly qualified and in good standing would not
have a Material Adverse Effect.
A-1
<PAGE>
(viii)The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "The
Incorporation Plan" (except for subsequent issuances, if any, pursuant to
the Purchase Agreement or pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus); the shares of
issued and outstanding capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; and
none of the outstanding shares of capital stock of the Company was issued
in violation of the preemptive or other similar rights of any
securityholder of the Company.
(ix) The Securities have been duly authorized for issuance and
sale to the Underwriters pursuant to the Purchase Agreement and, when
issued and delivered by the Company pursuant to the Purchase Agreement
against payment of the consideration set forth in the Purchase Agreement,
will be validly issued and fully paid and non-assessable; no holder of
the Securities is or will be subject to personal liability by reason of
being such a holder.
(x) The issuance of the Securities is not subject to preemptive
or other similar rights of any securityholder of the Company arising by
operation of law, under the charter or by-laws of the Company or, to the
best knowledge of such counsel, otherwise.
(xi) Each of Holding, VLP and VGP has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and authority
to own, lease and operate their properties and to conduct their business
as described in the Prospectus and, to the best of such counsel's
knowledge, are duly qualified as foreign corporations to transact
business and are in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement, all
of the issued and outstanding capital stock of Holding and each such
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and, to the best of our knowledge, are owned of record by
the Company, directly (in the case of Holding) or through Holding (in the
case of the General Partner and VLP), free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of
the outstanding shares of capital stock of Holding and any such
subsidiary was issued in violation of the preemptive or similar rights of
any securityholder of Holding or such subsidiary arising by operation of
law, under the charter or by-laws of Holding or such subsidiary or, to
the best knowledge of such counsel, otherwise.
(xii) The Purchase Agreement has been duly and validly authorized,
executed and delivered by the Company and the Partnership, and each of
the Exchange Agreement, the Registration Rights Agreement, the
Stockholders Agreement, the Restated Partnership Agreement, the
Management Subscription Documents and the Transaction Agreements have
been duly authorized, executed and delivered by the Company or the
A-2
<PAGE>
Partnership, as the case may be, and, to such counsel's knowledge, the
other parties thereto, and each of such agreements creates a valid and
binding obligation of the Company or the Partnership, as the case may be,
and to such counsel's knowledge, the other parties thereto, and will be
enforceable against the Company or the Partnership, as the case may be,
in accordance with their terms except as such enforcement may be limited
by bankruptcy, insolvency, moratorium, reorganization, or other similar
laws affecting enforcement of creditors' rights generally or by general
principals of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(xiii)The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and, to the best of our knowledge, no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or
threatened by the Commission.
(xiv) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus and each amendment or
supplement to the Registration Statement and Prospectus as of their
respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, as to
which no opinion is rendered) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(xv) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective.
(xvi) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and by-laws
of the Company and the requirements of the New York Stock Exchange.
(xvii)To the best of such counsel's knowledge, there is not pending
or threatened any action, suit, proceeding, inquiry or investigation, to
which the Company, Holding, the Partnership or any of their subsidiaries
is a party, or to which any of their property is subject, before or
brought by any court or governmental agency or body, domestic or foreign,
which is required to be disclosed in the Registration Statement or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in the Purchase Agreement, the Exchange Agreement, the
Management Subscription Documents, the Restated
A-3
<PAGE>
Partnership Agreement, the Registration Rights Agreement, the
Stockholders Agreement, and the Transaction Agreements or the performance
by the Company, the General Partner, VLP or the Partnership, as the case
may be, of their respective obligations thereunder.
(xviii)The information in the Prospectus under "Description of
Capital Stock--Common Stock," "The Incorporation Plan," "Certain
Relationships and Related Transactions" and "Description of Certain
Financing Arrangements" and in the Registration Statement under Item 14,
to the extent that it constitutes matters of law, summaries of legal
matters, the Company's charter and by-laws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material
respects.
(xix) To the best of our knowledge, there are no statutes or
regulations that are required to be described in the Prospectus that are
not described as required.
(xx) All descriptions in the Registration Statement of contracts
and other documents to which the Company or its subsidiaries are a party
are accurate in all material respects; to the best of our knowledge,
there are no franchises, contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments required to be described
or referred to in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions
thereof or references thereto are correct in all material respects.
(xxi) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under
the HSR Act, the 1933 Act and the 1933 Act Regulations, which have been
obtained, or as may be required under the securities or blue sky laws of
the various states, as to which we need express no opinion) is necessary
or required in connection with the offering, issuance or sale of the
Securities, and to the best of such counsel's knowledge, in connection
with the due authorization, execution and delivery of the Purchase
Agreement, the Exchange Agreement, the Management Subscription Documents,
the Transaction Agreements, the Amendments to the Partnership Agreement,
the Registration Rights Agreement or the Stockholders Agreement or for
(xxii)The execution, delivery and performance of the Purchase
Agreement, the Exchange Agreement, the Management Subscription Documents,
the Restated Partnership Agreement, the Registration Rights Agreement,
the Stockholders Agreement, and the Transaction Agreements, and the
consummation of the transactions contemplated therein and in the
Registration Statement (including, but not limited to, the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use Of
Proceeds") and compliance by the Company, Holding, the Partnership and
their subsidiaries with their respective obligations under the
A-4
<PAGE>
Purchase Agreement do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a
breach of, or default or (except with respect to that portion of the Bank
Credit Facility that is required to be repaid in connection with the
issuance and sale of the Securities) a Repayment Event (as defined in
Section 1(a)(xviii) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company, Holding, the Partnership or any of
their subsidiaries pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company, Holding, the Partnership
or any of their subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company,
Holding, the Partnership or any of their subsidiaries is subject, and
which have been identified to us on the Certificate (except for such
conflicts, breaches or defaults or Liens that would not have a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company, Holding, the
Partnership or any of their subsidiaries, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company, Holding, the Partnership or any of
their subsidiaries or any of their respective properties, assets or
operations.
(xxiii)To the best of such counsel's knowledge, there are no
persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxiv)The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
1940 Act.
(xxv) Each of the Trademark Agreement and Sears Agreement has been
duly and validly authorized, executed and delivered by the Partnership
and, to such counsel's knowledge, the respective licensors and each
creates a valid and binding obligation of the Partnership and, to such
counsel's knowledge, the respective licensors and will be enforceable
against the Partnership and, to their knowledge, the respective licensors
in accordance with their terms, except as such enforcement may be limited
by bankruptcy, insolvency, moratorium, reorganization, or other similar
laws affecting creditors' rights generally or by general principals of
equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(xxvi) Such counsel has participated in conferences with officers
and other representatives of the Company, counsel employed by the
Company, representatives of the independent public accountants for the
Company, representatives of the Underwriters and counsel for the
Underwriters, at which conferences the contents of the Registration
Statement and Prospectus and related matters were discussed and, although
such counsel are not passing upon, and do not assume any responsibility
for, the accuracy, completeness or fairness of the statements contained
in the Registration Statement or the
A-5
<PAGE>
Prospectus, and have not made any independent check or verification
thereof, except as specifically provided in such opinions, on the basis
of the foregoing, nothing has come to their attention that would lead
them to believe that the Registration Statement (except for financial
statements and schedules and other financial tables or data included
therein, as to which counsel need make no statement), as of its date,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus (except for
financial statements and schedules and other financial tables or data
included therein, as to which counsel need make no statement), as of its
date (unless the term "Prospectus" refers to a prospectus which has been
provided to the Underwriters by the Company for use in connection with
the offering of the Securities which differs from the Prospectus on file
at the Commission at the time the Registration Statement becomes
effective, in which case at the time it is first provided to the
Underwriters for such use) or at Closing Time, included or includes an
untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it
is otherwise subject to, any treatise, written policy or other document
relating to legal opinions, including, without limitation, the Legal Opinion
Accord of the ABA Section of Business Law (1991).
A-6
<PAGE>
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(I)]
Exhibit B
_________ __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
LAZARD FRERES & CO. LLC
J.P. MORGAN SECURITIES INC.
as Representative(s) of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Brylane Inc.
------------
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director][1] of
Brylane Inc., a Delaware corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. propose to
enter into a Purchase Agreement (the "Purchase Agreement") with the Company
providing for the public offering of shares of the Company's common stock, par
value $.01 per share (the "Common Stock"). In recognition of the benefit
that such an offering will confer upon the undersigned as a stockholder [and an
officer and/or director]2 of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned agrees with each underwriter to be named in the Purchase
Agreement that, during a period of 180 days from the date of the Purchase
Agreement, the undersigned will not, directly or indirectly, without the prior
written consent of Merrill Lynch, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise dispose of
or transfer any shares of the Company's Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock, whether now
owned or hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition, or file any
registration statement under the Securities Act of
- --------------------
1. Delete or revise bracketed language as appropriate.
B-1
<PAGE>
1933, as amended, with respect to any of the foregoing or (ii) enter into any
swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap transaction is to be settled by delivery of
Common Stock or other securities, in cash or otherwise; provided, however, that
the undersigned may without such consent (i) exercise any outstanding stock
options granted pursuant to existing employee benefit plans of the Company
referred to in the Prospectus, and (ii) with prior notice to Merrill Lynch,
make (x) bona fide gifts to persons, or (y) transfers or sales to affiliates of
the undersigned, in each case who agree in writing with Merrill Lynch to be
bound by the provisions of this letter.
If for any reason the Purchase Agreement shall be terminated prior
to the Closing Date (as defined in the Purchase Agreement), the agreement set
forth above shall likewise be terminated.
Very truly yours,
Signature:
Print Name:
B-2
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF RIORDAN & McKINZIE]
January 28, 1997
FILE NO.
06-830-006
Brylane Inc.
463 Seventh Avenue
21st Floor
New York, New York 10018
Ladies and Gentlemen:
We have acted as counsel to Brylane Inc., a Delaware corporation (the
"Company"), in connection with the registration under the Securities Act of
1933, as amended (the "1933 Act"), of the sale in an underwritten public
offering of up to 4,600,000 authorized but unissued shares of the Common Stock,
$.01 par value (the "Common Stock"), of the Company (the "Company Shares").
This opinion is delivered to you in connection with the Registration Statement
on Form S-1, Registration No. 33-86154, as amended to date (the "Registration
Statement"), for the aforementioned sale, filed with the Securities and Exchange
Commission (the "Commission") under the 1933 Act.
In rendering the opinion set forth herein, we have made such
investigations of fact and law, and examined such documents and instruments, or
copies thereof established to our satisfaction to be true and correct copies
thereof, as we have deemed necessary under the circumstances.
Based upon the foregoing and such other examination of law and fact as
we have deemed necessary, and in reliance thereon, we are of the opinion that,
subject to such proceedings as are now contemplated being duly taken and
completed by you prior to the issuance of the Company Shares, the issuance of an
appropriate order by the Commission declaring the Registration Statement, as
amended, effective, and the compliance with applicable state securities and
"blue sky" laws, the Company Shares have been duly authorized and will, upon
sale and
<PAGE>
Brylane Inc.
January 28, 1997
Page 2
delivery thereof and receipt by the Company of full payment therefor as set
forth in the Registration Statement, be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration Statement.
Very truly yours,
/s/ Riordan & McKinzie
<PAGE>
EXHIBIT 10.80
AMENDMENT TO SERVICES AGREEMENT
This Amendment to the Services Agreement between The TJX Companies, Inc. ("TJX")
and Brylane, L.P. ("Brylane") is made effective as of December 8, 1996.
TJX and Brylane hereby agree that the terms of the Attachment to this Agreement
are to be substituted in their entirety for the terms of Annex A to the Services
Agreement. All other terms and conditions remain in full force and effect.
In witness;
Brylane, L.P.
By: /s/ Robert A. Pulciani
------------------------
The TJX Companies, Inc.
By: /s/ Don Campbell
------------------------
A-1
<PAGE>
ANNEX A
DATA PROCESSING SERVICES
------------------------
A-2
<PAGE>
ANNEX A
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.
Brylane has requested TJX to provided certain computer services to Brylane's
Chadwick's of Boston business as described in Attachment II attached hereto
(collectively, the "Computing Services") commencing as of December 8, 1996
through the fiscal year ended on the last Saturday of January, 2000; and TJX has
agreed to provide such services.
1. Term. The term of this Annex shall commence as of December 8, 1996
----
and terminate upon the later of (i) the last day of Fiscal 2000 (January 28,
2000)(the "initial term") or (ii) if the parties agree to an extension hereof as
provided below (the "Extension Period"), the last day of such Extension Period.
Neither party shall have the right to terminate this Annex during the initial
term.
If Brylane wishes to extend the term of this Annex for an additional one
year term, Brylane shall so notify TJX in writing of its planned computer usage
requirements for such additional one year term no later than July 1 of the
fiscal year which is one year prior to the fiscal year in which this Annex
(whether or not extended) would otherwise terminate. If TJX agrees to such an
extension, TJX shall, no later than 60 days after receipt of Brylane
notification, notify Brylane in writing of TJX's estimated rates for such
additional one year term and Brylane shall
A-3
<PAGE>
have 30 days to indicate its acceptance of such rates. Additional one year
extensions may be requested in the succeeding year(s) and agreed to in the same
manner as provided in this Section 1.
If TJX declines to provide Computing Services during the Extension
Period, or if Brylane chooses not to accept TJX's offer for the Extension
Period, Brylane shall have 30 days after the date on which TJX declines to
provide such services or notifies Brylane of TJX's estimated rates to elect an
extension of services for an additional period of up to twelve months beyond the
termination of the then current term (the "Phase-Out Period") by providing TJX
with its planned requirements for the Phase-Out Period. TJX shall be obligated
to provide Computing Services during the Phase-Out Period as long as Brylane's
total planned requirements during such Phase-Out Period exceeds fifty percent
(50%) of the planned requirements for the same period during the prior year. By
the following July 1, in accordance with the above-described computer usage
planning process, Brylane shall provide TJX with a plan to phase out its use of
Computing Services during the Phase-Out Period, showing proposed planned
requirements on a monthly basis. TJX shall be obligated to provide Computing
Services during the Phase-Out Period at the same rates that were in effect for
the one year period prior to the beginning of the Phase-Out Period.
2. Usage Requirements. Attached hereto as Attachment I are Brylane's
------------------
estimates of its usage requirements for December 8, 1996 through January 25,
1997 hereinafter referred to as the "Start-up Period", fiscal 1998, fiscal 1999,
and fiscal 2000. Such requirements are hereinafter sometimes referred to
collectively as the "planned requirements." By July 1 of each year of the term
beginning July 1, 1997, Brylane shall deliver to TJX a computer usage plan for
its requirements for Computing Services through the end of the following fiscal
year, and a revised
A-4
<PAGE>
estimate of its requirements for the fiscal year following such fiscal year.
(For example, on or before July 1, 1997, Brylane shall deliver its usage
requirements for fiscal 1999 and an updated estimate of its requirements for
fiscal 2000.) It is understood that Brylane's computer usage requirements for
fiscal 1998, fiscal 1999, and fiscal 2000 may not be less than 90% of its
estimates for each such year included in Attachment I and may not exceed 150% of
its estimates for each such year unless TJX agrees to provide services at such
increased level. Brylane's computer usage plan will be sufficiently detailed to
allow TJX to provide its rates for Computing Services for the next following
fiscal year and Brylane's estimate for requirements during the additional fiscal
year will be sufficiently detailed to allow TJX to provide an estimate of its
rates for Computing Services for such additional fiscal year and to estimate its
hardware needs for such additional fiscal year.
As soon as practicable, but no later than September 1 of each year
(provided TJX has received such planned requirements by July 1), TJX will notify
Brylane in writing of the rates for Computing Services during the next following
fiscal year and an estimate of the rates TJX expects during such additional
fiscal year. It is understood that the estimate of rates for the additional
fiscal year is a good faith estimate only and that definitive initial rates for
such period will be established following July 1 of the following year in
accordance with the procedures set forth above.
3. Calculation of Rates. Brylane's planned requirements (as well as the
--------------------
planned requirements for all users of TJX's computing services) for each fiscal
year shall be the basis upon which TJX will set Brylane's rates for such fiscal
year. Attached hereto in Attachment II are the actual rates for the Start-up
Period, and the estimated rates applicable to Brylane (based on preliminary
estimates of usage for all users of TJX's Computing Services) for fiscal 1998,
fiscal
A-5
<PAGE>
1999, and fiscal 2000. Brylane acknowledges that one or more of TJX's computing
service users may be charged different rates, including discounted rates. The
charges for the Start-up Period or any succeeding fiscal year shall be subject
to adjustment as provided in Section 4. If for the Start-up Period or during any
succeeding fiscal year, TJX determines that its actual costs are significantly
different from its estimates thereof then in effect for purposes of calculating
rates hereunder, then TJX shall provide Brylane with a new estimate of rates for
such period or year and shall either (i) invoice Brylane for Computing Services
theretofore provided based on the revised estimates for sums in excess of sums
already paid since the beginning of such period or fiscal year (in the event of
increased rates estimates) or (ii) give Brylane an appropriate credit for such
period or fiscal year (in the event that the revised rates are lower). In any
event, subsequent rates shall be based upon such revised estimates.
Notwithstanding the foregoing provisions of this paragraph, in the event that
(i) the other users of TJX's computing services exceed 110% of their planned
requirements for any such fiscal year and as a result thereof TJX added to its
data processing system hardware or system software and (ii) Brylane did not
exceed 120% (130% for fiscal 1998) of its planned requirements for such fiscal
year (or, if there was an excess, such excess did not pertain to the usage of
such hardware or system software), then Brylane shall not be charged additional
fees with respect to such fiscal year for any costs with respect to such
additional hardware or system software.
TJX agrees that Brylane rates for each fiscal year shall be based on usage
of Computing Services equal to 100% of the planned requirements in Brylane's
computer usage plan for each fiscal quarter of each fiscal year. If Brylane's
computer usage plan does not provide requirements by fiscal quarter, then fiscal
year planned requirements will be divided equally to arrive at fiscal quarter
requirements. If Brylane's actual usage requirements exceed 120% (130% for
fiscal
A-6
<PAGE>
1998) of its planned requirements for a fiscal quarter and the requirements of
TJX's businesses do not exceed 110% of TJX's planned requirements for such
fiscal quarter (or any such excess usage does not pertain to hardware or system
software used by TJX), then TJX will be entitled to increase amounts billed to
Brylane to recover its additional costs resulting from Brylane's excess usage.
TJX shall use commercially reasonable efforts to satisfy requirements in
excess of 120% (130% for fiscal 1998) of Brylane's planned requirements
consistent with TJX's responsibilities to meet the computer services needs of
the other TJX computer services users.
In the event that Brylane's actual requirements for the first two or last
two fiscal quarters of any fiscal year with respect to the items shown on
Attachment I are less than eighty percent (80%) of its planned requirements for
such Quarters, whether during the Start-Up Period, initial term, any Extension
Period or the Phase-Out Period, with respect to such quarters, 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 rolling forecast of anticipated computer, disk and print resource usage
for each month of the following twelve month period. The planned requirements
will not be affected by this written forecast.
TJX agrees that it will not change the basic methodology used to determine
rates during a fiscal year except in connection with new Computing Services
arising during such fiscal year that were not included by Brylane in its
computer usage plan submitted by Brylane to TJX for such fiscal year. TJX may,
however, change such methodology with respect to a following fiscal year at the
time it presents Brylane with its estimate of rates (i.e., on September 1
preceding such following fiscal year), and TJX shall inform Brylane of the
change at the time. Without limiting the generality of the next preceding
sentence, if during any fiscal year TJX adds to or upgrades its
A-7
<PAGE>
data processing system hardware or systems software, then the methodology used
to determine rates for the following fiscal year shall be appropriately adjusted
to include changes in Brylane's rate refecting usage of such hardware or
software.
Payroll check processing can be terminated effective January 1 of any year
with written notification to TJX received by July 1 of the prior year. In
addition, in the event that the provision of Corporate Payroll Services set
forth in Annex C is terminated or expires prior to the termination of services
under this Annex A, Brylane will pay such reasonable additional cost to TJX as
TJX may incur in the provision of services pursuant to this Annex A.
During the Start-up Period, fiscal 1998, fiscal 1999, and fiscal 2000, TJX
will discount the rates charged to Brylane for CPU, Dedicated Disk, Print,
Microfiche and Data Entry by 20.0%, 10.0%, 7.5%, and 5.0% respectively.
4. Reconciliation. Within thirty days after the end of the Start-up Period,
-------------
and each succeeding fiscal year, TJX shall reconcile its costs pertaining to the
provision of the Computing Services for such period or fiscal year and determine
the pro rata amount paid by each user. If the reconciliation shows that TJX's
costs exceeded the rates charged and paid during such period or fiscal year,
Brylane shall with 30 days of TJX's invoice therefor pay to TJX Brylane's pro
rata share of the difference. If the reconciliation shows that TJX's costs were
less than the rates charged and paid, TJX shall pay Brylane its pro rata share
of the difference within 30 days after the completion of the reconciliation.
5. Software Licenses. TJX shall promptly notify Brylane upon its receipt
-----------------
of any notice that a third party intends to increase its software license fees
as a result of the provision by TJX of the Computing Services to Brylane. In
such event, TJX shall appoint Brylane as its agent to negotiate the amount of
such increase and shall cooperate with Brylane to ensure that all
A-8
<PAGE>
additional license rights (other than those already held by TJX, which shall not
be affected) are in the name of, or freely assignable (without the payment of
additional consideration) to, Brylane. If TJX is required to incur additional
software license fees then such fees shall be charged to and must be paid by
Brylane (it being understood that such fees are not included in the rates
appearing on Schedule II hereto and will not be included in the subsequent rates
determined pursuant to Section 3 hereof).
6. Performance Levels. The performance levels 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 levels for
Computing Services to the extent that it is unable to maintain them for TJX and
other users of computer services for reasons beyond its commercially reasonable
control. In the event that TJX is unable to meet the performance levels 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 TJX and other users of Computing Services and shall use its
commercially reasonable efforts to alleviate any condition causing a diminution
in such performance levels.
7. Invoices. TJX shall render to Brylane each month, within 30 days
--------
after the end of the month or as soon as practicable thereafter, an invoice
based on actual usage of Computing Services during the previous month. The
monthly invoice will itemize Brylane usage by billing category. Such invoice
shall be payable within thirty days of its receipt by Brylane.
8. Ownership of Brylane Data. Brylane shall be the owner of all of its
-------------------------
data to which TJX has access under the terms of this Annex. TJX shall maintain
such data in confidence and make no use of such Brylane data or allow anyone
other than Brylane access to it except for TJX
A-9
<PAGE>
personnel (including agents) who require access thereto in order to perform the
obligations to Brylane under this Annex.
9. Delivery of Software. Upon Brylane request, TJX shall deliver to
--------------------
Brylane within a reasonable period after such request the following items with
respect to all applications, utility routines, utility programs and/or systems
software developed by TJX and used solely in connection with Brylane's business
and in which no third party has any rights (the "TJX Software"):
(a) One copy of object code or other executable 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 reasonable 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
A-10
<PAGE>
PARTICULAR PURPOSE. This paragraph shall survive the termination of the
Computer Services Annex and the Services Agreement.
10. Coordinating Committee. For the purpose of providing and continuing
-----------------------
the harmonious relationship between TJX and Brylane, each party shall appoint at
least one individual 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 shall meet periodically, no less
frequently than quarterly, to discuss operations under this Annex and any
problems arising hereunder.
11. Non-Termination. Brylane agrees that because this Annex cannot be
---------------
terminated during the initial term, in any circumstance in which Brylane
purports to terminate this Annex (other than as a result of TJX's material
default which is not cured by TJX after a reasonable opportunity to cure)
Brylane shall continue to pay all charges otherwise due hereunder, as if there
had been no termination, and, that for purposes of computing charges, Brylane's
usage will be deemed to be not less than 90% of its estimates for fiscal 1998,
fiscal 1999, and fiscal 2000, all as set forth in Attachment I hereto.
A-11
<PAGE>
ATTACHMENT I
BRYLANE, L.P.
COMPUTER USAGE REQUIREMENTS AND ESTIMATES
<TABLE>
<CAPTION>
START-UP
USAGE CATEGORY PERIOD FY 98 FY 99 FY 00
-------------- -------- ----- ----- -----
<S> <C> <C> <C> <C>
Total CUP (600J hours) 1,392 11,956 10,778 11,399
Print Lines (in 000's)
1-Up 6,164 31,297 34,003 36,954
2-Up 392 3,367 3,683 4,028
Remote 230,805 1,881,832 2,070,015 2,194,216
On-line View 12,000 105,246 115,770 127,347
Dedicated Disk 223 2,333 2,799 2,799
Payroll Checks (000's)* 16 120 126 132
Microfiche (000's) 11 73 81 89
Data Entry
Records (000's) 12 116 127 140
Network Connect/Use
Home Office 870 6,528 6,528 6,528
Acct. Sys. (months) 2 3 0 0
</TABLE>
NOTE: * - Payroll check processing and the related Human Resource Services can
be terminated effective January 1 of any year with written notification to TJX
by July 1 of the prior year.
A-12
<PAGE>
ATTACHMENT II
BRYLANE, L.P.
COMPUTER SERVICES AND RATES:
----------------------------
The computer services listed herewith will be provided to Brylane by TJX during
the fiscal years shown at the rates indicated in the appropriate column below
and subject to the terms and conditions of the Annex. The estimated rates for
fiscal years 1998, 1999, and 2000 are informational only. The rates for each
fiscal year will be set in accordance with the terms of the Annex.
<TABLE>
<CAPTION>
Start-up Estimated Estimated Estimated
1. COMPUTER Period FY '98 FY '99 FY '00
-------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
(a) CUP/Model 952 (per hour) $1,431.00 $1,273.00 $1,199.00 $1,171.00
CUP/Model 600J (per hour) 517.00 460.00 433.00 423.00
(b) PRINT, 1-up (per 1K lines) .43 .43 .41 .40
PRINT, 2-UP (per 1K lines) .26 .26 .25 .24
PRINT, REMOTE (per 1K lines) .022 .022 .022 .022
PRINT, SARVIEW (per 1K lines) .022 .022 .022 .022
(c) MICROFICHE (per fiche) .46 .45 .45 .45
(d) DATA ENTRY (per record) .041 .041 .041 .041
(e) DEDICATED DISK (per GB/mo.) 260.00 255.00 255.00 255.00
2. Non-CPU
-------
(a) NETWORK CONNECT Fee 43.00 43.00 45.00 45.00
(per unit/mo.)
(b) PAYROLL (per check) .36 .37 .38 .38
(c) DCOMM Rate (per hour) 35.00 35.00 35.00 35.00
(d) SOFTWARE Rate (per hour) 50.00 50.00 50.00 50.00
</TABLE>
3. Payroll and Financial Systems Support.
-------------------------------------
(a) Payroll Support - rate shown for item 2(b) 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) Financial Systems Support - 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. This service can be canceled by
providing 30 day written notice to TJX any time after April 1, 1997.
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.
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<PAGE>
4. 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 2(c) above;
support exceeding this annual level, if agreed to by TJX, will be billed
at the DCOMM Rate per hour
(c) Unplanned projects, if agreed to by TJX, will be billed at the DCOMM
Rate per hour plus materials at cost
(d) Remote Comm. Usage Rate will be $0.25 per Thousand records transmitted
(line charges will be paid by Brylane)
5. 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 the Software Rate per hour plus materials
at cost
6. 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 Annex and that of the Services Agreement.
7. Discounts
---------
A discount on the rates listed in section 1 above will be applied using the
following schedule:
Period of Discount Discount Percent
------------------ ----------------
During Start-up Period - Twenty (20.0%)
During FY '98 - Ten (10.0%)
During FY '99 - Seven and Half (7.5%)
During FY '00 - Five (5.0%)
8. Technical Training Classes
-------------------------
Computer-related training classes which are offered to TJX associates will
be made available to Brylane associates on a space available basis. The
classes will be billed to Brylane by TJX.
A-14
<PAGE>
ATTACHMENT III
PERFORMANCE LEVELS FOR COMPUTING SERVICES
----------------------------------------
SERVICE LEVEL ITEM PERFORMANCE GOAL*
------------------ ----------------
Hardware/Software Availability 99.5 percent
On-Line Application Availability 98.0 percent
TSO System Availability 99.5 percent
Report Delivery on Schedule 98.0 percent
RESPONSE TIME TARGETS:
---------------------
IMS (95th Percentile) 4.0 seconds
CICS (95th Percentile) 4.0 seconds
TSO (95th Percentile) 3.0 seconds
* - These performance goals (which will be calculated on a monthly basis)
assume Brylane's conformance with TJX's operating standards. Conformance
will be measured as part of the technical design document review which is
scheduled to be completed prior to the construction phase of each
development project
A-15
<PAGE>
EXHIBIT 11.1
BRYLANE, L.P.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
<S> <C> <C>
Fiscal Year Thirty-Nine
Ended Weeks Ended
February 3, November 2,
1996 1996
----------- -----------
(53 Weeks) (Unaudited)
Weighted average number of common shares
outstanding.................................... 12,658,143 12,904,084
Add net shares issuable pursuant to stock option
plans less shares assumed repurchased at the
assumed initial public offering price........... 467,170 467,170
Number of shares for computation of primary
earnings per share.............................. 13,125,313 13,371,254
</TABLE>
<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
January 29, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 3 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
January 29, 1997
<PAGE>
EXHIBIT 23.4
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 December 7, 1995, on our audits of the
financial statements of the KingSize division of WearGuard Corporation. 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
January 29, 1997
