<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1997
REGISTRATION NO. 333-35715
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BRYLANE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 5961 13-3794198
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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:
THOMAS M. CLEARY, ESQ. GREGG A. NOEL, ESQ.
RONN S. DAVIDS, ESQ. DAVID J. GOLDSCHMIDT, ESQ.
RIORDAN & MCKINZIE 300 SOUTH GRAND SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
AVENUE, 29TH FLOOR LOS ANGELES, 300 SOUTH GRAND AVENUE, 34TH FLOOR
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. [_]
--------------
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>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent underwritten
public offering outside the United States and Canada (the "International
Prospectus"). The two prospectuses are identical except for the front and back
cover pages and the "Underwriting" section. The form of U.S. Prospectus is
included herein and is followed by the alternate pages to be used in the
International Prospectus. Each of the alternate pages for the International
Prospectus included herein is labeled "International Prospectus--Alternate
Pages." Final forms of each Prospectus will be filed with the Securities and
Exchange Commission under Rule 424(b) under the Securities Act of 1933.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 14, 1997
PROSPECTUS
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
-----------
All the shares of Common Stock of Brylane Inc. offered hereby are being
offered by certain stockholders of the Company identified herein. Concurrently
with the consummation of the Offerings, the Company will repurchase from the
Selling Stockholders an aggregate of 2,500,000 shares of Common Stock at the
Price to Public set forth on this cover page. The consummation of each of (i)
the Offerings and (ii) the Common Stock Repurchase is contingent upon the
consummation of the other and the closing of an amendment to the Company's
existing bank credit facility. See "Principal and Selling Stockholders" and
"Common Stock Repurchase". Upon consummation of the Offerings and the Common
Stock Repurchase, FS&Co. and The Limited (each as defined) will own 25.3% and
14.8% of the Company's Common Stock, respectively. The Company will not receive
any proceeds from the sale of the Common Stock hereby.
Of the 5,000,000 shares (the "Shares") offered hereby, 4,000,000 Shares are
being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 1,000,000 Shares are being offered in a concurrent
offering outside the United States and Canada by the International Managers
(the "International Offering" and, together with the U.S. Offering, the
"Offerings"). The initial public offering price and the aggregate underwriting
discount per share are identical for the Offerings. See "Underwriting".
The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "BYL". On October 13, 1997, the last reported sale price of the Common
Stock as reported on the NYSE was $47.625 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING STOCKHOLDERS(2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- -----------------------------------------------------------------------------------
Total (3)........................ $ $ $
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Selling Stockholders have granted to the U.S. Underwriters and the
International Managers options, exercisable within 30 days after the date
of this Prospectus, to purchase up to an additional 600,000 and 150,000
shares of Common Stock, respectively, solely to cover over-allotments, if
any. If all such additional shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to the Selling Stockholders 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 and certain
other conditions. 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 October 20, 1997.
----------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN & CO.
-----------
The date of this Prospectus is October , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF COMMON STOCK
TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
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".
<PAGE>
PROSPECTUS SUMMARY
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. Unless the context otherwise requires,
(i) the term "Brylane" refers to Brylane, L.P., a Delaware limited partnership
and a wholly-owned subsidiary of Brylane Inc. (the "Partnership"), excluding
Chadwick's, (ii) the term "Chadwick's" refers to the Chadwick's of Boston
catalog division of The TJX Companies, Inc. ("TJX") acquired by Brylane in
December 1996, (iii) the term the "Company" refers to Brylane Inc., its
subsidiaries and their respective operations, including the Partnership, (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. For purposes of
determining the amount of indebtedness to be incurred in connection with the
Common Stock Repurchase, the Company has assumed that such Common Stock will be
repurchased at the last reported sale price of the Common Stock on September
26, 1997 as set forth on the cover page of 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 $1.2 billion for the twelve
months ended August 2, 1997. 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
Brylane 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. The Company's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
has recently introduced and continues to develop several new catalog concepts.
For example, the Company successfully launched the Sue Brett (mature regular
size women's apparel), Bridgewater (regular size women's, men's and children's
apparel) and Jessica London (off-price special size women's apparel) catalogs,
and is also testing a catalog called Brett (regular size men's apparel).
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 catalogs, Brylane's net sales have
increased from $424.5 million in fiscal 1992 to $642.0 million in fiscal 1996,
representing a compound annual growth rate of 10.9%. 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 $525.6 million in fiscal 1996, representing a compound annual
growth rate of 15.5%.
The Company's net sales for the twenty-six weeks ended August 2, 1997
increased 13.1% to $603.5 million from $533.5 million (on a pro forma basis) in
the comparable period of fiscal 1996. For the twenty-six weeks ended August 2,
1997, operating income (excluding non-recurring and extraordinary items)
increased 27.1% to $55.8 million from $43.9 million (on a pro forma basis
excluding non-recurring and extraordinary items) in the comparable period of
fiscal 1996. The Company's results for the twenty-six weeks ended August 2,
1997 have benefitted from favorable customer response and an increase in the
average order size across all of the Company's catalogs. In addition, in the
twenty-six weeks ended August 2, 1997, the Company used the proceeds from its
February 1997 initial public offering to prepay a portion of its outstanding
indebtedness by $89.3 million, and used cash from operations and the proceeds
from a preliminary purchase price adjustment to further reduce its outstanding
indebtedness by $73.9 million (including $72.1 million in prepayments),
resulting in lower interest expense.
3
<PAGE>
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. The
Company has begun to capitalize on several opportunities presented by the
acquisition of Chadwick's 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 across all of its catalog titles 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 substantial and loyal
customer base. The Company's combined customer file has grown to over 22
million names as of June 30, 1997 (which includes 2.4 million names from the
Sears customer file and gives effect to the acquisition of Chadwick's), of
which approximately 10.4 million are active customers who have placed an order
in the preceding 12 months (including 1.1 million customers from the Sears
customer file). Over 40% of the Lane Bryant, Roaman's and Lerner active
customers placed an order three or more times during the 12 months ended June
30, 1997.
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
Catalog sales have been the fastest growing channel of retail apparel sales.
From 1995 to 1996, catalog women's apparel sales increased by approximately
7.6% to $8.2 billion, while overall retail women's apparel sales increased by
approximately 5.1% to $85.1 billion. The percentage of the U.S. adult
population that made a purchase through a catalog has increased to 57.2% in
1996 from 41.0% in 1993. The Company believes that catalog sales of apparel
will continue to increase because the busy lifestyles of today's women and men
demand the convenience and the time savings afforded by catalog shopping.
The Company's growth strategy is to increase its sales and profits by
capitalizing on the growing catalog industry and effectively executing its
business and merchandising strategies.
. Continuing to Realize 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 during the introduction of new merchandise
categories), and introducing private label credit cards to Chadwick's
customers. The Company has already begun to capitalize on opportunities to
leverage its combined purchasing power, particularly in the procurement of
paper and telecommunications services, merchandise sourcing, MIS processing
and development, and insurance.
. 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, to
freshen the appeal of each catalog's assortment of merchandise, and
4
<PAGE>
to stimulate 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 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 is currently
expanding the use of these programs to its other catalogs.
. 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 and Chadwick's is testing
increasingly sophisticated statistical circulation models to improve their
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, including cable television
advertising and the segmentation of the over 30 million name file of Sears,
Roebuck and Co. In addition, 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 recent catalog additions such as Bridgewater
and Jessica London broaden the Company's catalog portfolio and provide
substantial opportunities for growth. As a result of these catalogs'
performance, the Company expects to increase their circulation
significantly.
. Introducing or Acquiring New Catalogs
The Company intends to continue to evaluate opportunities to introduce
new catalogs, such as Brett, which the Company began mailing in October
1997. Brylane's female customers have demonstrated a propensity to purchase
the offerings of men's apparel included in inserts in Brylane's catalogs.
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 (the "Predecessor") 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"). In
February 1997, the Company completed its initial public offering of 4,000,000
shares of Common Stock at a price to the public of $24.00 per share (the
"Initial Public Offering").
5
<PAGE>
COMMON STOCK REPURCHASE
Concurrently with the Offerings, the Company intends to repurchase an
aggregate of 2,500,000 shares of Common Stock, at the Price to Public set forth
on the cover page of this Prospectus (the "Common Stock Repurchase"), from
certain affiliates of FS&Co., an affiliate of The Limited, an affiliate of
WearGuard, the TJX Noteholder, Leeway & Co. and NYNEX, as well as one of the
directors of the Company (collectively, the "Selling Stockholders"). The
Company intends to finance the Common Stock Repurchase (and related fees)
through the incurrence of additional long-term debt in the aggregate principal
amount of approximately $117.4 million.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Selling
Stockholders:
U.S. Offering...................... 4,000,000 shares
International Offering............. 1,000,000 shares
----------------
Total............................ 5,000,000 shares
================
Common Stock to be outstanding after
the Offerings and the Common Stock
Repurchase (1)...................... 17,336,287 shares
Use of proceeds...................... The Company will not receive any proceeds
from the Offerings.
New York Stock Exchange Symbol....... BYL
</TABLE>
- --------
(1) Based on outstanding shares as of September 15, 1997 and after giving
effect to the Offerings and the repurchase by the Company of an aggregate
of 2,500,000 shares of Common Stock pursuant to the Common Stock Repurchase
and, in connection therewith, the conversion by the TJX Noteholder of a
portion of the Convertible Note (as defined) into 352,908 shares of Common
Stock. See "Common Stock Repurchase". Does not include an aggregate of
1,340,228 shares of Common Stock issuable upon exercise of stock options
outstanding as of September 15, 1997, 75,000 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock (as defined), or
374,365 shares of Common Stock issuable upon conversion of the remaining
portion of the Convertible Note. See "Certain Relationships and Related
Transactions--The Chadwick's Acquisition" and "Management--Option Plans".
----------------
Unless the context otherwise requires, (i) all references to a year or a
fiscal year of Brylane or the Company refer to the fiscal year that ends on the
Saturday closest to January 31 of the following calendar year (for example,
"fiscal 1996" or "1996" means the year ended February 1, 1997), 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), Jessica
London(TM), Brett(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.
6
<PAGE>
SUMMARY FINANCIAL DATA
THE COMPANY
The following table presents summary historical financial data of the Company
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
consolidated financial statements of the Company 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 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
August 2, 1997 and the statements of operations data for the twenty-six weeks
ended August 3, 1996 and August 2, 1997 have been derived from the unaudited
consolidated financial statements of the Company.
<TABLE>
<CAPTION>
COMBINATION
PREDECESSOR OF HISTORICAL COMPANY(1)
----------- ------------- ------------------------------------------------
TWENTY-SIX WEEKS
FISCAL YEAR FIFTY-TWO FISCAL YEAR ENDED ENDED
ENDED WEEKS ENDED ---------------------------- ------------------
JAN. 30, JAN. 29, JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1993 1994 1995 1996(2) 1997 1996 1997
----------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.............. $424,523 $489,866 $578,530 $601,055 $705,353 $308,625 $603,457
Cost of goods sold..... 212,103 246,754 288,217 298,414 346,572 149,898 309,971
Non-recurring inventory
charge(3).............. -- 11,487 2,614 569 1,657 -- 3,315
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 212,420 231,625 287,699 302,072 357,124 158,727 290,171
Operating income....... 42,903 35,326 52,819 48,562 53,749 26,840 46,661
Interest expense, net.. -- 10,060 19,576 20,624 24,026 10,791 13,685
Income before income
taxes and extraordinary
charge................. 42,903 25,266 33,243 27,938 29,723 16,049 32,976
Extraordinary charge,
net of related tax-
es(4).................. -- -- -- -- 2,456 -- 4,110
Net income............. 26,203 14,591 33,154 27,850 26,952 15,992 16,124
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA:
Income before income
taxes and extraordinary
charge................. $ 33,243 $ 27,938 $ 29,723 $ 16,049 $ 32,976
Provision for income
taxes(5)............... 12,300 10,337 10,998 5,938 12,201
Extraordinary charge,
net of related tax-
es(4).................. -- -- 1,547 -- 4,110
-------- -------- -------- -------- --------
Net income............. $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ======== ======== ======== ========
OPERATING AND OTHER
DATA:
Gross profit (before
non-recurring
inventory charge) as a
percentage of net
sales................. 50.0% 49.6% 50.2% 50.4% 50.8% 51.4% 48.6%
Catalog and advertising
expense as a percent-
age of net sales...... 26.7% 26.1% 26.6% 29.0% 26.5% 28.8% 22.9%
EBITDA(6).............. $ 46,149 $ 51,991 $ 62,785 $ 57,488 $ 69,145 $ 31,808 $ 60,931
Number of catalogs
mailed................ 181,799 229,298 298,734 311,671 333,020 156,018 285,868
Names in customer
files(7).............. 6,561 7,340 8,905 10,158 21,995 10,982 22,727
Active customers(8).... 3,708 4,189 5,159 5,308 10,034 5,358 10,352
<CAPTION>
AT AUGUST 2, 1997
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ --
Working capital.............................................. 53,489
Total assets................................................. 689,127
Short-term debt.............................................. 20,000
Long-term debt (including current portion)................... 264,279
Stockholders' equity......................................... 225,041
</TABLE>
(Footnotes on following page)
7
<PAGE>
(1) The Company's financial statements include the results of Chadwick's on a
consolidated basis from December 9, 1996, the closing date of the
Chadwick's Acquisition.
(2) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(3) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect the
fair market value of the inventory at the respective acquisition dates 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, as of February 3, 1996 for the KingSize Acquisition,
and as of August 2, 1997 for the Chadwick's Acquisition.
(4) Consists of deferred financing fees written-off in connection with the
repayment of the Company's 1993 Bank Credit Facility (as defined) and 1996
Bank Credit Facility (as defined). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(5) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(6) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to the write-off
of deferred financing fees, and non-cash compensation expense related to
the 1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation, and is not 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.
(7) 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 2.4 million at June 30, 1997.
(8) 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 1.1 million at June 30, 1997.
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 UNAUDITED 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 the Common Stock
Repurchase and the incurrence of $117.4 million of additional indebtedness by
the Company in connection therewith, as if those transactions had occurred on
February 4, 1996 with respect to the statements of operations data and
operating and other data, and as of August 2, 1997 with respect to the balance
sheet. In addition, the summary unaudited pro forma financial data listed below
for the year ended February 1, 1997 and the twenty-six weeks ended August 3,
1996 gives effect to the Chadwick's Acquisition and the financing thereof
(including the issuance of the Convertible Note and borrowings under the 1996
Bank Credit Facility), and the Initial Public Offering and the use of the
proceeds received therefrom to repay borrowings under the 1996 Bank Credit
Facility, as if those transactions had occurred on February 4, 1996. 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>
TWENTY-SIX WEEKS
ENDED
FISCAL YEAR ENDED ------------------
FEB. 1, AUG. 3, AUG. 2,
1997(1) 1996 1997
----------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................ $1,167,527 $533,525 $603,457
Gross profit............................. 564,011 260,148 290,171
Operating income......................... 87,118 38,454 46,661
Interest expense, net.................... 38,218 19,241 16,974
Income before income taxes and extraordi-
nary charge............................. 48,900 19,213 29,687
Income before extraordinary charge....... 30,808 12,104 18,703
Income per share before extraordinary
charge.................................. $ 1.73 $ 0.68 $ 1.05
Weighted average shares outstanding...... 17,786 17,785 17,855
OPERATING AND OTHER DATA:
Gross profit as a percentage of net
sales................................... 48.3% 48.8% 48.1%
Catalog and advertising expense as a per-
centage of net sales.................... 23.9% 25.3% 22.8%
EBITDA(2)................................ $ 112,761 $ 49,398 $ 60,933
Number of catalogs mailed................ 513,028 253,901 285,868
Names in customer files(3)............... 21,995 21,521 22,727
Active customers(4)...................... 10,034 9,648 10,352
<CAPTION>
AT AUGUST 2, 1997
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ --
Working capital............................................... 57,517
Total assets.................................................. 690,452
Short-term debt............................................... 20,000
Long-term debt (including current portion).................... 371,965
Stockholders' equity.......................................... 118,680
</TABLE>
- --------
(1) Includes a 52-week period for Brylane and a 53-week period for Chadwick's.
(2) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to the write-off
of deferred financing fees, and non-cash compensation expense related to
the 1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation, and is not 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 2.4 million at June 30, 1997.
(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 1.1 million at June 30, 1997.
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 Brylane'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 the Company 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 750 Lerner stores. The Limited is under no obligation to continue to
own or operate the Lane Bryant and Lerner stores, and there can be no
assurance that The Limited will not change the focus of such stores in a
manner that would be adverse to Brylane's catalog concepts bearing the same
trademarks, although The Limited has agreed that, during the term of the
Trademark Agreement (as defined herein), it will not disparage or diminish the
stature, image or quality of any of the trademarks subject to the Trademark
Agreement.
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 entered into at the closing of the Initial Public
Offering by and among the Company, affiliates of FS&Co., an affiliate of The
Limited, Leeway & Co., NYNEX, Chadwick's, Inc., a wholly-owned subsidiary of
TJX (the "TJX Noteholder"), and WearGuard (the "Stockholders Agreement")
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
11
<PAGE>
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. As a result of the
Offerings and the Common Stock Repurchase, The Limited will hold less than 20%
of the outstanding Common Stock of the Company; consequently, these
noncompetition provisions will no longer be applicable. 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 ten
years after completion of the Offerings and the Common Stock Repurchase,
subject to earlier termination as described in the paragraph that follows. 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 ten years after completion of the Offerings and the Common Stock
Repurchase, unless earlier terminated (i) by the Company with six months'
notice on or after August 20, 1998, (ii) by The Limited in the event of (x) a
breach by the Company of any of its material obligations under the Trademark
Agreement or (y) certain bankruptcy or insolvency events involving the
Company, or (iii) subject to certain extensions, (x) two years after any
competitor of The Limited acquires "control" of the Lane Bryant, Roaman's and
Lerner catalog businesses operated by the Company (the "Business"), 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".
Unless renewed, upon a termination of the Trademark Agreement, the Company
would need to create new names and trademarks for the catalogs using the
licensed trademarks, 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's business,
financial condition or results of operations.
LEVERAGE AND CERTAIN RESTRICTIONS IMPOSED BY LENDERS
As of August 2, 1997, after giving effect to the Common Stock Repurchase and
the incurrence of additional long term debt of approximately $117.4 million in
connection therewith, the Company would have had total outstanding
indebtedness of $392.0 million, as compared with total stockholders' equity of
$118.7 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 Company will be restricted in
its ability to incur debt, make distributions (including cash dividends),
incur liens, make capital expenditures and make investments or acquisitions by
the terms of both the Amended 1997 Bank Credit Facility as well as the
indenture (the "Indenture") that currently governs the Company's Senior
Subordinated Notes (the "Senior Subordinated Notes"). As a result of these
restrictions, the ability of the Company to secure additional financing, if
needed, is constrained, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. See
"Common Stock Repurchase", "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 30 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 their 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. Over the last several
months paper prices have generally increased within the range anticipated by
the Company. 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. In particular, the Company believes
that a postal rate increase within the next twelve months is likely. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
CONTROL OF THE COMPANY
Upon completion of the Offerings and the Common Stock Repurchase, 25.3% of
the Company's Common Stock will be beneficially owned by affiliates of FS&Co.,
and 14.8% of the Common Stock 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 remain 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 two members of the Board of Directors of the Company, and
The Limited will be able to nominate
13
<PAGE>
one member. The number of directors that FS&Co. and The Limited may nominate
declines with the percentage of Common Stock held by each.
FS&Co. may, in its discretion, cause its affiliates that own shares of
Common Stock to sell, distribute to such affiliates' respective partners or
otherwise dispose of any of the remaining shares of Common Stock held by such
affiliates. However, these affiliates have agreed with the Underwriters (as
defined) not to make any offers, sales or other dispositions (including
distributions) of any shares of Common Stock for a period of 90 days from the
date of the Purchase Agreements (as defined) without the prior written consent
of Merrill Lynch on behalf of the Representatives (as defined). See "--Shares
Eligible for Future Sale", "Shares Eligible for Future Sale" and
"Underwriting".
The Stockholders Agreement contains a number of provisions that could
prevent changes in the control or management of the Company. For example,
pursuant to the terms of the Stockholders Agreement, FS&Co. and The Limited
have agreed that they will, without the consent of the other, until one year
after the date on which the Offerings and the Common Stock Repurchase have
been consummated, 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 also prohibits 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".
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 the Company maintain good relationships with many
manufacturing sources and suppliers. Moreover, the number of available
manufacturers and suppliers for special size apparel is more limited when
compared with the number available for apparel generally. Although the Company
believes that it has established excellent relationships with its principal
manufacturing sources and suppliers, the Company does not have long-term
contracts, and its future success will depend in some measure upon its ability
to maintain such relationships. The inability of the Company to source quality
goods in a timely fashion at favorable prices could have a material adverse
effect on the Company's business, financial condition and results of
operations.
In fiscal 1996, Brylane and Chadwick's made approximately 25.1% and 37.6% 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".
14
<PAGE>
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".
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 August 2, 1997, the Company had approximately 5,600 associates, including
approximately 1,200 associates of Chadwick's who were members of a labor
union. The Company's agreement with such labor union expires on December 31,
1997, and it is expected that the Company will commence negotiations for a new
agreement in the near future. 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
As of September 15, 1997, and after giving effect to the consummation of the
Offerings and the Common Stock Repurchase (including the conversion by the TJX
Noteholder of approximately $9.7 million of the Convertible Note into 352,908
shares of Common Stock in connection therewith), the Company would have had
outstanding 17,336,287 shares of Common Stock. Of these shares, the 4,000,000
shares of Common Stock sold in the Initial Public Offering and the 5,000,000
shares of Common Stock to be sold in the Offerings, as well as 770,069
additional shares of Common Stock, will be freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act") unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 7,566,218
shares of Common Stock outstanding upon completion of the Common Stock
Repurchase will be "restricted securities" as that term is defined in Rule
144. Substantially all of such restricted shares are entitled to piggyback
registration rights as well as certain demand registration rights. In
addition, substantially all of such restricted shares may be eligible for
immediate public resale pursuant to Rule 144 (subject, in the case of
affiliates, to the volume limitations contained therein) or Rule 701 of the
Securities Act; provided, that if FS&Co. were to distribute to its partners
the shares of Common Stock held by affiliates of FS&Co., such partners who are
not themselves affiliates of the Company could sell such shares pursuant to
Rule 144 without compliance with such volume limitations. Further, options to
purchase an aggregate of 99,218 additional shares of Common Stock previously
granted to employees of the Company and others were exercisable as of
September 15, 1997. The remaining options to purchase an aggregate of
1,241,010 shares of Common Stock previously granted to employees of the
Company and others began to vest and become exercisable on September 20, 1997.
The Company has caused the shares held by employees at the Company and certain
other individuals, or subject to options granted under the Company's option
plans to be
15
<PAGE>
registered under the Securities Act. Finally, 75,000 shares of preferred stock
currently held by certain executive officers of the Company that were issued
in connection with the Chadwick's Acquisition are restricted securities and
will be eligible for resale under Rule 144 (subject to applicable volume
limitations) in three equal annual installments beginning on December 9, 1997.
See "Shares Eligible for Future Sale", "Management--Stock Subscription Plans"
and "Management--Option Plans".
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. The Company has agreed not to sell any shares of its capital
stock (or any rights, options or warrants to purchase, or any securities
convertible or exchangeable into or exercisable for, capital stock), with
certain limited exceptions, for a period of 90 days following the date of the
Purchase Agreements, without the prior written consent of Merrill Lynch on
behalf of the Representatives. FS&Co., The Limited, Leeway & Co., NYNEX, the
TJX Noteholder and WearGuard, as well as the directors of the Company, have
each agreed not to sell, directly or indirectly, any of their shares
(including as a result of distributions by FS&Co. to its partners of the
shares of Common Stock held by affiliates of FS&Co.), with certain limited
exceptions, for a period of 90 days following the date of the Purchase
Agreements. In addition, certain executive officers of the Company have each
agreed not to sell, directly or indirectly, any of their shares, with certain
limited exceptions, following the date of the Purchase Agreements through
December 15, 1997.
The Company is unable to estimate the number of shares of Common Stock that
will be sold under Rule 144, Rule 701, under the employee stock plan
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.
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", "Common Stock Repurchase", "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.
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 $1.2 billion for the twelve
months ended August 2, 1997. 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
Brylane 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. The Company's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
has recently introduced and continues to develop several new catalog concepts.
For example, the Company successfully launched the Sue Brett (mature regular
size women's apparel), Bridgewater (regular size women's, men's and children's
apparel) and Jessica London (off-price special size women's apparel) catalogs,
and is also testing a catalog called Brett (regular size men's apparel).
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 Subordinated Note due 2006 of the Partnership
(approximately $9.7 million of which will be converted into 352,908 shares of
Common Stock in connection with the Offerings and the Common Stock
Repurchase). In addition, on May 16, 1997, Brylane received from TJX a
preliminary cash purchase price adjustment of $28.8 million primarily related
to a change in the net book value of the assets acquired, and on September 30,
1997, was awarded a final purchase price adjustment of approximately $4.1
million. In order to fund a portion of the cash paid in connection with the
Chadwick's Acquisition and to repay its existing indebtedness under its 1993
Bank Credit Facility, the Partnership entered into the 1996 Bank Credit
Facility. In addition, in connection with the Chadwick's Acquisition, the
Partnership received an aggregate of approximately $51.3 million in new equity
from certain affiliates of FS&Co., Leeway & Co., NYNEX and WearGuard. See
"Certain Relationships and Related Transactions--The Chadwick's Acquisition"
and "Description of Certain Financing Arrangements".
17
<PAGE>
On February 26, 1997, in connection with the Initial Public Offering, the
Partnership became a wholly-owned subsidiary of Brylane Inc. pursuant to an
exchange transaction in which Brylane Inc. acquired, directly, and indirectly
through the acquisition of wholly-owned subsidiaries, a 100% ownership
interest in the Partnership in exchange for shares of the Common Stock of
Brylane Inc. (the "Incorporation Plan"). In connection with the Incorporation
Plan, the Partnership retained all of its assets, operations and liabilities.
See "Certain Relationships and Related Transactions--The Incorporation Plan".
The executive offices of the Company are located at 463 Seventh Avenue, 21st
Floor, New York, New York 10018, Telephone: (212) 613-9500.
COMMON STOCK REPURCHASE
Concurrently with the Offerings, the Company intends to repurchase an
aggregate of 2,500,000 shares of Common Stock from the Selling Stockholders at
the Price to Public set forth on the cover page of this Prospectus. The
consummation of each of (i) the Offerings and (ii) the Common Stock Repurchase
is contingent upon the consummation of the other and the closing of the
Amended 1997 Bank Credit Facility. In September 1997, the Selling Stockholders
informed the Company that they wished to sell a portion of their shares of
Common Stock. Subsequently, a special committee of the Board of Directors of
the Company determined that it would be in the Company's best interest to
purchase a portion of the shares that such entities desired to sell, and the
Company entered into a Repurchase Agreement with each such Selling
Stockholder, a form of which is included as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Company expects the
Common Stock Repurchase to be accretive to the Company's future earnings per
share, due to the fact that the reduction of the number of shares outstanding
is expected to more than offset the impact of the additional interest expense
to be incurred in connection with the Common Stock Repurchase. See "Unaudited
Pro Forma Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Recent Developments and
Outlook". The special committee also determined that the indebtedness incurred
to finance the Common Stock Repurchase could be repaid from cash flow from
operations. As of September 15, 1997, and after giving effect to the Offerings
and the Common Stock Repurchase (including the conversion by the
TJX Noteholder of approximately $9.7 million of the Convertible Note into
352,908 shares of Common Stock in connection therewith), FS&Co., The Limited,
Leeway & Co., NYNEX, WearGuard and management of the Company would have owned
25.3%, 14.8%, 1.5%, 1.5%, 0.5% and 2.7% of the Company's Common Stock (22.9%,
13.4%, 1.3%, 1.3%, 0.5% and 2.7% if the over-allotment option is exercised in
full), respectively. See "Principal and Selling Stockholders".
The Company intends to finance the Common Stock Repurchase through the
incurrence of additional long-term debt in the aggregate principal amount of
approximately $117.4 million. In order to effect such incurrence, the Company
intends to enter into the Amended 1997 Bank Credit Facility. See "Risk
Factors--Leverage and Certain Restrictions Imposed by Lenders", "Unaudited Pro
Forma Financial Statements", "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Financing Arrangements".
USE OF PROCEEDS
All of the shares of Common Stock being offered hereby are being offered by
the Selling Stockholders. The Company will not receive any of the proceeds
from the sale of such shares.
18
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed and has been traded on the New York
Stock Exchange under the symbol "BYL" since the Initial Public Offering on
February 21, 1997. The following table sets forth, for the periods indicated,
the high and low sales prices of the Common Stock, as reported on the New York
Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997:
First Quarter (beginning February 21, 1997)................... $29.375 $21.250
Second Quarter................................................ 39.500 26.500
Third Quarter (through October 13, 1997)...................... 49.375 37.750
</TABLE>
On October 13, 1997, the last reported sale price of the Common Stock on the
New York Stock Exchange was $47.625 per share. As of October 13, 1997, there
were approximately 134 holders of the Company's Common Stock named as holders
of record by Chase Mellon Shareholder Services, LLC, the Company's registrar
and transfer agent.
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 Partnership will be restricted in
its ability to make distributions that would enable the Company to pay
dividends on the Common Stock by the terms of both the Indenture and the
Amended 1997 Bank Credit Facility. See "Description of Certain Financing
Arrangements". At August 2, 1997, the Partnership could not have made any such
distribution to the Company by virtue of the restrictions that will be
contained in the Amended 1997 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.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 2, 1997 and as adjusted to give effect to (i) the incurrence by the
Company of an additional $117.4 million of indebtedness in connection with the
Common Stock Repurchase, (ii) the use of such additional indebtedness to
effect the Common Stock Repurchase, and (iii) the conversion by the TJX
Noteholder of approximately $9.7 million of the Convertible Note into 352,908
shares of Common Stock in connection with the Offerings and the Common Stock
Repurchase. The sale of the shares offered hereby by the Selling Stockholders
will not affect the Company's capitalization. The table should be read in
conjunction with "Unaudited Pro Forma Financial Statements" of the Company and
the financial statements of the Company and Chadwick's and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AUGUST 2, 1997
--------------------------
AS
HISTORICAL ADJUSTED
---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt....................................... $ 20,000 $ 20,000
Current portion of long-term debt..................... 9,028 5,000
Long-term debt, net of current portion:
Bank Credit Facility................................ 110,841 232,260
Senior Subordinated Notes due 2003.................. 124,410 124,410
Convertible Subordinated Note due 2006.............. 20,000 10,295
--------- ---------
Total long-term debt.............................. 255,251 366,965
--------- ---------
Total debt...................................... 284,279 391,965
Series A Convertible Redeemable Preferred Stock....... 1,500 1,500
Stockholders' equity:
Stockholders' equity, net........................... 288,044 182,124
Reduction for predecessor cost carryover basis(1)... (152,067) (152,067)
Retained earnings................................... 89,064 88,623
--------- ---------
Total stockholders' equity........................ 225,041 118,680
--------- ---------
Total capitalization.............................. $ 510,820 $ 512,145
========= =========
</TABLE>
- --------
(1) The Limited's interest 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.
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 Company for
the fiscal year ended February 1, 1997 and for the twenty-six weeks ended
August 3, 1996 with the combined financial statements of Chadwick's for the
forty-five weeks ended December 7, 1996 and for the twenty-six weeks ended
July 27, 1996, respectively, and give effect to the transactions described in
the notes to these financial statements as if such transactions occurred on
February 4, 1996 (the first day of the latest full fiscal period presented)
for the statements of operations and on August 2, 1997 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 (i) the Chadwick's Acquisition, (ii) the Initial Public
Offering and (iii) the costs related to the Offerings, the Common Stock
Repurchase and the incurrence of additional indebtedness in connection
therewith. The adjustments related to the Chadwick's Acquisition include (i)
the historical financial statements of Chadwick's and the financing thereof by
the Partnership for the twenty-six weeks ended August 3, 1996 and for the year
ended February 1, 1997 (the latter to the extent not already included in the
Company's historical statement of operations) and (ii) the allocation of the
purchase price for the acquisition as appropriate. The adjustments related to
the Initial Public Offering include (i) the effects of the Incorporation Plan
and (ii) the Initial Public Offering, including the application of the $89.3
million of net proceeds received therefrom to prepay borrowings under the 1996
Bank Credit Facility. The adjustments related to the Common Stock Repurchase
include (i) the effects of the incurrence of $117.4 million of additional
indebtedness pursuant to the Amended 1997 Bank Credit Facility, (ii) the use
of such additional indebtedness to effect the Common Stock Repurchase, and
(iii) the conversion by the TJX Noteholder of approximately $9.7 million of
the Convertible Note into 352,908 shares of Common Stock in connection with
the Offerings and the Common Stock Repurchase.
The unaudited pro forma financial statements have been prepared based on the
assumptions described in the notes thereto and include assumptions relating to
the interest rate on and the borrowings under the Amended 1997 Bank Credit
Facility, and the fees and expenses with respect thereto. These amounts 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 Company and Chadwick's and notes thereto included elsewhere
in this Prospectus. Certain reclassifications among line items have been made
to the Chadwick's historical income statement 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 February 4, 1996 or August 2, 1997, respectively, nor do they
purport to indicate the results of future operations of the Company.
21
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
--------------------------------------
FISCAL YEAR TWENTY-SIX WEEKS ENDED
ENDED -------------------------
FEB. 1, 1997 AUG. 3, 1996 AUG. 2, 1997
------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales............................... $1,167,527 $ 533,525 $ 603,457
Cost of goods sold...................... 601,859 273,377 309,971
Non-recurring inventory charge.......... 1,657 -- 3,315
---------- ---------- ----------
Gross profit............................ 564,011 260,148 290,171
Operating expenses:
Catalog and advertising expense....... 279,582 134,867 137,879
Fulfillment expense................... 104,358 45,071 56,415
Support services expense.............. 82,026 36,292 43,750
Intangibles and organization cost am-
ortization........................... 10,927 5,464 5,466
---------- ---------- ----------
Total operating expenses............ 476,893 221,694 243,510
---------- ---------- ----------
Operating income........................ 87,118 38,454 46,661
Interest expense, net................... 38,218 19,241 16,974
---------- ---------- ----------
Income before income taxes and extraor-
dinary charge.......................... 48,900 19,213 29,687
Provision for income taxes.............. 18,092 7,109 10,984
---------- ---------- ----------
Income before extraordinary charge...... $ 30,808 $ 12,104 $ 18,703
========== ========== ==========
Income per share before extraordinary
charge................................. $ 1.73 $ 0.68 $ 1.05
Weighted average shares outstanding..... 17,785,589 17,784,861 17,854,671
</TABLE>
<TABLE>
<CAPTION>
AT AUG. 2, 1997
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ --
Working capital................................................. 57,517
Total assets.................................................... 690,452
Short-term debt................................................. 20,000
Long-term debt (including current portion)...................... 371,965
Stockholders' equity............................................ 118,680
</TABLE>
22
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------------------------------------
COMPANY CHADWICK'S
HISTORICAL HISTORICAL PRO FORMA INITIAL COMMON PRO FORMA
FIFTY-TWO FORTY-FIVE CHADWICK'S AFTER PUBLIC STOCK FISCAL YEAR
WEEKS ENDED WEEKS ENDED ACQUISITION CHADWICK'S OFFERING REPURCHASE ENDED
FEB. 1, 1997 DEC. 7, 1996(1) ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTMENTS FEB. 1, 1997
------------ ---------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $705,353 $462,174 $ $1,167,527 $ $ $1,167,527
Cost of goods sold...... 346,572 254,045 1,242 (2) 601,859 601,859
Non-recurring inventory
charge................. 1,657 -- 1,657 1,657
-------- -------- -------- ---------- -------- ------- ----------
Gross profit............ 357,124 208,129 (1,242) 564,011 564,011
Operating expenses:
Catalog and advertising
expense................ 186,985 92,597 279,582 279,582
Fulfillment expense..... 55,450 45,768 3,140 (3) 104,358 104,358
Support services
expense................ 54,422 27,604 82,026 82,026
Intangibles and
organization cost
amortization........... 6,518 -- 4,409 (4) 10,927 10,927
-------- -------- -------- ---------- -------- ------- ----------
Total operating
expenses............... 303,375 165,969 7,549 476,893 476,893
-------- -------- -------- ---------- -------- ------- ----------
Operating income........ 53,749 42,160 (8,791) 87,118 87,118
Interest expense, net... 24,026 5,112 13,165 (5) 37,557 (6,709)(10) 8,107 (15) 38,218
(744)(6) (420)(11) 265 (16)
(5,112)(7) (582)(12)
1,110 (8)
-------- -------- -------- ---------- -------- ------- ----------
Income before income
taxes and extraordinary
charge................. 29,723 37,048 (17,210) 49,561 7,711 (8,372) 48,900
Provision for income
taxes.................. 315 12,355 (12,355)(9) 315 2,853 (13) (3,098)(13) 18,092
18,022 (14)
-------- -------- -------- ---------- -------- ------- ----------
Income before
extraordinary charge... $ 29,408 $ 24,693 $ (4,855) $ 49,246 $(13,164) $(5,274) $ 30,808
======== ======== ======== ========== ======== ======= ==========
Income per share before
extraordinary
charge(17)............. $ 1.73
Weighted average shares
outstanding(17)........ 17,785,589
<CAPTION>
TWENTY-SIX WEEKS ENDED AUGUST 3, 1996
----------------------------------------------------------------------------------------------------
COMPANY CHADWICK'S
HISTORICAL HISTORICAL PRO FORMA INITIAL COMMON PRO FORMA
TWENTY-SIX TWENTY-SIX CHADWICK'S AFTER PUBLIC STOCK TWENTY-SIX
WEEKS ENDED WEEKS ENDED ACQUISITION CHADWICK'S OFFERING REPURCHASE WEEKS ENDED
AUG. 3, 1996 JULY 27, 1996(1) ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTMENTS AUG. 3, 1996
------------ ---------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $308,625 $224,900 $ $ 533,525 $ $ $ 533,525
Cost of goods sold ..... 149,898 122,269 1,210 (2) 273,377 273,377
-------- -------- -------- ---------- -------- ------- ----------
Gross profit............ 158,727 102,631 (1,210) 260,148 260,148
Operating expenses:
Catalog and advertising
expense................ 88,988 45,879 134,867 134,867
Fulfillment expense..... 18,380 24,853 1,838 (3) 45,071 45,071
Support services
expense................ 21,701 14,591 36,292 36,292
Intangibles and
organization cost
amortization........... 2,818 2,646 (4) 5,464 5,464
-------- -------- -------- ---------- -------- ------- ----------
Total operating
expenses............... 131,887 85,323 4,484 221,694 221,694
-------- -------- -------- ---------- -------- ------- ----------
Operating income........ 26,840 17,308 (5,694) 38,454 38,454
Interest expense, net... 10,791 2,795 7,899 (5) 18,910 (3,355)(10) 4,054 (15) 19,241
(447)(6) (210)(11) 133 (16)
(2,795)(7) (291)(12)
667 (8)
-------- -------- -------- ---------- -------- ------- ----------
Income before income
taxes and extraordinary
charge................. 16,049 14,513 (11,018) 19,544 3,856 (4,187) 19,213
Provision for income
taxes.................. 57 5,994 (5,994)(9) 57 1,427 (13) (1,549)(13) 7,109
7,174 (14)
-------- -------- -------- ---------- -------- ------- ----------
Income before extraordi-
nary charge ........... $ 15,992 $ 8,519 $ (5,024) $ 19,487 $ (4,745) $(2,638) $ 12,104
======== ======== ======== ========== ======== ======= ==========
Income per share before
extraordinary
charge(17)............. $ 0.68
Weighted average shares
outstanding(17)........ 17,784,861
</TABLE>
(Notes begin on page 26)
23
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997
------------------------------------------------------
COMPANY
HISTORICAL
TWENTY-SIX INITIAL COMMON PRO FORMA
WEEKS ENDED PUBLIC STOCK TWENTY-SIX
AUG. 2, OFFERING REPURCHASE WEEKS
1997 ADJUSTMENTS ADJUSTMENTS AUG. 2, 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................ $603,457 $ $ $ 603,457
Cost of goods sold ...... 309,971 309,971
Non-recurring inventory
charge.................. 3,315 3,315
-------- ------ ------- ----------
Gross profit............. 290,171 290,171
Operating expenses:
Catalog and advertising
expense................. 137,879 137,879
Fulfillment expense...... 56,415 56,415
Support services expense. 43,750 43,750
Intangibles and
organization cost
amortization............ 5,466 5,466
-------- ------ ------- ----------
Total operating expenses. 243,510 243,510
-------- ------ ------- ----------
Operating income......... 46,661 46,661
Interest expense, net.... 13,685 (572)(10) 4,054(15) 16,974
(35)(11) 133(16)
(291)(12)
-------- ------ ------- ----------
Income before income
taxes and extraordinary
charge.................. 32,976 898 (4,187) 29,687
Provision for income tax-
es...................... 12,742 332 (13) (1,549)(13) 10,984
(541)(14)
-------- ------ ------- ----------
Income before extraordi-
nary charge ............ $ 20,234 $1,107 $(2,638) $ 18,703
======== ====== ======= ==========
Income per share before
extraordinary
charge(17).............. $ 1.05
Weighted average shares
outstanding(17)......... 17,854,671
</TABLE>
(Notes begin on page 26)
24
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
HISTORICAL REPURCHASE PRO FORMA
AUGUST 2, 1997 ADJUSTMENTS AUGUST 2, 1997
-------------- ------------ --------------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......... $ -- $ $ --
Accounts receivable deferred bill-
ing (net)........................ 7,503 7,503
Accounts receivable............... 9,401 9,401
Inventories....................... 188,543 188,543
Paper inventory................... 18,059 18,059
Catalog costs..................... 24,676 24,676
Other............................. 5,252 5,252
--------- --------- ---------
Total current assets............ 253,434 253,434
Property & equipment, net........... 76,338 76,338
Organization & deferred financing
costs.............................. 3,979 1,325 (18) 5,304
Intangibles & other assets.......... 337,825 337,825
Deferred income taxes............... 17,551 17,551
--------- --------- ---------
Total assets.................... $ 689,127 $ 1,325 $ 690,452
========= ========= =========
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................. $ 109,370 $ $ 109,370
Accrued interest.................. 6,223 6,223
Accrued expenses.................. 41,675 41,675
Income taxes payable.............. 2,364 2,364
Reserve for returns............... 11,285 11,285
Short-term debt................... 20,000 20,000
Current portion of long-term debt. 9,028 (4,028)(19) 5,000
--------- --------- ---------
Total current liabilities....... 199,945 (4,028) 195,917
--------- --------- ---------
Long-term debt...................... 255,251 121,419 (20) 366,965
(9,705)(12)
Other long-term liabilities......... 7,390 7,390
--------- --------- ---------
Total liabilities............... 462,586 107,686 570,272
Series A Convertible Redeemable Pre-
ferred Stock....................... 1,500 1,500
Stockholders' equity:
Common stock, $.01 par value
40,000,000 shares authorized;
19,471,445 shares issued and
outstanding at August 2, 1997
(17,328,552 shares outstanding on
a pro forma basis)............... 195 3 (12) 198
Additional paid in capital, net of
loans to management investors.... 287,849 9,702 (12) 297,551
Reduction for predecessor cost-
carryover basis.................. (152,067) (152,067)
Treasury stock.................... -- (115,625)(20) (115,625)
Retained earnings................. 89,064 (441)(21) 88,623
--------- --------- ---------
Total stockholders' equity...... 225,041 (106,361) 118,680
--------- --------- ---------
Total liabilities & stockhold-
ers' equity.................... $ 689,127 $ 1,325 $ 690,452
========= ========= =========
</TABLE>
(Notes begin on page 26)
25
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) 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 forty-five weeks ended December 7, 1996. Certain reclassifications
among line items have been made to the historical statement of operations to
conform with the Company's financial statement presentation. Such
reclassifications had no effect on previously reported net income.
(2) 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.
(3) 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.
(4) Includes goodwill amortization on a straight-line basis of $179,485,000
over 40 years and amortization on a straight-line basis of the acquired
customer file of $4,020,000 over five years.
(5) Includes interest expense on the net increase in indebtedness of
$210,645,000 incurred to finance the Chadwick's Acquisition at 7.5% for the
year ended February 1, 1997 and the twenty-six weeks ended August 3, 1996. A
change of 1/4% in the interest rate payable on the outstanding balance under
the 1996 Bank Credit Facility would change annual interest expense by
approximately $527,000 before the effect of income taxes.
(6) In connection with the repayment of the 1993 Bank Credit Facility, a pro
rata portion of the deferred financing fees associated with the obligations
repaid were written off as a charge to operations. This expense was $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 $893,000.
(7) Reflects the elimination of interest expense related to the advances
from TJX.
(8) Represents amortization of deferred financing fees related to the 1996
Bank Credit Facility of $7,005,000 over the term of the debt.
(9) Reflects adjustments for federal and state income taxes as if Chadwick's
had been taxed as a Partnership during these periods.
(10) Includes a reduction of interest expense of $6,709,000, $3,355,000 and
$572,000 for the fifty-two weeks ended February 1, 1997, and the twenty-six
weeks ended August 3, 1996 and August 2, 1997, respectively, as a result of
the prepayment of $89,280,000 of indebtedness outstanding under the 1996 Bank
Credit Facility (assuming the average interest rate in effect during the
related period).
(11) In connection with the Initial Public Offering, a pro rata portion of
the deferred financing fees associated with the obligations to be repaid were
written off as a charge to operations. This expense was $2,100,000 ($1,323,000
net of tax) with a related future tax benefit of $777,000, which is realized
over the term of the underlying debt obligations for tax purposes. This non-
recurring charge has not been included in the pro forma statements of
operations. The annual reduction of amortization expense attributable to the
write-off is approximately $420,000.
(12) Reflects the conversion by the TJX Noteholder of a portion of the
Convertible Note into 352,908 shares of Common Stock in connection with the
Offerings and the Common Stock Repurchase and the related reduction of
interest expense.
(13) Reflects income taxes at a rate of 37.0% with respect to the Initial
Public Offering and the Common Stock Repurchase.
(14) 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".
26
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(15) Reflects interest expense at a rate of 6.91% on the increase of
$117,391,000 in indebtedness used to repurchase an aggregate of 2,500,000
shares of the Company's Common Stock. A change of 1/4% in the interest rate
payable on the outstanding balance under the Amended 1997 Bank Credit Facility
would change annual interest expense by approximately $293,000 before the
effect of income taxes.
(16) Represents amortization over the term of the debt of deferred financing
fees of $1,325,000 related to the replacement of the 1997 Bank Credit Facility
with the Amended 1997 Bank Credit Facility.
(17) Pro forma income per share has been calculated for all periods
presented assuming that 4,000,000 shares issued in connection with the Initial
Public Offering and 1,352,362 shares reserved for future issuance upon the
exercise of options outstanding under the Company's option plans as of August
2, 1997 were outstanding for all periods presented. The options considered as
Common Stock equivalents as determined using the treasury stock method were
386,923, 386,923 and 455,318 at February 1, 1997, August 3, 1996 and August 2,
1997, respectively. Had the August 2, 1997 stock price of $39.00 been used,
the options considered as common stock equivalents would have been 664,717 at
February 1, 1997 and August 3, 1996, and 673,862 at August 2, 1997.
Weighted average shares used to calculate net income per share for the year
ended February 1, 1997 are 19,932,681 shares prior to the Common Stock
Repurchase and 17,785,589 shares after the Common Stock Repurchase. For the
twenty-six weeks ended August 3, 1996, weighted average shares are 19,931,953
shares prior to the Common Stock Repurchase and 17,784,861 shares after the
Common Stock Repurchase, and for the twenty-six weeks ended August 2, 1997,
weighted average shares are 20,001,763 shares prior to the Common Stock
Repurchase and 17,854,671 shares after the Common Stock Repurchase.
(18) Represents payment and capitalization of fees associated with the
Amended 1997 Bank Credit Facility.
(19) Reflects the reclassification of debt from current to long-term based
on the repayment schedule contained in the Amended 1997 Bank Credit Facility.
(20) Represents borrowings under the Amended 1997 Bank Credit Facility that
will be used to finance the repurchase of an aggregate of 2,500,000 shares of
Common Stock by the Company with the associated reduction to stockholder's
equity for the treasury stock.
(21) Reflects the charge associated with the payment of fees and expenses
related to the Offerings, net of tax.
27
<PAGE>
SELECTED FINANCIAL DATA
THE COMPANY
The following table presents certain historical financial data of the
Company for the periods indicated. The balance sheet data at January 30, 1993,
July 31, 1993, January 29, 1994, January 28, 1995, February 3, 1996, and
February 1, 1997 and the statements of operations data for the fiscal years
ended January 30, 1993, January 28, 1995, February 3, 1996, and February 1,
1997 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 Company. 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 August 3, 1996 and August 2, 1997 and the statements of operations
data for the twenty-six weeks ended August 3, 1996 and August 2, 1997 have
been derived from the unaudited consolidated financial statements of the
Company. 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 the Company and related notes thereto
included elsewhere in this Prospectus. In the opinion of the Company'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 twenty-six weeks ended
August 2, 1997 may not be indicative of results to be expected for the full
year.
<TABLE>
<CAPTION>
COMBINATION OF
PREDECESSOR PARTNERSHIP HISTORICAL THE COMPANY(1)
---------------------- ----------- -------------- --------------------------------------------
TWENTY-SIX WEEKS
FISCAL TWENTY-SIX TWENTY-SIX FIFTY-TWO FISCAL YEAR ENDED ENDED
YEAR ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED -------------------------- -----------------
JAN. 30, JULY 31, JAN. 29, JAN. 29, JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1993 1993 1994 1994 1995 1996(2) 1997 1996 1997
---------- ----------- ----------- -------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT/SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS DATA:
Net sales.............. $424,523 $242,086 $247,780 $489,866 $578,530 $601,055 $705,353 $308,625 $603,457
Cost of goods sold..... 212,103 122,530 124,224 246,754 288,217 298,414 346,572 149,898 309,971
Non-recurring inventory
charge(3)............. -- -- 11,487 11,487 2,614 569 1,657 -- 3,315
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit........... 212,420 119,556 112,069 231,625 287,699 302,072 357,124 158,727 290,171
Operating expenses:
Catalog and advertis-
ing expense.......... 113,432 61,165 66,860 128,025 153,830 174,446 186,985 88,988 137,879
Fulfillment expense... 33,199 18,335 21,477 39,812 41,656 37,333 55,450 18,380 56,415
Support services ex-
pense................ 22,886 12,964 13,377 26,341 35,152 37,024 54,422 21,701 43,750
Intangibles and
organization cost
amortization......... -- -- 2,121 2,121 4,242 4,707 6,518 2,818 5,466
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating ex-
penses.............. 169,517 92,464 103,835 196,299 234,880 253,510 303,375 131,887 243,510
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income....... 42,903 27,092 8,234 35,326 52,819 48,562 53,749 26,840 46,661
Interest expense, net.. -- -- 10,060 10,060 19,576 20,624 24,026 10,791 13,685
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary charge.. 42,903 27,092 (1,826) 25,266 33,243 27,938 29,723 16,049 32,976
Provision for income
taxes(4).............. 16,700 10,600 75 10,675 89 88 315 57 12,742
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary charge.. 26,203 16,492 (1,901) 14,591 33,154 27,850 29,408 15,992 20,234
Extraordinary charge,
net of related tax-
es(5)................. -- -- -- -- -- -- 2,456 -- 4,110
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 26,203 $ 16,492 $ (1,901) $ 14,591 $ 33,154 $ 27,850 $ 26,952 $ 15,992 $ 16,124
======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA:
Income (loss) before
income taxes and ex-
traordinary charge.... $ (1,826) $ 25,266 $ 33,243 $ 27,938 $ 29,723 $ 16,049 $ 32,976
Provision for income
taxes(6).............. (676) 9,924 12,300 10,337 10,998 5,938 12,201
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary charge.. (1,150) 15,342 20,943 17,601 18,725 10,111 20,775
Extraordinary charge,
net of related taxes.. -- -- -- -- 1,547 -- 4,110
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1,150) $ 15,342 $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ======== ======== ======== ======== ======== ========
Earnings per unit/share
before extraordinary
charge................ $ 1.34 $ 1.40 $ 0.75 $ 1.07
Earnings per
unit/share............ $ 1.34 $ 1.29 $ 0.75 $ 0.86
Weighted average
units/shares outstand-
ing................... 13,107 13,366 13,420 19,452
</TABLE>
28
<PAGE>
SELECTED FINANCIAL DATA--(CONTINUED)
THE COMPANY
<TABLE>
<CAPTION>
COMBINATION OF
PREDECESSOR PARTNERSHIP HISTORICAL THE COMPANY(1)
---------------------- ----------- -------------- ------------------------------------------------
TWENTY-SIX WEEKS
FISCAL TWENTY-SIX TWENTY-SIX FIFTY-TWO FISCAL YEAR ENDED ENDED
YEAR ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED ---------------------------- ------------------
JAN. 30, JULY 31, JAN. 29, JAN. 29, JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1993 1993 1994 1994 1995 1996(2) 1997 1996 1997
---------- ----------- ----------- -------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER
DATA:
Gross profit (before
non-recurring inventory
charge) as a percentage
of net sales........... 50.0% 49.4% 49.9% 49.6% 50.2% 50.4% 50.8% 51.4% 48.6%
Catalog and advertising
expense as a percentage
of net sales........... 26.7% 25.3% 27.0% 26.1% 26.6% 29.0% 26.5% 28.8% 22.9%
EBITDA(7)............... $46,149 $28,566 $23,425 $51,991 $ 62,785 $ 57,488 $ 69,145 $ 31,808 $ 60,931
Number of catalogs
mailed................. 181,799 106,448 122,850 229,298 298,734 311,671 333,020 156,018 285,868
Names in customer
files(8)............... 6,561 6,834 7,340 8,905 10,158 21,995 10,982 22,727
Active customers(9)..... 3,708 3,826 4,189 5,159 5,308 10,034 5,358 10,352
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash equiva-
lents.................. -- -- $10,043 $ 28,495 $ 7,469 $ 3,285 $ 19,881 --
Working capital......... $23,112 $27,544 27,380 42,074 41,635 81,728 52,534 $ 53,489
Total assets............ 89,132 95,882 255,051 286,491 327,903 705,234 337,576 689,127
Short-term debt......... -- -- -- -- -- -- -- 20,000
Long-term debt
(including current
portion)............... -- -- 229,070 214,168 226,740 427,362 220,041 264,279
Partnership/Stockholder's
equity (deficit)....... 39,619 42,789 (31,333) 1,777 27,187 103,863 40,770 225,041
</TABLE>
- -------
(1) The Company's financial statements include the results of Chadwick's on a
consolidated basis from December 9, 1996, the closing date of the
Chadwick's Acquisition.
(2) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(3) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect
the fair market value of the inventory at the respective acquisition dates
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, as of February 3, 1996 for the KingSize
Acquisition, and as of August 2, 1997 for the Chadwick's Acquisition.
(4) Represents provision for income taxes as a corporate division of The
Limited during the fiscal year ended January 30, 1993 and the twenty-six
weeks ended July 31, 1993, and as a partnership for the twenty-six weeks
ended January 29, 1994, the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997 and the twenty-six weeks ended
August 3, 1996, and as a corporation for the twenty-six weeks ended August
2, 1997.
(5) Consists of deferred financing fees written-off in connection with the
repayment of the Company's 1993 Bank Credit Facility and 1996 Bank Credit
Facility. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition".
(6) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(7) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to the write-off
of deferred financing fees, and non-cash compensation expense related to
the 1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation, and is not 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.
(8) 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 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 2.4 million at June 30,
1997.
(9) 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 1.1 million at June 30, 1997.
29
<PAGE>
SELECTED FINANCIAL DATA
CHADWICK'S
The following table presents certain historical financial data of Chadwick's
for the five-year period ended January 27, 1996. The information related to
the income statement data for the years ended January 29, 1994, January 28,
1995, and January 27, 1996, and the balance sheet data as of January 28, 1995
and January 27, 1996, are derived from audited combined financial statements
of Chadwick's. The income statement data for the thirty-nine weeks ended
October 28, 1995 and October 26, 1996, and for the years ended January 25,
1992 and January 30, 1993, and the balance sheet data as of January 25, 1992,
January 30, 1993, January 29, 1994, October 28, 1995 and October 26, 1996, is
derived from unaudited combined financial statements of Chadwick's. Due to
different classifications within line items, the Chadwick's line items are not
directly comparable to those of Brylane. The information below should be read
in conjunction with "Unaudited Pro Forma 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
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
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.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
"Selected Financial Data", the "Unaudited Pro Forma Financial Statements" and
the respective financial statements of the Company and Chadwick's and related
notes thereto included elsewhere in this Prospectus. Both the Company and
Chadwick's use a 53/52 week fiscal year for financial reporting purposes.
As a result of the Chadwick's Acquisition and the application of purchase
accounting related thereto, the Company's results of operations for fiscal
1996 and the twenty-six weeks ended August 2, 1997 reflect a non-recurring
inventory charge of $1.7 million and $3.3 million, respectively, related to
the write-up of Chadwick's inventory of $5.0 million. The subsequent
amortization of such write-up into cost of goods sold reduced the Company's
gross margin in fiscal 1996 and the twenty-six weeks ended August 2, 1997. In
addition, the Company's results will reflect additional amortization expense
associated with the write-up of certain intangible assets related to the
Chadwick's Acquisition of $5.3 million per year. Furthermore, Brylane entered
into an agreement whereby a third party has committed to purchase certain
accounts receivable generated by Chadwick's deferred billing programs.
Consequently, since the Chadwick's Acquisition, accounts receivable related to
the Chadwick's catalog have been significantly lower than in Chadwick's
historical periods, and the Company's operating expenses have increased due to
costs associated with the sale of such receivables. See "Certain Relationships
and Related Transactions--Additional Agreements--Accounts Receivable Purchase
Agreement".
In addition to the 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 "Selected Financial Data".
In connection with certain amendments to options previously granted under
the 1993 Option Plan, the Company incurred non-cash compensation expense
totalling $3.1 million, of which $2.4 million was expensed in the fourth
quarter of fiscal 1996 and the remaining $0.7 million will be expensed equally
throughout fiscal 1997.
The Company used the net proceeds received from the Initial Public Offering
to prepay approximately $89.3 million of borrowings outstanding under the term
loans of the 1996 Bank Credit Facility, which resulted in an extraordinary
charge of approximately $1.3 million, net of taxes, related to the write off
of deferred financing costs. Subsequent thereto, the Company made an
additional $10.0 million of prepayments on the 1996 Bank Credit Facility prior
to April 30, 1997. On April 30, 1997, the Company replaced the 1996 Bank
Credit Facility with the 1997 Bank Credit Facility (which resulted in lower
interest expense, and an extraordinary charge of approximately $2.8 million,
net of taxes, related to the write off of deferred financing costs), and made
$2.1 million of prepayments on the 1997 Bank Credit Facility. On May 2, 1997,
the Company used an additional $10.0 million of excess cash to prepay
indebtedness outstanding under the 1997 Bank Credit Facility. Subsequent to
May 3, 1997, the Company used the $28.8 million in cash received from TJX in
connection with the preliminary purchase price adjustment, as well as cash
generated from operations, to prepay an additional $50.0 million in
indebtedness outstanding under the 1997 Bank Credit Facility. See "--Liquidity
and Capital Resources".
As a result of the Incorporation Plan, Brylane Inc. became subject to the
payment of federal and state income taxes. Previously, income tax expense was
not recorded on the books and records of Brylane, L.P.; however, payments
approximating such taxes were distributed to all of Brylane, L.P.'s partners
based upon the tax liabilities with respect to the income allocated to certain
of Brylane, L.P.'s partners. See "--Liquidity and Capital Resources" and "--
Certain Tax Matters".
31
<PAGE>
To finance the Common Stock Repurchase, the Company will enter into an
amendment to its 1997 Bank Credit Facility (the "Amended 1997 Bank Credit
Facility") and borrow approximately $117.4 million thereunder, resulting in
total outstanding indebtedness of approximately $392.0 million. See "Unaudited
Pro Forma Financial Statements". Borrowings under the Amended 1997 Bank Credit
Facility will bear interest at LIBOR plus 1.25%. The Amended 1997 Bank Credit
Facility will continue to contain financial and operating covenants including,
among other provisions, requirements that the Company maintain certain
financial ratios and satisfy certain financial tests, restrictions on the
ability to incur indebtedness, and limitations on the amount of the Company's
capital expenditures and common stock dividends. See "--Liquidity and Capital
Resources" and "Description of Certain Financing Arrangements".
RESULTS OF OPERATIONS--BRYLANE
The following tables set forth certain operating data of the Company for the
periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEAR ENDED ENDED
-------------------------- -----------------
JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1995 1996(1) 1997(2) 1996 1997(2)
-------- -------- -------- -------- --------
(UNAUDITED)
STATEMENTS OF OPERATIONS DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $578,530 $601,055 $705,353 $308,625 $603,457
Gross profit before non-recurring
inventory charge................. 290,313 302,641 358,781 158,727 293,486
Non-recurring inventory charge.... 2,614 569 1,657 -- 3,315
-------- -------- -------- -------- --------
Gross profit...................... 287,699 302,072 357,124 158,727 290,171
Operating expenses:
Catalog and advertising expense.. 153,830 174,446 186,985 88,988 137,879
Fulfillment expense.............. 41,656 37,333 55,450 18,380 56,415
Support services expense......... 35,152 37,024 54,422 21,701 43,750
Amortization of acquisitions
intangibles and organization
costs........................... 4,242 4,707 6,518 2,818 5,466
-------- -------- -------- -------- --------
Operating income.................. 52,819 48,562 53,749 26,840 46,661
Add back: Non-recurring inventory
charge(3)....................... 2,614 569 1,657 -- 3,315
Add back: Amortization of
acquisition intangibles and
organization costs(4)........... 4,242 4,707 6,518 2,818 5,466
Add back: Non-cash compensation
expense(5)...................... -- -- 2,400 -- 349
-------- -------- -------- -------- --------
Operating income before
acquisition related adjustments.. $ 59,675 $ 53,838 $ 64,324 $ 29,658 $ 55,791
======== ======== ======== ======== ========
SUPPLEMENTAL STATEMENTS OF
OPERATIONS DATA:
Operating income................. $ 52,819 $ 48,562 $ 53,749 $ 26,840 $ 46,661
Interest expense, net............ 19,576 20,624 24,026 10,791 13,685
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary charge............ 33,243 27,938 29,723 16,049 32,976
Provision for income taxes(6).... 12,300 10,337 10,998 5,938 12,201
-------- -------- -------- -------- --------
Income before extraordinary
charge.......................... 20,943 17,601 18,725 10,111 20,775
Extraordinary charge, net of tax-
es(7)........................... -- -- 1,547 -- 4,110
-------- -------- -------- -------- --------
Net income ...................... $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ======== ======== ======== ========
</TABLE>
32
<PAGE>
The following table expresses the operating data on the prior page as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-
FISCAL YEAR ENDED SIX WEEKS ENDED
------------------------ ---------------
JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1995 1996(1) 1997(2) 1996 1997
-------- ------- ------- ------- -------
<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..................... 50.2 50.4 50.8 51.4 48.6
Non-recurring inventory charge........ 0.5 0.1 0.2 0.0 0.5
----- ----- ----- ----- -----
Gross profit.......................... 49.7 50.3 50.6 51.4 48.1
Operating expenses:
Catalog and advertising expense...... 26.6 29.0 26.5 28.8 22.9
Fulfillment expense.................. 7.2 6.2 7.9 6.0 9.4
Support services expense............. 6.1 6.2 7.7 7.0 7.2
Amortization of acquisitions
intangibles and organization costs.. 0.7 0.8 0.9 0.9 0.9
----- ----- ----- ----- -----
Operating income...................... 9.1 8.1 7.6 8.7 7.7
Add back: Non-recurring inventory
charge(3)........................... 0.5 0.1 0.2 -- 0.5
Add back: Amortization of acquisition
intangibles and organization
costs(4)............................ 0.7 0.8 0.9 0.9 0.9
Add back: Non-cash compensation
expense(5).......................... -- -- 0.4 -- 0.1
----- ----- ----- ----- -----
Operating income before acquisition
related adjustments.................. 10.3% 9.0% 9.1% 9.6% 9.2%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) The Company's financial statements include the results of Chadwick's on a
consolidated basis from December 9, 1996, the closing date of the
Chadwick's Acquisition.
(3) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect
the fair market value of the inventory at August 1, 1993, the effective
date of the Brylane Acquisition, at October 1, 1995, the effective date of
the KingSize Acquisition, and at December 9, 1996 the effective date of
the Chadwick's Acquisition respectively. The increases in inventory value
had been fully amortized into cost of goods sold as of April 30, 1994 for
the Brylane Acquisition, as of February 3, 1996 for the KingSize
Acquisition, and as of August 2, 1997 for the Chadwick's Acquisition.
(4) 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. Subsequent to December 9, 1996, includes
amortization related to the Chadwick's Acquisition of $179,485,000 over a
40-year life, and a customer file of $4,020,000 over a five-year life.
(5) Represents non-cash compensation expense related to amendments to options
granted under the Brylane, L.P. 1993 Partnership Unit Option Plan.
(6) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(7) Consists of deferred financing fees written-off in connection with the
repayment of the Company's 1993 Bank Credit Facility and 1996 Bank Credit
Facility.
33
<PAGE>
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED
AUGUST 3, 1996
The following table sets forth certain historical operating data of Brylane
and Chadwick's on an unaudited combined basis for the twenty-six weeks ended
August 3, 1996 to include net sales, cost of sales and operating expenses for
Chadwick's as if the Chadwick's Acquisition had occurred on February 4, 1996
(the first day of fiscal 1996). The unaudited combined information is included
for comparative purposes only and is not meant to be indicative of what the
consolidated statements of operations data would have been had the transaction
occurred at February 4, 1996.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
-----------------
AUG. 3, AUG. 2,
1996 1997
-------- --------
<S> <C> <C>
Net sales.............................................. $533,526 $603,457
Gross profit before non-recurring inventory charge..... 260,357 293,486
Non-recurring inventory charge......................... -- 3,315
-------- --------
Gross profit........................................... 260,357 290,171
Operating expenses:
Catalog and advertising............................... 134,866 137,879
Fulfillment........................................... 43,232 56,415
Support services...................................... 37,926 43,750
Amortization of acquisition intangibles and
organization cost.................................... 5,464 5,466
-------- --------
Operating income....................................... 38,869 46,661
Add back: Non-recurring inventory charge(1)........... -- 3,315
Add back: Amortization of acquisition intangibles and
organization costs(2)................................ 5,464 5,466
Add back: Non-cash compensation expense(3)............ -- 349
-------- --------
Operating income before acquisition related and non-
recurring adjustments................................. $ 44,333 $ 55,791
======== ========
</TABLE>
The following table expresses the above operating data as a percentage of
net sales for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
---------------
AUG. 3, AUG. 2,
1996 1997
------- -------
<S> <C> <C>
Net sales................................................ 100.0% 100.0%
Gross profit before non-recurring inventory charge....... 48.8 48.6
Non-recurring inventory charge........................... -- 0.5
----- -----
Gross profit............................................. 48.8 48.1
Operating expenses:
Catalog and advertising................................. 25.3 22.9
Fulfillment............................................. 8.1 9.4
Support services........................................ 7.1 7.2
Amortization of acquisitions intangibles and
organization cost...................................... 1.0 0.9
----- -----
Operating income......................................... 7.3 7.7
Add back: Non-recurring inventory charges(1)............ -- 0.5
Add back: Amortization of acquisitions intangibles and
organization costs(2).................................. 1.0 0.9
Add back: Non-cash compensation expense(3).............. -- 0.1
----- -----
Operating income before acquisition related and non-
recurring adjustments................................... 8.3% 9.2%
===== =====
</TABLE>
34
<PAGE>
- --------
(1) The non-recurring inventory charge resulted from increasing inventory by
$4,972,000 for the Chadwick's Acquisition to reflect the fair market value
of the inventory at December 9, 1996, the closing date of the Chadwick's
Acquisition. The increase in inventory value related to the Chadwick's
Acquisition was amortized into cost of goods sold in the amount of
$1,657,000 in fiscal 1996 and $3,315,000 in the twenty-six weeks ended
August 2, 1997.
(2) 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 organization 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. Subsequent to December 9, 1996, includes
amortization related to the Chadwick's Acquisition of goodwill of
$179,485,000 over a 40-year life, and of customer file of $4,020,000 over
a five-year life.
(3) Represents non-cash compensation expense related to amendments to options
granted under the Brylane, L.P. 1993 Partnership Unit Option Plan.
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED
AUGUST 3, 1996
NET SALES. Net sales as reported for the twenty-six weeks ended August 2,
1997 increased to $603.5 million from $308.6 million in the comparable period
of fiscal 1996. The increase in net sales came principally from the inclusion
of the net sales from Chadwick's and also from the Company's other catalogs.
Net sales on a combined basis including Chadwick's for the twenty-six weeks
ended August 3, 1996 increased 13.1% to $603.5 million from $533.5 million.
The sales gain was due primarily to an increase in circulation and in an
increase in the average order size across all catalogs.
GROSS PROFIT. Gross profit for the twenty-six weeks ended August 2, 1997
increased to $290.2 million (48.1% of net sales) from $158.7 million (51.4% of
net sales) for the same period of fiscal 1996. The lower gross profit as a
percent of net sales is due to the inclusion of the Chadwick's catalogs which
have lower mark-ups on merchandise sold as compared to the Company's other
catalog titles and to a non-recurring inventory charge of $3.3 million (0.5%
of net sales) relating to the step-up of the value of inventory in connection
with the Chadwick's Acquisition.
Gross profit on a combined basis including Chadwick's for the twenty-six
weeks ended August 3, 1996 and eliminating the effects of the non-recurring
inventory charge in the twenty-six weeks ended August 2, 1997 increased to
$293.5 million (48.6% of net sales) from $260.4 million (48.8% of net sales).
The gross profit as a percent of net sales decreased 0.2 percentage points due
to higher planned markdowns and a change in the mailing date of a Fall catalog
with higher gross profit margins from July of last year to August of this
year.
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 names of
prospective customers. For the twenty-six weeks ended August 2, 1997, catalog
and advertising expense increased to $137.9 million (22.9% of net sales) from
$89.0 million (28.8% of net sales) for the same period of fiscal 1996. The
decrease on a percent of net sales basis was primarily due to the inclusion of
the Chadwick's catalog and its associated catalog and advertising expense and
net sales.
Catalog and advertising expense on a combined basis including Chadwick's for
the twenty-six weeks ended August 3, 1996 decreased on a percent of net sales
basis to 22.9% ($137.9 million) in 1997 from 25.3% ($134.9 million) in 1996.
This decrease on a percent of net sales basis was primarily due to the
renegotiation of certain printing contracts, reduced paper costs and an
increase in the sales productivity per catalog.
35
<PAGE>
FULFILLMENT EXPENSE. Fulfillment expense includes distribution center,
telemarketing, credit services and customer service expenses, partially offset
by net merchandise postage revenue. Fulfillment expense as reported for the
twenty-six weeks ended August 2, 1997 increased to $56.4 million (9.4% of net
sales) from $18.4 million (6.0% of net sales) for the same period in fiscal
1996. The increase on a percent of net sales basis was primarily due to the
acquisition of Chadwick's, which incurs higher fulfillment costs.
Fulfillment expense on a combined basis including Chadwick's for the twenty-
six weeks ended August 3, 1996 increased on a percent of net sales basis to
9.4% ($56.4 million) in 1997 from 8.1% ($43.2 million) in 1996. This increase
on a percent of net sales basis was primarily due to increased payroll in the
distribution center, telemarketing and other areas to meet increased customer
demand and to ensure a high level of customer service.
SUPPORT SERVICES EXPENSE. Support services expense includes staffing and
other administrative overhead costs associated with the operation of the
business and the license fees associated with the Company's agreements with
Sears Shop at Home. Support services expense as reported for the twenty-six
weeks ended August 2, 1997 increased to $43.8 million (7.2% of net sales) from
$21.7 million (7.0% of net sales) for the same period in fiscal 1996. The
increase on a percent of net sales basis was primarily due to the inclusion of
Chadwick's and its associated overhead costs and net sales.
Support services expense on a combined basis including Chadwick's for the
twenty-six weeks ended August 3, 1996 increased as a percent of net sales to
7.2% ($43.8 million) in 1997 from 7.1% ($37.9 million) in 1996. This slight
increase in support services expense as a percent of net sales was primarily
due to an increase in incentive compensation due to the strong performance of
the business during the Spring selling season and an increase in staffing to
support the growth of the business.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense for the twenty-six weeks ended August 2, 1997 included
$2.1 million related to the Brylane Acquisition, $0.7 million related to the
KingSize Acquisition and $2.6 million related to the Chadwick's Acquisition.
Acquisition related intangibles and organization cost amortization expense for
the twenty-six weeks ended August 3, 1996 included $2.1 million related to the
Brylane Acquisition and $0.7 million related to the KingSize Acquisition.
OPERATING INCOME. Operating income before acquisition related and non-
recurring adjustments for the twenty-six weeks ended August 2, 1997 increased
to $55.8 million (9.2% of net sales) from $29.7 million (9.6% of net sales)
for the same period of fiscal 1996. As a percent of net sales, operating
income decreased primarily as a result of the increase in fulfillment and
support service expenses partially offset by the decrease in catalog and
advertising expense, as described above.
Operating income before acquisition related and non-recurring adjustments,
on a combined basis including Chadwick's for the twenty-six weeks ended August
3, 1996 increased to $55.8 million (9.2% of net sales) in 1997 from $44.3
million (8.3% of net sales) in 1996. As a percent of net sales, operating
income increased primarily as a result of the decrease in catalog and
advertising expense, partially offset by the increase in fulfillment and
support services expense, as described above.
INTEREST EXPENSE. Interest expense, net, in the twenty-six weeks ended
August 2, 1997 increased to $13.7 million (2.3% of net sales) from $10.8
million (3.5% of net sales) for the same period of fiscal 1996 due to the
increased borrowings of $210.0 million incurred in connection with the
Chadwick's Acquisition, offset by the prepayment of debt from the proceeds of
the Initial Public Offering and other prepayments on the 1997 Bank Credit
Facility (as defined) and lower interest rates on the term loans of the 1997
Bank Credit Facility.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE. Income as reported
before income taxes and extraordinary charge increased to $33.0 million
($1.70 per share) for the twenty-six weeks ended August 2, 1997 from $16.0
million ($1.20 per share) for the same period of fiscal 1996. This increase
was due to the inclusion of Chadwick's.
36
<PAGE>
INCOME TAXES. Income taxes for the twenty-six weeks ended August 2, 1997
were $12.7 million or 38.5% of income before extraordinary charge. Income
taxes on supplemental income before extraordinary charge were $12.2 million or
37.0%. The difference between the effective income tax rate as reported and
the effective tax rate on supplemental net income relates primarily to the
allocation of loss to the Partnership for the period prior to the Initial
Public Offering. The difference between the effective tax rate on supplemental
net income of 37% and the federal statutory rate of 35% relates primarily to
state income taxes, net of federal tax benefit.
EXTRAORDINARY CHARGE. An extraordinary charge of $4.1 million ($0.21 per
share), net of tax, was recorded in the twenty-six weeks ended August 2, 1997
as a result of the early retirement of the debt outstanding under the 1996
Bank Credit Facility.
NET INCOME. After giving effect to the extraordinary charge, net income
increased to $16.1 million ($0.83 per share) for the twenty-six weeks ended
August 2, 1997 from $16.0 million ($1.19 per share) for the comparable period
of fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES. Net sales for the fifty-two weeks ended February 1, 1997
increased 17.4% to $705.4 million from $601.1 million for the fifty-three
weeks ended February 3, 1996. The increase in net sales was primarily due to
the acquisition of Chadwick's in December 1996. Excluding sales from
Chadwick's, net sales increased by 6.8% to $642.0 million for fiscal 1996 from
$601.1 million in fiscal 1995 primarily due to the acquisition of the KingSize
and Big & Tall catalogs, as well as increased sales from the Lerner catalog.
Excluding both net sales of $11.8 million related to Brylane's fifty-third
week of fiscal 1995 as well as sales from Chadwick's, net sales increased by
8.9% to $642.0 million for fiscal 1996 from $589.3 million in fiscal 1995.
GROSS PROFIT. Gross profit in fiscal 1996 improved to $357.1 million (50.6%
of net sales) from $302.1 million (50.3% of net sales) for fiscal 1995. The
gross profit for fiscal 1996 and 1995 includes the effect of non-recurring
charges of $1.7 million and $0.6 million, respectively, related to the step-up
of the value of inventory in connection with the Chadwick's Acquisition and
the KingSize Acquisition, respectively. Excluding the non-recurring inventory
charges, gross profit for fiscal 1996 improved to $358.8 million (50.8% of net
sales) from $302.6 million (50.4% of net sales) for fiscal 1995. The increase
in gross profit as a percent of net sales was primarily due to higher initial
mark-ups resulting from improved merchandise sourcing.
CATALOG AND ADVERTISING EXPENSE. For fiscal 1996, catalog and advertising
expense increased to $187.0 million (26.5% of net sales) from $174.4 million
(29.0% of net sales) for fiscal 1995. The decrease in catalog and advertising
expense as a percent of net sales in fiscal 1996 was due to a decrease in
catalog production costs per catalog produced, an increase in the sales
productivity per catalog, and the addition of the Chadwick's catalog with
lower overall advertising costs for the eight week period ended February 1,
1997.
FULFILLMENT EXPENSE. Fulfillment expense in fiscal 1996 increased to $55.5
million (7.9% of net sales) from $37.3 million (6.2% of net sales) for fiscal
1995. As a percent of net sales, fulfillment expense was higher due to
increased shipping promotions used to stimulate sales.
SUPPORT SERVICES EXPENSE. Support services expense for fiscal 1996 increased
to $54.4 million (7.7% of net sales) from $37.0 million (6.2% of net sales)
for fiscal 1995. The increase in support services expense as a percent of net
sales was due to an increase in staffing to support the growth of the business
and to an increase in the license fee paid to Sears, partially offset by an
increase in licensing revenue received from third parties.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense in fiscal 1996 included $4.2 million related to the
Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $0.9
million related to the Chadwick's Acquisition. Acquisition related intangibles
and organization cost amortization expense in fiscal 1995 included $4.2
million related to the Brylane Acquisition and $0.5 million related to the
KingSize Acquisition.
37
<PAGE>
OPERATING INCOME. Operating income before acquisition related amortization,
extraordinary charge and non-cash compensation expense in fiscal 1996
increased to $64.7 million (9.2% of net sales) from $54.2 million (9.0% of net
sales) for fiscal 1995. As a percent of net sales, operating income increased
as a result of the decrease in catalog and advertising expense as discussed
above and an increase in gross profit, partially offset by an increase in
fulfillment and support services expenses.
INTEREST EXPENSE. Interest expense, net, in fiscal 1996 increased to $24.0
million (3.4% of net sales) from $20.6 million (3.4% of net sales) for fiscal
1995 due to the effects of the borrowings of $35.0 million incurred in
connection with the KingSize Acquisition on October 16, 1995 and since
December 9, 1996, the effect of the increase in indebtedness for the financing
of the Chadwick's Acquisition, partially offset by slightly lower interest
rates on the term loans of the 1993 Bank Credit Facility.
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 $0.3 million and $0.1 million for fiscal 1996
and 1995, respectively. Upon consummation of the Incorporation Plan, the
Partnership became a wholly-owned subsidiary of the Company and, therefore,
the Partnership's earnings have since that time been attributable to the
Company and are 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 during these periods, income taxes
would have been $11.0 million for fiscal 1996 and $10.3 million for fiscal
1995.
SUPPLEMENTAL NET INCOME. If income taxes had been recorded as if Brylane was
a C-Corporation, Brylane's net income would have decreased $0.4 million to
$17.2 million for fiscal 1996 from $17.6 million for 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 $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
38
<PAGE>
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 became a
wholly-owned subsidiary of the Company and, therefore, the Partnership's
earnings have since that time been attributable to the Company and are 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 during these periods, 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.
39
<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
-------- -------- -------- -------- --------
(UNAUDITED)
(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 (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
======== ======== ======== ======== ========
The following table sets forth certain operating data of Chadwick's
expressed as a percentage of net sales for the periods indicated.
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS 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 buy-
ing 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 adminis-
trative 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,
extraordinary 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
40
<PAGE>
and inventory management that began in the second quarter of 1995, as well as
the expansion of the deferred billing program, contributed to the increase in
average order size and net sales in the thirty-nine weeks of 1996.
Cost of sales, including buying and order fulfillment costs, as a percentage
of net sales decreased to 55.7% in the thirty-nine weeks ended October 26,
1996 from 59.5% in the thirty-nine weeks ended October 28, 1995. 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
41
<PAGE>
short-term interest rates. The increased borrowings during fiscal 1995 are
primarily the result of additional working capital requirements associated
with the expansion of Chadwick's deferred billing program.
Chadwick's effective income tax rate was 40.2%, 16.8% and 39.3% in fiscal
1995, 1994 and 1993, respectively. The low level of pretax income in fiscal
1994 along with certain tax benefits in that year resulted in 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
The Company has historically met its working capital needs, principally
building inventory to meet increased sales, and its capital expenditure
requirements primarily through funds generated from operations. The Company's
liquidity requirements have also included servicing the debt incurred to
finance various acquisitions and will also include servicing the debt to be
incurred to finance the Common Stock Repurchase.
Cash flow provided by operating activities increased to $30.7 million for
the twenty-six weeks ended August 2, 1997, from $25.2 million for the twenty-
six weeks ended August 3, 1996. This increase was due to an increase in net
income, before non-cash related expenses, of $37.8 million for the twenty-six
weeks ended August 2, 1997 compared to $21.7 million in the twenty-six weeks
ended August 3, 1996. During the twenty-six weeks ended August 2, 1997, the
Company used the proceeds from its Initial Public Offering to prepay a portion
of its outstanding indebtedness by $89.3 million, and used cash from
operations and the proceeds from a preliminary purchase price adjustment to
further reduce its outstanding indebtedness by $73.9 million (which included
prepayments of $10.0 million on the 1996 Bank Credit Facility and $62.1
million on the 1997 Bank Credit Facility), as well as to effect $7.3 million
in capital expenditures as discussed further below. In addition, in July 1997
the Company borrowed $20.0 million on its Revolving Credit Facility in order
to satisfy its short-term working capital needs.
The Company's capital expenditures were $3.9 million, $7.3 million and $5.3
million for fiscal 1996, 1995 and 1994, respectively. Capital expenditures
were $7.3 million in the twenty-six weeks ended August 2, 1997 compared to
$2.1 million in the same period in fiscal 1996. The Company's capital
expenditures for the remainder of fiscal 1997 are estimated to be $5.2
million. Brylane plans to fund its capital expenditures for fiscal 1997 using
cash generated from operations.
In connection with the Chadwick's Acquisition, in December 1996 the
Partnership entered into a $408 million credit facility (the "1996 Bank Credit
Facility"). The proceeds of the 1996 Bank Credit Facility were used to fund a
portion of the cash paid upon the closing of the Chadwick's Acquisition
(including related fees and expenses) as well as to repay Brylane's then
existing indebtedness under its 1993 Bank Credit Facility. In connection with
the Initial Public Offering, and the use of the net proceeds received
therefrom, the Company repaid $89.3 million in indebtedness under its 1996
Bank Credit Facility. Subsequently, the Company made an additional $10.0
million of prepayments on the 1996 Bank Credit Facility prior to April 30,
1997.
On April 30, 1997, the Partnership entered into a credit agreement among
Brylane, Morgan Guaranty Trust Company of New York, as administrative agent
("Morgan Guaranty"), Merrill Lynch Capital Corporation, as documentation agent
("Merrill Lynch Capital"), and the other lenders party thereto, and guaranteed
by each of the Company's subsidiaries (the "1997 Bank Credit Facility") which
consists of (i) a $111.7 million four-year
42
<PAGE>
nine-month term loan (the "Tranche A Term Loan"), (ii) a $70.0 million five-
year and ten-month term loan (the "Tranche B Term Loan", and collectively with
the Tranche A Term Loan, the "Term Loans"), and (iii) a $125.0 million four-
year nine-month revolving credit facility with a $75.0 million sublimit for
letters of credit. The proceeds of the Term Loans of the 1997 Bank Credit
Facility were used to repay Brylane's existing indebtedness under the 1996
Bank Credit Facility.
The Company prepaid $62.1 million on the Tranche A Term Loan of the 1997
Bank Credit Facility during the twenty-six weeks ended August 2, 1997. In
addition, the Company made $1.8 million of scheduled payments on the Term
Loans of the 1997 Bank Credit Facility during the thirteen weeks ended August
2, 1997. As a result, as of August 2, 1997, the remaining balance of the Term
Loans was $119.9 million. In addition, as of August 2, 1997, Brylane had $20.0
million of borrowings under the revolving credit facility of the 1997 Bank
Credit Facility and, after giving effect to the issuance of letters of credit
for $53.2 million which the Company intends to pay through funds generated
from operations, had additional capacity under the revolving credit facility
of approximately $51.8 million.
To finance the Common Stock Repurchase, the Company expects to enter into
the Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit Facility
will be comprised of (i) a $175.0 million five-year amortizing Term Loan, and
(ii) a $200.0 million (subject to a borrowing base limit) five-year revolving
credit facility with a $75.0 million sublimit for letters of credit (the
"Revolving Credit Facility"). The proceeds of the term loan would be available
to provide a portion of the funds necessary to effect the Common Stock
Repurchase, as well as to repay Brylane's existing indebtedness under its 1997
Bank Credit Facility. The Revolving Credit Facility could be used for general
corporate purposes, including working capital needs, letters of credit and
permitted acquisitions, and would be available to provide a portion of the
funds necessary to effect the Common Stock Repurchase. In addition, the
Company contemplates that the Amended 1997 Bank Credit Facility will include a
$15.0 million "Swingline Facility" (borrowings under which, while outstanding,
would reduce availability under the Revolving Credit Facility). In connection
with the Common Stock Repurchase, the Company expects to borrow approximately
$117.4 million, and borrowings under the Amended 1997 Bank Credit Facility
would be approximately $257.3 million. See "Unaudited Pro Forma Financial
Statements". The Amended 1997 Bank Credit Facility would contain the same rate
schedule as the current 1997 Bank Credit Facility, and would continue to
contain financial and operating covenants including, among other provisions,
requirements that the Company maintain certain financial ratios and satisfy
certain financial tests, restrictions on the ability to incur indebtedness,
and limitations on the amount of the Company's capital expenditures and common
stock dividends.
After giving effect to the Common Stock Repurchase and the incurrence of
additional indebtedness in connection therewith, scheduled principal payments
on the term loan of the Amended 1997 Bank Credit Facility, as proposed, will
aggregate approximately $10.0 million in fiscal 1998. There will be no
scheduled principal payments in fiscal 1997 on the term loan of the Amended
1997 Bank Credit Facility. See "Unaudited Pro Forma Financial Statements" and
"Description of Certain Financing Arrangements--Bank Credit Facility".
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 1997 Bank Credit Facility and the Indenture
contain covenants (the "Covenants"), and the Amended 1997 Bank Credit Facility
will contain covenants, that, among other things, restrict the Partnership's
ability to incur debt, make distributions, incur liens, make capital
expenditures and make investments or acquisitions. See "Description of Certain
Financing Arrangements". Brylane's capital expenditures through the second
quarter of fiscal 1997 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 on January 27, 1997, the
"Receivables Purchase Agreement") pursuant to which ADS has agreed to purchase
from the Company eligible customer accounts receivable generated through
Chadwick's deferred billing programs. ADS' commitment to purchase receivables
is limited to $100.0 million outstanding at any time. ADS will purchase the
receivables on a limited recourse basis at a discount from face value. The
Company will pay
43
<PAGE>
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 1997 Bank Credit
Facility. See "Certain Relationships and Related Transactions--Additional
Agreements--Accounts Receivable Purchase Agreement".
Based on current and projected operating results and giving effect to the
increase 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
Amended 1997 Bank Credit Facility), and planned capital expenditures for the
foreseeable future. In addition, the Company will have availability under the
revolving credit facility of the Amended 1997 Bank 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 1997
------------------------------------ ----------------------------------- -----------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.(1) QTR. QTR.
BRYLANE -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $143,195 $150,784 $141,226 $165,850 $150,680 $157,945 $158,384 $238,344 $328,801 $274,656
Operating income(2)..... 11,186 17,891 7,962 16,799 11,682 17,976 14,201 20,465 28,996 26,795
Operating margin........ 7.8% 11.9% 5.6% 10.1% 7.8% 11.4% 9.0% 8.6% 8.8% 9.8%
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>
- --------
(1) The Company's statement of operations data for this quarter includes the
results of Chadwick's on a consolidated basis from December 9, 1996, the
closing date of the Chadwick's Acquisition.
(2) 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
44
<PAGE>
(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.
The Partnership has elected under Section 754 of the Internal Revenue Code
of 1986, as amended (the "Code"), for its 1996 tax year to increase the tax
basis of its assets by approximately $47.4 million to reflect the federal tax
gain that The Limited and its affiliates recognized in connection with its
contribution to the Company of its partnership interest 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
does not require a comparable basis adjustment in the Company's financial
statements, but the future tax benefit that the Company will recognize through
the amortization thereof for tax purposes has been included in a deferred tax
asset of approximately $17.6 million.
TAX DISTRIBUTION. To the extent that the partners of the Partnership, other
than The Limited, Leeway & Co., NYNEX and WearGuard, recognized taxable income
resulting from the allocation of income of the Partnership prior to the
Initial Public Offering, pursuant to the Partnership Agreement, such partners
received a distribution to cover their federal and state tax liabilities
attributable thereto. Since such a distribution was paid, The Limited, Leeway
& Co., NYNEX and WearGuard also received a proportionate distribution to cover
their respective tax liabilities on their respective share of the same amount
of Partnership income. During fiscal 1996, the Partnership made advances to
its partners totaling $9.9 million with respect to their tax liabilities.
These advances approximate the tax payments the Partnership would be required
to make if it were a tax-paying corporation, rather than a partnership.
Subsequent to the Initial Public Offering, the Company will file tax returns
on a consolidated basis, and as such, Brylane, L.P. will continue to make tax
distributions to its general partner, VGP Corporation, a Delaware corporation
("VGP"), and to its limited partner, VLP Corporation, a Delaware corporation
("VLP"), both of which are wholly-owned subsidiaries of VP Holding
Corporation, a Delaware corporation and wholly-owned subsidiary of the Company
("VP Holding").
ADOPTION OF ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for periods ending after December 15, 1997. SFAS
No. 128 simplifies the computational guidelines for earnings per share
calculations, and revises the disclosure requirements. The Company has not yet
determined the effects that the change in the computational guidelines will
have on their primary and fully diluted earnings on a per share basis.
45
<PAGE>
BUSINESS
GENERAL
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.2 billion for the twelve
months ended August 2, 1997. 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
Brylane 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. The Company's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
has recently introduced and continues to develop several new catalog concepts.
For example, the Company successfully launched the Sue Brett (mature regular
size women's apparel), Bridgewater (regular size women's, men's and children's
apparel) and Jessica London (off-price special size women's apparel) catalogs,
and is also testing a catalog called Brett (regular size men's apparel).
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.
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 $642.0 million
in fiscal 1996, representing a compound annual growth rate of 10.9%. 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 $525.6 million in fiscal 1996,
representing a compound annual growth rate of 15.5%.
As a result of the growth of its established catalogs, as well as the
introduction of certain new catalogs, the Company's net sales for the twenty-
six weeks ended August 2, 1997 increased 13.1% to $603.5 million from $533.5
million (on a pro forma basis) in the comparable period of fiscal 1996. For
the twenty-six weeks ended August 2, 1997, pro forma operating income
(excluding non-recurring and extraordinary items) increased 27.1% to $55.8
million from $43.9 million (on a pro forma basis excluding non-recurring and
extraordinary items) in the comparable period of fiscal 1996. The Company's
results for the twenty-six weeks ended August 2, 1997 have benefited from
favorable customer response and an increase in the average order size across
all of the Company's catalogs. In addition, in the twenty-six weeks ended
August 2, 1997, the Company used the proceeds from its Initial Public Offering
to prepay a portion of its outstanding indebtedness by $89.3 million, and used
cash from operations and the proceeds from a preliminary purchase price
adjustment to further reduce its outstanding indebtedness by $73.9 million
(including $72.1 million in prepayments), resulting in lower interest expense.
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. The
Company has begun to capitalize on several opportunities presented by the
Chadwick's Acquisition 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 across all of its catalog titles 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
46
<PAGE>
substantial and loyal customer base. The Company's combined customer file has
grown to over 22 million names as of June 30, 1997 (which includes 2.4 million
names from the Sears customer file and gives effect to the acquisition of
Chadwick's), of which approximately 10.4 million are active customers who have
placed an order in the preceding 12 months (including 1.1 million customers
from the Sears customer file). Over 40% of the Lane Bryant, Roaman's and
Lerner active customers placed an order three or more times during the
12 months ended June 30, 1997.
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 45% of Lane Bryant and Roaman's net sales of women's special
size apparel and approximately 60% of KingSize's net sales of men's special
size apparel in 1996. The Chadwick's catalog offers a broad selection of
high quality branded and private label apparel in a large array of colors
and sizes at prices typically 25% to 50% below the regular prices of
department and specialty retail stores.
. Maintain Strong Sourcing Capabilities and Disciplined Inventory Control
The Company has established excellent, long-standing relationships with a
number of apparel manufacturers and suppliers, both domestically and
internationally. The Company believes these relationships are a major
reason that it is able to offer merchandise of high quality and consistent
fit at an excellent value. The Company's disciplined inventory control
systems are designed to maintain inventory levels that provide optimum in-
stock positions, while maximizing inventory turnover rates and minimizing
the amount of unsold merchandise at the end of each season.
. Maintain Highly Efficient Telemarketing, Fulfillment and Distribution
Operations
The Company focuses on providing superior customer service through a well
trained telemarketing staff and services its customers through two state-
of-the-art fulfillment centers. In order to manage the high number of SKUs
required to provide the broad selection of merchandise offered in its
catalogs, the Company has developed highly sophisticated and efficient
order fulfillment and inventory management methods. Chadwick's is currently
installing a new state-of-the-art order entry system that will provide its
telemarketing representatives with on-line customer and merchandise
information that will enable Chadwick's to increase its cross-selling
efforts and improve its customer service.
. 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.
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Catalog sales have been the fastest growing channel of retail apparel sales.
From 1995 to 1996, catalog women's apparel sales increased by approximately
7.6% to $8.2 billion, while overall retail women's apparel sales increased by
approximately 5.1% to $85.1 billion. The percentage of the U.S. adult
population that made a purchase through a catalog has increased to 57.2% in
1996 from 41.0% in 1993. The Company believes that catalog sales of apparel
will continue to increase because the busy lifestyles of today's women and men
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
1995 to 1996, women's special size apparel sales increased by 6.0% and big and
tall men's apparel sales increased by 19.7%. The Company 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, the Company believes that catalog shopping is particularly well
suited to special size customers, who the Company 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.
GROWTH STRATEGY
The Company's growth strategy is to increase its sales and profits by
capitalizing on the growing catalog industry and effectively executing its
business and merchandising strategies.
. Continuing to Realize 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 during the introduction of new merchandise
categories), and introducing private label credit cards to Chadwick's
customers. The Company has already begun to capitalize on opportunities to
leverage its combined purchasing power, particularly in the procurement of
paper and telecommunications services, merchandise sourcing, MIS processing
and development, and insurance.
. 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, to
freshen the appeal of each catalog's assortment of merchandise, and to
stimulate 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 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 is currently
expanding the use of these programs to its other catalogs.
. 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 and Chadwick's is testing
increasingly sophisticated statistical circulation models to improve their
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.
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. Expanding the Customer File
The Company plans to increase the number of names in its customer file
through cost effective prospecting programs, including cable television
advertising and the segmentation of the over 30 million name file of Sears,
Roebuck and Co. In addition, 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 recent catalog additions such as Bridgewater
and Jessica London broaden the Company's catalog portfolio and provide
substantial opportunities for growth. As a result of these catalogs'
performance, the Company expects to increase their circulation
significantly.
. Introducing or Acquiring New Catalogs
The Company intends to continue to evaluate opportunities to introduce
new catalogs, such as Brett, which the Company began mailing in October
1997. Brylane's female customers have demonstrated a propensity to purchase
the offerings of men's apparel included in inserts in Brylane's catalogs.
The Company may also selectively pursue strategic acquisitions that either
expand or complement the Company's existing business.
CUSTOMERS
The Company has a substantial and loyal customer base. As of June 30, 1997,
the Company's combined customer file contained over 22 million names
(including 2.4 million names from the Sears customer file and giving effect to
the acquisition of Chadwick's), of which approximately 10.4 million are active
customers (including 1.1 million customers from the Sears catalog customer
file). Over 40% of the Lane Bryant, Roaman's and Lerner active customers
placed an order three or more times during the 12 months ended June 30, 1997.
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. Certain of
the Company's customers purchase from more than one of the Company's catalogs
and are therefore considered to be a separate customer of each such catalog.
The following table presents the Company's unaudited combined pro forma net
sales for fiscal 1996 for each of the Company's catalog concepts (dollars in
millions).
<TABLE>
<CAPTION>
CATALOG AMOUNT PERCENT
------- ------ -------
<S> <C> <C>
Chadwick's(1)................................................. $ 526 45.0%
Lane Bryant and Roaman's...................................... 409 35.1
Lerner........................................................ 105 9.0
Sears Catalogs(2)............................................. 87 7.4
KingSize...................................................... 28 2.4
Sue Brett..................................................... 13 1.1
------ -----
$1,168 100.0%
====== =====
</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 high quality
merchandise at prices well below those offered by department and specialty
stores. In addition, Chadwick's has expanded its merchandise offerings to
target women who wear petite and special size apparel (sizes 2 to 26). Brylane
believes that the median age of the Chadwick's customer is 42, and that the
typical customer has an income level equal to or above the national average.
As of June 30,
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1997, the Chadwick's customer files contained 11.0 million customer names, of
which 4.6 million names are active customers. The average order by a
Chadwick's customer during fiscal 1996 was approximately $99.
LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's catalogs target
value-conscious women who wear special sizes (sizes 14 to 56). The Company
believes that the median age of its women's special size customer segment is
51, and that the typical customer has an income level somewhat below that of
the national average. As of June 30, 1997, the Lane Bryant and Roaman's
customer files contained 4.2 million and 2.0 million customer names,
respectively, of which 2.2 million and 1.0 million names are active customers
of Lane Bryant and Roaman's, respectively. The average order by a Lane Bryant
or Roaman's customer during fiscal 1996 was approximately $74 and $73,
respectively.
LERNER. The Lerner catalog targets younger, value conscious women age 25 and
up who wear sizes 4 to 18 and purchase at budget to moderate prices. The
Company believes that the median age of the Lerner customer is 38, and that
the average Lerner customer has an income level approximately equal to the
national average. As of June 30, 1997, the Lerner customer file contained 2.5
million customer names, of which 1.1 million are active customers. The average
order by a Lerner customer during fiscal 1996 was approximately $74.
SEARS CATALOGS. Through its licensing agreement with Sears, the Company has
expanded its customer base by offering Lane Bryant, Roaman's, Lerner, Sue
Brett and KingSize merchandise through its Sears versions of these catalogs to
selected individuals from the over 30 million name customer file of Sears,
Roebuck and Co. who are not existing customers of the Company. 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
June 30, 1997, the Sears catalogs customer file contained 2.4 million customer
names, of which 1.1 million are active customers. The average order by a Sears
customer during fiscal 1996 was approximately $72 for women's apparel and $100
for men's apparel. See "--Sears Agreement".
KINGSIZE. The KingSize catalog targets value-conscious men who wear special
sizes (sizes XL to 9XL). The Company believes that the median age of its men's
special size customer segment is 52, and that the typical KingSize customer
has an income level above the national average. As of June 30, 1997, the
KingSize customer file contained 344,000 customer names, of which 169,000 are
active customers. The average order by a KingSize customer during fiscal 1996
was approximately $97.
SUE BRETT. The Sue Brett catalog targets mature regular size women who wear
sizes 8 to 24. The Company 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 June 30, 1997, the Sue Brett
customer file contained 337,000 customer names, of which 212,000 are active
customers. The average order by a Sue Brett customer during fiscal 1996 was
approximately $67.
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 across all of its catalog titles is (i) to
provide value-priced apparel with a consistent quality and fit, (ii) to
concentrate on apparel with limited fashion risk, and (iii) to offer a broad
selection of sizes, styles and colors. The Company intends to continue to
refine and broaden its merchandise offerings in order to satisfy the apparel
needs of its customers, to freshen the appeal of each catalog's assortment of
merchandise and to stimulate increased sales.
CHADWICK'S. The Company believes that Chadwick's 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 1996
was approximately $27. Chadwick's offers nationally recognized brand names,
including Pierre Cardin, Herman Geist, JG Hook and Blassport. The private
label brand names featured in the
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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 22% of Chadwick's net sales in 1996.
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 45% of Lane
Bryant and Roaman's net sales are in sizes 26 or larger. Lane Bryant and
Roaman's catalogs offer 90,600 and 53,400 SKUs, respectively, in sizes 14 to
56. The average price point per item sold by both Lane Bryant and Roaman's in
fiscal 1996 was approximately $22.
Each of the special size women's catalogs offers a broad mix of apparel. In
1996, sportswear, intimate apparel and dresses accounted for approximately
51%, 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,
traditional and basic women's apparel in sizes 4 to 18. Compared to
Chadwick's, the Lerner catalog targets a younger customer and offers slightly
more fashion forward merchandise. Recently, the Company has made significant
changes to the merchandise offerings contained in its Lerner catalog,
including the addition of an increased number of career wear selections and
additional sizes. The average price point per item sold by Lerner in fiscal
1996 was approximately $23.
In 1996, sportswear, dresses and outerwear accounted for approximately 66%,
22% and 6% 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 catalog include, among
others, David Benjamin and Forenza, which Brylane uses under license from The
Limited, as well as certain other private label brand names which are owned by
certain of Brylane's vendors. See "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
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of the merchandise in the KingSize catalog has limited fashion risk. The
Company believes that KingSize offers a broader selection of sizes and styles
than most specialty and department stores and competing catalogs.
Approximately 60% of KingSize's sales (including Big & Tall) are in sizes 3XL
or larger. The average price point per item sold by KingSize in fiscal 1996
was approximately $29. In addition, the Company has been testing a catalog
format that is targeted at the regular size men's apparel segment, and expects
to mail its first stand-alone Brett catalog in October 1997.
In 1996, sportswear, underwear and outerwear accounted for approximately
67%, 11% and 10% 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 1996 was approximately $25.
In 1996, sportswear, dresses and footwear accounted for approximately 64%,
27% and 6% of Sue Brett net sales, respectively. Intimate apparel, outerwear
and accessories accounted for the balance of such net sales.
MARKETING
There are several important elements to the Company's marketing strategy.
PROMOTIONAL STRATEGIES. The Company has implemented highly effective
promotional incentives in many of its catalogs. Promotional incentives include
deferred 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 is currently expanding the use of
these programs to its other catalogs.
PRIVATE LABEL CREDIT CARDS. The Company views the use of credit as an
important marketing tool with existing and new customers, and believes that it
provides the Company with a competitive advantage over the catalog retailers
that do not employ similar programs. Approximately 91.3% of Brylane's fiscal
1996 sales (including sales from Brylane's Sears catalogs) were paid for using
credit cards. The Company estimates that in fiscal 1996, credit purchases per
order of Brylane's women's apparel were on average $78 or 47.8% greater than
those made with cash. In addition, approximately 63.7% of Brylane's fiscal
1996 sales (excluding sales from Brylane's Sears catalogs) from the Lane
Bryant, Roaman's, Lerner, Sue Brett and KingSize catalogs were paid for using
Brylane's private label credit cards. The Company estimates that Brylane's
private label credit card customers spend approximately 50% more than its
customers who use bank cards and approximately 73% 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
52
<PAGE>
Chadwick's sales through the introduction of a Chadwick's private label credit
card, which it began testing in July 1997.
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. The Company 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. The Company
currently employs customer file segmentation analyses based on the recency,
frequency and monetary value of past purchases to create catalog circulation
strategies that are designed to increase customer response rates and average
sales per catalog. Brylane has recently installed and is currently testing a
modeling and scoring software program that uses more sophisticated multi-
variable regression analyses to create its predictive purchasing models. This
program employs 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 testing increasingly sophisticated
statistical circulation models to improve its ability to predict customer
purchase behavior based on a wide range of variables. The Company believes
that its ability to better predict customer purchasing behavior maximizes the
effectiveness of its catalog mailings to current and prospective customers.
CUSTOMER ACQUISITION. The Company's prospect acquisition programs are
designed to attract new customers in a cost effective manner. The Company
utilizes various sources to acquire new names, including list rentals or
purchases from competitors and related catalog concepts; access to lists of
credit card holders of The Limited's Lane Bryant and Lerner retail stores;
licensing arrangements; magazine solicitations; cable television advertising;
promotional inserts; friends' name cards inserted in mailed catalogs; and
reactivation of previous customers of the Company. The Company has recently
implemented a program of cable television advertising to solicit catalog
requests for its KingSize catalog, 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, the Company has increased 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 30 million name Sears, Roebuck and Co.
customer file to increase its success rate with prospects.
CUSTOMER SERVICE AND TELEMARKETING. Providing superior service to customers
is a key element of the Company's marketing strategy, and is supported by the
Company's toll-free telephone service for orders and
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<PAGE>
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 1994, 1995 and
1996 was 24.2%, 22.6% and 22.6% respectively, of shipped sales. The return
rate for Chadwick's (which includes exchanges) for fiscal 1994, 1995 and 1996
was 26.5%, 25.0% and 27.8%, respectively, of shipped sales.
The Company's telemarketing operations are conducted at Indianapolis,
Indiana, Greenwood, Indiana, San Antonio, Texas and West Bridgewater,
Massachusetts. The Company's telemarketing operations are open 24 hours a day,
seven days a week, and currently have an aggregate of approximately 1,700
telemarketing/customer service stations. In fiscal 1996, these facilities
processed approximately 29 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
$24.0 million in net sales during fiscal 1996 and $14.1 million for the
twenty-six weeks ended August 2, 1997.
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. Brylane has the ability to reroute calls
between each catalog's telemarketing groups and Brylane's three telemarketing
centers during periods of heavy activity. In addition, in June 1996, Brylane
renegotiated its agreement with its long-distance telephone service provider
to, among other things, reduce the rates charged to Brylane for its long-
distance telephone service.
Chadwick's is installing a new state-of-the-art order entry system that
provides its customer service representatives with on-line catalog information
and data on customer orders and past purchases. This additional information is
expected to increase the ability of Chadwick's sales representatives to
personalize transactions, market additional products that complement the
purchases being made by the customer and recommend alternatives for items that
are either unavailable or on back order. Chadwick's new system utilizes
"universal agents" that receive both telephone orders and customer service
calls, and which the Company believes will lead to an increase in
productivity. Chadwick's also expects that this new system will permit it to
process orders more efficiently.
FULFILLMENT, DELIVERY AND CATALOG PRODUCTION
Through its fulfillment, delivery and catalog production methods, the
Company works to maintain its position as a low-cost operator in the catalog
industry.
FULFILLMENT CENTERS. The Company's commitment to customer service is
supported by its 750,000 square foot Indianapolis, Indiana fulfillment center,
which supports its Brylane catalogs, and its 700,000 square foot West
Bridgewater, Massachusetts facilities, which support its Chadwick's catalogs.
Designed to process and ship customer orders rapidly and in a cost effective
manner, each fulfillment center utilizes high speed conveyor belts, laser beam
bar code scanning and tilt tray sorters. The Indianapolis facility processed
approximately 17.5 million shipments in fiscal 1996. In the fall of 1994,
Brylane developed and implemented "one-pass picking", a highly
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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
$2.7 million project to replace the original tilt tray sorter, which
replacement became operational in the fourth quarter of 1996. The West
Bridgewater facility processed over 12.5 million shipments in 1996 and has the
capacity to process approximately 40% more shipments before any capital
expansion of the center will be required.
DELIVERY. The Company minimizes order delivery costs through careful
management of its shipping techniques. For example, third and fourth class
mailing costs, which accounted for approximately 81.9% of Brylane's orders
shipped from the Indianapolis facility in fiscal 1996, 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 up to 21 USPS drop points around the country,
where the packages enter the USPS system for delivery to customers. In
addition to third class and fourth class mail delivery, the Company offers
United Parcel Service ("UPS") delivery and UPS Express Delivery.
CATALOG PRODUCTION. The Company closely manages the catalog production
process to control printing and mailing costs while maintaining attractive and
effective catalog presentations. The Company has contracts with various
printers which cover its production requirements and afford protection against
certain cost increases. The Company also employs bulk sorting and drop
shipping of catalogs to take maximum advantage of available USPS rate
discounts.
PRIVATE LABEL PURCHASING AND VENDOR RELATIONSHIPS
Brylane emphasizes private label merchandise, which accounted for
approximately 85.8% of Brylane's net sales in fiscal 1996. Brylane's private
label apparel and accessories produce higher gross profit margins than the
national brand merchandise found in its catalogs. The emphasis on private
label merchandise also affords Brylane greater control over the manufacturing
process, allowing it to achieve 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. The Company
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 54.2% of Chadwick's net
sales in fiscal 1996. The Company's private label merchandise is sourced from
a diverse group of established vendors who work directly with the Company's
buyers and are provided with rigorous design specifications and quality
control procedures. The Company is the major customer of and has long-standing
relationships with many of its private label and national brand vendors,
resulting in close and cooperative working relationships and enabling the
Company to obtain merchandise at favorable prices. Brylane's 10 largest
vendors accounted for 24.1% of purchased merchandise in fiscal 1996. No single
supplier, however, accounted for more than 5.1% of merchandise purchased by
Brylane in fiscal 1996. Chadwick's 10 largest vendors accounted for 48.2% of
purchased merchandise in fiscal 1996. No single supplier, however, accounted
for more than 7.6% of merchandise purchased by Chadwick's in fiscal 1996.
During fiscal 1996, Brylane and Chadwick's made approximately 25.1% and 37.6%
of their respective merchandise purchases 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
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markets and offerings by other catalog and retail stores in an effort to
ensure that the Company's offerings are competitive in design and price. To
improve purchasing efficiency, the Company also relies on "pre-mailing"
programs (i.e., limited catalog distribution prior to the start of a selling
season) to test customer acceptance of new product offerings.
INVENTORY MANAGEMENT
The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions, while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at
the end of each season. The Company maintains higher inventory levels for
basic apparel items which are not generally fashion sensitive. Inventory
levels for items with greater fashion risk are maintained at lower levels,
with the goal of selling all such merchandise prior to the end of a season.
The Company's disciplined inventory control systems enable it to maintain
minimum inventory levels, which the Company is able to replenish quickly as a
result of its close relationships with its domestic suppliers. These lower
levels of inventory enable the Company to avoid excessive markdowns and to
reduce its losses on overstocks at the end of each selling season. When
overstocks do occur, Brylane is generally successful in selling the goods
through relationships it has established with 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 1994, 1995 and 1996, cancellations were 4.9%, 5.1% and 5.0%,
respectively, of the total dollar value of orders received for the Brylane
catalogs and 3.9%, 5.1% and 5.4% 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 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
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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 30 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 provides,
with certain exceptions, 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 Brylane Inc., 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
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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. As a result of the Offerings and the Common Stock
Repurchase, The Limited will hold less than 20% of the outstanding Common
Stock of the Company; consequently, these noncompetition provisions will no
longer be applicable. 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., Bridgewater, Jessica London
and Brett 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., Bridgewater,
Jessica London and Brett trademarks, and the Classics name, only on the covers
of its catalogs and in general advertising and promotional materials, and not
as labels or tags on any garments or other merchandise it distributes. The
Company's other owned and licensed trademarks, including Sue Brett, KingSize,
Peak Performance, Hunters Run, David Benjamin, Lasting Comfort, 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 August
2, 1997, the Company employed (directly or indirectly through its
subsidiaries) approximately 5,600 individuals, including part-time and full-
time associates. During peak sales periods, the Company hires approximately
650 additional part-time and temporary associates. Approximately 1,200 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 in the near future. The
Company considers its labor relations and overall employee relations to be
good.
PROPERTIES
The principal executive offices of the Company are located in New York, New
York in approximately 90,000 square feet of leased office space. The Company
owns its 750,000 square foot fulfillment and telemarketing center located on
approximately 26 acres of land in Indianapolis, Indiana and leases an
additional 125,000 square feet of warehouse space in Plainfield, Indiana. The
Company also leases approximately 73,000 square feet in San Antonio, Texas,
and approximately 13,400 square feet in Greenwood, Indiana, for telemarketing
operations related to the Brylane catalogs. The executive offices of the
Company's KingSize operations are located in Hingham, Massachusetts in
approximately 8,000 square feet of leased office space. In addition, the
executive offices, telemarketing center, warehouse and fulfillment center of
the Company's Chadwick's operations are located in a Company-owned facility in
West Bridgewater, Massachusetts that
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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 has
recently entered into a lease for a 330,000 square foot facility to be
constructed in Taunton, Massachusetts that the Company will use for returns
processing and customer service related to Chadwick's and that will replace
the 126,000 square foot West Bridgewater facility. The Company intends to take
possession of the Taunton facility immediately upon its completion, which the
Company currently anticipates will occur in February 1998. 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 that its existing and planned facilities will
provide capacity sufficient to handle its anticipated growth for the next
several years.
REGULATORY MATTERS
The Company currently collects sales and use tax on merchandise sales in the
states of Indiana, Maryland, Massachusetts, New York and Texas, because the
Partnership has physical presence in those states, and in the state of Florida
because of a written agreement with that state which is effective through
September 1997. Prior to June 30, 1996, the Partnership collected applicable
sales and use taxes in approximately 41 states, regardless of whether the
Partnership was otherwise required to collect such taxes in those states,
generally pursuant to a Multistate Sales Tax Agreement, dated as of January 1,
1988, among the Partnership, the Multistate Tax Commission and a consortium of
35 states represented by the Multistate Tax Commission which governed the
Brylane business when it was acquired by the Partnership. In March 1996, the
Partnership advised the Multistate Tax Commission, based on advice received
from legal counsel, that it was not extending the Multistate Sales Tax
Agreement beyond its expiration date of June 30, 1996. Based upon present law,
the Company believes that it is not generally required to collect and remit
sales and use taxes on merchandise sold in states in which it does not have a
physical presence, absent the Multistate Sales Tax Agreement. It is possible
that there may be a judicial decision or that Congress may pass legislation in
the future permitting states in which the Company does not have 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 48%
(with an average rate of 18.0%) of appraised value on certain items of
inventory. During fiscal 1996, Brylane and Chadwick's made approximately 25.1%
and 37.6% 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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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE BRYLANE ACQUISITION
On August 30, 1993, affiliates of FS & Co. (the "FS Parties") and certain
affiliates of The Limited entered into a partnership agreement (the
"Partnership Agreement") and formed Brylane, L.P., which acquired
substantially all of the assets and liabilities of 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.
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 "1993 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 by the Partnership to the TJX Noteholder of a Convertible
Subordinated Note due 2006 in the original principal amount of $20,000,000
(and bearing interest at an initial rate of 6%) (the "Partnership Note"). See
"Description of Certain Financing Arrangements--Convertible Subordinated
Note". The cash portion of the purchase price was subject to certain post-
closing adjustments. On May 16, 1997, Brylane received from TJX a preliminary
cash purchase price adjustment of $28.8 million primarily related to a change
in the net book value of the assets acquired, and on September 30, 1997, was
awarded a final purchase price adjustment of approximately $4.1 million. In
order to fund a portion of the cash paid in connection with the Chadwick's
Acquisition and to repay its existing indebtedness under its 1993 Bank Credit
Facility, the Partnership entered into the 1996 Bank Credit Facility. Also, in
connection with the Chadwick's Acquisition, the Partnership received an
aggregate of approximately $51.3 million in new equity from certain affiliates
of FS&Co., Leeway & Co., NYNEX and WearGuard. 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, 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 which shares were
exchanged for Series A Preferred Stock of the Company in connection with the
Incorporation Plan. Such Series A Preferred Stock 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. See "Description of
Capital Stock--Preferred Stock".
Also in connection with the Chadwick's Acquisition, Brylane formed C.O.B.
Management Services, Inc., a Delaware corporation ("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 will guarantee the obligations of
Brylane under the Amended 1997 Bank Credit Facility and have guaranteed the
obligations of Brylane and Brylane Capital Corp. under the Indenture for
Brylane's Senior Subordinated Notes.
THE INCORPORATION PLAN
In connection with the Initial Public Offering, the Company, certain
affiliates of FS&Co., The Limited, Lane Bryant Direct Holding, Inc., a
Delaware corporation and an affiliate of The Limited ("Lane Bryant Direct"),
WearGuard, Leeway & Co., NYNEX and the TJX Noteholder entered into an
agreement which resulted 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 Common Stock. One share
of Common Stock was issued for each partnership unit of the Partnership or
share of common stock of VP Holding (which held general and limited
partnership interests in the Partnership) and one share of Series A Preferred
Stock of the Company was issued for each share of VP Holding Preferred Stock.
In addition, the Partnership Note was replaced with a substantially similar
note issued by the Company and the Partnership, as co-obligors (the
"Convertible Note"), and all options to purchase partnership units held by
members of management and others
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were converted into options to purchase Common Stock with an identical
exercise price and substantially similar terms. Approximately $9.7 million of
the Convertible Note will be converted into 352,908 shares of Common Stock in
connection with the Offerings and the Common Stock Repurchase. Upon completion
of the Incorporation Plan, the Partnership retained title to all of its assets
and remained liable for all of its obligations, including all of the
liabilities and encumbrances related to the Senior Subordinated Notes and the
1996 Bank Credit Facility.
ADDITIONAL AGREEMENTS
TRADEMARK AGREEMENT. In connection with the Brylane Acquisition, the
Partnership became a party to the Trademark Agreement with The Limited and
certain of its affiliates (the "Licensors"), pursuant to which the Licensors
granted to the Partnership an exclusive, royalty-free license (the "License")
to use certain trademarks and trade names (collectively, the "Trademarks") in
connection with the 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) ten years after the consummation of the
Offerings and the Common Stock Repurchase, (ii) 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
(iii) 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. The Trademark Agreement may also be terminated (a) by
The Limited (i) upon 30 days' notice upon a material breach of the Trademark
Agreement by Brylane which breach remains uncured or (ii) upon the bankruptcy
or insolvency of Brylane, and (b) by the Company, upon six months' notice on
or after August 20, 1998. 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) for
purposes of calculating sales of stock in the Company or the ownership
percentage in the Company of any FS Fund (as defined) or The Limited and their
affiliates, a sale of stock or other equity interests in any affiliate of any
FS Fund or 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
any FS Fund, the Limited Stockholder or any such Equity Owner, as the case may
be. This provision does not apply to sales of equity interests in (i) The
Limited, (ii) any general or limited partner of the FS Funds, or (iii) the FS
Funds.
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 partnerships controlled by, and
affiliates of, Welsh Carson Anderson & Stowe and 40% owned by The Limited,
pursuant to which World Financial provides credit to customers of Brylane,
issues credit cards to these customers bearing the Lerner(R), Lane Bryant(R) ,
Roaman's(R), Sue Brett(R) and KingSize(R) trademarks, and processes credit
card transactions for a fee equal to a percentage of the sale amount generated
by such transactions (exclusive of shipping, handling and taxes). The balance
of such amount is remitted to Brylane within two business days of its
incurrence. The fee payable to World Financial under this arrangement is
currently set at 2.4% of net sales generated using these credit cards. In the
event of a legislated or judicial reduction in the annual percentage rate that
may be charged by World Financial to cardholders, Brylane and World Financial
have agreed to negotiate in good faith an increase in the fee. In addition, in
the event that the aggregate amount of receivables generated through the use
of the credit cards exceeds $525 million, the fee shall be adjusted to
reimburse World Financial for its borrowing costs with respect to such
receivables in excess of $525 million. Furthermore, the fee may be adjusted
every six months based on the average finance charges per cardholder
statement. However, the fee may not exceed 2.5% (subject to certain
exceptions). Aggregate fees paid to World Financial by Brylane under the
Credit Card Agreement during fiscal 1996 were $10.0 million. Under the Credit
Card Agreement, World Financial determines the creditworthiness of a
particular customer based on standards consistent with past practice and
generally assumes all risks associated with the collection of receivables
generated by credit card sales without recourse to the Company. In the event
that the Credit Card Agreement should terminate as described below, however,
Brylane would be obligated to repurchase from World Financial certain then-
outstanding Lerner and Lane Bryant mail order account balances, and all
Roaman's, Sue Brett and KingSize account balances, at the face amount thereof
(subject to certain exceptions).
Pursuant to the terms of the Credit Card Agreement, Brylane is obligated to
use its best efforts to promote the use of credit cards in the Business and to
acquire new cardholders through, among other things, "instant credit", pre-
approved solicitations and applications inserted into catalogs. World
Financial has the right to review and approve any credit marketing materials
used in these promotional activities prior to their use, which approval shall
not be unreasonably withheld. The cost of these credit solicitation activities
are shared equally by Brylane and World Financial. In addition, the Credit
Card Agreement requires World Financial to provide without charge to Brylane a
list of all Lerner and Lane Bryant retail cardholders on no more than one
occasion per month. Brylane is authorized to use the lists for the purpose of
increasing its catalog mailing lists.
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 Receivables Purchase Agreement in accordance with Statement of
Financial Accounting Standards No. 125 "Accounting For Transfer and Servicing
of Financial Assets and Extinguishments of Liabilities".
NONCOMPETITION AGREEMENTS. The Stockholders Agreement provides, with certain
exceptions, that so long as The Limited holds, directly or indirectly, a 20%
equity interest in the Company, the Company may not, without The Limited's
consent, engage in any business that competes with businesses conducted by The
Limited or its affiliates as of August 30, 1993, other than in the mail order
business for women's special size apparel, moderately priced fashion apparel
and related accessories, and for moderately priced regular size or special
size men's apparel and related accessories that are substantially similar to
the products offered in the Company's KingSize 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. As a result of the Offerings and the Common
Stock Repurchase, The Limited will hold less than 20% of the outstanding
Common Stock of the Company; consequently, these noncompetition provisions
will no longer be applicable. 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 Chadwick's Acquisition, Brylane paid to an affiliate
of FS&Co. $2.5 million in fees as compensation for certain financial advisory
services. Brylane believes that the fees paid to these affiliates of FS&Co.
are comparable to the consideration which could reasonably have been
negotiated in an arm's length transaction with an unaffiliated third party.
Affiliates of FS&Co. will provide financial advisory services to Brylane
without compensation other than reimbursement for their out-of-pocket
expenses.
In connection with the Brylane Acquisition, certain affiliates of FS&Co.
agreed to loan, on demand, an aggregate of $1.0 million to VP Holding, which
obligations were evidenced by loan agreements entered into between such
affiliates of FS&Co., on the one hand, and each of VP Holding and VGP, on the
other hand, as well as the forms of no-interest demand promissory notes made
by such affiliates of FS&Co. in favor of VP Holding. Pursuant to the terms of
the loan agreements, VP Holding then contributed these demand notes to the
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capital of VGP in connection with the satisfaction of certain minimum net
worth requirements related to the treatment of the Partnership as a
partnership for federal income tax purposes. As a result of the Initial Public
Offering, these loan agreements and demand notes have been terminated, and
Brylane Inc. has entered into a similar loan agreement with VP Holding and VGP
and issued a similar no-interest demand promissory note in the principal
amount of $1.0 million to VP Holding. Pursuant to such loan agreement, VP
Holding has contributed such demand note to VGP in order to maintain the
minimum net worth of the Partnership as discussed above.
In connection with the formation of 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 Inc. Notes to Financial Statements
on page F-19 hereof, and Note A. "Related Party Transactions" of the
Chadwick's, Inc. Notes to Combined Financial Statements on page F-27 hereof.
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MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF THE BOARD OF DIRECTORS
The following individuals are the current executive officers of Brylane
Inc., 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 (3)............ 67 President, Chief Executive Officer,
Chairman of the Board and Director
William C. Johnson (2)(3)....... 57 Vice Chairman of the Board and Director
Sheila R. Garelik............... 52 President-Brylane
Robert A. Pulciani.............. 56 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
Richard L. Bennett.............. 65 Senior Vice President-Human Resources
Jessie Bourneuf................. 48 President-KingSize
William G. Brosius.............. 61 Senior Vice President-Operations/Customer
Service
Bruce G. Clark.................. 52 Senior Vice President-Telemarketing
Kevin Doyle..................... 43 Vice President/General Manager-Roaman's
Kevin McGrain................... 42 Vice President/General Manager-Sears
Business
Carol Meyrowitz................. 43 Executive Vice President-Chadwick's
Merchandising
Loida Noriega-Wilson............ 41 Vice President/General Manager-Lerner
Dhananjaya K. Rao............... 48 President and Chief Executive Officer-
Chadwick's
Jules Silbert................... 69 Senior Vice President-Marketing/New
Business Development
Arlene Silverman................ 48 Senior Vice President/General Manager-Lane
Bryant
Mark J. Doran................... 33 Director
Samuel P. Fried (1)............. 46 Director
William K. Gerber............... 43 Director
John M. Roth (1)(3)............. 39 Director
Ronald P. Spogli (1)............ 49 Director
Peter M. Starrett (1)(2)(3)..... 49 Director
</TABLE>
- --------
* As of September 15, 1997.
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Strategic Planning 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 and President
of Brylane Inc. 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. 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
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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 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-Telemarketing of Brylane and its
predecessor since May 1988. Mr. Clark also served as Senior Vice President-
MIS/Telemarketing from May 1988 to April 1997. Mr. Clark joined Brylane in
1983, and served as Vice President-MIS/Telemarketing from 1983 to May 1988.
Prior to joining Brylane, Mr. Clark was a Partner with Arthur Andersen & Co.
Mr. Doyle has been Vice President/General Manager-Roaman's since November
1996. Mr. Doyle joined Brylane in 1975 and served as Control Buyer, Assistant
Buyer, Associate Buyer, Buyer and Senior Buyer over a period of 14 years. Mr.
Doyle also served as Merchandise Director of Lane Bryant from August 1989
until September 1993 and served as General Merchandise Manager of Roaman's
from September 1993 to November 1996.
Mr. McGrain was appointed Vice President/General Manager of the Company's
Sears Business in August 1995. Mr. McGrain joined Brylane in September 1988
and was Vice President-Controller of Lerner from May 1992 to August 1995.
Ms. Meyrowitz has been Executive Vice President-Merchandising of the
Company's Chadwick's business since the Chadwick's Acquisition in December
1996. From May 1996 to December 1996, Ms. Meyrowitz served as Executive Vice
President-Merchandising of Chadwick's, Inc. From March 1991 to May 1996, Ms.
Meyrowitz served as Senior Vice President and General Merchandise Manager of
Chadwick's, Inc. Previously, Ms. Meyrowitz was General Merchandise Manager at
Chadwick's from March 1990 to March 1991, and Vice President and Senior
Merchandise Manager from January 1989 to March 1990. Prior to that, Ms.
Meyrowitz was Vice President and Divisional Merchandise Manager of the Hit or
Miss Division of TJX from 1986 to 1989, and she was a Buyer at the Hit or Miss
Division from 1983 to 1986.
Ms. Noriega-Wilson joined Brylane in April 1995 as Vice President/General
Manager-Lerner. Prior to joining Brylane, Ms. Noriega-Wilson served as Vice
President of Merchandising of Montgomery Ward Direct from February 1993 to
February 1995. From September 1992 to January 1993, Ms. Noriega-Wilson served
as Vice President of Merchandising for Clegg Industries, an independent
private investment group. From 1988 to July 1992, Ms. Noriega-Wilson served as
Vice President of Merchandising & Marketing of Together Limited in London,
England. Prior to that, Ms. Noriega-Wilson was with Spiegel for 10 years,
where she served as Divisional Merchandise Manager from 1986 to 1988.
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Mr. Rao has been President and Chief Executive Officer of the Company's
Chadwick's business since the Chadwick's Acquisition in December 1996. From
May 1996 to December 1996, Mr. Rao served as President and Chief Executive
Officer of Chadwick's, Inc. From January 1995 to May 1996, Mr. Rao served as
Senior Vice President, Operations and Marketing of Chadwick's, Inc.
Previously, Mr. Rao worked at the T.J. Maxx Division of TJX from 1978 until
1995. His management positions during such time included Senior Vice President
of Distribution and Financial Planning and Analysis from November 1994 to
January 1995, Senior Vice President of Distribution, Merchandise Planning and
Inventory Management from 1991 to 1994, Senior Vice President and Director of
Distribution from 1989 to 1991 and Vice President and Director of Distribution
from 1981 to 1989.
Mr. Silbert has been Senior Vice President-Marketing/New Business
Development of Brylane since July 1995. From December 1993 to July 1995, Mr.
Silbert served as Vice President-New Business Development of Brylane. Prior to
joining Brylane, Mr. Silbert was President of The Silbert Group, Inc., an
independent 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 Limited nominees to the Board. Mr. Fried has been
Vice President and General Counsel of The Limited since joining The Limited in
November 1991. Mr. Fried became Vice President, Secretary and General Counsel
of Intimate Brands, Inc., a subsidiary of The Limited, in May 1995, and Vice
President of Ambercrombie & Fitch Co. 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 Limited nominees to the Board. Mr. Gerber has been
Vice President of Finance of The Limited since July 1993, Vice President of
Intimate Brands, Inc. since May 1995, and Vice President of Ambercrombie &
Fitch Co. 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.
Mr. Starrett became a member of the Board in May 1997. Mr. Starrett is
President of Warner Bros. Studio Stores Worldwide and has been employed by
Warner Bros. since May 1990. Before joining Warner Bros., Mr. Starrett was
President and Chief Executive Officer of Plymouth Lamston Stores Corporation
from July 1988 to April 1990. Prior to that, Mr. Starrett served as Chairman
and Chief Executive Officer of the Specialty Store
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Division of Federated Department Stores from 1986 to 1988. Mr. Starrett is
also a director of Petco Animal Supplies, Inc.
The executive officers of the Company have an average of approximately 14
years of experience in the catalog retail apparel business.
The Board currently consists of three nominees of FS&Co., two nominees of
The Limited, the Chief Executive Officer of Brylane and two additional persons
elected by the nominees of the Board. The Stockholders Agreement provides
that, during its term, FS&Co. and The Limited are each entitled to nominate a
specified number of directors. However, the number of directors that each of
FS&Co. and The Limited may nominate declines with the percentage of Common
Stock held by each of them. Upon completion of the Offerings and the Common
Stock Repurchase, FS&Co. will be able to nominate two members of the Board,
and The Limited will be able to nominate one member. However, each of the
current members of the Board previously nominated by FS&Co. and by The Limited
intends to continue to serve until at least the Company's next annual meeting
of stockholders. See "Description of Capital Stock--Stockholders Agreement".
William C. Johnson and Peter Starrett serve as independent directors on the
Board and on the Audit Committee.
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, an Audit Committee, which reviews
the results and scope of the audit and other services provided by the
Company's independent auditors, and a Strategic Planning Committee, which
addresses long-term strategic planning issues.
The members of the Board, other than Mr. Starrett, do not receive
compensation for services on the Board but are reimbursed for their out-of-
pocket expenses in serving on the Board. No member of the Board receives
compensation for services on any committee of the Board. On May 22, 1997, Mr.
Starrett was granted an option to purchase 2,000 shares of Common Stock, at a
price of $29.875 per share, as well as an additional option to purchase 3,347
shares of Common Stock, at a price of $25.40 per share, pursuant to the
Brylane 1996 Option Plan (as defined). In addition, Mr. Johnson has previously
purchased shares of Common Stock and has previously been granted options under
both the Brylane 1996 Performance Option Plan and the Brylane 1996 Option
Plan. See "--Compensation Committee Interlocks and Insider Participation".
There are no family relationships between any officers or members of the
Board.
EXECUTIVE COMPENSATION
The officers of Brylane Inc. are not compensated by Brylane Inc. for their
services to Brylane Inc. Officers of Brylane Inc. who are also officers of the
Partnership or its subsidiaries receive compensation from the Partnership or
these subsidiaries for their services to the Partnership. The table on the
following page sets forth all compensation awarded to, earned by or paid to
the Chief Executive Officer and the other four most highly compensated
executive officers (the "Named Executive Officers") for their services to the
Partnership for (i) the 1996 fiscal year, (ii) the 1995 fiscal year, and (iii)
the 1994 fiscal year.
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<PAGE>
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 1996 $552,750 $421,464 24,000(6) $118,358
President, Chief Execu- 250,000(7)
tive Officer
and Chairman of the Fiscal 1995 520,500 196,602 20,000(6) 106,393
Board
Fiscal 1994 491,000 361,427 -- 111,933
Sheila R. Garelik....... Fiscal 1996 364,542 244,484 18,000(6) 69,009
President of Brylane 43,750(7)
Fiscal 1995 318,500 155,043 10,000(6) 65,125
Fiscal 1994 297,750 204,128 -- 65,961
Robert A. Pulciani...... Fiscal 1996 286,583 185,059 12,000(6) 55,166
Executive Vice 36,459(7)
President,
Chief Financial Fiscal 1995 266,750 85,383 6,000(6) 52,767
Officer,
Secretary and Treasurer Fiscal 1994 250,500 155,982 -- 55,204
Jules Silbert........... Fiscal 1996 282,833 165,898 6,000(6) 47,380
Senior Vice President- 20,000(7)
Marketing/New Business Fiscal 1995 270,000 77,335 6,000(6) 41,749
Development
Fiscal 1994 222,083 109,424 -- 4,843
Bruce G. Clark.......... Fiscal 1996 219,083 115,662 5,000(6) 41,349
Senior Vice President- 34,375(7)
Telemarketing Fiscal 1995 205,750 53,877 5,500(6) 38,569
Fiscal 1994 193,250 98,480 -- 40,087
</TABLE>
- --------
(1) Included in the aggregate of salary and bonus is an amount of compensation
that was deferred at the election of each Named Executive Officer. For
fiscal 1996, Messrs. Canzone, Pulciani, Silbert and Clark, and
Ms. Garelik, elected to defer $97,421, $115,581, $67,310, $66,949 and
$152,256, respectively, of their aggregate salary and bonus for such
period. For fiscal 1995, Messrs. Canzone, Pulciani, Silbert and Clark, and
Ms. Garelik, elected to defer $71,710, $46,818, $52,100, $40,626 and
$111,911, respectively, of their aggregate salary and bonus for such
period. For fiscal 1994, Messrs. Canzone, Pulciani, Silbert and Clark, and
Ms. Garelik, elected to defer $85,243, $40,648, $12,109, $39,405 and
$86,959, respectively, of their aggregate salary and bonus for such
period.
(2) Bonuses were earned during the six-month seasons ended July 30, 1994,
January 28, 1995, July 29, 1995, February 3, 1996, August 3, 1996 and
February 1, 1997, but were not paid until August 1994, February 1995,
August 1995, February 1996, August 1996 and February 1997, respectively.
See "--Performance Bonus Program" for a discussion of Brylane's bonus
program in which the above-named individuals are entitled to participate.
(3) For each of the periods set forth in the table above, no Named Executive
Officer received aggregate Other Annual Compensation in excess of the
lesser of $50,000 or 10% of the total of such officer's salary and bonus,
nor did any such Named Executive Officer receive any restricted stock
award, stock appreciation right or payment under any long-term incentive
plan.
(4) Does not include options to purchase 25,000, 15,000, 3,000, 2,500 and
17,000 shares of Common Stock, at a purchase price of $36.00 per share,
that were granted to Messrs. Canzone, Pulciani, Silbert, Clark and Mme.
Garelik, respectively, in July 1997 pursuant to the Brylane 1996 Option
Plan.
(5) In fiscal 1996, fiscal 1995 and fiscal 1994, these amounts consist of
approximately $5,000, $5,000 and $5,000, respectively, under a
supplemental medical benefits plan (except for Mr. Silbert who was not
eligible to receive any benefits under such plan during the periods
shown), with the balance consisting of
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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 1996, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $58,453,
$28,299, $26,924, $20,085 and $36,542, respectively, under the Deferred
Compensation Plan; (ii) $10,119, $10,119, $8,619, $10,119 and $10,119,
respectively, under the Retirement Plan (which was not paid until April
1997); and (iii) $44,786, $11,748, $11,837, $6,145 and $17,348,
respectively, under the Supplemental Retirement Plan. In 1995, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $43,026,
$21,128, $20,840, $15,578 and $28,413, respectively, under the Deferred
Compensation Plan; (ii) $10,164, $10,164, $8,664, $10,164 and $10,164,
respectively, under the Retirement Plan (which was not paid until May
1996); and (iii) $48,203, $16,475, $12,245, $7,827 and $21,548,
respectively, under the Supplemental Retirement Plan. In 1994, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $51,146,
$24,389, $4,843, $17,504 and $30,113, respectively, under the Deferred
Compensation Plan; (ii) $10,182, $10,182, $0, $10,182 and $10,182,
respectively, under the Retirement Plan (which was not paid until May
1995); and (iii) $45,605, $15,633, $0, $7,401 and $20,666, respectively,
under the Supplemental Retirement Plan. Mr. Silbert was not eligible to
participate in the Retirement Plan or the Supplemental Retirement Plan in
fiscal 1994. Mr. Silbert became eligible to participate in the Deferred
Compensation Plan on January 1, 1995.
(6) These options were granted to the Named Executive Officers in 1995 and
1996 pursuant to the Partnership's 1995 Partnership Unit Option Plan.
Pursuant to the Incorporation Plan, an option to purchase one share of
Common Stock was issued in substitution for each outstanding option to
purchase one partnership unit. See "--Option Plans" and "Certain
Relationships and Related Transactions--The Incorporation Plan".
(7) These options were granted to the Named Executive Officers in 1993 (or in
the case of Mr. Silbert, in 1994) pursuant to the Partnership's 1993
Performance Partnership Unit Option Plan. In connection with the
Chadwick's Acquisition, the Partnership amended the options which were
previously granted to the Named Executive Officers in 1993 (or in the case
of Mr. Silbert, in 1994) pursuant to the Partnership's 1993 Performance
Partnership Unit Option Plan. See "--Option Plans--Brylane 1996
Performance Option Plan". Pursuant to the Incorporation Plan, an option to
purchase one share of Common Stock was issued in substitution for each
outstanding option to purchase one partnership unit. See "--Option Plans"
and "Certain Relationships and Related Transactions--The Incorporation
Plan".
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 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 $580,000, $315,000, $305,000, $185,000, $402,000, $222,000 and
$240,000, 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 $220,000, $220,000
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, 1998,
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
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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 $375,000 for Mr. Rao and $350,000 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 PLANS
In connection with the Incorporation Plan, the Company adopted the Brylane
Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan"), which in
part acts 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 are all of the
members of management of Brylane other than the Named Executive Officers,
Messrs. Johnson, Bennett and Brosius, and Mmes. Bourneuf and Noriega-Wilson.
In addition, the Company has adopted the Brylane Inc. 1996 Senior Management
Stock Subscription Plan (the "Senior Management Plan", and collectively with
the Brylane Subscription Plan, the "Stock Subscription Plans"), which in part
acts as a successor to the Subscription Plan with respect to the shares of VP
Holding purchased by the Named Executive Officers, Messrs. Johnson, Bennett
and Brosius, and Mmes. Bourneuf and Noriega-Wilson (collectively, the "Senior
Management Investors"). The Company has reserved 653,000 shares of Common
Stock for issuance under the Stock Subscription Plans collectively, of which
145,000 shares remain available for issuance. Until May 27, 1998, the Company
may be required to repurchase Mr. Johnson's Common Stock at the greater of
$10.00 per share or fair market value in the event of Mr. Johnson's death or
disability.
Pursuant to the Stock Subscription Plans, the following individuals
purchased the number of shares of Common Stock 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. Johnson, 30,000; Mr.
McGrain, 15,000; Mr. Silbert, 20,000; 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, $50,000, $0, $150,000, $100,000, $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
below. Pursuant to the Stock Subscription Plans, Ms. Bourneuf and Ms. Noriega-
Wilson purchased 7,500 and 15,000 shares of Common Stock, respectively, at a
purchase price of $15.00 per share, for which $0 and $112,500 of their
respective purchase prices were financed through the delivery of promissory
notes on the terms described below. 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,
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full recourse promissory note, bearing interest at the rate of interest
designated by Morgan Guaranty 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 shares of Common Stock purchased by such individuals who
partially financed their purchases in this manner have been pledged to the
Company in order to secure repayment of the notes. As of August 2, 1997, of
the aggregate purchase price of approximately $5.2 million paid for the shares
of Common Stock purchased by such individuals (net of repurchases), promissory
notes in the aggregate amount of approximately $2.5 million have been
delivered.
OPTION PLANS
Brylane 1996 Performance Option Plan
In connection with the Incorporation Plan, the Company adopted the Brylane
Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option
Plan"), which acts as the successor to the Partnership's 1993 Performance
Partnership Unit Option Plan (as amended, the "1993 Option Plan") which was
adopted in connection with the Brylane Acquisition. An aggregate of 779,584
shares of Common Stock have been reserved for issuance under the Brylane 1996
Performance Option Plan. As amended, substantially all options currently
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. The exercisability of all options granted
pursuant to the Brylane 1996 Performance Option Plan is subject to
acceleration at any time in the discretion of the Board (or a committee
thereof). 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.
Messrs. Canzone, Pulciani, Doyle, Johnson, McGrain, Silbert, Bennett,
Brosius and Clark, and Mmes. Bourneuf, Garelik, Silverman and Noriega-Wilson
have been granted the right to purchase 250,000, 36,459, 3,750, 20,000,
11,250, 20,000, 31,250, 31,250, 34,375, 25,000, 43,750, 11,250 and 15,000
shares of Common Stock, respectively, at a price of $15.00 per share.
As of September 15, 1997, options for the purchase of 644,584 shares of
Common Stock at a purchase price of $15.00 per share were outstanding under
the Brylane 1996 Performance Option Plan, and options for the purchase of
135,000 shares remained available for issuance.
As of September 15, 1997, no options were exercisable under the Brylane 1996
Performance Option Plan.
Brylane 1996 Option Plan
In connection with the Incorporation Plan, the Company adopted the Brylane
Inc. 1996 Stock Option Plan (the "Brylane 1996 Option Plan"), which acts as
the successor to the Partnership's 1995 Partnership Unit Option Plan (as
amended, the "1995 Option Plan") which was adopted in connection with the
Brylane Acquisition. As amended, an aggregate of 1,700,000 shares of Common
Stock have been reserved for issuance under the Brylane 1996 Option Plan.
Other than as described below, all options become exercisable in three equal
annual installments on the first, second and third anniversaries of the date
of original grant (including, if relevant, the date of grant of the options
under the 1995 Option Plan). As amended, all options granted under the Brylane
1996 Option Plan terminate seven to ten years from the date of original grant
(including, if relevant, the date of grant of the options under the 1995
Option Plan), if not sooner due to termination of employment.
Messrs. Canzone, Johnson, Pulciani, Silbert, Doyle, McGrain, Bennett,
Brosius and Clark, Mmes. Bourneuf, Garelik, Noriega-Wilson and Silverman have
been granted the right to purchase 20,000, 25,000, 6,000, 6,000, 1,000, 3,000,
5,000, 5,000, 5,500, 4,000, 10,000, 4,000 and 4,000 shares of Common Stock,
respectively, at a price of $15.00 per share and a term of seven years.
Messrs. Canzone, Pulciani, Silbert, Doyle, McGrain, Bennett, Brosius and
Clark, and Mmes. Garelik, Bourneuf, Noriega-Wilson and Silverman have been
granted
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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 shares of Common Stock, respectively, at
a price of $19.00 per share and a term of seven years. Messrs. Canzone,
Pulciani, Silbert, Doyle, McGrain, Bennett, Brosius, Clark, Johnson and Rao,
and Mmes. Garelik, Bourneuf, Noriega-Wilson, Silverman and Meyrowitz have been
granted the right to purchase 25,000, 15,000, 3,000, 4,000, 3,000, 3,000,
5,000, 2,500, 10,000, 17,000, 17,000, 3,000, 5,000, 6,000 and 15,000 shares of
Common Stock, respectively, at a price of $36.00 per share and a term of seven
years. In addition, Mr. Rao and Ms. Meyrowitz have each been granted the right
to purchase 25,000 shares of Common Stock at a price of $20.00 per share,
which options expire on December 9, 2006. In addition, in connection with the
Chadwick's Acquisition, Mr. Rao and Ms. Meyrowitz were granted options to
purchase 2,269 and 1,861 shares of Common Stock, respectively, at a price of
$9.92 per share, in exchange for certain of their options to purchase TJX
common stock. Such options vest in full on September 20, 1997 and expire on
September 20, 2004. Finally, also in connection with the Chadwick's
Acquisition, Mr. Rao and Ms. Meyrowitz were granted options to purchase 6,033
and 4,536 shares of Common Stock, respectively, at a price of $5.67 per unit,
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. On May 22, 1997, Mr. Starrett was
granted an option to purchase 2,000 shares of Common Stock, at a price of
$29.875 per share and a term of seven years, as well as an additional option
to purchase 3,347 shares of Common Stock, at a price of $25.40 per share,
which option vests in full on May 22, 1998 and expires on May 22, 2004.
As of September 15, 1997, options for the purchase of 125,417 shares of
Common Stock at a purchase price of $15.00 per share, options for the purchase
of 140,733 shares of Common Stock at a purchase price of $19.00 per share,
options for the purchase of 118,375 shares of Common Stock at a purchase price
of $20.00 per share, options for the purchase of 2,000 shares of Common Stock
at a purchase price of $29.875 per share, options for the purchase of 3,347
shares of Common Stock at a purchase price of $25.40 per share, substitute
options (issued in connection with the Chadwick's Acquisition) for the
purchase of 13,950 shares of Common Stock at a purchase price of $9.92 per
share, options for the purchase of 257,350 shares of Common Stock at a
purchase price of $36.00 per share, and substitute options (issued in
connection with the Chadwick's Acquisition) for the purchase of 34,472 shares
of Common Stock at a purchase price of $5.67 per share, were outstanding under
the Brylane 1996 Option Plan, and options for the purchase of 992,422 shares
remained available for issuance.
As of September 15, 1997, options to purchase an aggregate of 11,934 shares
of Common Stock had been exercised under the Brylane 1996 Option Plan.
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The following table sets forth information concerning options granted to the
Named Executive Officers of the Company during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#)(1)(2) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Canzone........ 24,000 16.78 19.00(4) 7/15/03(6) 186,960 433,200
250,000 40.35 15.00(5) 8/30/03(7) 3,285,000 5,995,000
Sheila R. Garelik....... 18,000 12.59 19.00(4) 7/15/03(6) 140,220 324,900
43,750 7.06 15.00(5) 8/30/03(7) 574,875 1,049,125
Robert A. Pulciani...... 12,000 8.39 19.00(4) 7/15/03(6) 93,480 216,600
36,459 5.88 15.00(5) 8/30/03(7) 479,071 874,287
Jules Silbert........... 6,000 4.20 19.00(4) 7/15/03(6) 46,740 108,300
20,000 3.23 15.00(5) 2/18/04(7) 262,800 479,600
Bruce G. Clark.......... 5,000 3.50 19.00(4) 7/15/03(6) 38,950 90,250
34,375 5.55 15.00(5) 8/30/03(7) 451,688 824,313
</TABLE>
- --------
(1) Pursuant to the Incorporation Plan, the options to purchase partnership
units previously issued to the Named Executive Officers pursuant to the
1993 Option Plan or the 1995 Option Plan, as the case may be, have been
terminated and replaced by the options to purchase shares of Common Stock
of Brylane Inc. set forth in the table above with substantially similar
terms.
(2) Does not include options to purchase 25,000, 15,000, 3,000, 2,500 and
17,000 shares of Common Stock, at a purchase price of $36.00 per share,
that were granted to Messrs. Canzone, Pulciani, Silbert, Clark and Mme.
Garelik, respectively, in July 1997 pursuant to the Brylane 1996 Option
Plan.
(3) 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.
(4) The exercise price per share of these options was equal to the fair market
value of the Common Stock on the date of grant.
(5) The original exercise price of these options was $10.00 per share, which
was equal to the fair market value of the Common Stock on the original
date of grant. These options were amended in connection with the
Chadwick's Acquisition to, among other things, increase the exercise price
from $10.00 per share to $15.00 per share. The fair market value of the
Common Stock on the date of such amendment was $20.00 per share.
(6) These options were granted under the Brylane 1996 Option Plan and will
terminate seven years from the date of grant of the options issued to the
Named Executive Officers under the 1995 Option Plan (if not sooner due to
termination of employment). These options become exercisable in three
equal installments on the first, second and third anniversaries of the
date of grant of the options issued to the Named Executive Officers under
the 1995 Option Plan. See "--Option Plans".
(7) These options were granted under the Brylane 1996 Performance Option Plan
and will terminate 10 years from the date of grant of the options issued
to the Named Executive Officers under the 1993 Option Plan (if not sooner
due to termination of employment). These options are being reported as
option grants in the last fiscal year due to an amendment in connection
with the Chadwick's Acquisition of the options previously granted to the
Named Executive Officers in 1993 (or in the case of Mr. Silbert, in 1994)
under the 1993 Option Plan. As amended, these options will become
exercisable in full (i) on August 30, 1998, upon the Company's achievement
of certain performance targets, or (ii) on August 30, 2002. See "--Option
Plans".
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The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named
Executive Officers as of February 1, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FEBRUARY 1, 1997 FEBRUARY 1, 1997
SHARES ACQUIRED VALUE (#)(1)(2) ($)(3)
ON EXERCISE REALIZED --------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter J. Canzone........ -- -- 6,667/287,333 60,003/2,489,997
Sheila R. Garelik....... -- -- 3,333/68,417 29,997/543,753
Robert A. Pulciani...... -- -- 2,000/52,459 18,000/424,131
Jules Silbert........... -- -- 2,000/30,000 18,000/246,000
Bruce G. Clark.......... -- -- 1,833/43,042 16,497/367,378
</TABLE>
- --------
(1) Pursuant to the Incorporation Plan, the options to purchase partnership
units previously issued to the Named Executive Officers pursuant to the
1993 Option Plan and the 1995 Option Plan have been terminated and
replaced by the options to purchase shares of Common Stock of Brylane Inc.
set forth in the table above with substantially similar terms under the
Brylane 1996 Performance Option Plan and the Brylane 1996 Option Plan,
respectively.
(2) Does not include options to purchase 25,000, 15,000, 3,000, 2,500 and
17,000 shares of Common Stock, at a purchase price of $36.00 per share,
that were granted to Messrs. Canzone, Pulciani, Silbert, Clark and Mme.
Garelik, respectively, in July 1997 pursuant to the Brylane 1996 Option
Plan.
(3) These values are calculated using the Initial Public Offering price of
$24.00 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 $62,700 for 1996)
and equal to 7% of each participant's total compensation which exceeds that
amount. An additional 1% of compensation is contributed by the Company on
behalf of those participants who have completed at least five years of
service. The Company's contributions begin to vest after three years of
service, at which time such contributions are 20% vested. Thereafter, the
contributions vest at a rate of 20% each year so that the Company's
contributions are fully vested after seven years of service. Notwithstanding
the foregoing, the Company's contributions fully vest when the employee
reaches age 65, dies or becomes disabled while employed by the Company.
Benefits under the Retirement Plan are paid in the form of a lump sum
distribution following termination of employment. In certain circumstances,
participants may be entitled to receive a distribution prior to termination of
employment. Participants may borrow from the Retirement Plan up to 50% of
their vested funds.
In addition to the Retirement Plan, the Company maintains the Brylane, L.P.
Supplemental Retirement Plan for certain highly compensated employees (the
"Supplemental Retirement Plan"). The Supplemental Retirement Plan allows an
eligible employee to receive the contributions which the employee would
otherwise receive under the Retirement Plan, except for certain limitations
imposed by the Internal Revenue Code 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.
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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,
up to 90% of compensation, which they defer voluntarily pursuant to elections
made prior to the period with respect to which such compensation is earned
("Deferrals"). The Deferrals will not be subject to federal income tax at the
time of the Deferral. Each participant's Deferrals are fully vested at all
times. Further, the Company may cause matching contributions to be credited to
certain participants' accounts at its discretion. Matching contributions
credited to the 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 the greater of LIBOR plus 2.0% or 7 3/4%). The benefits under
the Deferred Compensation Plan are not funded, consisting of unsecured
liabilities payable by the Company out of its general assets. Participants may
elect to have benefits paid in the form of lump-sum distributions or over a
period of time. Since December 1993, the Company has made pay-outs in the
approximate aggregate amount of $306,000 to certain former employees and one
former executive officer under the Deferred Compensation Plan.
PERFORMANCE BONUS PROGRAM
The Company (and its subsidiaries) have a semi-annual performance bonus
program based upon goals relating to the Company's operating profit. Such
goals are established at the beginning of each six-month season based upon a
review by the Board of management's operating budget for that season. Each
participant in such program may receive a bonus based on a certain percentage
of half of his or her annual salary, with the actual bonus amount to be based
upon the extent to which the operating profit goals for that season are met or
exceeded.
CHADWICK'S MANAGEMENT INCENTIVE PLAN
In connection with the Chadwick's Acquisition, Brylane adopted the
Chadwick's Management Incentive Plan (the "Chadwick's MIP"). The Chadwick's
MIP is intended to provide key officers and associates of the Company's
Chadwick's division with cash incentive opportunities based on annual
performance goals. The Chadwick's MIP is administered by the Company's
Compensation Committee, which has full authority to grant awards, including
selecting the relevant performance criteria thereunder, adjusting performance
criteria or award amounts in certain circumstances, and amending the terms of
such plan. At the beginning of each fiscal year, the Compensation Committee
determines a range of performance goals from minimum to target to maximum, and
for each participant determines the relative weights of these performance
goals and the award amounts payable upon attainment of the goals.
CHADWICK'S LONG RANGE MANAGEMENT INCENTIVE PLAN
In connection with the Chadwick's Acquisition, Brylane adopted the
Chadwick's Long Range Management Incentive Plan (the "Chadwick's LRMIP"). The
Chadwick's LRMIP is administered by the Compensation Committee, which has full
authority to grant awards, including selecting the relevant performance
criteria thereunder, adjusting the performance criteria or award amounts in
certain circumstances, and amending the terms of such plan. Awards under the
Chadwick's LRMIP are generally made annually for each successive rolling
three-year cycle. At the time of award, the Compensation Committee determines
a range of performance
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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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee of its Board of Directors which
currently consists of Ronald P. Spogli, John M. Roth and Samuel P. Fried
(except that, when determining the compensation of "named executive officers"
(as defined in Section 162(m) of the Internal Revenue Code), the Compensation
Committee consists of Messrs. Fried and Starrett). 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 have been 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. In addition, on July 24, 1997, Mr. Johnson was granted an option
to purchase 10,000 shares of Common Stock, at a price of $36.00 per share,
pursuant to the Brylane 1996 Option Plan. On May 22, 1997, Mr. Starrett was
granted an option to purchase 2,000 shares of Common Stock, at a price of
$29.875 per share, as well as an additional option to purchase 3,347 shares of
Common Stock, at a purchase price of $25.40 per share, pursuant to the Brylane
1996 Option Plan. See "--Stock Subscription Plans" and "--Option Plans".
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of September 15,
1997, regarding the beneficial ownership of the Company's Common Stock and
Series A Preferred Stock, (i) immediately prior to the Offerings, and (ii) as
adjusted to reflect (x) the sale of an aggregate of 5,000,000 shares of Common
Stock by the Selling Stockholders pursuant to the Offerings, and (y) the
repurchase by the Company of an aggregate of 2,500,000 shares of Common Stock
from the Selling Stockholders pursuant to the Common Stock Repurchase
(including the conversion by the TJX Noteholder of approximately $9.7 million
of the Convertible Note into 352,908 shares of Common Stock in connection
therewith), by (a) each stockholder who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (b) the
Selling Stockholders, (c) each of the Named Executive Officers, (d) each
director and (e) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERINGS OWNED AFTER OFFERINGS
NAME AND ADDRESS AND COMMON STOCK SHARES OFFERED AND COMMON STOCK
OF BENEFICIAL OWNER (1) REPURCHASE (2) IN THE OFFERINGS SHARES TO REPURCHASE (1)(3)(4)
- ----------------------- ------------------------------- ---------------- BE -----------------------------
NUMBER PERCENT NUMBER REPURCHASED NUMBER PERCENT
-------------- ------------ ---------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Freeman Spogli & Co. In-
corporated(5)(6)....... 8,527,000 43.8% 2,758,471 1,379,235 4,389,294 25.3%
The Limited, Inc.(7).... 5,000,000 25.7 1,617,492 808,746 2,573,762 14.8
TJX Noteholder(8)....... 727,273 3.7 235,272 117,636 374,365(9) 2.1
Leeway & Co.(10)........ 500,000 2.6 161,749 80,875 257,376 1.5
NYNEX(11)............... 500,000 2.6 161,749 80,875 257,376 1.5
WearGuard(12)........... 171,753 * 55,562 27,781 88,410 *
William C. Johnson...... 46,666(13) * 9,705 4,852 32,109(13) *
Peter J. Canzone........ 121,432(14) * -- -- 121,432(14) *
Sheila R. Garelik....... 53,166(15) * -- -- 53,166(15) *
Robert A. Pulciani...... 33,100(16) * -- -- 33,100(16) *
Jules Silbert........... 28,082(17) * -- -- 28,082(17) *
Bruce G. Clark.......... 30,540(18) * -- -- 30,540(18) *
Ronald P. Spogli(6)..... -- -- -- -- -- --
John M. Roth(6)......... -- -- -- -- -- --
Mark J. Doran(6)........ -- -- -- -- -- --
Samuel P. Fried......... -- -- -- -- -- --
William K. Gerber....... -- -- -- -- -- --
Peter M. Starrett....... 4,000 * -- -- 4,000 *
All directors and
executive officers of
Brylane as a group (21
persons)............... 8,985,429(19) 45.9% 2,768,176 1,384,087 4,833,166(20) 27.7%
</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 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. prior to the Offerings
and the Common Stock Repurchase are held of record as follows: 4,093,690
shares owned by FS Equity Partners II, L.P. ("FSEPII"); 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 FSEPII. FS Capital Partners, L.P.
("FS Capital"), an affiliate of FS&Co., is the sole general partner of
FSEPIII. 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 FSEPII, FS Capital (which is the general partner of FSEPIII), and
(Footnotes continued on following page)
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<PAGE>
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
FSEPII, FSEPIII and FSEP International, respectively.
(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 M&P Distributing Co. The business address of The Limited is 3 Limited
Parkway, Columbus, Ohio 43230.
(8) The shares shown as beneficially owned by the TJX Noteholder are issuable
upon exercise in full of the Convertible Note, which is held of record by
TJX. The business address of TJX is 770 Cochituate Road, Framingham,
Massachusetts 01701.
(9) The shares will be issuable upon conversion of the remaining portion of
the Convertible Note.
(10) The shares shown as beneficially owned by Leeway & Co. are held of record
by 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."). The business address of Leeway & Co. is One Oak
Way, Berkeley Heights, New Jersey 07922.
(11) The shares shown as beneficially owned by NYNEX are held of record by
NYNEX Master Trust, a trust governed by the laws of the State of New York
("NYNEX"). The business address of NYNEX is 200 Park Avenue, New York,
New York 10166.
(12) The shares shown as beneficially owned by WearGuard are held of record by
ARAMARK/Gall's Group, Inc., whose business address is 1101 Market Street,
Philadelphia, Pennsylvania 19107-2988. Includes 106,753 shares of Common
Stock with respect to which WearGuard has sole beneficial ownership and
65,000 shares of Common Stock with respect to which WearGuard has shared
beneficial ownership.
(13) Includes 16,666 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 15, 1997.
(14) Includes 21,332 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 15, 1997.
(15) Includes 12,666 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 15, 1997 and 500 shares of Common
Stock held by son.
(16) Includes 8,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 15, 1997.
(17) Includes 6,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 15, 1997 and 1,041 shares of
Common Stock held by wife.
(18) Includes 5,332 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 15, 1997.
(19) Includes 8,527,000 shares of Common Stock beneficially owned by
affiliates of FS&Co. and 107,070 shares of Common Stock issuable with
respect to options exercisable within 60 days of September 15, 1997.
(20) Includes 4,389,294 shares of Common Stock beneficially owned by
affiliates of FS&Co. and 107,070 shares of Common Stock issuable with
respect to options exercisable within 60 days of September 15, 1997.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
RESTRICTED SECURITIES
As of September 15, 1997, and after giving effect to the consummation of the
Offerings and the Common Stock Repurchase (including the conversion by the TJX
Noteholder of approximately $9.7 million of the Convertible Note into 352,908
shares of Common Stock in connection therewith), the Company would have had
outstanding 17,336,287 shares of Common Stock. Of these shares, the 4,000,000
shares of Common Stock sold in the Initial Public Offering and the 5,000,000
shares of Common Stock to be sold in the Offerings, as well as 770,069
additional shares of Common Stock, will be freely tradeable without
restriction or further registration under the Securities Act unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 7,566,218 shares outstanding upon completion of
the Common Stock Repurchase will be "restricted securities" as that term is
defined under Rule 144. Substantially all of such restricted shares are
entitled to piggyback registration rights as well as certain demand
registration rights. See "--Registration Rights". In addition, substantially
all of such restricted shares may be eligible for immediate public resale
pursuant to Rule 144 (subject, in the case of affiliates, to the volume
limitations contained therein) or Rule 701 of the Securities Act; provided,
that if FS&Co. were to distribute to its partners the shares of Common Stock
held by affiliates of FS&Co., such partners who are not themselves affiliates
of the Company could sell such shares pursuant to Rule 144 without compliance
with such volume limitations. Further, options to purchase an aggregate of
99,218 additional shares of Common Stock previously granted to employees of
the Company and others were exercisable as of September 15, 1997. The
remaining options to purchase an aggregate of 1,241,010 shares of Common Stock
previously granted to employees of the Company and others began to vest and
become exercisable on September 20, 1997. The Company has caused the shares of
Common Stock held by employees of the Company and certain other individuals or
subject to options granted under the Company's option plans to be registered
under the Securities Act. See "Management--Stock Subscription Plans" and
"Management--Option Plans".
The 75,000 shares of Series A 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)
in three equal annual installments beginning on December 9, 1997.
In general, under Rule 144 as currently in effect, if one year has 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, a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (173,362 shares immediately after the Common Stock Repurchase) 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 two 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 revisions to the holding periods and
volume limitations contained in Rule 144. The adoption of amendments effecting
such proposed revisions may 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
proposed or adopted.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. The Company has agreed not to sell any shares of its capital
stock (or any rights, options or warrants to purchase, or any securities
convertible or exchangeable into or exercisable for, capital stock), with
certain limited exceptions, for a period of 90 days following the date of the
Purchase Agreements, without the prior written consent of Merrill Lynch on
behalf of the Representatives.
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FS&Co., The Limited, Leeway & Co., NYNEX, the TJX Noteholder and WearGuard, as
well as the directors of the Company, have each agreed not to sell, directly
or indirectly, any of their shares (including as a result of distributions by
FS&Co. to its partners of the shares of Common Stock held by affiliates of
FS&Co.), with certain limited exceptions, for a period of 90 days following
the date of the Purchase Agreements. In addition, certain executive officers
of the Company have each agreed not to sell, directly or indirectly, any of
their shares, with certain limited exceptions, following the date of the
Purchase Agreements through December 15, 1997.
The Company is unable to estimate the number of shares of Common Stock that
will be sold under Rule 144, Rule 701, under the employee stock plan
registration statements, 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.
REGISTRATION RIGHTS
The Company, the FS Stockholders, the Limited Stockholder, the TJX
Noteholder, Leeway & Co., NYNEX and WearGuard have entered into a Registration
Rights Agreement (the "Registration Rights Agreement") pursuant to which each
of the affiliates of FS&Co. holding Common Stock (the "FS Stockholders") or
the affiliates of The Limited holding Common Stock (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 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 after the
Offerings, in the case of the FS Stockholders, be able to require the Company
to file one additional registration statement registering its Common Stock
and, in the case of the Limited Stockholder, be able to require the Company to
file two registration statements registering its Common Stock; provided, that
the Company shall not be obligated to effect more than two such demand
registrations (including the demand registration pursuant to which the
Offerings are being made) 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 entitles the FS Stockholders
and the Limited Stockholder and their respective affiliates, the
TJX Noteholder, Leeway & Co., NYNEX and WearGuard 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, each of WearGuard, the TJX Noteholder, Leeway & Co. and NYNEX (or any
affiliate of any of them that owns Common Stock) is 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 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
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<PAGE>
the TJX Noteholder, Leeway & Co. and NYNEX shall terminate on February 26,
2000. 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 the
Offerings and the Common Stock Repurchase, all of the remaining 7,566,218
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 remaining portion of the Convertible Note, will be subject to the
Registration Rights Agreement. See "Principal and Selling Stockholders".
SHARES OF COMMON STOCK SUBJECT TO OPTIONS
The Company has granted to certain executive officers and directors options
to purchase an aggregate of 1,340,228 shares of Common Stock (as of September
15, 1997). As of September 15, 1997, an aggregate of 99,218 of such options
were currently exercisable; while an aggregate of 13,950 of such options became
exercisable on September 20, 1997; an aggregate of 82,500 of such options
became exercisable on September 21, 1997; an aggregate of 118,375 of such
options are not exercisable prior to December 9, 1997; an aggregate of 2,667 of
such options are not exercisable prior to March 25, 1998; an aggregate of 5,347
of such options are not exercisable prior to May 22, 1998; an aggregate of
95,334 of such options are not exercisable prior to July 15, 1998; an aggregate
of 257,350 of such options are not exercisable prior to July 24, 1998; and an
aggregate of 20,903 of such options are not exercisable prior to September 6,
1998. The remaining 644,584 of such options may become exercisable as early as
August 30, 1998 (subject to earlier acceleration), but will become exercisable
on August 30, 2002 at the latest. The Company has, with respect to the Brylane
1996 Option Plan and to the Brylane 1996 Performance Option Plan, caused the
shares of Common Stock to be received upon exercise of the options granted
under each such plan to be registered under the Securities Act on a
registration statement on Form S-8. See "Management--Option Plans".
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<PAGE>
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 (as amended, 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"), of which 75,000 shares have been designated 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").
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 indirectly owns
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 Amended 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
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 is listed, 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, and have been issued to Mr. Rao and Ms. Meyrowitz.
On December 9, 1999, "vested shares" (as defined in the Company's certificate
of designation for the Series A Preferred Stock (the "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). The shares of Series A Preferred
Stock will "vest" in equal annual installments on December 9 of each of 1997,
1998 and 1999, 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
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<PAGE>
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
The Company, the FS Stockholders, the Limited Stockholder, WearGuard, the
TJX Noteholder, NYNEX and Leeway & Co. have previously entered into the
Stockholders Agreement. The Stockholders Agreement provides that, during its
term, 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. 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,
and upon completion of the Offerings and the Common Stock Repurchase, FS&Co.
will only be able to nominate two members of the Board of Directors of the
Company, and The Limited will only be able to nominate one member. However,
each of the current members of the Board previously nominated by FS&Co. and by
The Limited intends to continue to serve until at least the Company's next
annual meeting of stockholders. In the Stockholders Agreement, FS&Co., The
Limited, Leeway & Co., NYNEX, the TJX Noteholder and WearGuard have agreed
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 the Offerings and
the Common Stock Repurchase have been consummated, 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 also prohibits 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 contains provisions whereby the Company and
FS&Co. have agreed, 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 with The Limited or any affiliate of The Limited. The
noncompetition and nonsolicitation provisions contained in the Stockholders
Agreement provides certain customary exceptions. As a result of the Offerings
and the Common Stock Repurchase, The Limited will hold less than 20% of the
outstanding Common Stock of the Company; consequently, these noncompetition
provisions will no longer be applicable.
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The Stockholders Agreement contains 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 or (ii) into the public market
pursuant to Rule 144 of the Securities Act of 1933.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is 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 Indenture and the Convertible Note contain, and the Amended 1997 Bank
Credit Facility will 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
The Partnership has received a Commitment Letter from J.P. Morgan Securities
Inc. ("J.P. Morgan"), Morgan Guaranty and Merrill Lynch Capital (together with
Morgan Guaranty, the "Agents") pursuant to which the Agents each have agreed
to provide one-half of an amended and restated $375.0 million bank credit
facility (the "Amended 1997 Bank Credit Facility"). No assurance can be given,
however, that the Amended 1997 Bank Credit Facility contemplated by the
Commitment Letter will in fact be obtained by the Partnership or that the
terms thereof will not vary from those described below. The Amended 1997 Bank
Credit Facility would comprise (i) a $175.0 million five-year amortizing Term
Loan, and (ii) a $200.0 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 Loan would be available to provide a portion of the
funds necessary to effect the Common Stock Repurchase, as well as to repay
Brylane's existing indebtedness under its 1997 Bank Credit Facility. The
Revolving Credit Facility could be used for general corporate purposes,
including working capital needs, letters of credit and permitted acquisitions
(as defined in the Amended 1997 Bank Credit Facility), and would be available
to provide a portion of the funds necessary to effect the Common Stock
Repurchase. In addition, the Commitment Letter contemplates a $15.0 million
"Swingline Facility" (borrowings under which, while outstanding, would reduce
availability under the Revolving Credit Facility).
Borrowings under the Term Loan and the Revolving Credit Facility will bear
interest at one of two rates to be selected by the Partnership: (i) a margin
over the higher of (A) Morgan Guaranty's prime rate and (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 Term Loan will
initially bear interest at LIBOR plus 1.25%. Borrowings under the Swingline
Facility will bear interest at the Base Rate plus the applicable margin.
The Partnership will be required to pay fees on the unutilized portion of
the Revolving Credit Facility and for letters of credit. In addition, the
Partnership will pay a fee in connection with the consummation of the Amended
1997 Bank Credit Facility and paid certain customary agency fees to the agents
thereunder.
The Term Loan will begin to amortize on a quarterly basis beginning with the
Partnership's 1998 fiscal year, and will have scheduled amortization of $10.0
million, $20.0 million, $40.0 million, $70.0 million, and $35.0 million,
respectively, for the Partnership's 1998 to 2002 fiscal years. In addition to
the scheduled amortization, additional principal prepayments of the Term Loan
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).
The obligations of the Partnership under the Amended 1997 Bank Credit
Facility will be 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, but excluding accounts receivable), (ii) pledges of the stock of
Capital Corp. (as defined) and each of the Partnership's subsidiaries and
subsidiary partnerships, and (iii) first mortgages on the Partnership's
Indianapolis, Indiana and West Bridgewater, Massachusetts fulfillment centers.
The Company and each of the Partnership's subsidiaries and the subsidiary
partnerships will guarantee the obligations of the Partnership under the
Amended 1997 Bank Credit Facility.
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The Amended 1997 Bank Credit Facility will contain certain financial
covenants which require the Partnership to meet financial ratios and tests
including (i) a maximum debt to cash flow ratio, (ii) a minimum fixed charge
coverage ratio and (iii) a minimum net worth test, each on terms to be
negotiated. For purposes of these covenants, (i) the debt coverage ratio will
equal debt divided by operating cash flow, (ii) operating cash flow will equal
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 minimum fixed charge coverage ratio
will equal Adjusted EBITDA (as defined) plus rental expense, divided by the
sum of rental expense and interest expense (excluding any portion of interest
expense representing amortization of financing costs paid in a previous
period), 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 Amended 1997 Bank Credit Facility will contain 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 Amended 1997 Bank Credit Facility will also contain 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 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 will be subordinated to the
guarantees by the Guarantors of the Partnership's obligations under the
Amended 1997 Bank Credit Facility, as well as to all future guarantees by the
Guarantors of Senior Indebtedness.
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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 the Partnership Note which, as converted into the
Convertible Note in connection with the Incorporation Plan into a joint
obligation of the Partnership and the Company, is convertible at any time, in
whole or in part, at the option of the TJX Noteholder into a total of 727,273
shares of Common Stock (374,365 shares of Common Stock after giving effect to
its partial conversion in connection with the Offerings and the Common Stock
Repurchase) at a conversion price of $27.50 per share (subject to adjustment
for stock splits and similar events). The Convertible Note pays interest
quarterly at an initial rate of 6% per annum. The Convertible Note is
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) 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 Convertible Note 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 Convertible Note is 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 Convertible Note ranks 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 Convertible
Note contains 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 "U.S. Underwriters"), acting through their
respective representatives, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Lazard Freres & Co. LLC, NationsBanc Montgomery Securities,
Inc. and J.P. Morgan Securities Inc. (the "U.S. Representatives" and, together
with the International Representatives, the "Representatives"), have severally
agreed, subject to the terms and conditions contained in a purchase agreement
relating to the Common Stock (the "U.S. Purchase Agreement") and concurrently
with the sale of 1,000,000 shares of Common Stock to certain underwriters
outside the United States and Canada (the "International Managers" and,
together with the U.S. Underwriters, the "Underwriters"), to purchase from the
Selling Stockholders the number of shares of Common Stock set forth opposite
their respective names below. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers may be increased.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .............................................
Lazard Freres & Co. LLC ...........................................
NationsBanc Montgomery Securities, Inc. ...........................
J.P. Morgan Securities Inc. .......................................
---------
Total......................................................... 4,000,000
=========
</TABLE>
The Selling Stockholders have also entered into a purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") with the International Managers. Subject
to the terms and conditions set forth in the International Purchase Agreement,
and concurrently with the sale of 4,000,000 shares of Common Stock to the U.S.
Underwriters, the Selling Stockholders have severally agreed to sell to the
International Managers, and the International Managers have severally agreed
to purchase, an aggregate of 1,000,000 shares of Common Stock. The public
offering price per share of the Common Stock and the underwriting discount per
share of the Common Stock are identical under the U.S. Purchase Agreement and
the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares of Common Stock being sold
pursuant to each such Purchase Agreement are purchased.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares of Common Stock as may be
mutually agreed. The price of any share of Common Stock so sold shall
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be the public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-United
States or non-Canadian persons or to persons they believe intend to resell to
non-United States or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to United States or Canadian persons or to persons
they believe intend to resell to United States or Canadian persons, except, in
each case for transactions pursuant to the Intersyndicate Agreement.
The U.S. Representatives have advised the Company that the U.S. 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 (who may include U.S. Underwriters) at such price less a concession
not in excess of $ per share of Common Stock. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share on sales to certain other dealers. After the public offering, the
initial offering price, the concession and discount may be changed.
The Selling Stockholders have granted to the U.S. Underwriters an option
exercisable for a period of 30 days after 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 public offering price less the underwriting
discount. If the U.S. Underwriters exercise this option, each such 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 Agreements, the Company and the Selling Stockholders have
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
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 90 days following the date of the Purchase
Agreements, without the prior written consent of Merrill Lynch on behalf of
the Representatives. FS&Co., The Limited, Leeway & Co., NYNEX, the TJX
Noteholder and WearGuard, as well as the directors of the Company, have each
agreed not to sell, directly or indirectly, any of their shares, with certain
limited exceptions, for a period of 90 days following the date of the Purchase
Agreements. In addition, certain executive officers of the Company have each
agreed not to sell, directly or indirectly, any of their shares, with certain
limited exceptions, following the date of the Purchase Agreements through
December 15, 1997.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.
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In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
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 February 1997, Merrill
Lynch, Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. acted as co-
managers in connection with the Initial Public Offering and received
underwriting discounts and commissions in connection therewith. In addition, in
August 1993, each of them 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, an affiliate of J.P. Morgan Securities
Inc., was the agent bank under the Company's 1993 Bank Credit Facility and 1996
Bank Credit Facility. In addition, in connection with the 1997 Bank Credit
Facility, Morgan Guaranty acted as administrative agent and Merrill Lynch
Capital, an affiliate of Merrill Lynch, acted as documentation agent, for which
each received customary fees. Morgan Guaranty, J.P. Morgan Securities Inc. and
Merrill Lynch Capital will act as co-agents in connection with the Amended 1997
Bank Credit Facility. In addition, Morgan Guaranty is the agent bank under a
revolving commitment facility for each of The Limited and World Financial.
Brylane paid to Lazard Freres & Co. LLC a fee and reimbursement of expenses
for investment banking services performed by it in connection with the Brylane
Acquisition. From time to time, Lazard Freres & Co. LLC performs investment
banking services for The Limited and its subsidiaries, and in connection
therewith receives customary fees.
Brylane paid to Merrill Lynch and Lazard Freres & Co. LLC fees for investment
banking services performed by them in connection with the Chadwick's
Acquisition.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES PURCHASERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by
a holder that, for United States Federal income tax purposes, is not a "United
States person" (as defined below) (a "Non-United States Holder"). This
discussion is based upon the United States Federal tax laws now in effect,
which are subject to change, possibly retroactively. This discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-United States Holder in light of their individual circumstances.
Prospective investors are urged to consult their tax advisors regarding the
United States Federal tax consequences of acquiring, holding, and disposing of
Common Stock, as well as any tax consequences that may arise under the laws of
any foreign state, local, or other tax jurisdiction.
For purposes of this discussion, a "United States person" means (i) a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized in the United States or under the laws of
the United States or of any political subdivision thereof, (iii) an estate
whose income is includible in gross income for United States Federal income
tax purposes regardless of its source, or (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has one
or more United States fiduciaries who have the authority to control all
substantial decisions of the trusts.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, in which case the
dividend will be subject to the United States Federal income tax on net income
that applies to United States persons generally (and, with respect to
corporate holders and under certain circumstances, the branch profits tax).
The withholding tax will apply to amounts distributed to a Non-United States
Holder without regard to whether such amounts are less than, equal to, or in
excess of, current and accumulated earnings and profits of the Company.
However, beginning January 1, 1999, the withholding tax may be applied, at the
election of the Company (or intermediate payor), to the estimated current and
accumulated earnings and profits of the Company. In any case, to the extent
that an amount distributed to a Non-United States Holder exceeds the current
and accumulated profits of the Company, such holder may obtain a refund of
excess amounts withheld by filing an appropriate claim therefor with the IRS.
Non-United States Holders should consult any applicable income tax treaties,
which may provide for a lower rate of withholding or other rules different
from those described above. A Non-United States Holder may be required to
satisfy certain certification requirements in order to claim treaty benefits
or otherwise claim a reduction of or exemption from withholding under the
foregoing rules. The current rules applicable to the requirements for claiming
treaty benefits have been changed. Beginning January 1, 1999, a Non-United
States Holder generally must submit, directly or through any nominee,
custodian or other intermediary receiving distributions from the Company for
its account, a statement certifying that the Non-United States Holder is the
beneficial owner of amounts distributed by the Company and is a resident of
the country under whose tax treaty with the United States the Non-United
States Holder claims benefits. In certain circumstances, the Company may elect
to require the foregoing statement from a Non-United States Holder on or after
January 1, 1998.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a non-resident alien individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met or (iii) the Company is a "United States real property
holding corporation" for United States Federal income tax purposes. The
Company does not believe that it has been, currently is, or will be, a United
States real property holding corporation. Gain that is effectively connected
with the conduct of a trade or business
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within the United States by the Non-United States Holder will be subject to
the United States Federal income tax on net income that applies to United
States persons generally (and, with respect to corporate holders and under
certain circumstances, the branch profits tax) but will not be subject to
withholding. Non-United States Holders should consult applicable treaties
which may provide for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax
purposes) of the United States on the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and FS&Co. by Riordan & McKinzie, a
Professional Law Corporation, Los Angeles, California, for The Limited by
Davis Polk & Wardwell, New York, New York, and for the remaining Selling
Stockholders by Lowenstein, Sandler, Kohl, Fisher & Boylan, P.C., Roseland,
New Jersey. Certain legal matters with respect to the Common Stock offered
hereby will also be passed upon for all of the Selling Stockholders other than
The Limited by Richards & O'Neil, New York, New York. Certain legal matters
relating to the Offerings 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.
EXPERTS
The consolidated balance sheets of Brylane Inc. as of February 3, 1996 and
February 1, 1997, and the consolidated statements of operations, cash flows
and partnership equity for each of the three fiscal years ended January 28,
1995, February 3, 1996 and February 1, 1997, 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 April 12, 1997, 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.
94
<PAGE>
AVAILABLE INFORMATION
The Company is 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. Such
reports and other information filed by the Company 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. Such material can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, on which the Common Stock is listed. 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.
95
<PAGE>
BRYLANE INC. / CHADWICK'S, INC. / KINGSIZE DIVISION
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BRYLANE INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of February 3, 1996, February 1, 1997 and
August 2, 1997 (unaudited).............................................. F-3
Consolidated Statements of Income for the fiscal years ended January 28,
1995, February 3, 1996 and February 1, 1997, and the twenty-six weeks
ended August 3, 1996 (unaudited) and August 2, 1997 (unaudited) ........ F-4
Consolidated Statements of Cash Flows for the fiscal years ended January
28, 1995, February 3, 1996 and February 1, 1997, and the twenty-six
weeks ended August 3, 1996 (unaudited) and August 2, 1997 (unaudited) .. F-5
Consolidated Statements of Partnership/Stockholders' Equity for the
fiscal years ended January 28, 1995, February 3, 1996 and February 1,
1997, and the twenty-six weeks ended August 2, 1997 (unaudited) ........ F-6
Notes to Consolidated Financial Statements............................... F-7
CHADWICK'S, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-22
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-23
Combined Balance Sheets as of January 28, 1995 and January 27, 1996; and
October 26, 1996 (unaudited)............................................ F-24
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-25
Notes to Combined Financial Statements................................... F-26
KINGSIZE DIVISION FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-32
Balance Sheets as of October 1, 1994 and September 30, 1995.............. F-33
Statements of Revenues, Expenses and Net Assets for the years ended
October 1, 1994 and September 30, 1995.................................. F-34
Statements of Cash Flows for the years ended October 1, 1994 and
September 30, 1995...................................................... F-35
Notes to the Financial Statements........................................ F-36
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Brylane Inc.
We have audited the accompanying consolidated balance sheet of Brylane Inc.
(the "Company"), including Brylane, L.P., a limited partnership, as of
February 3, 1996 and February 1, 1997, and the related consolidated statements
of income, partnership equity, and cash flows of the Company for the years
ended January 28, 1995, February 3, 1996 and February 1, 1997. 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 consolidated financial statements of the Company
referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of February 3, 1996 and February 1, 1997,
and the consolidated results of operations and cash flows for the years ended
January 28, 1995, February 3, 1996 and February 1, 1997, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
April 12, 1997
F-2
<PAGE>
BRYLANE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
FEBRUARY 3, FEBRUARY 1, AUGUST 2, AUGUST 2, 1997
1996 1997 1997 (NOTE 17)
----------- ----------- --------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents... $ 7,469 $ 3,285 $ -- $ --
Accounts receivable, trade
(net)...................... 2,387 22,750 7,503 7,503
Accounts receivable, other.. -- 32,107 9,401 9,401
Inventories................. 76,627 168,821 188,543 188,543
Paper inventory............. 16,102 9,790 18,059 18,059
Catalog costs............... 18,131 31,222 24,676 24,676
Other....................... 4,559 6,252 5,252 5,252
--------- --------- --------- ---------
Total current assets...... 125,275 274,227 253,434 253,434
Property and equipment, net... 28,223 75,970 76,338 76,338
Organization and deferred
financing costs.............. 8,228 11,114 3,979 5,304
Intangibles and other assets.. 166,177 343,243 337,825 337,825
Deferred income taxes......... -- -- 17,551 17,551
Deferred offering costs....... -- 680 -- --
--------- --------- --------- ---------
Total assets.............. $ 327,903 $ 705,234 $ 689,127 $ 690,452
========= ========= ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable............ $ 47,131 $ 93,928 $ 109,370 $ 109,370
Accrued interest............ 6,366 8,612 6,223 6,223
Accrued expenses............ 12,231 45,356 41,675 41,675
Income taxes payable........ -- -- 2,364 2,364
Reserve for returns......... 4,192 18,603 11,285 11,285
Short-term debt............. -- -- 20,000 20,000
Current portion of long-term
debt....................... 13,720 26,000 9,028 5,000
--------- --------- --------- ---------
Total current liabilities. 83,640 192,499 199,945 195,917
Long-term debt................ 213,020 401,362 255,251 366,965
Other long-term liabilities... 4,056 6,010 7,390 7,390
--------- --------- --------- ---------
Total liabilities......... 300,716 599,871 462,586 570,272
Series A Convertible
Redeemable Preferred Stock... -- 1,500 1,500 1,500
Partnership/stockholders'
equity:
General partner, 2,562,500
units...................... 25,625 25,625 -- --
Limited partners, 10,340,000
units at February 3, 1996
and 12,908,945 units at
February 1, 1997........... 105,204 159,855 -- --
Common Stock, $.01 par value
40,000,000 shares
authorized; 19,471,445
shares issued
and outstanding............ -- -- 195 198
Additional paid in capital.. -- -- 290,339 300,041
Reduction for predecessor
cost--carryover basis...... (152,067) (152,067) (152,067) (152,067)
Treasury stock.............. -- -- -- (115,625)
Loans to management
investors.................. (2,515) (2,490) (2,490) (2,490)
Retained earnings........... 50,940 72,940 89,064 88,623
--------- --------- --------- ---------
Total
partnership/stockholders'
equity................... 27,187 103,863 225,041 118,680
--------- --------- --------- ---------
Total liabilities and
equity................... $ 327,903 $ 705,234 $ 689,127 $ 690,452
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED TWENTY-SIX WEEKS ENDED
----------------------------------- ----------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 1, AUGUST 3, AUGUST 2,
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- -----------
(53 WEEKS) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $578,530 $ 601,055 $ 705,353 $ 308,625 $ 603,457
Cost of goods sold...... 288,217 298,414 346,572 149,898 309,971
Non-recurring inventory
charge................. 2,614 569 1,657 -- 3,315
-------- ---------- ---------- ---------- ----------
Gross margin............ 287,699 302,072 357,124 158,727 290,171
Operating expenses:
Catalog and
advertising.......... 153,830 174,446 186,985 88,988 137,879
Fulfillment........... 41,656 37,333 55,450 18,380 56,415
Support services...... 35,152 37,024 54,422 21,701 43,750
Intangibles and
organization cost
amortization......... 4,242 4,707 6,518 2,818 5,466
-------- ---------- ---------- ---------- ----------
Total operating
expenses............... 234,880 253,510 303,375 131,887 243,510
Operating income........ 52,819 48,562 53,749 26,840 46,661
Interest expense, net... 19,576 20,624 24,026 10,791 13,685
Income before income
taxes and extraordinary
charge................. 33,243 27,938 29,723 16,049 32,976
Provision for income
taxes.................. 89 88 315 57 12,742
-------- ---------- ---------- ---------- ----------
Income before
extraordinary charge... -- -- 29,408 15,992 20,234
Extraordinary charge
related to early
retirement of debt, net
of tax................. -- -- 2,456 -- 4,110
-------- ---------- ---------- ---------- ----------
Net income.............. $ 33,154 $ 27,850 $ 26,952 $ 15,992 $ 16,124
======== ========== ========== ========== ==========
Primary earnings per
share:
Income per share be-
fore extraordinary
charge............... $ 1.19 $ 1.04
Extraordinary charge
per share............ -- 0.21
---------- ----------
Net income per share.... $ 1.19 $ 0.83
========== ==========
Weighted average shares
outstanding............ 13,419,588 19,452,313
Supplemental data
(Unaudited) (Note 4):
Historical income
before provision for
income taxes and
extraordinary charge. $ 33,243 $ 27,938 $ 29,723 $ 16,049 $ 32,976
Supplemental provision
for income taxes..... 12,300 10,337 10,998 5,938 12,201
-------- ---------- ---------- ---------- ----------
Supplemental income
before extraordinary
charge................. 20,943 17,601 18,725 10,111 20,775
Extraordinary charge
related to early
retirement of debt, net
of tax................. -- -- 1,547 -- 4,110
-------- ---------- ---------- ---------- ----------
Supplemental net
income............... $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ========== ========== ========== ==========
Supplemental earnings
per share (Note 4)... $ 1.34 $ 1.29 $ 0.75 $ 0.86
========== ========== ========== ==========
Supplemental weighted
average shares
outstanding (Note 4). 13,106,640 13,366,236 13,419,588 19,452,313
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED TWENTY-SIX WEEKS ENDED
----------------------------------- ----------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 1, AUGUST 3, AUGUST 2,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ------------
(53 WEEKS) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............. $ 33,154 $ 27,850 $ 26,952 $ 15,992 $ 16,124
Impact of other
operating activities
on cash flows:
Depreciation........... 3,110 3,650 4,821 2,148 5,143
Non-recurring inventory
charge................ 2,614 569 1,657 -- 3,315
Extraordinary charge
related to early
retirement of debt.... -- -- 2,456 -- 6,524
Non-cash compensation
expense............... -- -- 2,400 -- 349
Imputed interest....... -- 185 -- -- --
Amortization:
Intangibles and
organization costs... 4,242 4,707 6,518 2,818 5,466
Deferred financing
costs (included in
interest expense).... 1,469 1,469 1,603 734 784
Discount on notes
(included in interest
expense)............. 96 97 97 48 48
Changes in operating
assets and
liabilities:
Accounts receivable... (598) (549) (15,137) 515 9,148
Inventories........... (14,195) (4,019) (32,064) (7,858) (23,037)
Catalog costs and
paper inventory...... (2,928) (8,933) (2,492) 5,795 (1,723)
Accounts payable and
accrued expenses..... 12,429 479 15,262 4,703 11,347
Accrued interest...... (725) 831 2,246 (733) (2,389)
Income taxes payable.. -- -- -- -- 2,364
Other assets and
liabilities.......... 332 7,226 (2,296) 1,064 (2,728)
-------- -------- --------- ---------- ------------
Net cash provided by
operating activities... 39,002 33,562 13,023 25,226 30,735
-------- -------- --------- ---------- ------------
Investing activities:
Purchase price
adjustment related to
Chadwick's
Acquisition........... -- -- -- -- 28,805
Cash payment in
connection with the
Chadwick's
Acquisition, net of
cash acquired......... -- -- (222,951) -- --
Cash payments in
connection with the
KingSize Acquisition,
net of cash acquired.. -- (51,975) -- -- --
Acquisition related
fees and expenses paid
at closing............ -- (1,278) (6,215) -- --
Capital expenditures... (5,287) (7,290) (3,932) (2,056) (7,322)
-------- -------- --------- ---------- ------------
Net cash used in
investing activities... (5,287) (60,543) (233,098) (2,056) 21,483
-------- -------- --------- ---------- ------------
Financing activities:
Payment on bank credit
facility.............. (15,000) (22,524) (102,476) (6,748) (344,793)
Proceeds from the
issuance of long-term
debt.................. -- 35,000 283,000 -- 181,663
Borrowings on revolver. 20,000
Proceeds from initial
public offering....... -- -- -- -- 96,000
Offering fees and
expenses.............. -- -- -- -- (8,170)
Payments on term loan.. -- -- (5,000) -- --
Proceeds from borrowing
under term loan....... -- -- 5,000 -- --
Equity contributions
from partners......... -- -- 51,329 -- --
Proceeds from issuance
of preferred stock.... -- -- 1,500 -- --
Tax distributions to
partners.............. -- (6,562) (9,854) (4,087) --
Debt issuance fees and
expenses.............. -- -- (7,005) -- (203)
Deferred offering
costs................. (642) -- (680) -- --
Proceeds from the sale,
net of repurchase of
partnership interests. 387 41 77 77 --
-------- -------- --------- ---------- ------------
Net cash (used in)
provided by financing
activities............. (15,255) 5,955 215,891 (10,758) (55,503)
-------- -------- --------- ---------- ------------
Cash and cash
equivalents, at
beginning of period.... 10,035 28,495 7,469 7,469 3,285
-------- -------- --------- ---------- ------------
Cash and cash
equivalents, at end of
period................. $ 28,495 $ 7,469 $ 3,285 $ 19,881 $ 0
======== ======== ========= ========== ============
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 periods ended.... $ 20,127 $ 19,328 $ 20,581 $ 11,049 $ 16,848
======== ======== ========= ========== ============
Income taxes paid..... -- $ 7,966
========== ============
Supplemental disclosure of
noncash financing
activity:
Purchase price for
KingSize acquisition,
net of acquisition
costs................. $ 57,750
Cash portion of
purchase price........ 52,500
--------
Partnership units
issued for purchase... $ 5,250
========
Purchase price for
Chadwick's
acquisition, net of
acquisition costs..... $ 242,954
Cash portion of
purchase price........ 222,954
---------
Convertible note....... $ 20,000
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDUCTION FOR
GENERAL AND PREDECESSOR
LIMITED PARTNERS COMMON STOCK ADDITIONAL COST LOANS TO
---------------------- ----------------- PAID IN CARRYOVER MANAGEMENT RETAINED
UNITS AMOUNT SHARES AMOUNT CAPITAL BASIS INVESTORS EARNINGS TOTAL
----------- --------- ---------- ------ ---------- ------------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
28, 1995........ 12,547,500 $ 125,475 -- -- -- $(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......... 12,902,500 130,829 -- -- -- (152,067) (2,515) 50,940 27,187
Net income....... -- -- -- -- -- -- -- 26,952 26,952
Sale of units.... 2,573,945 51,441 -- -- -- -- 25 -- 51,466
Repurchase of
units........... (5,000) (60) -- -- -- -- -- -- (60)
Exchange of stock
options......... -- 3,270 -- -- -- -- -- -- 3,270
Tax distributions
payable to
partners........ -- -- -- -- -- -- -- (4,952) (4,952)
----------- --------- ---------- ---- -------- --------- ------- ------- --------
Balance, February
1, 1997......... 15,471,445 185,480 -- -- -- (152,067) (2,490) 72,940 103,863
Net income....... -- -- -- -- -- -- -- 16,124 16,124
Proceeds from
initial Public
Offering........ -- -- 4,000,000 $ 40 $ 95,960 -- -- -- 96,000
Initial Public
Offering
expenses........ -- -- -- -- (8,850) -- -- -- (8,850)
Exchange of
partnership units
for common
stock........... (15,471,445) (185,480) 15,471,445 155 185,325 -- -- -- --
Recognition of
deferred tax
asset........... -- -- -- -- 17,551 -- -- -- 17,551
Exchange of stock
options......... -- -- -- -- 353 -- -- -- 353
----------- --------- ---------- ---- -------- --------- ------- ------- --------
Balance, August
2, 1997
(unaudited)..... 0 $ 0 19,471,445 $195 $290,339 $(152,067) $(2,490) $89,064 $225,041
=========== ========= ========== ==== ======== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
(1) NATURE OF OPERATIONS:
Brylane is a leading catalog retailer of special size women's apparel,
regular size women's apparel and special size men's apparel. The women's
catalogs market apparel in the budget and low to moderate price range and the
men's catalogs market apparel in the moderate price range. Brylane services
the special size customer through its Lane Bryant, Roaman's, Jessica London
and KingSize (men's) catalogs, and the regular size woman's customer through
its Chadwick's, Lerner, Sue Brett and Bridgewater catalogs. Brylane also
markets apparel to these same customer segments through four catalogs which it
distributes under licensing arrangements with Sears Shop at Home Services,
Inc. ("Sears").
Brylane's merchandising strategy is to provide valued-priced, private label
apparel with a consistent quality and fit, to concentrate on apparel with
limited fashion risk, and to offer a broader selection of sizes and styles in
special size apparel than can be found at most retail stores and in other
competing catalogs. Each of Brylane's catalogs offers its customers
contemporary, traditional and basic apparel.
(2) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
Brylane Acquisition
In August 1993, certain affiliates of FS&Co. and of The Limited formed
Brylane, L.P. ("Brylane"), a Delaware limited partnership, and acquired the
Lane Bryant, Roaman's and Lerner catalog businesses (the "Brylane
Acquisition") formerly conducted by certain direct and indirect subsidiaries
of The Limited ("Predecessor"). The aggregate purchase price was $335 million.
The Brylane Acquisition closed on August 30, 1993. For accounting purposes,
the transaction was accounted for on the effective date of August 1, 1993.
In connection with the Brylane Acquisition certain affiliates of FS&Co. and
certain management investors contributed $75 million to the capital of Brylane
for a 60% aggregate interest. Certain affiliates of The Limited contributed
substantially all assets and liabilities of the catalog business to Brylane
and received cash of $285 million and a 40% aggregate interest in Brylane with
an assigned value of $50 million.
The Brylane Acquisition has been accounted for utilizing the purchase method
of accounting. The continuing interest of certain affiliates of The Limited in
Brylane was reflected at The Limited's historical basis (carryover basis) in
accordance with Emerging Issues Task Force (EITF) Issue No. 88-16. For the
proportionate interests of the affiliates of FS&Co. and members of management
who invested in the transaction, the purchase price was allocated to the
assets and liabilities of Brylane at their estimated fair values as determined
based on management's estimates. Partners' capital and the basis of the
transferred assets have been reduced for predecessor cost carryover basis.
Initial Public Offering
On February 26, 1997, in connection with the initial public offering of
Brylane Inc. ("Initial Public Offering"), Brylane, L.P. became a wholly-owned
subsidiary of Brylane Inc. pursuant to the First Amended and Restated
Incorporation and Exchange Agreement (the "Exchange Agreement"), whereby
certain affiliates of Freeman Spogli & Co. ("FS&Co."), The Limited, Inc. ("The
Limited"), M&P Distributing Company, WearGuard, Leeway & Co., and NYNEX
exchanged their shares of common stock of VP Holding Corporation or ownership
interests in the Partnership, except for the TJX noteholder ("TJX
Noteholder"), for 14,926,778 shares of $.01 par value common stock ("Common
Stock") of Brylane Inc. (the "Exchange Transaction"). Additionally, pursuant
to their respective stock subscription agreements with VP Holding Corporation,
members of management and others exchanged their shares of common stock of VP
Holding Corporation for an aggregate of 544,667 shares of Common Stock of
Brylane Inc. In connection with the Exchange Transaction, Brylane, L.P.
retained all of its assets, operations and liabilities.
F-7
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
On February 26, 1997, Brylane Inc. offered 4,000,000 shares of Common Stock
to the public through its Initial Public Offering. Brylane Inc. is a
registrant pursuant to Section 12 of the Exchange Act and is thereby required
to provide continuous financial reporting to its stockholders. As discussed
above, Brylane Inc. does not maintain any separate assets, operations or
liabilities as all activities are conducted within Brylane, L.P. The
historical financial statements presented herein for periods prior to February
26, 1997 are for Brylane, L.P. and are included to satisfy Brylane Inc.'s
continuous reporting requirement. This presentation is consistent with that of
Brylane Inc.'s Form S-1 Registration Statement regarding the Initial Public
Offering which contained the historical financial statements of Brylane, L.P.
through the thirty-nine weeks ended November 2, 1996. The Company's unaudited
consolidated financial statement information included herein for the period
February 26, 1997 through August 2, 1997 and the pro forma balance sheet
information at August 2, 1997 relate to Brylane Inc.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Brylane and
its wholly-owned subsidiaries and partnerships, including Brylane Capital
Corp., B.L. Management Services, Inc., B.L. Catalog Distribution, Inc.,
B.L. Management Services Partnership, B.L. Catalog Distribution Partnership,
B.N.Y. Service Corp., K.S. Management Services, Inc., C.O.B. Management
Services, Inc. and Chadwick's Tradename Sub, Inc. These entities are
collectively referred to as Brylane or the Partnership. Accounts between the
consolidated entities have been eliminated. Each of the wholly-owned
subsidiaries and partnerships has guaranteed Brylane's 10% Senior Subordinated
Notes due 2003 (the "Notes"). Separate financial statements of these
subsidiary guarantors have not been included as the subsidiaries guarantee the
Notes on a full, unconditional, and joint and several basis. Management
believes that the aggregate assets, liabilities, earnings, and equity of the
subsidiary guarantors are currently, both on an individual and a combined
basis, inconsequential to Brylane on a consolidated basis, and therefore, that
information provided in separate financial statements of the subsidiary
guarantors is not deemed material to the readers of the financial statements.
Effective July 6, 1996, KingSize Catalog Sales, L.P., and KingSize Catalog
Sales, Inc. were merged into Brylane. All of the assets and liabilities of
these entities were transferred to Brylane, which continues to run the
KingSize Big & Tall catalog business.
(3) ACQUISITIONS:
In October 1995, KingSize Catalog Sales, L.P., an Indiana limited
partnership and an indirect wholly-owned entity of Brylane ("KingSize
Partnership"), completed the acquisition of the assets of the KingSize
division of WearGuard Corporation ("WearGuard"), a wholly-owned subsidiary of
ARAMARK Corporation (the "KingSize Acquisition"). The business acquired is a
catalog business devoted to big and tall men's apparel, footwear and related
accessories. Brylane paid to WearGuard $52.5 million in cash and issued to
WearGuard 350,000 newly issued limited partnership units in Brylane. Brylane
financed the cash portion of the purchase price out of available funds as well
as additional borrowings under its 1993 bank credit facility. Brylane acquired
the inventory, contracts, customer lists, goodwill, accounts receivable and
certain equipment relating to the operation of the business, and the
assumption of certain liabilities. In addition, the parties entered into a
Noncompetition Agreement.
For accounting purposes, the KingSize Acquisition has been recorded using
the purchase method of accounting on the effective date of October 1, 1995.
Brylane's financial statements include the results of KingSize on a
consolidated basis from the effective date of the acquisition. The purchase
price, including acquisition costs of $1.4 million, has been allocated to the
assets and liabilities of KingSize at their estimated fair values. The fair
values of assets and liabilities have been determined based on management's
estimates. The allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $10,737
Property and equipment........................................... 331
Intangibles and other assets..................................... 51,903
Liabilities assumed.............................................. (3,821)
-------
$59,150
=======
</TABLE>
F-8
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
In December 1996, Brylane, L.P. completed the acquisition of certain assets
of the Chadwick's of Boston catalog division ("Chadwick's") of Chadwick's,
Inc., a wholly-owned subsidiary of The TJX Companies ("TJX") (the "Chadwick's
Acquisition"). Chadwick's is a catalog business devoted to selling off-price
women's career, casual and social apparel. The Chadwick's Acquisition included
the purchase of inventory, property, plant and equipment, customer lists,
trademarks, goodwill and the assumption of certain liabilities relating to the
business by Brylane. In addition, the parties entered into a services
agreement, as well as an inventory purchase agreement pursuant to which TJX
has committed to purchase certain amounts of Chadwick's excess inventory
through January 2000.
Brylane paid to TJX $222.8 million (subject to certain post-closing
adjustments) and issued to TJX (the "TJX Noteholder") a $20.0 million
Convertible Redeemable Note due 2006. In order to fund a portion of the cash
paid in connection with the Chadwick's Acquisition and to repay its existing
indebtedness under its 1993 bank credit facility, the Partnership entered into
the 1996 Bank Credit Facility. In addition, the Partnership received an
aggregate of approximately $51.3 million in new equity from certain affiliates
of FS&Co., Leeway & Co., NYNEX and WearGuard.
For accounting purposes, the Chadwick's Acquisition has been recorded using
the purchase method of accounting, Brylane's financial statements include the
results of Chadwick's on a consolidated basis from the closing date of the
acquisition. The purchase price, reflecting preliminary adjustments of $28.8
million, and including acquisition costs of $7.1 million, has been allocated
to the assets and liabilities of Chadwick's at their estimated fair values.
The preliminary purchase price adjustment is recorded in accounts receivable
other. The fair values of assets and liabilities have been determined based on
management's estimates. The allocation of the purchase price is as follows (in
thousands):
<TABLE>
<S> <C>
Current assets.................................................. $ 89,990
Property and equipment.......................................... 45,805
Intangibles and other assets.................................... 183,506
Liabilities assumed............................................. (98,067)
--------
$221,234
========
</TABLE>
The following unaudited pro forma results of operations for the years ended
February 3, 1996 and February 1, 1997 assume that the KingSize Acquisition and
the Chadwick's Acquisition occurred as of January 29, 1995. In preparing the
pro forma information, certain adjustments related to the KingSize Acquisition
have been made for (i) the amortization of goodwill and other intangible
assets created in the KingSize Acquisition; (ii) the interest expense related
to the borrowings which were used to finance a portion of the purchase price;
(iii) the non-recurring charge related to the valuation of the acquired
inventory; and (iv) the administrative overhead and goodwill amortization
related to KingSize as a division of WearGuard. Certain adjustments related to
the Chadwick's Acquisition have been made for (i) the amortization of goodwill
and other intangible assets created in the Chadwick's Acquisition; (ii) the
interest expense on the net increase in indebtedness which was used to finance
a portion of the purchase price; (iii) the sale of deferred billing
receivables to Alliance Data Systems Corporation; (iv) the non-recurring
charge related to the valuation of the acquired inventory; (v) the
amortization of deferred financing fees related to the 1996 Bank Credit
Facility and the write-off and reduction of amortization expense related to
the repayment of the 1993 bank credit facility; and (vi) the elimination of
interest expense and federal and state taxes related to Chadwick's as a
division of TJX.
The pro forma information is provided for informational purposes only. It is
based on historical information and does not purport to be indicative of the
results that actually would have occurred had the KingSize and
F-9
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Chadwick's Acquisitions been made as of the indicated dates or of results
which may occur in the future (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------
FEBRUARY 3, 1996 FEBRUARY 1, 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Net Sales..................................... $1,090,318 $1,167,527
Operating Income.............................. 70,625 87,118
Net Income.................................... 30,894 49,246
</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 28, 1995 and
February 1, 1997 consisted of 52 weeks, and the fiscal year ended February 3,
1996 consisted of 53 weeks. The fiscal year is designated in the notes to the
financial statements by the calendar year in which the fiscal year commences.
Cash Equivalents
Brylane considers investments with initial maturities of three months or
less to be cash equivalents.
Accounts Receivable
Brylane, L.P. sells eligible accounts receivable generated through
Chadwick's deferred billing programs to Alliance Data Systems Corporation
("ADS") (See note (13) "Related Party Transactions"). All sales are accounted
for in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" which was effective for transactions occurring
after December 13, 1996. Costs associated with these transactions are included
in operations. Deferred billing accounts receivable balances retained by the
Company are net of an allowance for doubtful accounts of $0 and $1,975,000 at
February 3, 1996 and February 1, 1997.
Inventories
Merchandise inventories are stated at the lower of cost or market,
principally valued on the average cost basis under a standard costing system
or using the retail method of accounting, except for inventories attributable
to the initial investment in KingSize and Chadwick's which were recorded at
estimated fair value. A non-recurring inventory charge representing the
estimated fair value in excess of its original historical cost, as of the date
of the KingSize Acquisition, was fully amortized in fiscal 1995 ($569,000). A
non-recurring inventory charge representing the estimated fair value, as of
the date of the Chadwick's Acquisition, of inventory in excess of its original
historical cost was amortized partly during the fiscal year ended February 1,
1997 ($1.7 million) with the remainder to be amortized in the Spring/Summer
season of fiscal 1997 ($3.3 million).
Catalog Costs
Catalog costs primarily consist of catalog production and mailing costs that
have not yet been fully amortized. Catalog costs are amortized over the
expected revenue stream, which is approximately three months from the date
catalogs are mailed as determined based on management's estimates.
F-10
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging principally
from 10-30 years for buildings and improvements, the lesser of 10 years or the
life of the lease for leasehold improvements and 3-10 years for other property
and equipment. The cost and related accumulated depreciation or amortization
of assets sold or retired are removed from the accounts, with any resulting
gain or loss included in net income. Repairs and maintenance are charged to
expense as incurred; renewals and betterments which extend service lives are
capitalized.
Organization and Deferred Financing Costs
Organization costs amounting to $300,000 relate to the formation of Brylane
and its wholly-owned subsidiaries and partnerships. Such costs are amortized
over five years using the straight-line method. Accumulated amortization of
organization costs at February 3, 1996, and February 1, 1997 was $150,000, and
$210,000, respectively. Original deferred financing costs of $11.8 million
incurred in connection with the Brylane Acquisition were capitalized and
amortized over the term of the related debt using the effective interest
method. In connection with the repayment of the 1993 bank credit facility, a
pro rata portion of the deferred financing fees of $2.5 million associated
with the obligations to be repaid were written off as a charge to operations.
The remaining balance of $9.3 million will continue to be amortized over the
remaining life of the related obligations. Deferred financing costs of $7.0
million incurred in connection with the 1996 Bank Credit Facility were
capitalized and are amortized over the term of the related debt using the
effective interest method. Accumulated amortization of deferred financing
costs at February 3, 1996, and February 1, 1997 was $3.7 million, and $5.3
million, respectively.
Intangible Assets
Intangible assets associated with the Brylane Acquisition include trademarks
of $8.8 million, customer lists of $2.2 million and goodwill of $114.5
million. Such intangibles are amortized over a 30-year composite life using
the straight-line method. Accumulated amortization of intangible assets was
$10.5 million, and $14.6 million at February 3, 1996, and February 1, 1997,
respectively. Intangible assets associated with the KingSize Acquisition
include customer lists of $520,000, a noncompetition agreement of $300,000,
and goodwill of $50.8 million. Amortization is computed using the straight-
line method over a life of eight years for the customer lists, five years for
the noncompetition agreement, and 40 years for goodwill. Accumulated
amortization was $465,000 and $1.9 million, at February 3, 1996 and February
1, 1997, respectively. Intangible assets associated with the Chadwick's
Acquisition include customer lists of $4.0 million and goodwill of $179.5
million. Amortization is computed using the straight-line method over a life
of five years for the customer lists and 40 years for goodwill. Accumulated
amortization was $882,000 at February 1, 1997.
Brylane's policy is to periodically review the value assigned to goodwill to
determine if it has been permanently impaired by adverse conditions which
might affect Brylane. Such reviews include an analysis of current results and
take into consideration the discounted value of projected operating cash flow
(earnings before interest, taxes and depreciation and amortization).
Income Taxes
Under the partnership form of doing business, the tax effects of profits and
losses of the Partnership are incurred by the partners. Brylane makes cash
advances and annual distributions to partners in amounts sufficient for the
partners to pay income taxes on their ratable share of taxable income. As a
result, the provision for income taxes for the years ended January 28, 1995,
February 3, 1996, and February 1, 1997 represents federal, state and local
income taxes relating only to taxable income of the C-corporations included in
the consolidated financial statements.
F-11
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Supplemental Net Income and Earnings per Share:
Supplemental net income of Brylane Inc. represents the results of operations
adjusted to reflect a provision for income tax on historical income before
income taxes, which gives effect to the change in the consolidated entities
tax status to a C-corporation subsequent to the public sale of its Common
Stock. The difference between the proforma 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 of Brylane Inc. represents supplemental net
income divided by the weighted average partnership units outstanding prior to
the Initial Public Offering and the weighted average common stock and
equivalent units outstanding thereafter. In accordance with Securities and
Exchange Commission rules, options granted in the one year 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 the offering price of $24 per share.
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.
Partnership Unit Option Plan
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Awards of Stock-Based Compensation to
Employees", which is effective for fiscal years beginning after December 15,
1995. SFAS No. 123 provides alternative accounting treatment to Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees" with respect to stock-based compensation and requires certain
additional disclosures. Brylane adopted the disclosure requirements of SFAS
No. 123 in the first quarter of 1996, but has elected to continue to measure
compensation costs following present accounting rules under APB Opinion No. 25
(See note (8) "Partnership Unit Option Plans").
Reclassifications
Certain reclassifications have been made to the 1995 balance sheets, and the
1994 and 1995 statements of income and cash flows to conform with the 1996
financial statement presentation. Such reclassifications had no effect on
previously reported net income.
(5) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment consist
of (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
<S> <C> <C>
Land, buildings and improvements.............. $14,997 $44,651
Furniture, fixtures and equipment............. 19,359 41,988
Leasehold improvements........................ 2,120 2,397
------- -------
36,476 89,036
Accumulated depreciation and amortization..... 8,253 13,066
------- -------
Property and equipment, net................... $28,223 $75,970
======= =======
</TABLE>
(6) LONG-TERM DEBT:
In order to finance the Brylane Acquisition, Brylane secured financing
through proceeds from a bank credit facility ("1993 bank credit facility") and
the sale of the Notes. In connection with the Chadwick's Acquisition,
F-12
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Brylane repaid the 1993 bank credit facility and entered into a 1996 Bank
Credit Facility ("Bank Credit Facility"). The Bank Credit Facility and Notes
are fully and unconditionally guaranteed, jointly and severally, by each of
Brylane's wholly-owned subsidiaries: Brylane Capital Corp., B.L. Management
Services, Inc., B.L. Catalog Distribution, Inc., B.N.Y. Service Corp., K.S.
Management Services, Inc., C.O.B. Management Services, Inc., Chadwick's
Tradename Sub, Inc., and by each of Brylane's wholly-owned general
partnerships, B.L. Management Services Partnership and B.L. Catalog
Distribution Partnership (collectively, "Subsidiary Guarantors").
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1, AUGUST 2,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
1993 bank credit facility term loan (the
"Term Loans") bearing interest at the
rate of LIBOR plus 2.0% adjusted to the
current rate at intervals of one to six
months based on Brylane's operating cash
flow to net debt ratio. At February 3,
1996 and November 2, 1996, the margin was
2.0%. Various maturities through October
2000..................................... $102,476 $ 0 $ 0
1993 bank credit facility revolving loan
maximum borrowing of $40,000, sublimit
for letters of credit of 30,000.......... 0 0 0
1996 Bank Credit Facility ("Tranche A Term
Loan"), bearing interest at the rate of
(i) a margin over the higher of prime
rate or federal funds rate plus 0.5% or
(ii) a margin over LIBOR. At February 1,
1997, the rate was LIBOR plus 2.0%:
Various maturities through 2001.......... 0 213,000 0
1996 Bank Credit Facility Tranche B Term
Loan; ("Tranche B Term Loan") bearing
interest at (i) a margin over the higher
of prime rate or federal funds rate plus
0.5% or (ii) a margin over LIBOR. At
February 1, 1997 the rate was LIBOR plus
2.5%. Various maturities through February
2003..................................... 0 70,000 0
1996 Bank Credit Facility revolving loan
("Revolving Credit Facility"), maximum
borrowings of $125,000, sublimit for
letters of credit $75,000................ 0 0 0
1997 Bank Credit Facility ("Tranche A Term
Loan"), bearing interest at the rate of
(i) a margin over the higher of prime
rate or federal funds rate plus 0.5% or
(ii) a margin over LIBOR. At August 2,
1997, the rate was LIBOR plus .875%.
Various maturities through 2001.......... 0 0 50,119
1997 Bank Credit Facility Tranche B Term
Loan: ("Tranche B Term Loan"), bearing
interest at (i) a margin over the higher
of prime rate or federal funds rate plus
0.5% or (ii) a margin over LIBOR. At
August 2, 1997 the rate was LIBOR plus
1.625%. Various maturities through
February 2003............................ 0 0 69,750
Convertible subordinated note, bearing
interest at the rate of 6% per annum,
maturing December 9, 2006................ 0 20,000 20,000
Senior subordinated notes, bearing
interest at the rate of 10.0% per annum,
maturing September 1, 2003............... 125,000 125,000 125,000
-------- -------- --------
227,476 428,000 264,869
Unamortized discount on senior
subordinated notes....................... (736) (638) (590)
-------- -------- --------
226,740 427,362 264,279
Less current portion...................... (13,720) (26,000) (9,028)
-------- -------- --------
$213,020 $401,362 $255,251
======== ======== ========
</TABLE>
F-13
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
In addition to scheduled maturities on the Tranche A and Tranche B Term
Loan, Brylane is obligated to make certain mandatory prepayments of the loans
and the Revolving Credit Facility under certain circumstances. Such a
mandatory prepayment of the Tranche A and Tranche B Term Loans is based on
Brylane's excess cash flow, as defined. The terms of the Partnership Agreement
may under certain conditions require and the terms of the Tranche A and
Tranche B Term Loan will allow, until the fourth anniversary of the closing of
the Brylane Acquisition, each such scheduled or mandatory principal payment to
be placed into an escrow account rather than being applied to reduce the
principal amount of the Tranche A and Tranche B Term Loans.
At February 3, 1996 and February 1, 1997, interest terms available to
Brylane, for borrowing similar to the Term Loans and the Tranche A and B Term
Loans, were similar to those presently provided under the Bank Credit
Facility. Accordingly, the principal amount outstanding of the Term Loans and
the Tranche A and B Term Loans approximated the fair value at February 3, 1996
and February 1, 1997.
Based on quoted market prices at February 3, 1996 and February 1, 1997 the
fair market value of the Notes was approximately $111.9 million and $130.3
million, respectively. The change in fair market value is primarily
attributable to changes in bond ratings and market interest rates.
The 1993 bank credit facility contained certain financial covenants which
required Brylane to meet financial ratios and tests, including a minimum net
worth test, a minimum fixed charge coverage ratio and a minimum cash flow to
net debt ratio. At February 3, 1996, Brylane was in compliance with the
required covenants. In addition, the 1993 bank credit facility contained
covenants customarily found in credit agreements of such type including, among
other things, limitations on indebtedness, liens, asset sales, distributions
and other restricted payments, acquisitions, mergers, investments, capital
expenditures and prepayment or amendment of certain indebtedness. The 1993
bank credit facility contained customary events of default, including certain
changes of control of Brylane.
The Bank Credit Facility contains certain financial covenants which require
Brylane to meet financial ratios and tests, including a maximum debt to cash
flow ratio, a minimum fixed charge coverage ratio, and a minimum net worth
test. At February 1, 1997, Brylane was in compliance with the required
covenants. In addition, the Bank Credit Facility contains covenants
customarily found in credit agreements including, among other things,
limitations on indebtedness, liens, Asset Sales (as defined), partnership
distributions and other restricted payments, mergers and certain acquisitions,
investments, transactions with affiliates, capital expenditures, the
prepayment or amendment of certain indebtedness, the granting of certain
negative pledges and the amendment of material agreements. The Bank Credit
Facility also contains customary events of default, including certain changes
of control of the Partnership.
The obligations of Brylane under the Bank Credit Facility are collateralized
by the intangible assets of Brylane.
As of February 3, 1996 and February 1, 1997, Brylane had no borrowings under
the Revolving Credit Facility and, after giving effect to the issuance of
letters of credit for $17.2 million and $47.9 million, respectively, had
additional capacity under the Revolving Credit Facility of approximately $22.8
million and $77.1 million, respectively. As of February 3, 1996 and February
1, 1997 the aggregate principal balance outstanding under the Term Loans and
the Tranche A and B Term Loans was $102.5 million and $283.0 million,
respectively.
At August 2, 1997, Brylane had $20.0 million in borrowings under the
Revolving Credit Facility and, after giving effect to the issuance of letters
of credit for $53.2 million, had additional capacity under the Revolving
Credit Facility of approximately $51.8 million. As of August 2, 1997, the
aggregate principal balance outstanding under the Term Loans and the Tranche A
and B Term Loans was $139.9 million.
F-14
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
At August 2, 1997, annual maturities of long-term debt by fiscal year are as
follows (in thousands):
<TABLE>
<S> <C>
1997............................................................. $ 3,587
1998............................................................. 10,881
1999............................................................. 12,116
2000............................................................. 13,351
2001............................................................. 14,684
Thereafter....................................................... 210,250
--------
Total Debt....................................................... $264,869
========
</TABLE>
(7) OPERATING LEASES:
Brylane leases office, outlet store and warehouse space and equipment under
leasing arrangements classified as operating leases which expire at various
times through fiscal 2003. Rent expense under these leases was $5.6 million,
$5.8 million and $6.6 million in the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997.
Future minimum lease payments required under these leases at February 1,
1997, are as follows (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 6,149
1998.............................................................. 5,348
1999.............................................................. 3,856
2000.............................................................. 1,754
2001.............................................................. 1,447
Thereafter........................................................ 686
-------
$19,240
=======
</TABLE>
(8) PARTNERSHIP UNIT OPTION PLANS:
1993 Option Plan
In connection with the Brylane Acquisition, Brylane adopted its 1993
Performance Partnership Unit Option Plan (the "1993 Option Plan") whereby
officers, key employees, certain members of the Board of Representatives of
the Partnership and consultants of Brylane (or its Subsidiaries) may be
granted the right to purchase an aggregate of up to 779,584 partnership units
in Brylane. The options were issued at fair market value at the date of the
grant based on the capital contributed by FS&Co. and The Limited.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized an amendment to the existing option agreement
that revised the performance criteria for the vesting of the options, and
changed the outside vesting date of the options from August 30, 2008 to August
30, 2002 and reduced the term from 16 to 10 years. In addition, the exercise
price of the options outstanding under the 1993 Option Plan was increased from
$10.00 per partnership unit to $15.00 per partnership unit. In accordance with
APB Opinion No. 25, the options were deemed to have a new measurement date.
Based on the new measurement date, the Partnership incurred non-cash
compensation expense of $2.4 million in the fourth quarter of 1996 and expects
to incur an additional $0.7 million in fiscal 1997. All options become
exercisable on the fifth or ninth
F-15
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
anniversary of the Brylane Acquisition and terminate 10 years from date of
grant (if not sooner due to termination of employment).
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Outstanding at beginning of year...................... 615,209 622,709
Granted............................................... 15,000 669,584
Cancelled............................................. (7,500) (647,709)
------- --------
Outstanding at end of year............................ 622,709 644,584
======= ========
Options exercisable at year-end....................... -- --
Weighted-average fair value of options granted during
the year............................................. $ 9.71 $ 9.99
</TABLE>
1995 Option Plan:
On July 15, 1995, Brylane adopted its 1995 Partnership Unit Option Plan (the
"1995 Option Plan") whereby officers, key employees, certain members of the
Board of Representatives of the Partnership and consultants of Brylane (or its
Subsidiaries) may be granted the right to purchase an aggregate of up to
500,000 partnership units in Brylane.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized amendments to increase the number of partnership
units which may be issued from 500,000 to 1,700,000 and permit the Board or
Compensation Committee to grant options with a term of up to 10 years.
Additionally, Chadwick's employees were granted substitute options in exchange
for options previously granted by TJX. The term, exercise price and vesting
criteria of the replacement options were determined to preserve the economic
value of the options being exchanged. The granting of the options resulted in
an adjustment to the Chadwick's Acquisition purchase price of $0.9 million for
the related compensation expense.
A summary of the Partnership's 1995 Option Plan as of February 3, 1996 and
February 1, 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
UNITS EXERCISE PRICE UNITS EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year...................... -- 123,750 $15.00
Granted.................... 123,750 $15.00 340,854 17.04
Cancelled.................. -- --
------- -------
Outstanding at end of year. 123,750 15.00 464,604 16.50
Options exercisable at
year-end.................. -- 41,250
Weighted-average fair value
of options granted during
the year.................. $ 5.81 $ 9.69
</TABLE>
F-16
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
The following table summarizes information about the 1995 Option Plan at
February 1, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES AT FEBRUARY 1, 1997 CONTRACTUAL LIFE EXERCISE PRICE
--------------- ------------------- ---------------- --------------
<S> <C> <C> <C>
$ 5 to 10 63,604 8.6 years $ 6.72
$11 to 15 127,750 5.6 years 15.00
$16 to 20 273,250 8.0 years 19.48
-------
$ 5 to 20 464,604 7.4 years 16.50
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------------------------------------------------------------------
NUMBER WEIGHTED-
RANGE OF EXERCISABLE AVERAGE
EXERCISE PRICES AT FEBRUARY 1, 1997 EXERCISE PRICE
--------------- ------------------- --------------
<S> <C> <C>
$ 5 to 10 -- --
$11 to 15 41,250 $15.00
$16 to 20 -- --
------ ------
41,250 $15.00
====== ======
</TABLE>
Pro Forma Disclosures Under Statement of Financial Accounting Standards No.
123:
Pro forma information regarding net income as required by SFAS No. 123 has
been determined as if the Company accounted for its stock options under the
fair value approach. The fair value of each option is estimated on the date of
grant using the Black--Scholes model with the following assumptions for 1995:
expected volatility of 31.2%, risk--free interest rate of 5.99% and an
expected life of five years. The weighted average assumptions applied in 1996
are as follows: expected volatility of 31.2%, weighted average risk-free
interest rate of 6.04%, and weighted average expected life of 5.25 years.
Had compensation costs been determined based on the fair value method of
SFAS No. 123, the Company's net income would have been adjusted to the pro
forma amounts indicated below. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options
vesting period (in thousands).
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Net income, as reported................. $27,850 $26,952
Net income, pro forma................... $27,658 $28,351
</TABLE>
(9) STOCK SUBSCRIPTION PLAN:
Brylane has a stock subscription plan (the "Subscription Plan") whereby
officers, certain key employees and a member of the Board of Representatives
may purchase interests in an entity that indirectly owns interests in the
Partnership. Pursuant to the Subscription Plan, this entity acquires
additional interests in the Partnership using the proceeds received in
connection with such purchases. The portion of the purchase price received in
the form of promissory notes is recorded as a reduction of partnership equity.
The price at which the units are purchased is set at fair value at the date of
issuance as determined by the Company from analyses and outside purchases.
F-17
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Activity under the Stock Subscription Plan for fiscal 1994, fiscal 1995 and
fiscal 1996 follows:
<TABLE>
<CAPTION>
AVERAGE
PRICE
NUMBER PER
OF UNITS UNIT
-------- -------
<S> <C> <C>
Units outstanding, January 29, 1994..................... 453,000 $10.00
Activity during 1994:
Issued................................................ 60,000 10.00
Repurchased........................................... (12,500) 10.00
------- ------
Units outstanding, January 28, 1995..................... 500,500 10.00
Activity during 1995:
Issued................................................ 15,000 15.00
Repurchased........................................... (10,000) 12.10
------- ------
Units outstanding, February 3, 1996..................... 505,500 10.15
Activity during 1996:
Issued................................................ 7,500 15.00
Repurchased........................................... (5,000) 12.10
------- ------
Units outstanding, February 1, 1997..................... 508,000 $10.22
======= ======
</TABLE>
(10) RETIREMENT PLAN:
Effective August 30, 1993, Brylane adopted the Brylane, L.P. Savings and
Retirement Plan (the "Retirement Plan"). All of the Company's employees who
have attained twenty-one years of age and have completed one year of service
are eligible to participate in the Retirement Plan. Eligible employees can
contribute up to the lesser of $9,500 or ten percent of their compensation to
the Retirement Plan on a pre-tax basis. Brylane will match up to three percent
of the participants' eligible compensation. Brylane is required to make
additional contributions to the Retirement Plan equal to four percent of each
participant's compensation up to the Social Security taxable wage base and
equal to seven percent of each participant's compensation which exceeds that
amount. An additional one percent of eligible compensation is contributed on
behalf of those participants who have completed at least five years of
service. 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 Brylane's contributions
are fully vested after seven years of service. Brylane's cost under these
plans was $3.1 million, $2.9 million and $3.6 million in the years ended
January 28, 1995, February 3, 1996 and February 1, 1997, respectively.
As a result of the Chadwick's Acquisition, the Company participates in a
multi-employer plan that provides defined benefits to its union employees.
Expense for this plan for the eight-weeks ended February 1, 1997 amounted to
$252,750.
(11) INCOME TAXES:
Brylane Inc. accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Pursuant to SFAS No. 109, deferred tax assets and liabilities result
from differences between financial reporting and tax basis of assets and
liabilities, measured using enacted tax rates and laws in effect when the
differences reverse. Upon consummation of the Initial Public Offering and
execution of the Exchange Agreement, Brylane Inc. recorded a deferred income
tax benefit of $17.6 million. The deferred tax asset represents the estimated
future tax benefits to Brylane Inc., determined at current rates, arising from
temporary differences associated with the difference between the book and tax
basis of the partners' investment in Brylane, L.P.
F-18
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
During the twenty-six weeks ended August 2, 1997, income tax expense was
$10.3 million.
(12) CONVERTIBLE REDEEMABLE PREFERRED STOCK:
In connection with the Chadwick's Acquisition, certain members of Chadwick's
management purchased 75,000 shares of VP Holding Corporation Series A
Convertible Redeemable Preferred Stock for a purchase price of $1.5 million.
The shares of VP Holding Corporation Series A Convertible Redeemable Preferred
Stock vest in three equal annual installments beginning one year from the date
of purchase and may not be transferred or redeemed at the option of the holder
for three years from their date of purchase; thereafter, they may be
transferred only after first offering such shares to VP Holding Corporation.
The redemption price has been set at $20 per share (as appropriately adjusted
for stock dividends, reclassifications or splits).
(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 wholly-owned subsidiary of Alliance Data Systems Corporation ("ADS"), a
joint venture 60% owned by affiliates of Welsh Carson Anderson & Stowe and 40%
owned by The Limited, Inc., pursuant to which World Financial provides credit
to customers of Brylane, issues five proprietary credit cards and processes
credit card transactions for a fee. The total expense amounted to
$10.7 million, $10.3 million and $10.0 million in the years ended January 28,
1995, February 3, 1996 and February 1, 1997. In addition, the Brylane, L.P.
sold accounts receivable to ADS and incurred processing fees of $142,000 in
fiscal 1996.
Certain affiliates of The Limited granted Brylane the use of certain
trademarks for a specified period, as defined in a trademark license
agreement.
In connection with the Chadwick's Acquisition, Brylane paid FS Management
Co. and FS&Co. Management L.P., both of which are affiliated with FS&Co., an
aggregate of $2.5 million in fees as compensation for services in structuring
and arranging financing. Such fees are included in intangibles and other
assets.
(15) COMMITMENTS AND CONTINGENCIES:
Brylane is involved in various legal proceedings that are incidental to the
conduct of its business. Although the amount of any liability with respect to
these proceedings cannot be determined, in the opinion of management, any such
liability will not have a material adverse effect on the financial position or
results of operations of Brylane.
(16) SUBSEQUENT EVENTS:
Initial Public Offering
On February 26, 1997, pursuant to the First Amended and Restated
Incorporation and Exchange Agreement (the "Exchange Agreement"), certain
affiliates of FS&Co., The Limited, M&P Distributing Company, WearGuard, Leeway
& Co., and NYNEX exchanged their shares of common stock of VP Holding
Corporation or ownership interests in the Partnership, except for the TJX
Noteholder, for 14,926,778 shares of Common Stock in Brylane Inc., a newly
formed corporation, and the TJX Noteholder exchanged the $20.0 million
F-19
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Convertible Note due 2006 of the Partnership for a similar security in
Brylane, L.P. and Brylane Inc. Additionally, pursuant to their respective
stock subscription agreements with VP Holding Corporation, certain members of
management and others exchanged their shares of common stock of VP Holding
Corporation for an aggregate of 544,667 shares of Common Stock of Brylane Inc.
On February 26, 1997, Brylane Inc. offered 4,000,000 shares of common stock
to the public at an initial public offering price of $24.00 per share. Net
proceeds, after underwriting discounts and related fees, of $89.3 million were
used to repay obligations outstanding under the Tranche A Term Loan of the
Bank Credit Facility resulting in a write-off of $2.1 million of deferred
financing costs in the first quarter of fiscal 1997.
Prior to the Initial Public Offering and subsequent to the execution of the
Exchange Transaction, the equity of Brylane Inc. was as follows (in
thousands):
<TABLE>
<S> <C>
Common stock, $.01 par value, 40,000,000 shares authorized,
15,471,445 shares issued and outstanding.................... $ 155
Additional paid in capital................................... 204,375
Reduction for predecessor cost carryover basis............... (152,067)
Loans to management investors................................ (2,490)
Retained earnings............................................ 72,940
---------
$ 122,913
=========
</TABLE>
The additional paid in capital of Brylane Inc. at February 1, 1997 reflects
the establishment of a deferred tax asset of $19.1 million, 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 Acquisition and upon the contribution to Brylane
Inc. by The Limited of its interests in the Partnership at the closing of the
Initial Public Offering, and represents estimated future tax benefits to
Brylane Inc. arising from those assets. Brylane, L.P. did not record deferred
taxes since its partners incurred the tax effects of its profits and losses.
Lease Agreements
In April 1997, Brylane renewed the lease for its New York office. The
renewed lease commenced its term on April 15, 1997, and expires on March 31,
2012. Annual payments required by this lease are $1.5 million for the period
April 15, 1997 through April 14, 2002 and $1.6 million for the period April
15, 2002 through March 31, 2012.
In September 1997, Brylane entered into a lease for a warehouse and office
facility that will contain approximately 330,000 square feet. The lease
commences on the later of (i) February 15, 1998 or (ii) the date on which
substantial completion of landlord's construction work is deemed to occur, and
continues for 15 years with two five-year renewal options. Annual payments
required by this lease are $1.4 million for the period February 15, 1998
through February 15, 2013.
Bank Credit Facility
On April 30, 1997, Brylane, L.P. entered into its 1997 Bank Credit Facility
which resulted in the write-off of approximately $4.4 million in deferred
financing costs. This item was treated as an extraordinary charge during
Spring/Summer season of fiscal 1997. The proceeds from 1997 Bank Credit
Facility were used to repay the 1996 Bank Credit Facility. The Company prepaid
$62.1 million on the Tranche A Term Loan of the 1997 Bank Credit Facility
during the twenty-six weeks ended August 2, 1997.
F-20
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Sale of Common Stock by Certain Stockholders and Common Stock Repurchase
In September 1997, certain stockholders initiated an offering to sell
5,000,000 shares of their Common Stock in the Company. Concurrent with the
consummation of that offering, the Company will repurchase from the same
stockholders an additional 2,500,000 shares. The Company has received a signed
commitment letter from J.P. Morgan, Morgan Guaranty and Merrill Lynch Capital
to amend and restate its 1997 Bank Credit Facility to provide additional
financing of up to $175.0 million to fund the repurchase of those shares.
The pro forma balance sheet information at August 2, 1997 reflects the
$117.4 million in additional borrowings as if such borrowings had occurred at
that date.
F-21
<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-22
<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-23
<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-24
<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
amortization........ 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
income taxes........ -- -- -- 5,458 463
Increase (decrease)
in deferred income
taxes............... 1,133 621 897 306 (277)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. (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
activities............. 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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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.
(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>
F-37
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(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.
(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-38
<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 SHARES
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
Common Stock Repurchase................................................... 18
Use of Proceeds........................................................... 18
Price Range of Common Stock and Dividend Policy........................... 19
Capitalization............................................................ 20
Unaudited Pro Forma Financial Statements.................................. 21
Selected Financial Data................................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 46
Certain Relationships and Related Transactions............................ 60
Management................................................................ 66
Principal and Selling Stockholders........................................ 79
Shares Eligible for Future Sale........................................... 81
Description of Capital Stock.............................................. 84
Description of Certain Financing Arrangements............................. 87
Underwriting.............................................................. 90
Certain United States Federal Tax Consequences to Non-United States
Purchasers............................................................... 93
Legal Matters............................................................. 94
Experts................................................................... 94
Available Information..................................................... 95
Index to Historical Financial Statements.................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN & CO.
OCTOBER , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 14, 1997
PROSPECTUS
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
-----------
All the shares of Common Stock of Brylane Inc. offered hereby are being
offered by certain stockholders of the Company identified herein. Concurrently
with the consummation of the Offerings, the Company will repurchase from the
Selling Stockholders an aggregate of 2,500,000 shares of Common Stock at the
Price to Public set forth on this cover page. The consummation of each of (i)
the Offerings and (ii) the Common Stock Repurchase is contingent upon the
consummation of the other and the closing of an amendment to the Company's
existing bank credit facility. See "Principal and Selling Stockholders" and
"Common Stock Repurchase". Upon consummation of the Offerings and the Common
Stock Repurchase, FS&Co. and The Limited (each as defined) will own 25.3% and
14.8% of the Company's Common Stock respectively. The Company will not receive
any proceeds from the sale of the Common Stock hereby.
Of the 5,000,000 shares (the "Shares") offered hereby, 1,000,000 Shares are
being offered outside the United States and Canada by the International
Managers (the "International Offering") and 4,000,000 Shares are being offered
in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering" and, together with the International
Offering, the "Offerings"). The initial public offering price and the aggregate
underwriting discount per share are identical for the Offerings. See
"Underwriting".
The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "BYL". On October 13, 1997, the last reported sale price of the Common
Stock as reported on the NYSE was $47.625 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
- -------------------------------------------------------------------------------
Total (3)........................ $ $ $
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses payable the Company estimated to be $ .
(3) The Selling Stockholders have granted to the U.S. Underwriters and the
International Managers options, exercisable within 30 days after the date
of this Prospectus, to purchase up to an additional 600,000 and 150,000
shares of Common Stock, respectively, to cover over-allotments, if any. If
all such additional shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to the Selling Stockholders 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 and certain
other conditions. 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 October 20, 1997.
-----------
MERRILL LYNCH INTERNATIONAL
LAZARD CAPITAL MARKETS
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN SECURITIES LTD.
-----------
The date of this Prospectus is October , 1997.
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.
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
UNDERWRITING
The underwriters named below (the "International Managers"), acting through
their respective representatives, Merrill Lynch International, Lazard Capital
Markets, NationsBanc Montgomery Securities, Inc. and J.P. Morgan Securities
Ltd. (the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"), have severally agreed, subject to the
terms and conditions contained in a purchase agreement relating to the Common
Stock (the "International Purchase Agreement") and concurrently with the sale
of 4,000,000 shares of Common Stock to certain underwriters in the United
States and Canada (the "U.S. Underwriters" and, together with the
International Managers, the "Underwriters"), to purchase from the Selling
Stockholders the number of shares of Common Stock set forth opposite their
respective names below. Under certain circumstances, the commitments of non-
defaulting International Managers or U.S. Underwriters may be increased.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
---------------------- ---------
<S> <C>
Merrill Lynch International .......................................
Lazard Capital Markets.............................................
NationsBanc Montgomery Securities, Inc. ...........................
J.P. Morgan Securities Ltd. .......................................
---------
Total......................................................... 1,000,000
=========
</TABLE>
The Selling Stockholders have also entered into a purchase agreement (the
"U.S. Purchase Agreement" and, together with the International Purchase
Agreement, the "Purchase Agreements") with the U.S. Underwriters. Subject to
the terms and conditions set forth in the U.S. Purchase Agreement, and
concurrently with the sale of 1,000,000 shares of Common Stock to the
International Managers, the Selling Stockholders have severally agreed to sell
to the U.S. Underwriters, and the U.S. Underwriters have severally agreed to
purchase, an aggregate of 4,000,000 shares of Common Stock. The public
offering price per share of Common Stock and the underwriting discount per
share of Common Stock are identical under the International Purchase Agreement
and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares of Common Stock being sold
pursuant to each such Purchase Agreement are purchased.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the U.S. Underwriters and the International Managers
of such number of shares of Common Stock as may be mutually agreed. The price
of any share of Common Stock so sold shall be the public offering price, less
an amount not greater than the selling concession. Under the terms of the
90
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-United States or non-Canadian persons or to
persons they believe intend to resell to non-United States or non-Canadian
persons, and the International Managers and any dealer to whom they sell
shares of Common Stock will not offer to sell or sell shares of Common Stock
to United States or Canadian persons or to persons they believe intend to
resell to United States or Canadian persons, except, in each case for
transactions pursuant to the Intersyndicate Agreement.
The International Representatives have advised the Company that the
International Managers 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 (who may include International Managers) at
such price less a concession not in excess of $ per share of Common Stock.
The International Managers may allow, and such dealers may reallow, a discount
not in excess of $ per share on sales to certain other dealers. After the
Offerings, the offering price, the concession and discount may be changed.
The Selling Stockholders have granted to the International Managers an
option exercisable for a period of 30 days after the date of this Prospectus
to purchase up to an additional 150,000 shares of Common Stock to cover over-
allotments, if any, at the public offering price less the underwriting
discount. If the International Managers exercise this option, each
International Manager 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 1,000,000 shares of Common Stock initially offered hereby.
Each International Manager has represented and agreed that (i) it has not
offered or sold, and will not for a period of six months following
consummation of the Offerings offer or sell any shares of Common Stock offered
hereby, 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 that do not constitute an offer to the public in
the United Kingdom for the purposes of the Public Offers of Securities
Regulations 1995, (ii) it has complied with 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 shares of Common Stock offered hereby in, from, or otherwise
involving the United Kingdom and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the issue or sale of the shares of Common Stock offered
hereby to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, as amended, or is a person to whom the document may otherwise lawfully
be issued or passed on.
In the Purchase Agreements, the Company and the Selling Stockholders have
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
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 90 days following the date of the Purchase
Agreements, without the prior written consent of Merrill Lynch on behalf of
the Representatives. FS&Co., The Limited, Leeway & Co., NYNEX, the TJX
Noteholder and WearGuard, as well as the directors of the Company, have each
agreed not to sell, directly or indirectly, any of their shares, with certain
limited exceptions, for a period of 90 days following the date of the Purchase
Agreements. In addition, certain executive officers of the Company have each
agreed not to sell, directly or indirectly, any of their shares with certain
limited exceptions, following the date of the Purchase Agreements through
December 15, 1997.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Common Stock.
91
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions on
that such transactions, once commenced, will not be discontinued without
notice.
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 February 1997,
Merrill Lynch, Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. acted as
co-managers in connection with the Initial Public Offering and received
underwriting discounts and commissions in connection therewith. In addition, in
August 1993, each of them 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, an affiliate of J.P. Morgan
Securities Inc., was the agent bank under the Company's 1993 Bank Credit
Facility and 1996 Bank Credit Facility. In addition, in connection with the
1997 Bank Credit Facility, Morgan Guaranty acted as administrative agent and
Merrill Lynch Capital, an affiliate of Merrill Lynch, acted as documentation
agent, for which each received customary fees. Morgan Guaranty, J.P. Morgan
Securities Inc. and Merrill Lynch Capital will act as co-agents in connection
with the Amended 1997 Bank Credit Facility. In addition, Morgan Guaranty is
the agent bank under a revolving commitment facility for each of The Limited
and World Financial.
Brylane paid to Lazard Freres & Co. LLC a fee and reimbursement of expenses
for investment banking services performed by it in connection with the Brylane
Acquisition. From time to time, Lazard Freres & Co. LLC performs investment
banking services for The Limited and its subsidiaries, and in connection
therewith receives customary fees.
Brylane paid to Merrill Lynch and Lazard Freres & Co. LLC fees for
investment banking services performed by them in connection with the
Chadwick's Acquisition.
92
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE 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 SHARES
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
Common Stock Repurchase................................................... 18
Use of Proceeds........................................................... 18
Price Range of Common and Dividend Policy................................. 19
Capitalization............................................................ 20
Unaudited Pro Forma Financial Statements.................................. 21
Selected Financial Data................................................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 31
Business.................................................................. 46
Certain Relationships and Related Transactions............................ 60
Management................................................................ 66
Principal and Selling Stockholders........................................ 79
Shares Eligible for Future Sale........................................... 81
Description of Capital Stock.............................................. 84
Description of Certain Financing Arrangements............................. 87
Underwriting.............................................................. 90
Certain United States Federal Tax Consequences to Non-United States
Purchasers............................................................... 93
Legal Matters............................................................. 94
Experts................................................................... 94
Available Information..................................................... 95
Index to Historical Financial Statements.................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
LAZARD CAPITAL MARKETS
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN SECURITIES LTD.
OCTOBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Jessica London catalog.
PHOTO 6: Picture of front cover of Bridgewater catalog.
PHOTO 7: Picture of front cover of Chadwick's of Boston, Ltd. catalog.
PHOTO 8: Picture of front cover of Lerner catalog.
PHOTO 9: Picture of front cover of Sue Brett catalog.
PHOTO 10: Picture of front cover of Brett catalog.
INSIDE BACK COVER:
PHOTO 11: Left side picture of blazers.
PHOTO 12: Right side picture of seated model wearing blazer.
<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............................................ $ 72,311
NASD filing fee................................................. 24,363
Blue sky fees and expenses...................................... 5,000
Printing and engraving expenses................................. 80,000
Legal fees and expenses......................................... 300,000
Accounting fees and expenses.................................... 150,000
Transfer agent and registrar fees............................... 5,000
Miscellaneous................................................... 63,326
--------
Total......................................................... $700,000
========
</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.
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)
II-1
<PAGE>
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 Company and the Partnership, as the Company's wholly-owned subsidiary,
has entered into indemnity agreements (the "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 Indemnity Agreements
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, 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.
Reference is made to the Forms of Underwriting Agreements (filed as Exhibit
1.1 and Exhibit 1.2 to this Registration Statement) which provide for
indemnification by the Underwriters under certain circumstances of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act.
The Company carries directors' and officers' liability insurance covering
its directors and officers.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
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 Initial Public Offering, (i) Lane Bryant Direct received
5,000,000 shares of Common Stock in exchange for its 32.3% interest in the
Partnership; (ii) WearGuard received 399,778 shares of Common Stock in
exchange for its 2.6% interest in the Partnership; (iii) Leeway & Co. received
500,000 shares of Common Stock in exchange for its 3.2% interest in the
Partnership; (iv) NYNEX received 500,000 shares of Common Stock in exchange
for its 3.2% interest in the Partnership; (v) the TJX Noteholder received from
the Company the Convertible Note which is convertible into shares of Common
Stock; (vi) FSEP II received 4,093,690 shares of Common Stock in exchange for
its 4,093,690 shares of common stock of VP Holding; (vii) FSEP III received
4,273,129 shares of Common Stock in exchange for its 4,273,129 shares of
common stock of VP Holding; (viii) FS International received 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 received 508,000 shares of Common Stock pursuant to the Brylane
Subscription Plan or the Senior Management Plan; (x) Mr. Sodini received
20,000 shares of Common Stock in exchange for his 20,000 shares of common
stock of VP Holding; (xi) Ms. Bourneuf received 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 each received 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 involved a "sale" within the meaning of the Securities Act. Such
exchanges would also be exempt from the registration provisions of the
Securities Act by virtue of Section 4(2) of the Securities Act.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1++++++ Form of Underwriting Agreement--U.S.
1.2++++++ Form of Underwriting Agreement--International.
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.
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.
Amendment No. 3 to Partnership Agreement dated as of March 16,
3.7** 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.
3.13++ Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of February 26, 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.
3.18tttttt Form of Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of the Company filed with the Office
of the Secretary of the State of Delaware on February 14, 1997.
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").
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.
4.10tt Third Supplemental Indenture dated as of October 16, 1995 by
and among the Partnership, Brylane Capital, KingSize Catalog
Sales, L.P., K.S. Management, KingSize Catalog Sales, Inc. and
United States Trust Company of New York, as Trustee.
4.11tttt Fourth Supplemental Indenture dated as of December 9, 1996 by
and among the Partnership, Brylane Capital, C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United
States Trust Company of New York, as Trustee.
4.12++ Registration Rights Agreement dated as of February 26, 1997 by
and among the Company, FSEP II, FSEP III, FSEP International,
M&P Distribution Company, The Limited, WearGuard, Chadwick's,
Leeway & Co. and NYNEX.
4.13++ Stockholders Agreement dated as of February 26, 1997 by and
among the Company, FSEP II, FSEP III, FSEP International, M&P
Distribution Company, The Limited, WearGuard, Chadwick's,
Leeway & Co. and NYNEX.
5.1tttttttt 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 ttt Amendment No. 1 to Credit Card Agreement dated as of July 1,
MM 1995 between World Financial and the Partnership.
10.6+ Trademark License Agreement (the "Trademark License Agreement")
made as of the 20th day of August, 1993 among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc.
(collectively, the "Licensors"), Lane Bryant Direct, Inc. and
Lerner Direct, Inc. (collectively, the "Licensees").
10.7tttt Amendment No. 1 to Trademark License Agreement entered into as
of the 9th day of December, 1996 by and among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane
Bryant Direct Holding, Inc. and the Partnership.
10.8+ Electronic Media Trademark License Agreement made as of the
20th day of August, 1993 among the Licensors and the Licensees.
10.9+ Agreement to be Bound by the Trademark License Agreement and
the Electronic Media Trademark License Agreement executed by
the Partnership.
10.10+ Service Agreement made as of the 30th day of August, 1993
between B.L. Management and the Partnership.
10.11+ Catalog Production Agreement made and entered into as of the
30th day of August, 1993 between B.L. Distribution Partnership
and B.L. Management Partnership.
10.12+ Catalog Production, Distribution, License and Administrative
Services Agreement made and entered into as of the 30th day of
August, 1993 between the Partnership and B.L. Distribution
Partnership.
10.13++++ Credit Agreement dated as of April 30, 1997 (the "Credit
Agreement") among the Partnership, the Lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), as Administrative Agent, and Merrill
Lynch Capital Corporation ("Merrill Lynch"), as Documentation
Agent.
10.14++++ Security Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.15++++ Pledge Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Pledgors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.16++++ Form of Tranche A Term Notes dated April 30, 1997 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>
10.17++++ Form of Tranche B Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
10.18++++ Guarantee Agreement dated as of April 30, 1997 among the
Guarantors (as defined therein), Morgan Guaranty, as
Administrative Agent, and the Issuing Banks (as defined in the
Credit Agreement).
10.19++++ Trademark Collateral Agreement dated as of April 30, 1997 among
Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores,
Inc., Lane Bryant, Inc., M&P Distributing Co. and Morgan Guaranty,
as Security Agent.
10.20**** Loan Agreement made as of August 30, 1993 by and between FSEP II,
VP Holding and VGP.
10.21**** No Interest Demand Promissory Note made by FSEP II in favor of VP
Holding.
10.22**** Loan Agreement made as of August 30, 1993 by and between FSEP III,
VP Holding and VGP.
10.23**** No Interest Demand Promissory Note made by FSEP III in favor of VP
Holding.
10.24+ Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.25+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.26+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
10.27+ 1993 Employee Stock Subscription Plan of VP Holding Corporation
(the "Subscription Plan").
10.28*** Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.29+ Stock Subscription Agreement made and entered into as of August
30, 1993 by and between VP Holding and Peter Canzone (with Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.30+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, 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).
10.31+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Arlene Silverman, Kevin McGrain, Kevin Doyle
and certain other management investors who purchased common stock
of VP Holding under the Subscription Plan with cash and, in
certain cases, promissory note (with forms of Secured Promissory
Note and Stock Pledge Agreement attached as exhibits thereto).
10.32*** Addendum dated February 18, 1994 to Stock Subscription Agreement
between VP Holding and Jules Silbert.
10.33*** Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
10.34+ 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.35+ Form of Performance Partnership Unit Option Agreement 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.
10.36+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Arlene Silverman, Kevin
McGrain, Kevin Doyle and certain other participants under the 1993
Option Plan.
10.37*** Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.38tttt Form of Amendment to Performance Partnership Unit Option Agreement
under the 1993 Option Plan.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------
<C> <S>
10.39t 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.40t 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.
10.41t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Kevin McGrain, Kevin Doyle and
certain other participants under the 1995 Option Plan.
10.42tttt Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan").
10.43tttt Form of Stock Subscription Agreement entered into by and between
the Company and nine management investors who were issued Common
Stock of the Company under the Senior Management Plan.
10.44tttt Form of Stock Subscription Agreement entered into by and between
the Company and William C. Johnson under the Senior Management
Plan.
10.45tttt Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.46tttt Form of Stock Subscription Agreement entered into by and between
the Company and certain management employees who were issued
Common Stock of the Company under the Brylane Subscription Plan.
10.47tttt Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996
Performance Option Plan").
10.48tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996
Performance Option Plan.
10.49tttt Form of Stock Option Agreement entered into by and between the
Company and William C. Johnson under the Brylane 1996 Performance
Option Plan.
10.50tttt Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option
Plan").
10.51tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996 Option
Plan.
10.52t License Agreement effective as of March 1, 1994 by and between the
M Partnership and Sears Shop At Home Services, Inc. ("Sears") (with
Exhibits E and F attached thereto).
10.53t License Agreement effective as of August 1, 1994 by and between
M WearGuard and Sears (with Exhibits E and F attached thereto).
10.54t First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.55tttt License Amendment made as of July 23, 1996 between the Partnership
MMM and Sears.
10.56tt Asset Purchase Agreement dated September 22, 1995 by and among the
Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as
guarantor.
10.57tt Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.58t Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.59tt Letter Amendment to the Purchase Agreement dated October 16, 1995
by and between the Partnership and WearGuard.
10.60tt Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S. Management.
10.61tt Transition Services Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.62tt Noncompetition Agreement dated as of October 16, 1995 by and among
the Partnership, KingSize Partnership, ARAMARK and WearGuard.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.63tttt 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.
10.64tttt Form of Employment Agreement dated as of May 1, 1996 between
B.L. Management and each of Sheila R. Garelik and Arlene
Silverman.
10.65tttt 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.
10.66tttt Amendment No. 1 to Employment Agreement dated as of July 15,
1996 between B.L. Management and Sheila R. Garelik.
10.67tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among TJX, Chadwick's and the Partnership.
10.68tttt Amendment Number One to the Asset Purchase Agreement made as
of the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.69tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among CDM Corp. and the Partnership.
10.70tttt Services Agreement dated as of December 9, 1996 between TJX
and the Partnership.
10.71ttttt Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.72tttt Inventory Purchase Agreement effective as of December 9, 1996
MMM by and between the Partnership and TJX.
10.73tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Dhananjaya K. Rao.
10.74tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Carol Meyrowitz.
10.75tttt VP Holding Stock Subscription Agreement for Preferred Stock
made as of December 9, 1996 by and between VP Holding and
Dhananjaya K. Rao.
10.76tttt VP Holding Stock Subscription Agreement for Preferred Stock
made as of December 9, 1996 by and between VP Holding and
Carol Meyrowitz.
10.77tttt 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.
10.78tttt Brylane, L.P. Convertible Subordinated Note Due 2006 dated
December 9, 1996 made by the Partnership in favor of
Chadwick's (with Brylane Inc. and Brylane, L.P. Convertible
Subordinated Note Due 2006 made by the Company and the
Partnership in favor of Chadwick's filed as an exhibit
thereto).
10.79tttt 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.
10.80tttt Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
10.81tttttttt Form of Repurchase Agreement entered into as of September 29,
1997 by and between the Company and each of FSEP II, FSEP III,
FSEP International, M&P Distributing Company, WearGuard, TJX,
Leeway & Co., NYNEX and William C. Johnson.
10.82++++++ Form of Amended and Restated Credit Agreement among Brylane,
L.P., the Lenders listed therein, Morgan Guaranty Trust
Company of New York, as Administrative Agent and Merrill Lynch
Capital Corporation, as Documentation Agent.
11.1ttttttt Brylane Inc.--Computation of Earnings Per Common Share.
21.1++ Subsidiaries of Brylane.
23.1tttttttt Consent of Riordan & McKinzie (included in Exhibit 5.1).
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
23.2++++++ Consent of Coopers & Lybrand L.L.P. regarding Brylane Inc.
23.3++++++ Consent of Coopers & Lybrand L.L.P. regarding Chadwick's, Inc.
23.4++++++ Consent of Coopers & Lybrand L.L.P. regarding KingSize Division.
24.1ttttttt Powers of Attorney.
27.1++++++ Financial Data Schedule.
</TABLE>
- --------
+ Filed as an exhibit to the Partnership's Registration Statement on Form
S-4 (Registration No. 33-69532) on September 29, 1993 and incorporated
by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 9, 1993 and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 23, 1993 and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994 and
incorporated by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 1994 and
incorporated by reference herein.
*** Filed as an exhibit to 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 as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997
and incorporated by reference herein.
tttttt Filed as an exhibit to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997
and incorporated by reference herein.
ttttttt Filed as an exhibit to the Company's Registration Statement on Form S-
1 (Registration No. 333-35715) on September 16, 1997 and incorporated
by reference herein.
tttttttt Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-35715) on September 30,
1997 and incorporated by reference herein.
M Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter
Form 10-Q (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
MM Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as
defined herein) and are the subject of an order granting confidential
treatment with respect thereto.
MMM 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 an order granting confidential treatment with
respect thereto.
++ Filed on May 2, 1997 as an exhibit to the Company's Annual Report on
10-K for the fiscal year ended February 1, 1997 and incorporated by
reference herein.
++++ Filed on June 17, 1997 as an exhibit to the Company's Quarterly Report
on 10-Q for the quarterly period ended May 3, 1997 and incorporated by
reference herein.
++++++ Filed herewith.
II-10
<PAGE>
(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.
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
3. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 14th day of October 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. 2 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* President, Chief Executive October 14, 1997
_____________________________________ Officer and Director
Peter J. Canzone (Principal Executive
Officer)
/s/ Robert A. Pulciani Executive Vice President, October 14, 1997
_____________________________________ Chief Financial Officer,
Robert A. Pulciani Secretary and Treasurer
(Principal Financial and
Accounting Officer)
* Director October 14, 1997
_____________________________________
Ronald P. Spogli
* Director October 14, 1997
_____________________________________
John M. Roth
* Director October 14, 1997
_____________________________________
Mark J. Doran
* Director October 14, 1997
_____________________________________
Samuel P. Fried
* Director October 14, 1997
_____________________________________
William K. Gerber
* Director October 14, 1997
_____________________________________
William C. Johnson
* Director October 14, 1997
_____________________________________
Peter M. Starrett
</TABLE>
*By: /s/ Robert A. Pulciani
______________________________
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>
1.1++++++ Form of Underwriting Agreement--U.S.
1.2++++++ Form of Underwriting Agreement--International.
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.
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.
3.13++ Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of February 26, 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.
3.18tttttt Form of Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of the Company filed with the Office
of the Secretary of the State of Delaware on February 14, 1997.
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>
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.
4.10tt Third Supplemental Indenture dated as of October 16, 1995 by
and among the Partnership, Brylane Capital, KingSize Catalog
Sales, L.P., K.S. Management, KingSize Catalog Sales, Inc. and
United States Trust Company of New York, as Trustee.
4.11tttt Fourth Supplemental Indenture dated as of December 9, 1996 by
and among the Partnership, Brylane Capital, C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United
States Trust Company of New York, as Trustee.
4.12++ Registration Rights Agreement dated as of February 26, 1997 by
and among the Company, FSEP II, FSEP III, FSEP International,
M&P Distributing Company, The Limited, WearGuard, Chadwick's,
Leeway & Co. and NYNEX.
4.13++ Stockholders Agreement dated as of February 26, 1997 by and
among the Company, FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, Chadwick's,
Leeway & Co. and NYNEX.
5.1tttttttt 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.
10.5ttt Amendment No. 1 to Credit Card Agreement dated as of July 1,
** 1995 between World Financial and the Partnership.
10.6+ Trademark License Agreement (the "Trademark License Agreement")
made as of the 20th day of August, 1993 among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc.
(collectively, the "Licensors"), Lane Bryant Direct, Inc. and
Lerner Direct, Inc. (collectively, the "Licensees").
10.7tttt Amendment No. 1 to Trademark License Agreement entered into as
of the 9th day of December, 1996 by and among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane
Bryant Direct Holding, Inc. and the Partnership.
10.8+ Electronic Media Trademark License Agreement made as of the
20th day of August, 1993 among the Licensors and the Licensees.
10.9+ Agreement to be Bound by the Trademark License Agreement and
the Electronic Media Trademark License Agreement executed by
the Partnership.
10.10+ Service Agreement made as of the 30th day of August, 1993
between B.L. Management and the Partnership.
10.11+ Catalog Production Agreement made and entered into as of the
30th day of August, 1993 between B.L. Distribution Partnership
and B.L. Management Partnership.
10.12+ Catalog Production, Distribution, License and Administrative
Services Agreement made and entered into as of the 30th day of
August, 1993 between the Partnership and B.L. Distribution
Partnership.
10.13++++ Credit Agreement dated as of April 30, 1997 (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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14++++ Security Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.15++++ Pledge Agreement dated as of April 30, 1997 among the Partnership,
the Subsidiary Pledgors (as defined therein), and Morgan Guaranty,
as Security Agent.
10.16++++ Form of Tranche A Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
10.17++++ Form of Tranche B Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
10.18++++ Guarantee Agreement dated as of April 30, 1997 among the
Guarantors (as defined therein), Morgan Guaranty, as
Administrative Agent for the Lenders and for the Issuing Banks (as
defined in the Credit Agreement).
10.19++++ Trademark Collateral Agreement dated as of April 30, 1997 among
Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores,
Inc., Lane Bryant, Inc., M&P Distributing Co. and Morgan Guaranty,
as Security Agent.
10.20tttt Loan Agreement made as of August 30, 1993 by and between FSEP II,
VP Holding and VGP.
10.21tttt No Interest Demand Promissory Note made by FSEP II in favor of VP
Holding.
10.22tttt Loan Agreement made as of August 30, 1993 by and between FSEP III,
VP Holding and VGP.
10.23tttt No Interest Demand Promissory Note made by FSEP III in favor of VP
Holding.
10.24tttt Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.25+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.26+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
10.27+ 1993 Employee Stock Subscription Plan of VP Holding Corporation
(the "Subscription Plan").
10.28*** Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.29+ Stock Subscription Agreement made and entered into as of August
30, 1993 by and between VP Holding and Peter Canzone (with Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.30+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, 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).
10.31+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Arlene Silverman, Kevin McGrain, Kevin Doyle
and certain other management investors who purchased common stock
of VP Holding under the Subscription Plan with cash and, in
certain cases, promissory note (with forms of Secured Promissory
Note and Stock Pledge Agreement attached as exhibits thereto).
10.32*** Addendum dated February 18, 1994 to Stock Subscription Agreement
between VP Holding and Jules Silbert.
10.33*** Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
10.34+ 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.35+ Form of Performance Partnership Unit Option Agreement 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.36+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Arlene Silverman, Kevin
McGrain, Kevin Doyle and certain other participants under the 1993
Option Plan.
10.37*** Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.38tttt Form of Amendment to Performance Partnership Unit Option Agreement
under the 1993 Option Plan.
10.39 t 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.40t 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.
10.41t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Kevin McGrain, Kevin Doyle and
certain other participants under the 1995 Option Plan.
10.42tttt Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan").
10.43tttt Form of Stock Subscription Agreement entered into by and between
the Company and nine management investors who were issued Common
Stock of the Company under the Senior Management Plan.
10.44tttt Form of Stock Subscription Agreement entered into by and between
the Company and William C. Johnson under the Senior Management
Plan.
10.45tttt Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.46tttt Form of Stock Subscription Agreement entered into by and between
the Company and certain management employees who were issued
Common Stock of the Company under the Brylane Subscription Plan.
10.47tttt Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996
Performance Option Plan").
10.48tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996
Performance Option Plan.
10.49tttt Form of Stock Option Agreement entered into by and between the
Company and William C. Johnson under the Brylane 1996 Performance
Option Plan.
10.50tttt Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option
Plan").
10.51tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996 Option
Plan.
10.52t License Agreement effective as of March 1, 1994 by and between the
* Partnership and Sears Shop At Home Services, Inc. ("Sears") (with
Exhibits E and F attached thereto).
10.53t License Agreement effective as of August 1, 1994 by and between
* WearGuard and Sears (with Exhibits E and F attached thereto).
10.54t First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.55tttt License Amendment made as of July 23, 1996 between the Partnership
*** and Sears.
10.56tt Asset Purchase Agreement dated September 22, 1995 by and among the
Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as
guarantor.
10.57tt Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.58t Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.59tt 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>
10.60tt Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S.
Management.
10.61tt Transition Services Agreement dated as of October 16, 1995 by
and among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.62tt Noncompetition Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.63tttt 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.
10.64tttt Form of Employment Agreement dated as of May 1, 1996 between
B.L. Management and each of Sheila R. Garelik and Arlene
Silverman.
10.65tttt 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.
10.66tttt Amendment No. 1 to Employment Agreement dated as of July 15,
1996 between B.L. Management and Sheila R. Garelik.
10.67tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among TJX, Chadwick's and the Partnership.
10.68tttt Amendment Number One to the Asset Purchase Agreement made as
of the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.69tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among CDM Corp. and the Partnership.
10.70tttt Services Agreement dated as of December 9, 1996 between TJX
and the Partnership.
10.71ttttt Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.72tttt Inventory Purchase Agreement effective as of December 9, 1996
*** by and between the Partnership and TJX.
10.73tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Dhananjaya K. Rao.
10.74tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Carol Meyrowitz.
10.75tttt VP Holding Stock Subscription Agreement for Preferred Stock
made as of December 9, 1996 by and between VP Holding and
Dhananjaya K. Rao.
10.76tttt VP Holding Stock Subscription Agreement for Preferred Stock
made as of December 9, 1996 by and between VP Holding and
Carol Meyrowitz.
10.77tttt 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.
10.78tttt Brylane, L.P. Convertible Subordinated Note Due 2006 dated
December 9, 1996 made by the Partnership in favor of
Chadwick's (with Brylane Inc. and Brylane, L.P. Convertible
Subordinated Note Due 2006 made by the Company and the
Partnership in favor of Chadwick's filed as an exhibit
thereto).
10.79tttt 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.
10.80tttt Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
10.81tttttttt Form of Repurchase Agreement entered into as of September 29,
1997 by and between the Company and each of FSEP II, FSEP III,
FSEP International, M&P Distributing Company, Wearguard,
Leeway & Co., NYNEX and William C. Johnson.
10.82++++++ Form of Amended and Restated Credit Agreement among Brylane,
L.P., the Lenders listed therein, Morgan Guaranty Trust
Company of New York, as Administrative Agent and Merrill Lynch
Capital Corporation, as Documentation Agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
11.1ttttttt Brylane Inc.--Computation of Earnings Per Common Share.
21.1++ Subsidiaries of Brylane.
23.1tttttttt Consent of Riordan & McKinzie (included in Exhibit 5.1).
23.2++++++ Consent of Coopers & Lybrand L.L.P. regarding Brylane Inc.
23.3++++++ Consent of Coopers & Lybrand L.L.P. regarding Chadwick's, Inc.
23.4++++++ Consent of Coopers & Lybrand L.L.P. regarding KingSize
Division.
24.1ttttttt Powers of Attorney.
27.1++++++ Financial Data Schedule.
</TABLE>
- --------
+ Filed as an exhibit to the Partnership's Registration Statement on Form
S-4 (Registration No. 33-69532) on September 29, 1993 and incorporated
by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 9, 1993 and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 23, 1993 and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994 and
incorporated by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 1994 and
incorporated by reference herein.
*** Filed as an exhibit to 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 as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997
and incorporated by reference herein.
tttttt Filed as an exhibit to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997
and incorporated by reference herein.
ttttttt Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 333-35715) on September 16, 1997 and incorporated by
reference herein.
tttttttt Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-35715) on September 30, 1997
and incorporated by reference herein.
* Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter
Form 10-Q (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
** Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as
defined herein) and are the subject of an order granting confidential
treatment with respect thereto.
*** 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 an order granting confidential treatment
with respect thereto.
<PAGE>
++ Filed on May 2, 1997 as an exhibit to the Company's Annual Report on
10-K for the fiscal year ended February 1, 1997 and incorporated by
reference herein.
++++ Filed on June 17, 1997 as an exhibit to the Company's Quarterly Report
on 10-Q for the quarterly period ended May 3, 1997 and incorporated by
reference herein.
++++++ Filed herewith.
<PAGE>
EXHIBIT 1.1
BRYLANE INC.
(A DELAWARE CORPORATION)
4,000,000 SHARES OF COMMON STOCK
U.S. PURCHASE AGREEMENT
DATED: OCTOBER 14, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
U.S. PURCHASE AGREEMENT................................................... 1
SECTION 1. Representations and Warranties................................ 3
(a) Representations and Warranties by the Company................ 3
(i) Compliance with Registration Requirements............ 3
(ii) Independent Accountants.............................. 3
(iii) Financial Statements................................. 3
(iv) No Material Adverse Change in Business............... 4
(v) Good Standing of the Company......................... 4
(vi) Good Standing of Subsidiaries........................ 4
(vii) Capitalization....................................... 5
(viii) Authorization of Amended Credit Facility............. 5
(ix) Authorization of Repurchase Agreements............... 5
(x) Authorization of Agreement........................... 5
(xi) Description of Securities............................ 5
(xii) Absence of Defaults and Conflicts.................... 5
(xiii) Absence of Labor Dispute............................. 6
(xiv) Absence of Proceedings............................... 6
(xv) Accuracy of Exhibits................................. 6
(xvi) Possession of Intellectual Property.................. 6
(xvii) Absence of Further Requirements...................... 7
(xviii) Possession of Licenses and Permits................... 7
(xix) Title to Property.................................... 8
(xx) Investment Company Act............................... 8
(xxi) Environmental Laws................................... 8
(xxii) Registration Rights.................................. 8
(xxiii) Filings of Tax Returns............................... 8
(xxiv) Maintenance of Internal Controls..................... 9
(xxv) Maintenance of Insurance............................. 9
(xxvi) No Violations of Regulations G, T, U or X............ 9
(xxvii) No Violation......................................... 9
(xxviii) Violation of Regulation M............................ 9
(xxix) Listing.............................................. 9
Representations and Warranties by the Major Selling
(b) Stockholders................................................. 9
(i) Good and Marketable Title............................ 9
(ii) Authorization of Agreements.......................... 10
(iii) Accurate Disclosure.................................. 10
(iv) Absence of Further Requirements...................... 10
(v) Absence of Manipulation.............................. 11
(vi) No Violation of Regulation M......................... 11
(vii) Certificates Suitable for Transfer................... 11
(viii) Form W-9............................................. 11
Representations and Warranties by the Non-Major Selling
(c) Stockholders................................................. 11
(i) Good and Marketable Title............................ 11
(ii) Authorization of Agreements.......................... 12
(iii) Accurate Disclosure.................................. 12
(iv) Absence of Further Requirements...................... 12
(v) Absence of Manipulation.............................. 13
(vi) No Violation of Regulation M......................... 13
(vii) Due Execution of Power of Attorney and Custody
Agreement............................................ 13
</TABLE>
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<S> <C> <C>
(viii) Certificates Suitable for Transfer...................... 13
(ix) Form W-9................................................. 13
(d) Officer's Certificates......................................... 13
SECTION 2. Sale and Delivery to Underwriters; Closing..................... 14
(a) Initial U.S. Securities........................................ 14
(b) U.S. Option Securities......................................... 14
(c) Payment........................................................ 14
(d) Denominations; Registration.................................... 15
SECTION 3. Covenants of the Company....................................... 15
(a) Compliance with Securities Regulations and Commission Requests. 15
(b) Filing of Amendments........................................... 15
(c) Delivery of Registration Statements............................ 15
(d) Delivery of Prospectuses....................................... 16
(e) Continued Compliance with Securities Laws...................... 16
(f) Blue Sky Qualifications........................................ 16
(g) Rule 158....................................................... 16
(h) Restriction on Sale of Securities.............................. 16
(i) Reporting Requirements......................................... 17
SECTION 4. Payment of Expenses............................................ 17
(a) Expenses....................................................... 17
(b) Expenses of the Selling Stockholders........................... 17
(c) Termination of Agreement....................................... 17
SECTION 5. Conditions of U.S. Underwriters' Obligations................... 18
(a) Effectiveness of Registration Statement........................ 18
(b) Opinion of Counsel for Company................................. 18
(c) Opinions of Counsel for the FS Stockholders.................... 18
(d) Opinions of Counsel for M & P Distributing Co. ................ 18
(e) Opinions of Counsel for Certain Selling Stockholders........... 19
(f) Opinions of Counsel for the Selling Stockholders............... 19
(g) Opinion of Counsel for U.S. Underwriters....................... 19
(h) Officers' Certificate.......................................... 19
(i) Certificate of Selling Stockholders............................ 19
(j) Accountant's Comfort Letter.................................... 20
(k) Bring-down Comfort Letter...................................... 20
(l) Listing........................................................ 20
(m) No Objection................................................... 20
(n) Lock-up Agreements............................................. 20
(o) Purchase of Initial International Securities................... 20
(p) Common Stock Repurchase........................................ 20
(q) Execution of Amended Credit Facility........................... 20
(r) Execution of Repurchase Agreements............................. 20
(s) Conditions to Purchase of U.S. Option Securities............... 20
(t) Additional Documents........................................... 21
(u) Termination of Agreement....................................... 21
SECTION 6. Indemnification................................................ 22
(a) Indemnification by the Company................................. 22
(b) Indemnification by the Selling Stockholders.................... 22
(c) Indemnification by the U.S. Underwriters....................... 23
(d) Actions against Parties; Notification.......................... 23
(e) Settlement without Consent if Failure to Reimburse............. 24
(f) No Effect on Separate Agreement................................ 24
</TABLE>
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SECTION 7. Contribution................................................... 24
SECTION 8. Representations, Warranties and Agreements to Survive Delivery. 25
SECTION 9. Termination of Agreement....................................... 26
(a) Termination; General........................................... 26
(b) Liabilities.................................................... 26
SECTION 10. Default by One or More of the U.S. Underwriters................ 26
SECTION 11. Notices........................................................ 27
SECTION 12. Parties........................................................ 27
SECTION 13. Governing Law and Time......................................... 27
SECTION 14. Effect of Headings............................................. 27
SCHEDULE A................................................................. Sch A-1
SCHEDULE B................................................................. Sch B-1
SCHEDULE C................................................................. Sch C-1
SCHEDULE D................................................................. Sch D-1
Exhibit A.................................................................. A-1
Exhibit B-1................................................................ B1-1
Exhibit B-2................................................................ B2-1
Exhibit B-3................................................................ B3-1
Exhibit C.................................................................. C-1
</TABLE>
iii
<PAGE>
BRYLANE INC.
(A DELAWARE CORPORATION)
4,000,000 SHARES OF COMMON STOCK
(PAR VALUE $.01 PER SHARE)
U.S. PURCHASE AGREEMENT
OCTOBER 14, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN SECURITIES INC.
as U.S. Representatives of the several U.S. 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 the persons listed
in Schedule C hereto (each a "Selling Stockholder" and collectively, the
"Selling Stockholders") confirm their agreement with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each
of the other U.S. Underwriters named in Schedule A hereto (collectively, the
"U.S. Underwriters," which term shall also include any underwriter substituted
as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Lazard
Freres & Co. LLC, NationsBanc Montgomery Securities, Inc. and J.P. Morgan
Securities Inc. are acting as representatives (in such capacity, the "U.S.
Representatives"), with respect to the sale by the Selling Stockholders,
acting severally and not jointly, and the purchase by the U.S. Underwriters,
acting severally and not jointly, of the respective numbers of shares of
Common Stock, par value $.01 per share, of the Company (the "Common Stock"),
set forth in said Schedule A, and with respect to the grant by the Selling
Stockholders to the U.S. 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 U.S. Securities")
to be purchased by the U.S. 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 "U.S. Option Securities") are hereinafter called, collectively, the "U.S.
Securities".
It is understood that the Company and the Selling Stockholders are
concurrently entering into an agreement dated the date hereof (the
"International Purchase Agreement") providing for the offering by the Selling
Stockholders of an aggregate of 1,000,000 shares of Common Stock (the
"International Securities") through arrangements with certain underwriters
outside the United States and Canada (the "International Managers"), for which
Merrill Lynch International, Lazard Capital Markets, NationsBanc Montgomery
Securities, Inc. and J.P. Morgan Securities Ltd. are acting as lead managers
(the "Lead Managers"). It is understood that the Selling Stockholders are not
obligated to sell, and the U.S. Underwriters are not obligated to purchase,
any U.S. Securities unless all of the International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," and the U.S. Securities and the
International Securities are hereinafter collectively called the "Securities."
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<PAGE>
The Underwriters will concurrently enter into an Intersyndicate Agreement of
even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Selling Stockholders understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon
as the U.S. Representatives deem advisable after this Agreement has been
executed and delivered.
It is understood that concurrently with the offering by the Selling
Stockholders of the Securities, the Company will repurchase from the Selling
Stockholders pursuant to Repurchase Agreements between each of the Selling
Stockholders and the Company (the "Repurchase Agreements") an aggregate of
2,500,000 shares of Common Stock (the "Common Stock Repurchase"). The Company
will finance the Common Stock Repurchase with the proceeds received from its
Amended Credit Facility with Morgan Guaranty Trust Company of New York, as
administrative agent and Merrill Lynch Capital Corporation, as documentation
agent, and certain lenders named therein which consists of (i) a $175 million
five-year amortizing term loan, and (ii) a $200 million five-year revolving
credit facility with a $75 million sublimit for letters of credit. It is
understood that the Selling Stockholders are not obligated to sell, and the
Company is not obligated to purchase, any of the 2,500,000 shares of Common
Stock unless all of the Securities are contemporaneously purchased by the
Underwriters.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-35715) 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). Two forms of prospectus are to be used
in connection with the offering and sale of the Securities: one relating to
the U.S. Securities (the "Form of U.S. Prospectus") and one relating to the
International Securities (the "Form of International Prospectus"). The Form of
International Prospectus is identical to the Form of U.S. Prospectus, except
for the front cover and back cover page and the information under the caption
"Underwriting." The information included in any such prospectus or in any 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 Form of U.S. Prospectus and Form of International
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
Form of U.S. Prospectus and final Form of International Prospectus in the
forms first furnished to the Underwriters for use in connection with the
offering of the Securities are herein called the "U.S. Prospectus" and the
"International Prospectus," respectively, and collectively, the
"Prospectuses." If Rule 434 is relied on, the term "U.S. Prospectus" and
"International Prospectus" shall refer to the preliminary U.S. Prospectus
dated September 30, 1997 and preliminary International Prospectus dated
September 30, 1997, each together with the applicable Term Sheet and all
references in this Agreement to the date of such Prospectuses shall mean the
date of the applicable Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the U.S.
Prospectus, the International Prospectus or any Term Sheet or any amendment
2
<PAGE>
or 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").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each U.S. Underwriter and Selling Stockholder 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 U.S. 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 U.S. 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 of the Prospectuses nor any amendments or
supplements thereto (including any prospectus wrapper), at the time any
such Prospectus or any such amendment or supplement was issued and at the
Closing Time (and, if any U.S. 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 Prospectuses shall not be
"materially different," as such term is used in Rule 434, from the
prospectuses 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, any
post-effective amendment to the Registration Statement or the
U.S. Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any U.S. Underwriter through the
U.S. Representatives or by any Selling Stockholder expressly for use in the
Registration Statement or the U.S. Prospectus.
Each preliminary prospectus and the Prospectuses 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 Prospectuses 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 included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the consolidated financial
position of the Company and its subsidiaries and Brylane, L.P., a Delaware
limited partnership (the "Partnership") at the dates indicated and the
results of their operations, stockholders' equity and cash flow for the
periods specified, except as otherwise stated in the Registration
Statement; the historical financial statements with respect to Chadwick's,
Inc. ("Chadwick's") included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the financial position of
3
<PAGE>
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 the KingSize division of
WearGuard ("KingSize") included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the financial position of KingSize at the dates indicated and the
statements of revenues, expenses and net assets and cash flows of KingSize
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 Prospectuses 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 Prospectuses 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
the Company, 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, except as otherwise
stated in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the date of the
Prospectuses, 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 and its
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 or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company 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 its properties and to conduct its business and to enter into and
perform its obligations under this Agreement and the International Purchase
Agreement; and the Company 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.
(vi) Good Standing of Subsidiaries. Each subsidiary of the Company 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 to conduct its
business as described in the Prospectuses 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 the Company that
is a corporation 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, the charter, by-law or other organizational
document of each such subsidiary or under any agreement to which the
Company or any such subsidiary is a party, (y) all of the issued and
outstanding partnership interests in each such subsidiary of the Company
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
4
<PAGE>
(including, without limitation, the Partnership) has been and is currently
classified as a partnership, and not as an association taxable as a
corporation, and (z) all the capital stock and partnership interests of
each subsidiary of the Company is 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 Prospectuses 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. The Company had, at the date indicated in the
Prospectus, a capitalization as set forth in the Prospectus in the column
entitled "Historical" under the caption "Capitalization;" at the Closing
Time, the issued and outstanding capital stock of the Company will be as
described in the Prospectus in the column entitled "As Adjusted" under the
caption "Capitalization" (except for issuances after August 2, 1997, if
any, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectuses). All of the issued and outstanding capital
stock of the Company 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, by-laws or
other organizational document or any document or under any agreement to
which the Company or any of its subsidiaries is a party.
(viii) Authorization of Amended Credit Facility. The Company has the
requisite corporate power and authority to execute, deliver and perform its
obligations under the Amended Credit Facility; the Amended Credit Facility
(A) will be substantially in the form heretofore delivered to the U.S.
Representatives, (B) creates valid and binding obligations of the Company
and (C) is enforceable against the Company in accordance with its terms,
except as 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 such enforcement
is considered in a proceeding in equity or at law). The terms of the
Amended Credit Facility conform in all material respects to the description
thereof contained in the Prospectuses.
(ix) Authorization of Repurchase Agreements. The Company has the
requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Repurchase Agreements; each of the Repurchase
Agreements (A) will be substantially in the form heretofore delivered to
the U.S. Representatives, (B) creates valid and binding obligations of the
Company and (C) is enforceable against the Company in accordance with its
terms, except as 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
such enforcement is considered in a proceeding in equity or at law).
(x) Authorization of Agreement. This Agreement and the International
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(xi) Description of Securities. The Common Stock conforms to the
description thereof under the heading "Description of Capital Stock"
contained in the Prospectuses and such description, insofar as it purports
to be a summary of the instruments defining the rights of holders of the
Common Stock, is accurate and complete; no holder of the Securities is
subject to personal liability exclusively 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.
(xii) Absence of Defaults and Conflicts. Neither the Company nor any of
its 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 Credit
Agreement, dated as of April 30, 1997 (the "1997 Bank Credit Facility") or,
at the Closing Time, the Amended Credit Facility or in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease
or other agreement or instrument to which the Company or any of its
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 or any of its
subsidiaries is subject
5
<PAGE>
(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 International
Purchase Agreement, the Repurchase Agreements, the Amended Credit Facility
and the consummation of the transactions contemplated herein and therein
and in the Registration Statement (including, but not limited to, the
Common Stock Repurchase) and compliance by the Company and its subsidiaries
with their respective obligations hereunder and thereunder 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, 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 or any of its subsidiaries pursuant to
the Agreements and Instruments (except for such conflicts, breaches or
defaults or Liens 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 or any of its
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 or any of
its 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 or any of its subsidiaries.
(xiii) Absence of Labor Dispute. No labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, 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
(xiii), may reasonably be expected to result in a Material Adverse Effect.
(xiv) 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, threatened, against or affecting the Company or any of its
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 Common Stock Repurchase and the
transactions contemplated in this Agreement, the International Purchase
Agreement, the Repurchase Agreements and the Amended Credit Facility or the
performance by the Company of its obligations hereunder or thereunder; the
aggregate of all pending legal or governmental proceedings to which the
Company or any of its 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.
(xv) Accuracy of Exhibits. There are no contracts or documents of the
Company or any of its subsidiaries which are required to be described in
the Registration Statement or the Prospectuses or to be filed as exhibits
to the Registration Statement by the 1933 Act or by the 1933 Act
Regulations which have not been so described and filed as required.
(xvi) Possession of Intellectual Property. The Company and its
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 nor any of its
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
6
<PAGE>
to protect the interest of the Company or any of its 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. To the best knowledge
of the Company, the continued use of the trademarks (the "Trademarks")
transferred or licensed to the Company or its subsidiaries pursuant to a
Trademark License Agreement with Lanco, Inc., Lernco, Inc., Limited Stores,
Inc. Lane Bryant, Inc., Lane Bryant Direct Holding, Inc. and the
Partnership (the "Trademark Agreement"), an asset purchase agreement with
CDM Corp. (the "CDM Agreement"), an agreement and license of trademarks
agreement with The TJX Companies, Inc. ("TJX"), Chadwick's and CDM Corp.
(the "CDM Trademark Agreement"), a Trademark License Agreement with TJX
(the "TJX Trademark Agreement"), and the License Agreement with Sears Shop
at Home Services, Inc. which enables the Company or its subsidiaries 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) will not result in
any infringement of the rights of others in the United States, and the
Company has no knowledge of any such claim as to the Trademarks transferred
or licensed to the Company 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, (x) affiliates of The Limited,
Inc. are the owners of such Trademarks transferred or licensed to the
Company pursuant to the Trademark Agreement in the United States,
(y) affiliates of Sears are the owners of such Trademarks licensed to the
Company pursuant to the Sears Agreement in the United States, and (z)
affiliates of TJX are the owners of such Trademarks transferred or licensed
to the Company pursuant to the CDM Agreement, the CDM Trademark Agreement
and the TJX Trademark Agreement, and, as of the date hereof, the Company
has 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,
affiliates of The Limited, Inc., 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.
(xvii) 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 sale of the Securities under this Agreement, the
International Purchase Agreement and the Repurchase Agreements or the
consummation of the transactions contemplated by this Agreement, the
International Purchase Agreement, the Repurchase Agreements and the Amended
Credit Facility, 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
International Securities are offered or (z) those that if not obtained
would not reasonably be expected to result in a Material Adverse Effect.
(xviii) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents,
certificates and other authorizations (collectively, "Governmental
Licenses") issued by 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 permits,
licenses, approvals, consents, certificates, or other authorizations would
not have a Material Adverse Effect; the Company and its 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 neither
the Company nor any of its 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.
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(xix) Title to Property. The Company and its subsidiaries have good and
marketable title to all real property owned by the Company and its
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 Prospectuses 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 or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and any of its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, 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 nor any of its
subsidiaries has any notice of any claim of any sort that has been asserted
by anyone adverse to the rights of the Company or any of its subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or any of its subsidiaries to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xx) Investment Company Act. The Company is not, and upon the sale of the
Securities and the Common Stock Repurchase as herein contemplated will not
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").
(xxi) 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) neither the Company nor any of its
subsidiaries are in violation 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 and its 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, 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 or any of its 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 or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxii) 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.
(xxiii) Filings of Tax Returns. The Company and its 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.
To the best knowledge of the Company, after due inquiry, all such tax
returns and amendments thereto are (or will be) true, correct and complete
in all material respects when filed. All material 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. The Company is not 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
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<PAGE>
aggregate, result in a Material Adverse Effect. No material deficiency or
adjustment for any taxes has been proposed, asserted, assessed or, to the
knowledge of the Company, threatened against the Company or its
subsidiaries. There are no tax liens upon any of the properties or assets,
real or personal, tangible or intangible, of the Company or any of its
subsidiaries, except for statutory liens for taxes not yet due or
delinquent.
(xxiv) 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 general 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.
(xxv) 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.
(xxvi) No Violations of Regulations G, T, U or X. Neither the sale or
delivery of the Securities nor the Common Stock Repurchase will violate
Regulations G, T, U, or X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board of Governors.
(xxvii) No Violation. The consummation by the Company and the Selling
Stockholders of the Common Stock Repurchase will not result in any
violation of the General Corporation Law of the State of Delaware.
(xxviii) No Violation of Regulation M. The Company has not taken any
action that would violate Rule 102 of Regulation M of the 1934 Act.
(xxix) Listing. The Common Stock is listed on the New York Stock Exchange
and has been registered under Section 12(b) of the Securities Exchange Act
of 1934, as amended.
(b) Representations and Warranties by the Major Selling Stockholders. Each
of FS Equity Partners II, L.P., a California limited partnership ("FSEP II"),
FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"), FS
Equity Partners International, L.P., a Delaware limited partnership ("FSEP
International"), M & P Distributing Co., a Nevada corporation ("M & P
Distributing Co."), and William C. Johnson (collectively referred to herein as
the "Major Selling Stockholders"), solely in such Major Selling Stockholder's
capacity as a Major Selling Stockholder, severally and not jointly, represents
and warrants to each U.S. Underwriter and the Company 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
U.S. Underwriter, as to itself as follows:
(i) Good and Marketable Title. Such Major Selling Stockholder has good
and valid title to the Securities being sold by it pursuant to this
Agreement and the International Purchase Agreement, free and clear of all
liens, encumbrances, security interests and claims whatsoever; and upon
sale and delivery of, and payment for, such Securities, as provided herein
and the International Purchase Agreement, at the Closing Time, such Major
Selling Stockholder will convey to the Underwriters good and valid title to
such Securities, free and clear of all liens, encumbrances, security
interests and claims whatsoever. Upon sale and delivery of, and payment
for, such Securities, as provided herein and in the International Purchase
Agreement, and provided that the Global Coordinator does not have notice of
any "adverse claim" (within the meaning of Article 8 of the Uniform
Commercial Code of the State of New York), the Global Coordinator will be a
"protected purchaser" (within the meaning of Article 8 of the Uniform
Commercial Code of the State of New York) with respect to the Securities
and will acquire the Securities free of any "adverse claim (within the
meaning of Article 8 of the Uniform Commercial Code of the State of New
York)".
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<PAGE>
(ii) Authorization of Agreements. Such Major Selling Stockholder has the
full right, power and authority to enter into this Agreement, the
International Purchase Agreement and the applicable Repurchase Agreement
(and in the case of William C. Johnson, the Power of Attorney and Custody
Agreement with Lowenstein, Sandler, Kohl, Fisher & Boylan ("Lowenstein")
(the "Johnson Power of Attorney and Custody Agreement")) and to sell,
transfer and deliver the Securities to be sold by such Major Selling
Stockholder hereunder and thereunder. The execution and delivery of this
Agreement, the International Purchase Agreement and the applicable
Repurchase Agreement (and in the case of William C. Johnson, the Johnson
Power of Attorney and Custody Agreement) and the sale and delivery of the
Securities to be sold by such Major Selling Stockholder and the
consummation of the transactions contemplated herein and therein and
compliance by such Major Selling Stockholder with its obligations hereunder
and thereunder have been duly authorized by such Major Selling Stockholder
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 under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities to be sold by such Major Selling
Stockholder pursuant to any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, license, lease or other agreement or
instrument to which such Major Selling Stockholder is a party or by which
such Major Selling Stockholder may be bound, or to which any of the
property or assets of such Major Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the charter or by-
laws or other organizational instrument of such Major Selling Stockholder,
if applicable, or any applicable treaty, law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
such Major Selling Stockholder or any of its properties, except for such
breaches, defaults, taxes, liens, charges, encumbrances or violations that
would not have a material adverse effect on the ability of such Major
Selling Stockholder to consummate the transactions contemplated by this
Agreement, the International Purchase Agreement or the applicable
Repurchase Agreement, or its ability to sell, transfer and deliver the
Securities to be sold by such Major Selling Stockholder hereunder and
thereunder.
(iii) Accurate Disclosure.
(A) To the actual knowledge of FSEP II, FSEP III, FSEP International
and William C. Johnson, without independent investigation, the
representations and warranties of the Company contained in Section 1(a)
hereof are true and correct; with respect solely to FSEP II, FSEP III,
FSEP International and William C. Johnson, such Major Selling
Stockholder has reviewed the Registration Statement and the
Prospectuses, and such part of the Registration Statement and the
Prospectuses comprising information under the caption "Principal and
Selling Stockholders" which specifically relates to such Major Selling
Stockholder will not, at the date the Registration Statement becomes
effective, contain any 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 and, at the date of the
Prospectuses, at the Closing Time and at each Date of Delivery (if
any), will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading.
(B) With respect solely to M & P Distributing Co., such parts of the
Registration Statement and the Prospectuses comprising information
under the caption "Principal and Selling Stockholders" which
specifically relates to such Selling Stockholder, will not, at the date
the Registration Statement becomes effective, contain any 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, and, at the date of the Prospectuses, at the Closing Time
and at each Date of Delivery (if any), will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(iv) 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 sale of the Securities by such Major Selling
Stockholder under this
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<PAGE>
Agreement, the International Purchase Agreement and the applicable
Repurchase Agreement or the consummation of the transactions contemplated
by this Agreement, the International Purchase Agreement and the applicable
Repurchase Agreement by such Major Selling Stockholder, 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 International Securities are offered
or (z) those that if not obtained would not reasonably be expected to have
a material adverse effect on the ability of such Major Selling Stockholder
to consummate the transactions contemplated by this Agreement, the
International Purchase Agreement or the applicable Repurchase Agreement, or
its ability to sell, transfer or deliver the Securities to be sold by such
Major Selling Stockholder hereunder and thereunder.
(v) Absence of Manipulation. Such Major Selling Stockholder has not taken
and will not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or result
under the 1934 Act or otherwise, in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
(vi) No Violation of Regulation M. Such Major Selling Stockholder has not
taken any action that would violate Rule 102 of Regulation M of the 1934
Act.
(vii) Certificates Suitable for Transfer. Solely as to William C.
Johnson, certificates for all of the Securities to be sold by such Major
Selling Stockholder pursuant to this Agreement, in suitable form for
transfer by delivery or accompanied by duly executed instruments of
transfer or assignment in blank with signatures guaranteed, have been
placed in custody with the Custodian with irrevocable conditional
instructions to deliver such Securities to the Underwriters pursuant to
this Agreement.
(viii) Form W-9. In order to document the Underwriters' compliance with
the reporting and withholdings provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Major Selling Stockholder will deliver to the U.S.
Representatives prior to or at the Closing Time a properly completed and
executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu
thereof).
(c) Representations and Warranties by the Non-Major Selling
Stockholders. Each of NYNEX Master Trust, a trust governed by the laws of the
State of New York ("NYNEX"), 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."), ARAMARK/Gall's Group, Inc.
("Aramark"), and TJX (collectively referred to herein as the "Non-Major
Selling Stockholders"), solely in such Non-Major Selling Stockholder's
capacity as a Non-Major Selling Stockholder, severally and not jointly,
represents and warrants to each U.S. Underwriter and the Company 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 U.S. Underwriter, as to itself as follows:
(i) Good and Marketable Title. Such Non-Major Selling Stockholder has
(and in the case of TJX, upon conversion of the $20 million principal
amount Convertible Subordinated Note payable by the Company to TJX (the
"Note") in accordance with the Power of Attorney and Custody Agreement
between TJX and Lowenstein (the "TJX Power of Attorney and Custody
Agreement") will have) good and valid title to the Securities being sold by
it pursuant to this Agreement and the International Purchase Agreement,
free and clear of all liens, encumbrances, security interests and claims
whatsoever; and upon sale and delivery of, and payment for, such
Securities, as provided herein and the International Purchase Agreement, at
the Closing Time, such Non-Major Selling Stockholder will convey to the
Underwriters good and valid title to such Securities, free and clear of all
liens, encumbrances, security interests and claims whatsoever. Upon sale
and delivery of, and payment for, such Securities, as provided herein and
in the International Purchase Agreement, and provided that the Global
Coordinator does not have notice of any "adverse claim" (within the meaning
of Article 8 of the Uniform Commercial Code of the State of New York), the
Global Coordinator will be a "protected purchaser" (within the meaning of
Article 8 of the Uniform
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<PAGE>
Commercial Code of the State of New York) with respect to the Securities
and will acquire the Securities free of any "adverse claim" (within the
meaning of Article 8 of the Uniform Commercial Code of the State of New
York).
(ii) Authorization of Agreements. Such Non-Major Selling Stockholder has
the full right, power and authority to enter into this Agreement, the
International Purchase Agreement, the applicable Repurchase Agreement and
the applicable Power of Attorney and Custody Agreement with Lowenstein (the
"Power of Attorney and Custody Agreement") and to sell, transfer and
deliver the Securities to be sold by such Non-Major Selling Stockholder
hereunder and thereunder. The execution and delivery of this Agreement, the
International Purchase Agreement, the applicable Repurchase Agreement and
the applicable Power of Attorney and Custody Agreement and the sale and
delivery of the Securities to be sold by such Non-Major Selling Stockholder
and the consummation of the transactions contemplated herein and therein
and compliance by such Non-Major Selling Stockholder with its obligations
hereunder and thereunder have been duly authorized by such Non-Major
Selling Stockholder 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 under, or result in the creation or imposition of any
tax, lien, charge or encumbrance upon the Securities to be sold by such
Non-Major Selling Stockholder pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license, lease or
other agreement or instrument to which such Non-Major Selling Stockholder
is a party or by which such Non-Major Selling Stockholder may be bound, or
to which any of the property or assets of such Non-Major Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the charter or by-laws or other organizational instrument of
such Non-Major Selling Stockholder, if applicable, or any applicable
treaty, law, statute, rule, regulation, judgment, order, writ, or decree of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over such Non-Major Selling Stockholder or any of its
properties, except for such breaches, defaults, taxes, liens, charges,
encumbrances or violations that would not have a material adverse effect on
the ability of such Non-Major Selling Stockholder to consummate the
transactions contemplated by this Agreement, the International Purchase
Agreement, the applicable Repurchase Agreement, or the applicable Power of
Attorney and Custody Agreement, or its ability to sell, transfer and
deliver the Securities to be sold by such Non-Major Selling Stockholder
hereunder and thereunder.
(iii) Accurate Disclosure. Such parts of the Registration Statement and
the Prospectuses comprising information under the caption "Principal and
Selling Stockholders" which specifically relates to such Non-Major Selling
Stockholder, will not, at the date the Registration Statement becomes
effective, contain any 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, and, at the date of the Prospectuses, at
the Closing Time and at each Date of Delivery (if any), will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading.
(iv) 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 sale of the Securities by such Non-Major Selling
Stockholder under this Agreement, the International Purchase Agreement and
the applicable Repurchase Agreement or the consummation of the transactions
contemplated by this Agreement, the International Purchase Agreement, the
applicable Repurchase Agreement and the applicable Power of Attorney and
Custody 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 International Securities are offered or (z) those that if not
obtained would not reasonably be expected to have a material adverse effect
on the ability of such Non-Major Selling Stockholder to consummate the
transactions contemplated by this Agreement, the International Purchase
Agreement, the applicable Repurchase Agreement or the applicable Power of
Attorney and Custody Agreement, or its ability to sell, transfer or deliver
the Securities to be sold by such Non-Major Selling Stockholder hereunder
and thereunder.
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<PAGE>
(v) Absence of Manipulation. Such Non-Major Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or
result under the 1934 Act or otherwise, in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of the Securities.
(vi) No Violation of Regulation M. Such Non-Major Selling Stockholder has
not taken any action that would violate Rule 102 of Regulation M of the
1934 Act.
(vii) Due Execution of Power of Attorney and Custody Agreement. Such Non-
Major Selling Stockholder has duly executed and delivered, in the form
heretofore furnished to the U.S. Representatives, the Power of Attorney and
Custody Agreement with Lowenstein as attorney-in-fact (the "Attorney-in-
Fact"); the Attorney-in-Fact is authorized to deliver or cause to be
delivered the Securities to be sold by such Non-Major Selling Stockholder
hereunder, the International Purchase Agreement and the applicable
Repurchase Agreement and to accept or direct payment therefor, to execute
and deliver this Agreement, the International Purchase Agreement and the
applicable Repurchase Agreement and the certificate referred to in Section
5(i) on behalf of such Non-Major Selling Stockholder), to sell, assign and
transfer to the U.S. Underwriters the U.S. Securities to be sold by such
Non-Major Selling Stockholder hereunder, to determine the purchase price to
be paid by the U.S. Underwriters to such Non-Major Selling Stockholder as
provided in Section 2(a) hereof, and otherwise to act on behalf of such
Non-Major Selling Stockholder in connection with this Agreement, the
International Purchase Agreement and the applicable Repurchase Agreement.
The representations and warranties of such Non-Major Selling Stockholder in
the applicable Power of Attorney and Custody Agreement are, and at the
Closing Time and as of each Date of Delivery (if any) will be, true and
correct. The parties hereto agree that the Attorney-in-Fact shall have no
liability as a result of any inaccuracy or breach of a representation or
warranty by any Non-Major Selling Stockholder.
(viii) Certificates Suitable for Transfer. Certificates for all of the
Securities to be sold by such Non-Major Selling Stockholder pursuant to
this Agreement, in suitable form for transfer by delivery or accompanied by
duly executed instruments of transfer or assignment in blank with
signatures guaranteed, have been placed in custody with the Custodian with
irrevocable conditional instructions to deliver such Securities to the
Underwriters pursuant to this Agreement (in the case of TJX, the Note has
been placed in such custody with appropriate conversion power pursuant to
the TJX Power of Attorney and Custody Agreement).
(ix) Form W-9. In order to document the Underwriters' compliance with the
reporting and withholdings provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Non-Major Selling Stockholder will deliver to the
U.S. Representatives prior to or at the Closing Time a properly completed
and executed United States Treasury Department Form W-9 (or other
applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(d) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the
U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter and to
each Selling Stockholder as to the matters covered thereby, without personal
liability for the officer signing such certificate; and any certificate signed
by or on behalf of any Selling Stockholder as such and delivered to the Global
Coordinator, the U.S. Representatives or to counsel for the U.S. Underwriters
pursuant to the terms of this Agreement shall be deemed a representation and
warranty by such Selling Stockholder to the Company and to the
U.S. Underwriters as to the matters covered thereby without personal liability
therefor except where such certificate is executed by or on behalf of such
Selling Stockholder in such Selling Stockholder's individual capacity,
provided, however, that the Attorney-in-Fact shall have no liability as to the
matters covered by any such certificate.
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SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial U.S. Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, each Selling Stockholder, severally and not jointly, agrees to sell, at
the price per share set forth in Schedule B, to each U.S. Underwriter, the
number of Initial U.S. Securities set forth in Schedule C opposite the name of
such Selling Stockholder, and each U.S. Underwriter, severally and not
jointly, agrees to purchase, at the price per share set forth in Schedule B,
from each Selling Stockholder the number of Initial U.S. Securities set forth
in Schedule A opposite the name of such U.S. Underwriter, plus any additional
number of Initial U.S. Securities which such U.S. Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof subject,
in each case, to such adjustments among the U.S. Underwriters as the U.S.
Representatives in their sole discretion shall make to eliminate any sales or
purchases of fractional securities.
(b) U.S. 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 Selling Stockholders, severally and not jointly, grant an
option to each U.S. Underwriter, severally and not jointly, to purchase up to
the additional number of shares of Common Stock set forth in Schedule C
opposite the name of the Selling Stockholders under the heading "Number of
U.S. Option Securities" 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 U.S. Securities but not payable on the U.S.
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 U.S. Securities upon written
notice by the Global Coordinator to the Company and the Attorney-in-Fact
setting forth the number of U.S. Option Securities as to which the several
U.S. Underwriters are then exercising the option and the time and date of
payment and delivery for such U.S. Option Securities. Any such time and date
of delivery for the U.S. Option Securities (a "Date of Delivery") shall be
determined by the Global Coordinator, 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 Global
Coordinator, the Company and the Selling Stockholders. If the option is
exercised as to all or any portion of the U.S. Option Securities, each of the
U.S. Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of U.S. Option Securities then being purchased
which the number of Initial U.S. Securities set forth in Schedule A opposite
the name of such U.S. Underwriter bears to the total number of Initial U.S.
Securities, subject in each case to such adjustments as the Global Coordinator
in its 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 U.S. 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 Global Coordinator, the
Company and the Selling Stockholders, at 10:00 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 Global
Coordinator, the Company and the Selling Stockholders (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator, the Company and the Selling Stockholders, on each Date of
Delivery as specified in the written notice from the Global Coordinator to the
Company and the Attorney-in-Fact.
Payment shall be made by the U.S. Underwriters to the Selling Stockholders
other than M & P Distributing Co. and the FS Stockholders (as defined herein)
by wire transfer of immediately available funds to bank accounts designated in
writing by the Attorney-in-Fact pursuant to each Selling Stockholder's Power
of Attorney and
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Custody Agreement against delivery to the U.S. Representatives for the
respective accounts of the U.S. Underwriters of certificates for the U.S.
Securities to be purchased by them. In the case of M & P Distributing Co. and
the FS Stockholders, payment shall be made by the U.S. Underwriters to each of
M & P Distributing Co. and the FS Stockholders by wire transfer of immediately
available funds to their respective bank accounts designated in writing by
each of them against delivery to the U.S. Representatives for the respective
accounts of the U.S. Underwriters of certificates for the U.S. Securities to
be purchased by them. It is understood that each U.S. Underwriter has
authorized the U.S. Representatives, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the Initial U.S.
Securities and the U.S. Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
U.S. Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial U.S. Securities or the U.S. Option Securities,
if any, to be purchased by any U.S. 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 U.S. Underwriter from its
obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least two full business days before the Closing Time or
the relevant Date of Delivery, as the case may be. The certificates for the
Initial U.S. Securities and the U.S. Option Securities, if any, will be made
available for examination and packaging by the U.S. 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.
SECTION 3. Covenants of the Company. The Company covenants with each U.S.
Underwriter and each Selling Stockholder 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 Global Coordinator and
the Attorney-in-Fact 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 Prospectuses or any amended Prospectuses
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 Prospectuses 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 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 Global Coordinator and
the Attorney-in-Fact 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 Prospectuses, will furnish the Global Coordinator and the Selling
Stockholders 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 Global Coordinator and the Selling
Stockholders or counsel for the U.S. Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has furnished or will
deliver to the U.S. Representatives and counsel for the U.S. Underwriters, and
to the Selling Stockholders and counsel for the Selling Stockholders, without
charge, copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and copies of all
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consents and certificates of experts, and will also deliver to the U.S.
Representatives, without charge, a 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 U.S. 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 furnished or will deliver to
each U.S. Underwriter and each Selling Stockholder, without charge, as many
copies of each preliminary prospectus as such U.S. Underwriter or such Selling
Stockholder 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 U.S. Underwriter, without charge, during the period when the
U.S. 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
U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter may
reasonably request for the purposes contemplated by the 1933 Act or the 1934
Act or the respective applicable rules and regulations of the Commission
thereunder. The U.S. Prospectus and any amendments or supplements thereto
furnished to the U.S. Underwriters and the Selling Stockholders 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, the
International Purchase Agreement and in the Prospectuses. If at any time when
a prospectus is required by the 1933 Act to be delivered in connection with
sales of the Securities, any event shall occur or condition shall exist as a
result of which it is necessary, in the opinion of counsel for the U.S.
Underwriters or the Company, to amend the Registration Statement or amend or
supplement any Prospectuses in order that the Prospectuses 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 Prospectuses 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 Prospectuses comply with such requirements, and the Company will furnish
to the U.S. Underwriters and each Selling Stockholder such number of copies of
such amendment or supplement as the U.S. Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the U.S. 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 Global Coordinator 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) Restriction on Sale of Securities. During a period of 90 days from the
date of this Agreement, the Company will not, without the prior written
consent of the Global Coordinator, 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
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any option, right or warrant to purchase or otherwise transfer or dispose of
any share of Common Stock or 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 or under the International Purchase Agreement,
(B) the Common Stock Repurchase, (C) 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 Prospectuses,
(D) 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 Prospectuses or (E) any shares of Common Stock issued pursuant to any
non-employee director stock plan or dividend reinvestment plan.
(i) Reporting Requirements. The Company, during the period when the
Prospectuses are 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.
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 U.S. Underwriters and the Selling
Stockholders of this Agreement, any Agreement among U.S. Underwriters and such
other documents as may be required in connection with the offering, purchase,
sale or delivery of the Securities, (iii) the preparation and delivery of the
certificates for the Securities to the U.S. Underwriters, (iv) the fees and
disbursements of the Company's counsel and accountants and other advisors, of
Lowenstein, counsel for certain of the Selling Stockholders, and of Richards &
O'Neil, special counsel for certain of the Selling Stockholders, (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 U.S. Underwriters in connection
therewith and in connection with the preparation of the Blue Sky Survey and
any supplement thereto, (vi) the printing and delivery to the U.S.
Underwriters and the Selling Stockholders of copies of each preliminary
prospectus, any Term Sheets and of the Prospectuses and any amendments or
supplements thereto, (vii) the preparation and delivery to the U.S.
Underwriters and the Selling Stockholders 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 the review by
the National Association of Securities Dealers, Inc. (the "NASD") of the terms
of the sale of the Securities and (x) the fees and expenses of continuing the
listing of the Common Stock on the New York Stock Exchange.
(b) Expenses of the Selling Stockholders. The Underwriters shall not be
responsible for, or liable for, any costs and expenses of any of the Selling
Stockholders incident to its obligations hereunder. Subject to Section 4(a)
above, the Selling Stockholders, severally and not jointly, will pay all
expenses incident to the performance of their respective obligations under,
and the consummation of the transactions contemplated by this Agreement and
the International Purchase Agreement, including (i) any stock or other
transfer taxes and any stamp or other duties payable upon the sale or delivery
of the Securities to the U.S. Underwriters and the transfer of the Securities
from the Selling Stockholders to the U.S. Underwriters and between the U.S.
Underwriters and the International Managers, and (ii) except as described in
(a)(iv) above, the fees and disbursements of their respective counsel and
accountants.
(c) Termination of Agreement. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5(u) or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for the U.S. Underwriters.
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SECTION 5. Conditions of U.S. Underwriters' Obligations. The obligations of
the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of any Selling Stockholder
delivered pursuant to the provisions hereof, to the performance by the Company
and the Selling Stockholders of their 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 U.S. 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 U.S.
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 U.S. Underwriters, together with signed or
reproduced copies of such letter for each of the other U.S. Underwriters and
for each Selling Stockholder to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the U.S. Underwriters may reasonably
request. 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
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 U.S. 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) Opinions of Counsel for the FS Stockholders. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Riordan & McKinzie, counsel for FSEP II, FSEP III and FSEP
International (collectively referred to herein as the "FS Stockholders") as
Selling Stockholders, in form and substance satisfactory to counsel for the
U.S. Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters to the effect set forth in Exhibit B-1
hereto and to such further effect as counsel to the U.S. Underwriters may
reasonably request. 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 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 U.S. 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 the applicable
Selling Stockholders and certificates of public officials.
(d) Opinions of Counsel for M & P Distributing Co. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Davis, Polk & Wardwell, counsel for M & P Distributing Co., as a
Selling Stockholder, in form and substance satisfactory to counsel for the
U.S. Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters to the effect set forth in Exhibit B-1
hereto and to such further effect as counsel to the U.S. Underwriters may
reasonably request. 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
counsel for the U.S. 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 the applicable Selling Stockholders and
certificates of public officials.
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(e) Opinions of Counsel for Certain Selling Stockholders. At Closing Time,
the U.S. Representatives shall have received the favorable opinion, dated as
of Closing Time, of Lowenstein, special counsel for NYNEX, Leeway & Co.,
Aramark, William C. Johnson and TJX as Selling Stockholders, in form and
substance satisfactory to counsel for the U.S. Underwriters, together with
signed or reproduced copies of such letter for each of the other U.S.
Underwriters to the effect set forth in Exhibit B-2 hereto and to such further
effect as counsel to the U.S. Underwriters may reasonably request. 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 Jersey, 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 U.S.
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 the applicable Selling Stockholders and certificates of
public officials.
(f) Opinions of Counsel for the Selling Stockholders. At Closing Time, the
U.S. Representatives shall have received the favorable opinions, dated as of
Closing Time, of Davis, Polk & Wardwell, counsel for M & P Distributing Co.,
and Richards & O'Neil, special counsel to the other Selling Stockholders, in
form and substance satisfactory to counsel for the U.S. Underwriters, together
with signed or reproduced copies of such letter for each of the other U.S.
Underwriters to the effect set forth in Exhibit B-3 hereto and to such further
effect as counsel to the U.S. Underwriters may reasonably request. 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 counsel for the U.S.
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 the applicable Selling Stockholders and certificates of
public officials.
(g) Opinion of Counsel for U.S. Underwriters. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters to the effect set forth in clauses (i),
(ii), (v) (solely as to preemptive or other similar rights arising by
operation of law or under the charter or by-laws of the Company), (vii)
(solely as to the Purchase Agreement and the International Purchase
Agreement), (viii), (ix), (xi), (xiii) and (xxi) 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 U.S.
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.
(h) Officers' Certificate. At Closing Time, there shall not have been, since
the date of the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the President, the
Vice Chairman of the Board or the Chief Executive Officer of the Company, and
of 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 has 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.
(i) Certificate of Selling Stockholders. The FS Stockholders, M & P
Distributing Co., the Selling Stockholders or the Attorney-in-Fact shall have
each furnished to the U.S. Representatives and the Company a certificate,
dated the date of the Closing Time, to the effect that the representations and
warranties of the
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applicable Selling Stockholders in this Agreement are true and correct in all
material respects on and as of the Closing Time to the same effect as if made
at the Closing Time and each applicable Selling Stockholder has complied with
all the agreements and satisfied all the conditions on his or its part to be
performed or satisfied prior to the Closing Time.
(j) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from Coopers & Lybrand
a letter dated such date, in form and substance satisfactory to the U.S.
Representatives, together with signed or reproduced copies of such letter for
the Company, each of the other U.S. Underwriters and any Selling Stockholder
who meets the requirements of Statement of Auditing Standards No. 72
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectuses.
(k) Bring-down Comfort Letter. At the Closing Time, the U.S. Representatives
shall have received from Coopers & Lybrand a letter, dated as of the Closing
Time, together with signed or reproduced copies of such letter for the
Company, each of the other U.S. Underwriters and any Selling Stockholder who
meets the requirements of Statement of Auditing Standards No. 72 to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (j) of this Section, except that the specified date referred to
shall be a date not more than three business days prior to Closing Time.
(l) Listing. At the Closing Time and at the Date of Delivery, the Securities
shall continue to be listed on the New York Stock Exchange.
(m) 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.
(n) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received agreements substantially in the form of
Exhibit C hereto signed by each of the persons and entities listed on Schedule
D hereto.
(o) Purchase of Initial International Securities. Contemporaneously with the
purchase by the U.S. Underwriters of the Initial U.S. Securities under this
Agreement, the International Managers shall have purchased the Initial
International Securities under the International Purchase Agreement.
(p) Common Stock Repurchase. Contemporaneously with the purchase by the
Underwriters of the Securities under this Agreement and the International
Purchase Agreement, the Company shall have completed the Common Stock
Repurchase.
(q) Execution of Amended Credit Facility. Each of the parties to the Amended
Credit Facility has performed all of such party's obligations under the
Amended Credit Facility required to be performed on or prior to the Closing
Time.
(r) Execution of Repurchase Agreements. Each of the parties to each of the
Repurchase Agreements has performed all of such party's obligations under each
of such Repurchase Agreements required to be performed on or prior to the
Closing Time.
(s) Conditions to Purchase of U.S. Option Securities. In the event that the
U.S. Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the U.S. Option Securities, the representations
and warranties of the Company and the Selling Stockholders contained in
Section 1 hereof and the statements in any certificate of any officer of the
Company or any subsidiary of the Company or on behalf of any Selling
Stockholder delivered pursuant to the provisions hereof shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery, the
U.S. Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of Delivery, of
the President, the Vice Chairman of the Board or the Chief Executive
Officer of the Company, and the Chief Financial Officer of the Company
confirming that the certificate delivered at the Closing Time pursuant to
Section 5(h) hereof remains true and correct as of such Date of Delivery.
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(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 U.S. Underwriters, dated such Date of Delivery, relating to
the U.S. 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) Certificate of Selling Stockholders. A certificate dated such Date
of Delivery, of the Selling Stockholders or the Attorney-in-Fact confirming
that the certificate delivered at the Closing Time pursuant to Section 5(i)
hereof remains true and correct as of such Date of Delivery.
(iv) Opinion of Counsel for the FS Stockholders. The favorable opinion of
Riordan & McKinzie, counsel for the FS Stockholders as Selling
Stockholders, in form and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. 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.
(v) Opinion of Counsel for M & P Distributing Co. The favorable opinion
of Davis, Polk & Wardwell, counsel for M & P Distributing Co. as a Selling
Stockholder, in form and substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(d) hereof.
(vi) Opinion of Counsel for certain Selling Stockholders. The favorable
opinion of Lowenstein, counsel for NYNEX, Leeway & Co., Aramark, William C.
Johnson and TJX as Selling Stockholders, in form and substance satisfactory
to counsel for the U.S. Underwriters, dated such Date of Delivery, relating
to the U.S. Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section 5(e)
hereof.
(vii) Opinion of Counsel for the Selling Stockholders. The favorable
opinions of Davis, Polk & Wardwell, counsel for M & P Distributing Co., and
Richards & O'Neil, special counsel for the other Selling Stockholders, in
form and substance satisfactory to counsel for the U.S. Underwriters, dated
such Date of Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as the
opinion required by Section 5(f) hereof.
(viii) Opinion of Counsel for U.S. Underwriters. The favorable opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(g) hereof.
(ix) Bring-down Comfort Letter. A letter from Coopers & Lybrand, in form
and substance satisfactory to the U.S. Representatives and dated such Date
of Delivery, substantially in the same form and substance as the letter
furnished to the U.S. Representatives pursuant to Section 5(j) 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.
(t) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the U.S. Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the sale of the Securities as herein contemplated and upon the
Common Stock Repurchase, 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 and the Selling
Stockholders in connection with the sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(u) 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 U.S. Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several U.S. Underwriters to purchase the relevant U.S.
Option Securities, may be terminated by the U.S. Representatives by written
notice to the Company, the FS Stockholders, M & P Distributing Co. and the
21
<PAGE>
Attorney-in-Fact 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 by the Company. The Company agrees to indemnify and hold
harmless (i) each Selling Stockholder, each person, if any, who controls such
Selling Stockholder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and each of their respective officers, directors,
and employees in accordance with the terms of the Registration Rights
Agreement, dated as of February 26, 1997 by and among the Company and each of
the Selling Stockholders (the "Registration Rights Agreement") and (ii) each
U.S. Underwriter and each person, if any, who controls any U.S. Underwriter
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act, as follows:
(x) 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 Prospectuses (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;
(y) 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(e) below) any such settlement is effected with the written consent of the
Company; and
(z) against any and all expense whatsoever, as incurred (including,
subject to Section 6(d) hereof, 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, to the extent
that any such expense is not paid under (x) or (y) above;
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 (A)
by any Selling Stockholder, or (B) by any U.S. Underwriter through the Global
Coordinator 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 U.S. Prospectus (or any
amendment or supplement thereto) and, provided, further, that (i) the Company
will not be liable to any U.S. Underwriter with respect to any preliminary
prospectus to the extent that such loss, liability, claim, damage or expense
resulted from the fact that such U.S. Underwriter, in contravention of this
Agreement or applicable law, sold Securities to a person to whom such U.S.
Underwriter failed to send or give, at or prior to the Closing Date, a copy of
the U.S. Prospectus as then amended and supplemented if the Company has
previously furnished copies thereof (sufficiently in advance of the Closing
Date to allow distribution by the Closing Date) to the U.S. Underwriters and
the loss, liability, claim, damage or expense of such U.S. 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 U.S. Prospectus.
(b) Indemnification by the Selling Stockholders. Each Selling Stockholder
severally (but not jointly) agrees to indemnify and hold harmless (i) the
Company, its directors, each of its officers who signed the Registration
22
<PAGE>
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, in
accordance with the terms of the Registration Rights Agreement; (ii) each
other Selling Stockholder and each person, if any, who controls such Selling
Stockholder within the meaning of Section 15 of the 1933 Act and Section 20 of
the 1934 Act, as well as the respective officers, directors and employees of
each of the foregoing and (iii) each U.S. Underwriter and each person, if any,
who controls any U.S. Underwriter 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) 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
U.S. Prospectus (or any amendment or supplement thereto) in reliance upon, and
in conformity with, written information relating specifically to such Selling
Stockholder furnished to the Company by or on behalf of such Selling
Stockholder expressly for use in the portion of the Registration Statement (or
any amendment thereto) captioned "Principal and Selling Stockholders";
provided, however, that (x) the liability of any Selling Stockholder under
this Section 6(b)(iii), together with any liability to the U.S. Underwriters
of a Selling Stockholder arising from or based upon a breach by such Selling
Stockholder of its representations in this Agreement or in the Power of
Attorney and Custody Agreement, shall be limited to an amount equal to the
proceeds of the sale of U.S. Securities by such Selling Stockholder (net of
underwriting discounts and commissions but before deducting expenses) received
by such Selling Stockholder in connection with the registration and sale of
the U.S. Securities) and (y) the foregoing indemnity provided under Section
6(b)(iii) with respect to any preliminary prospectus shall not inure to the
benefit of any U.S. Underwriter (or to the benefit of any person controlling
such U.S. Underwriter) from whom the person asserting any such loss,
liability, claim or damage purchased U.S. Securities if such untrue statement
or omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the U.S. Prospectus (as amended or
supplemented by the Company if the Company shall have furnished any amendments
or supplements thereto) and a copy of the U.S. Prospectus (as so amended or
supplemented), which at such time had been provided to the U.S. Underwriters
for their use, shall not have been furnished to such person at or prior to the
written confirmation of sale of such Securities to such person.
(c) Indemnification by the U.S. Underwriters. Each U.S. 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, and each Selling Stockholder and each
person, if any, who controls such Selling Stockholder 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) 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 U.S. Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such U.S. Underwriter through
the U.S. Representatives expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the U.S. Prospectus
(or any amendment or supplement thereto).
(d) 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)(ii) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, in the case of parties indemnified pursuant to Section 6(c)
above, counsel to the indemnified parties shall be selected by the Company,
and in the case of parties indemnified pursuant to Section 6(a)(i) above,
counsel to the indemnified parties shall be selected by the Selling
Stockholder,
23
<PAGE>
(and shall be reasonably satisfactory to Merrill Lynch). 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. 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.
(e) 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) 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 party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(f) No Effect on Separate Agreement. The provisions of this Section 6 and
Section 7 hereof shall not affect any separate agreement among the Company and
the Selling Stockholders with respect to indemnification and contribution.
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, (a) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the U.S. Underwriters on the other
hand from the offering of the U.S. Securities pursuant to this Agreement, or
if such allocation is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits but also the relative
fault of the Company and the Selling Stockholder on the one hand and of the
U.S. 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 and (b) as
between the Company on the one hand and each Selling Stockholder on the other,
or as among the Selling Stockholders, as the case may be, in such proportion
as is appropriate to reflect the relative fault of the Company and of each
Selling Stockholder in connection with such statements or omissions, as well
as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholders
on the one hand and the U.S. Underwriters on the other hand in connection with
the offering of the U.S. 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 U.S. Securities pursuant to this Agreement (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the U.S. 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.
The relative fault of the Company and the Selling Stockholders on the one
hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged
24
<PAGE>
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company and the Selling
Stockholders or by the U.S. Underwriters, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The relative fault of the Company on the one hand and
of each Selling Stockholder, and with respect to the Selling Stockholders
among themselves, on the other, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Stockholders and the U.S. 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 U.S. 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 U.S. Underwriter shall
be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission, and no
Selling Stockholder shall be required to contribute any amount in excess of
the amount by which the total price at which the Securities of such Selling
Stockholder were offered to the public (less underwriting discounts and
commissions but before deducting expenses) exceeds the amount of any damages
which such Selling Stockholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. Each
Selling Stockholder's obligations to contribute pursuant to this Section 7 are
several and not joint.
Notwithstanding the foregoing, no indemnifying party shall be responsible
for contributing any amount hereunder unless indemnification from such
indemnifying party under subsections (a), (b) and (c) of Section 6, as the
case may be, was provided for hereunder in accordance with its terms.
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 a U.S.
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
U.S. 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 and each director of a Selling Stockholder, and each person, if any,
who controls a Selling Stockholder 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 a Selling Stockholder. The U.S. Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of U.S. 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, any of its
subsidiaries or the Selling Stockholders submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any U.S. Underwriter or controlling person, or by or
on behalf of the Company or the Selling Stockholders, and shall survive
delivery of the U.S. Securities to the U.S. Underwriters.
25
<PAGE>
SECTION 9. Termination of Agreement.
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, the FS Stockholders, M & P Distributing
Co. and the Attorney-in-Fact, 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 U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
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 U.S. 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 U.S. Underwriters. If one or more
of the U.S. 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 U.S. Representatives shall have
the right, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting U.S. 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 U.S.
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 U.S. Securities to be purchased on such date, each of the non-defaulting
U.S. 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 U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of U.S.
Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of
the U.S. Underwriters to purchase and of the Selling Stockholders to sell the
U.S. Option Securities to be purchased and sold on such Date of Delivery,
shall terminate without liability on the part of any non-defaulting U.S.
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
U.S. Underwriters to purchase and the Selling Stockholders to sell the
relevant U.S. Option Securities, as the case may be, either the U.S.
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 Prospectuses or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.
26
<PAGE>
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 U.S.
Underwriters shall be directed to the Representatives c/o Merrill Lynch at
North Tower, World Financial Center, New York, New York 10281-1201, attention:
Syndicate Department; with copies to Skadden, Arps, Slate, Meagher & Flom LLP,
300 South Grand Avenue, 34th Floor, Los Angeles, California 90071, attention:
Gregg A. Noel, Esq.; 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: Thomas M. Cleary, Esq.; notices to the FS Stockholders shall be
directed to Riordan & McKinzie, 300 South Grand Avenue, 29th Floor,
Los Angeles, California 90071, attention: Thomas M. Cleary, Esq.; notices to M
& P Distributing Co. shall be directed to Davis, Polk & Wardwell, 450
Lexington Avenue, New York, New York 10017, attention: David L. Caplan, Esq.;
and notices to NYNEX, Leeway & Co., Aramark, William C. Johnson and TJX shall
be directed to Lowenstein, Sandler, Kohl, Fisher & Boylan, 65 Livingston
Avenue, Roseland, New Jersey 07068, attention: George J. Mazin, Esq.
SECTION 12. Parties. This Agreement shall each inure to the benefit of and
be binding upon the U.S. Underwriters and the Company, the Selling
Stockholders 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 U.S. Underwriters and the Company, the Selling
Stockholders 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 U.S. Underwriters and the Company, the Selling
Stockholders 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 U.S. 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 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.
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, the Selling Stockholders and the Company in
accordance with its terms.
Very truly yours,
BRYLANE INC.
By: _________________________________
Name:
Title:
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: _________________________________
Name:
Title:
27
<PAGE>
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: _________________________________
Name:
Title:
FS EQUITY PARTNERS INTERNATIONAL,
L.P.
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings
Limited
Its: General Partner
By: _________________________________
Name:
Title:
M & P DISTRIBUTING CO.
By: _________________________________
Name:
Title:
_____________________________________
As attorney-in-fact on behalf of
Aramark,
William C. Johnson, Leeway & Co.,
NYNEX and TJX
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES
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.
28
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
U.S.
NAME OF UNDERWRITER SECURITIES
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
Lazard Freres & Co. LLC..........................................
NationsBanc Montgomery Securities, Inc...........................
J.P. Morgan Securities Inc.......................................
---------
Total ......................................................... 4,000,000
=========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
BRYLANE INC.
4,000,000 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 U.S. 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 U.S. Securities but not
payable on the U.S. Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
NUMBER OF
INITIAL NUMBER OF
U.S. U.S. OPTION
NAME OF SELLING STOCKHOLDER SECURITIES SECURITIES
--------------------------- ---------- -----------
<S> <C> <C>
FSEP II............................................... 1,059,441 158,916
FSEP III.............................................. 1,105,881 165,882
FSEP International.................................... 41,454 6,218
M & P Distributing Co................................. 1,293,994 194,099
William C. Johnson.................................... 7,764 1,165
Aramark............................................... 44,450 6,667
Leeway & Co........................................... 129,399 19,410
NYNEX................................................. 129,399 19,410
TJX................................................... 188,218 28,233
--------- -------
Total............................................... 4,000,000 600,000
========= =======
</TABLE>
Sch C-1
<PAGE>
SCHEDULE D
FSEP II
FSEP III
FSEP International
The Limited, Inc.
The TJX Companies, Inc.
Leeway & Co.
NYNEX
ARAMARK/Gall's Group, Inc.
Peter J. Canzone
Sheila R. Garelik
Robert A. Pulciani
Ronald P. Spogli
John M. Roth
Mark J. Doran
Samuel P. Fried
William K. Gerber
William C. Johnson
Peter M. Starrett
Daniel Carr
Dhananjaya Rao
Carol Meyrowitz
Sch D-1
<PAGE>
EXHIBIT A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has the been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company 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 International Purchase Agreement, the Repurchase Agreements and
the Amended Credit Facility.
(iii) To the best of such counsel's knowledge, the Company is duly qualified
as a foreign corporation 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.
(iv) As of the Closing Time, the issued and outstanding capital stock of the
Company as of August 2, 1997 is as set forth in the Prospectus in the column
entitled "As Adjusted" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses); the issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable and were not issued in violation of the
preemptive or other similar rights of any securityholder of the Company; and
no holder of the Securities is subject to personal liability exclusively by
reason of being such a holder.
(v) The sale 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.
(vi) Each subsidiary has been duly incorporated and is validly existing as a
corporation or a partnership, as the case maybe, in good standing under the
laws of the jurisdiction of its organization, has corporate power or
partnership power, as the case may be, and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and,
to the best of such counsel's knowledge, is duly qualified as a foreign
corporation or foreign partnership, as the case maybe, 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, all of the issued and outstanding
capital stock or partnership units, as the case may be, of each 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 or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock or partnership units, as the case may be, of any subsidiary was
issued in violation of the preemptive or similar rights of any securityholder
of such subsidiary.
(vii) Each of the Purchase Agreement and the International Purchase
Agreement has been duly and validly authorized, executed and delivered by the
Company; and each Repurchase Agreement, and the Amended Credit Facility have
been duly authorized, executed and delivered by the Company, and, to such
counsel's knowledge, the other parties thereto, and each Repurchase Agreement
and the Amended Credit Facility create a valid and binding obligation of the
Company and will be enforceable against the Company 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).
A-1
<PAGE>
(viii) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses 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.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses and each amendment or supplement to the
Registration Statement and Prospectuses 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.
(x) If Rule 434 has been relied upon, the Prospectuses were not "materially
different," as such term is used in Rule 434, from the prospectuses included
in the Registration Statement at the time it became effective.
(xi) 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.
(xii) 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 or any of its 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 International
Purchase Agreement, the Amended Credit Facility and the Repurchase Agreements
or the performance by the Company of its obligations thereunder.
(xiii) The information in the Prospectuses under "Description of Capital
Stock--Common Stock," "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.
(xiv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectuses that are not described
as required.
(xv) 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.
(xvi) 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 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 or under the laws and
regulations of jurisdictions outside the United States in which the
International Securities are offered, as to which we express no opinion) is
necessary or required in connection with the offering 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
International Purchase Agreement, the Amended Credit Facility or the
Repurchase Agreements.
A-2
<PAGE>
(xvii) The execution, delivery and performance of each of the Purchase
Agreement, the International Purchase Agreement, the Repurchase Agreements and
the Amended Credit Facility, and the consummation of the transactions
contemplated therein and in the Registration Statement (including, but not
limited to, the Common Stock Repurchase) and compliance by the Company with
its obligations under the Purchase Agreement, the International Purchase
Agreement, the Amended Credit Facility and the Repurchase 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 a Repayment Event
(as defined in Section 1(a)(xviii) of the Purchase Agreement and the
International Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its 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 or any of its
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 or any of its subsidiaries
is subject, and which have been identified to us on the Certificate (except
for such conflicts, breaches or defaults or Liens that are described in the
Prospectus or 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 or any of its 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 or any of its subsidiaries or any of their respective
properties, assets or operations.
(xviii) To the best of such counsel's knowledge, except as described in the
Prospectuses, 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.
(xix) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the 1940 Act.
(xx) Such counsel has participated in conferences with officers and other
representatives of the Company and its subsidiaries, counsel employed by the
Company and its subsidiaries, representatives of the independent public
accountants for the Company and its subsidiaries, representatives of the
Underwriters and counsel for the Underwriters, at which conferences the
contents of the Registration Statement and Prospectuses 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 Prospectuses, and
have not made any independent check or verification thereof, except as
specifically provided in such opinions, on the basis of the foregoing, and
relying as to materiality to an extent such counsel deems appropriate upon the
opinions of officers and other representatives of the Company, 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
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 Prospectuses (except for
financial statements and schedules and other financial data included therein,
as to which counsel need make no statement), as of its date (unless the term
"Prospectuses" 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 Prospectuses 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-3
<PAGE>
EXHIBIT B-1
FORM OF OPINION OF COUNSEL
FOR THE SELLING STOCKHOLDERS
TO BE DELIVERED PURSUANT TO
SECTIONS 5(c) AND (d)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign (other than the filing of the Registration
Statement, the issuance of the order of the Commission declaring the
Registration Statement effective, and such authorizations, approvals or
consents as may be necessary under state securities and "blue sky" laws, and
such as have been obtained or may be required under the laws and regulations
of jurisdictions outside the United States in which the International
Securities are offered, or by the bylaws and rules of the NASD in connection
with the purchase and distribution by the Underwriters of the Securities to be
sold by the Selling Stockholders, as to which we need express no opinion) is
necessary or required to be obtained by the Selling Stockholder for the
performance by the Selling Stockholder of its obligations under the Purchase
Agreement, the International Purchase Agreement, the applicable Repurchase
Agreement, or in connection with the offer, sale or delivery of the
Securities.
(ii) The execution, delivery and performance of the Purchase Agreement, the
International Purchase Agreement, the applicable Repurchase Agreement and the
sale and delivery of the Securities and the consummation of the transactions
contemplated in the Purchase Agreement, the International Purchase Agreement,
the Repurchase Agreements and in the Registration Statement and compliance by
the Selling Stockholder with its obligations under the Purchase Agreement, the
International Purchase Agreement and the Repurchase Agreement, have been duly
authorized by such Selling Stockholder, and to our knowledge, do not and will
not, whether with or without giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default under or result in the
creation or imposition of any tax, lien, charge or encumbrance upon the
Securities or any property or assets of the Selling Stockholder pursuant to,
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other instrument or agreement to which the Selling
Stockholder is a party or by which it may be bound, or to which any of the
property or assets of the Selling Stockholder may be subject, nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Stockholder, if applicable, or any law or administrative
regulation of any governmental agency or body or to our knowledge, any
judgment or order or any administrative or court decree having jurisdiction
over the Selling Stockholder or any of its properties.
(iii) The Repurchase Agreement has been duly authorized by the Selling
Stockholder and constitutes the legal, valid and binding agreements of the
Selling Stockholders and will be enforceable against the Selling Stockholders
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 principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(iv) Each of the Purchase Agreement and the International Purchase Agreement
has been duly authorized, executed and delivered by or on behalf of the
Selling Stockholders.
(v) To the best of our knowledge such parts of the Registration Statement
and the Prospectus comprising information under the caption "Principal and
Selling Stockholders" which specifically relate to the Selling Stockholders
are accurate in all material respects at the date the Registration Statement
became effective and at the date of the Prospectus.
B1-1
<PAGE>
EXHIBIT B-2
FORM OF OPINION OF COUNSEL
FOR THE SELLING STOCKHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(e)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign (other than the filing of the Registration
Statement, the issuance of the order of the Commission declaring the
Registration Statement effective, and such authorizations, approvals or
consents as may be necessary under state securities and "blue sky" laws, and
such as have been obtained or may be required under the laws and regulations
of jurisdictions outside the United States in which the International
Securities are offered, or by the bylaws and rules of the NASD in connection
with the purchase and distribution by the Underwriters of the Securities to be
sold by the Selling Stockholders, as to which we need express no opinion) is
necessary or required to be obtained by the Selling Stockholders for the
performance by the Selling Stockholders of their obligations under the
Purchase Agreement, the International Purchase Agreement or in the applicable
Power of Attorney and Custody Agreement, or in connection with the offer, sale
or delivery of the Securities.
(ii) The Power of Attorney and Custody Agreements have been duly authorized
by the Selling Stockholders and the Custodian appointed thereunder is
authorized to deliver the Securities on behalf of the Selling Stockholders in
accordance with the terms of the Purchase Agreement and the International
Purchase Agreement.
(iii) The execution, delivery and performance of the Purchase Agreement, the
International Purchase Agreement, the applicable Repurchase Agreement and the
sale and delivery of the Securities and the consummation of the transactions
contemplated in the Purchase Agreement, the International Purchase Agreement,
the Repurchase Agreements and in the Registration Statement and compliance by
the Selling Stockholders with their obligations under the Purchase Agreement,
the International Purchase Agreement and the Repurchase Agreement, have been
duly authorized by the Selling Stockholders, and to our knowledge, do not and
will not, whether with or without giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default under or result in the
creation or imposition of any tax, lien, charge or encumbrance upon the
Securities or any property or assets of the Selling Stockholders pursuant to,
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other instrument or agreement to which the Selling
Stockholders are a party or by which they may be bound, or to which any of the
property or assets of the Selling Stockholders may be subject, nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Stockholders, if applicable, or any law, administrative
regulation, or to our knowledge, any judgment or order of any governmental
agency or body or any administrative or court decree having jurisdiction over
the Selling Stockholders or any of their properties.
(iv) The Power of Attorney and Custody Agreements and the Repurchase
Agreements have been duly authorized by the Selling Stockholders and
constitutes the legal, valid and binding agreements of the Selling
Stockholders and will be enforceable against the Selling Stockholders 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 principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(v) Each of the Purchase Agreement and the International Purchase Agreement
has been duly authorized, executed and delivered by or on behalf of the
Selling Stockholders.
(vi) To the best of our knowledge such parts of the Registration Statement
and the Prospectus comprising information under the caption "Principal and
Selling Stockholders" which specifically relate to the Selling Stockholders
are accurate in all material respects at the date the Registration Statement
became effective and at the date of the Prospectus.
B2-1
<PAGE>
EXHIBIT B-3
FORM OF OPINIONS OF RICHARDS & O'NEIL, SPECIAL COUNSEL FOR THE SELLING
STOCKHOLDERS, AND DAVIS, POLK & WARDWELL, COUNSEL FOR
M & P DISTRIBUTING CO. TO BE DELIVERED PURSUANT TO SECTION 5(f)
(i) Upon physical delivery to Merrill Lynch, as Global Coordinator for the
several Underwriters (the "Buyer") in the State of New York of the securities
identified on Schedule 1 hereto (the "Securities") registered in the Buyer's
name, the Buyer will acquire the Securities free of any adverse claims (within
the meaning of Section 8-102(a)(1) of the Uniform Commercial Code as currently
in effect in the State of New York).
The opinion set forth in paragraph (i) is subject to the following
qualifications:
(a) We have assumed that neither the Buyer nor any other underwriter has
notice of any adverse claims with respect to the Securities.
(b) Our opinion is limited to the Uniform Commercial Code as currently in
effect in the State of New York, and such opinion does not address (i) laws
other than the Uniform Commercial Code as currently in effect in the State
of New York, (ii) collateral of a type not subject to the Uniform
Commercial Code as currently in effect in the State of New York, and
(iii) what law governs whether adverse claims can be asserted against the
Buyer.
B3-1
<PAGE>
SCHEDULE 1 TO EXHIBIT B-3
<TABLE>
<CAPTION>
REGISTERED OWNER
NAME OF ISSUER CERTIFICATE NUMBER OF CERTIFICATE
- -------------- ------------------ ----------------
<S> <C> <C>
</TABLE>
B4-1
<PAGE>
EXHIBIT C
[FORM OF LOCK-UP FROM DIRECTORS AND OTHER STOCKHOLDERS PURSUANT TO SECTION
5(I)]
October 14, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
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 [parent of a stockholder of/a director of/stockholder 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, Montgomery Securities 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 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 90 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 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:
___________________________
C-1
<PAGE>
[FORM OF LOCK-UP FROM OFFICERS PURSUANT TO SECTION 5(I)]
October 14, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
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, an executive officer 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, Montgomery Securities 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 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, from the date of the
Purchase Agreement until December 15, 1997, 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
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:
_________________________
C-2
<PAGE>
EXHIBIT 1.2
BRYLANE INC.
(A DELAWARE CORPORATION)
1,000,000 SHARES OF COMMON STOCK
INTERNATIONAL PURCHASE AGREEMENT
DATED: OCTOBER 14, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
INTERNATIONAL PURCHASE AGREEMENT......................................... 1
SECTION 1. Representations and Warranties............................... 3
(a) Representations and Warranties by the Company................ 3
(i) Compliance with Registration Requirements.............. 3
(ii) Independent Accountants................................ 3
(iii) Financial Statements................................... 3
(iv) No Material Adverse Change in Business................. 4
(v) Good Standing of the Company........................... 4
(vi) Good Standing of Subsidiaries.......................... 4
(vii) Capitalization......................................... 5
(viii) Authorization of Amended Credit Facility.............. 5
(ix) Authorization of Repurchase Agreements................. 5
(x) Authorization of Agreement............................. 5
(xi) Description of Securities.............................. 5
(xii) Absence of Defaults and Conflicts...................... 5
(xiii) Absence of Labor Dispute.............................. 6
(xiv) Absence of Proceedings................................. 6
(xv) Accuracy of Exhibits................................... 6
(xvi) Possession of Intellectual Property.................... 6
(xvii) Absence of Further Requirements....................... 7
(xviii) Possession of Licenses and Permits................... 7
(xix) Title to Property...................................... 8
(xx) Investment Company Act................................. 8
(xxi) Environmental Laws..................................... 8
(xxii) Registration Rights................................... 8
(xxiii) Filings of Tax Returns............................... 8
(xxiv) Maintenance of Internal Controls...................... 9
(xxv) Maintenance of Insurance............................... 9
(xxvi) No Violations of Regulations G, T, U or X............. 9
(xxvii) No Violation......................................... 9
(xxviii) No Regulation M Violation........................... 9
(xxix) Listing............................................... 9
Representations and Warranties by the Major Selling
(b) Stockholders................................................. 9
(i) Good and Marketable Title.............................. 9
(ii) Authorization of Agreements............................ 9
(iii) Accurate Disclosure.................................... 10
(iv) Absence of Further Requirements........................ 10
(v) Absence of Manipulation................................ 11
(vi) No Violation........................................... 11
(vii) Certificates Suitable for Transfer..................... 11
(viii) Form W-9.............................................. 11
Representations and Warranties by the Non-Major Selling
(c) Stockholders................................................. 11
(i) Good and Marketable Title.............................. 11
(ii) Authorization of Agreements............................ 11
(iii) Accurate Disclosure.................................... 12
(iv) Absence of Further Requirements........................ 12
(v) Absence of Manipulation................................ 12
(vi) No Violation........................................... 12
(vii) Due Execution of Power of Attorney and Custody
Agreement.............................................. 13
</TABLE>
i
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<TABLE>
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<S> <C> <C>
(viii) Certificates Suitable for Transfer...................... 13
(ix) Form W-9................................................. 13
(d) Officer's Certificates......................................... 13
SECTION 2. Sale and Delivery to Underwriters; Closing..................... 13
(a) Initial International Securities............................... 13
(b) International Option Securities................................ 14
(c) Payment........................................................ 14
(d) Denominations; Registration.................................... 15
SECTION 3. Covenants of the Company....................................... 15
(a) Compliance with Securities Regulations and Commission Requests. 15
(b) Filing of Amendments........................................... 15
(c) Delivery of Registration Statements............................ 15
(d) Delivery of Prospectuses....................................... 15
(e) Continued Compliance with Securities Laws...................... 16
(f) Blue Sky Qualifications........................................ 16
(g) Rule 158....................................................... 16
(h) Restriction on Sale of Securities.............................. 16
(i) Reporting Requirements......................................... 17
SECTION 4. Payment of Expenses............................................ 17
(a) Expenses....................................................... 17
(b) Expenses of the Selling Stockholders........................... 17
(c) Termination of Agreement....................................... 17
SECTION 5. Conditions of International Managers' Obligations.............. 17
(a) Effectiveness of Registration Statement........................ 17
(b) Opinion of Counsel for Company................................. 18
(c) Opinions of Counsel for the FS Stockholders.................... 18
(d) Opinions of Counsel for M & P Distributing Co. ................ 18
(e) Opinions of Counsel for certain Selling Stockholders........... 18
(f) Opinions of Counsel for the Selling Stockholders............... 18
(g) Opinion of Counsel for International Managers ................. 19
(h) Officers' Certificate.......................................... 19
(i) Certificate of Selling Stockholders............................ 19
(j) Accountant's Comfort Letter.................................... 19
(k) Bring-down Comfort Letter...................................... 19
(l) Listing........................................................ 20
(m) No Objection................................................... 20
(n) Lock-up Agreements............................................. 20
(o) Purchase of Initial International Securities................... 20
(p) Common Stock Repurchase........................................ 20
(q) Execution of Amended Credit Facility........................... 20
(r) Execution of Repurchase Agreements............................. 20
(s) Conditions to Purchase of International Option Securities...... 20
(t) Additional Documents........................................... 21
(u) Termination of Agreement....................................... 21
SECTION 6. Indemnification................................................ 21
(a) Indemnification by the Company................................. 21
(b) Indemnification by the Selling Stockholders.................... 22
(c) Indemnification by the International Managers.................. 23
(d) Actions against Parties; Notification.......................... 23
(e) Settlement without Consent if Failure to Reimburse............. 24
SECTION 7. Contribution................................................... 24
</TABLE>
ii
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<TABLE>
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<C> <S> <C>
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery................................................. 25
SECTION 9. Termination of Agreement................................. 25
(a) Termination; General..................................... 25
(b) Liabilities.............................................. 26
SECTION 10. Default by One or More of the International Managers..... 26
SECTION 11. Notices.................................................. 26
SECTION 12. Parties.................................................. 27
SECTION 13. Governing Law and Time................................... 27
SECTION 14. Effect of Headings....................................... 27
SCHEDULE A............................................................ Sch A-1
SCHEDULE B............................................................ Sch B-1
SCHEDULE C............................................................ Sch C-1
SCHEDULE D............................................................ Sch D-1
Exhibit A............................................................. A-1
Exhibit B-1........................................................... B1-1
Exhibit B-2........................................................... B2-1
Exhibit B-3........................................................... B3-1
Exhibit C............................................................. C-1
</TABLE>
iii
<PAGE>
BRYLANE INC.
(A DELAWARE CORPORATION)
1,000,000 SHARES OF COMMON STOCK
(PAR VALUE $.01 PER SHARE)
INTERNATIONAL PURCHASE AGREEMENT
OCTOBER 14, 1997
MERRILL LYNCH INTERNATIONAL
LAZARD CAPITAL MARKETS
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN SECURITIES LTD.
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
Brylane Inc., a Delaware corporation (the "Company"), and the persons listed
in Schedule C hereto (each a "Selling Stockholder" and collectively, the
"Selling Stockholders") confirm their agreement with Merrill Lynch
International ("Merrill Lynch") and each of the other International Managers
named in Schedule A hereto (collectively, the "International Managers," which
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch, Lazard Capital Markets,
NationsBanc Montgomery Securities, Inc. and J.P. Morgan Securities Ltd. are
acting as representatives (in such capacity, the "Lead Managers"), with
respect to the sale by the Selling Stockholders, acting severally and not
jointly, and the purchase by the International Managers, acting severally and
not jointly, of the respective numbers of shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock"), set forth in said
Schedule A, and with respect to the grant by the Selling Stockholders to the
International Managers, acting severally and not jointly, of the option
described in Section 2(b) hereof to purchase all or any part of 150,000
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 1,000,000 shares of Common Stock (the "Initial International
Securities") to be purchased by the International Managers and all or any part
of the 150,000 shares of Common Stock subject to the option described in
Section 2(b) hereof (the "International Option Securities") are hereinafter
called, collectively, the "International Securities".
It is understood that the Company and the Selling Stockholders are
concurrently entering into an agreement dated the date hereof (the "U.S.
Purchase Agreement") providing for the offering by the Selling Stockholders of
an aggregate of 4,000,000 shares of Common Stock (the "U.S. Securities")
through arrangements with certain underwriters in the United States and Canada
(the "U.S. Underwriters"), for which Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Lazard Freres & Co. LLC, NationsBanc
Montgomery Securities, Inc. and J.P. Morgan Securities Inc. are acting as
representatives (the "U.S. Representatives"). It is understood that the
Selling Stockholders are not obligated to sell, and the International Managers
are not obligated to purchase, any International Securities unless all of the
U.S. Securities are contemporaneously purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters," and the International Securities and
the U.S. Securities are hereinafter collectively called the "Securities."
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<PAGE>
The Underwriters will concurrently enter into an Intersyndicate Agreement of
even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company and the Selling Stockholders understand that the International
Managers propose to make a public offering of the International Securities as
soon as the Lead Managers deem advisable after this Agreement has been
executed and delivered.
It is understood that concurrently with the offering by the Selling
Stockholders of the Securities, the Company will repurchase from the Selling
Stockholders pursuant to Repurchase Agreements between each of the Selling
Stockholders and the Company (the "Repurchase Agreements") an aggregate of
2,500,000 shares of Common Stock (the "Common Stock Repurchase"). The Company
will finance the Common Stock Repurchase with the proceeds received from its
Amended Credit Facility with Morgan Guaranty Trust Company of New York, as
administrative agent and Merrill Lynch Capital Corporation, as documentation
agent, and certain lenders named therein which consists of (i) a $175 million
five-year amortizing term loan, and (ii) a $200 million five-year revolving
credit facility with a $75 million sublimit for letters of credit. It is
understood that the Selling Stockholders are not obligated to sell, and the
Company is not obligated to purchase, any of the 2,500,000 shares of Common
Stock unless all of the Securities are contemporaneously purchased by the
Underwriters.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-35715) 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). Two forms of prospectus are to be used
in connection with the offering and sale of the Securities: one relating to
the International Securities (the "Form of International Prospectus") and one
relating to the U.S. Securities (the "Form of U.S. Prospectus"). The Form of
International Prospectus is identical to the Form of U.S. Prospectus, except
for the front cover and back cover page and the information under the caption
"Underwriting." The information included in any such prospectus or in any 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 Form of International Prospectus and Form of U.S.
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
Form of International Prospectus and final Form of U.S. Prospectus in the
forms first furnished to the Underwriters for use in connection with the
offering of the Securities are herein called the "International Prospectus"
and the "U.S. Prospectus," respectively, and collectively, the "Prospectuses."
If Rule 434 is relied on, the term "International Prospectus" and "U.S.
Prospectus" shall refer to the preliminary International Prospectus dated
September 30, 1997 and preliminary U.S. Prospectus dated September 30, 1997,
each together with the applicable Term Sheet and all references in this
Agreement to the date of such Prospectuses shall mean the date of the
applicable Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the International
Prospectus, the U.S. Prospectus or any Term Sheet or
2
<PAGE>
any amendment or 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").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each International Manager and Selling Stockholder 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 International Manager, 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 International 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 of the Prospectuses nor any
amendments or supplements thereto (including any prospectus wrapper), at
the time any such Prospectus or any such amendment or supplement was issued
and at the Closing Time (and, if any International 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
Prospectuses shall not be "materially different," as such term is used in
Rule 434, from the prospectuses 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, any post-effective amendment to the Registration
Statement or the International Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
International Manager through the Lead Managers or by any Selling
Stockholder expressly for use in the Registration Statement or the
International Prospectus.
Each preliminary prospectus and the Prospectuses 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 Prospectuses 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 included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the consolidated financial
position of the Company and its subsidiaries and Brylane, L.P., a Delaware
limited partnership (the "Partnership") at the dates indicated and the
results of their operations, stockholders' equity and cash flow for the
periods specified, except as otherwise stated in the Registration
Statement; the historical financial statements with respect to Chadwick's,
Inc. ("Chadwick's") included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the financial position of
3
<PAGE>
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 the KingSize division of
WearGuard ("KingSize") included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the financial position of KingSize at the dates indicated and the
statements of revenues, expenses and net assets and cash flows of KingSize
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 Prospectuses 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 Prospectuses 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
the Company, 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, except as otherwise
stated in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the date of the
Prospectuses, 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 and its
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 or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company 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 its properties and to conduct its business and to enter into and
perform its obligations under this Agreement and the U.S. Purchase
Agreement; and the Company 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.
(vi) Good Standing of Subsidiaries. Each subsidiary of the Company 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 to conduct its
business as described in the Prospectuses 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 the Company that
is a corporation 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, the charter, by-law or other organizational
document of each such subsidiary or under any agreement to which the
Company or any such subsidiary is a party, (y) all of the issued and
outstanding partnership interests in each such subsidiary of the Company
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
4
<PAGE>
(including, without limitation, the Partnership) has been and is currently
classified as a partnership, and not as an association taxable as a
corporation, and (z) all the capital stock and partnership interests of
each subsidiary of the Company is 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 Prospectuses 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. The Company had, at the date indicated in the
Prospectus, a capitalization as set forth in the Prospectus in the column
entitled "Historical" under the caption "Capitalization;" at the Closing
Time, the issued and outstanding capital stock of the Company will be as
described in the Prospectus in the column entitled "As Adjusted" under the
caption "Capitalization" (except for issuances after August 2, 1997, if
any, pursuant to reservations, agreements or employee benefit plans
referred to in the Prospectuses). All of the issued and outstanding capital
stock of the Company 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, by-laws or
other organizational document or any document or under any agreement to
which the Company or any of its subsidiaries is a party.
(viii) Authorization of Amended Credit Facility. The Company has the
requisite corporate power and authority to execute, deliver and perform its
obligations under the Amended Credit Facility; the Amended Credit Facility
(A) will be substantially in the form heretofore delivered to the Lead
Managers, (B) creates valid and binding obligations of the Company and (C)
is enforceable against the Company in accordance with its terms, except as
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 such enforcement
is considered in a proceeding in equity or at law). The terms of the
Amended Credit Facility conform in all material respects to the description
thereof contained in the Prospectuses.
(ix) Authorization of Repurchase Agreements. The Company has the
requisite corporate power and authority to execute, deliver and perform its
obligations under each of the Repurchase Agreements; each of the Repurchase
Agreements (A) will be substantially in the form heretofore delivered to
the Lead Managers, (B) creates valid and binding obligations of the Company
and (C) is enforceable against the Company in accordance with its terms,
except as 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 such enforcement
is considered in a proceeding in equity or at law).
(x) Authorization of Agreement. This Agreement and the U.S. Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(xi) Description of Securities. The Common Stock conforms to the
description thereof under the heading "Description of Capital Stock"
contained in the Prospectuses and such description, insofar as it purports
to be a summary of the instruments defining the rights of holders of the
Common Stock, is accurate and complete; no holder of the Securities is
subject to personal liability exclusively 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.
(xii) Absence of Defaults and Conflicts. Neither the Company nor any of
its 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 Credit
Agreement, dated as of April 30, 1997 (the "1997 Bank Credit Facility") or,
at the Closing Time, the Amended Credit Facility or in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease
or other agreement or instrument to which the Company or any of its
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 or any of its
subsidiaries is subject
5
<PAGE>
(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 U.S. Purchase
Agreement, the Repurchase Agreements, the Amended Credit Facility and the
consummation of the transactions contemplated herein and therein and in the
Registration Statement (including, but not limited to, the Common Stock
Repurchase) and compliance by the Company and its subsidiaries with their
respective obligations hereunder and thereunder 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, 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 or any of its subsidiaries pursuant to
the Agreements and Instruments (except for such conflicts, breaches or
defaults or Liens 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 or any of its
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 or any of
its 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 or any of its subsidiaries.
(xiii) Absence of Labor Dispute. No labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the knowledge of the
Company, 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
(xiii), may reasonably be expected to result in a Material Adverse Effect.
(xiv) 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, threatened, against or affecting the Company or any of its
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 Common Stock Repurchase and the
transactions contemplated in this Agreement, the U.S. Purchase Agreement,
the Repurchase Agreements and the Amended Credit Facility or the
performance by the Company of its obligations hereunder or thereunder; the
aggregate of all pending legal or governmental proceedings to which the
Company or any of its 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.
(xv) Accuracy of Exhibits. There are no contracts or documents of the
Company or any of its subsidiaries which are required to be described in
the Registration Statement or the Prospectuses or to be filed as exhibits
to the Registration Statement by the 1933 Act or by the 1933 Act
Regulations which have not been so described and filed as required.
(xvi) Possession of Intellectual Property. The Company and its
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 nor any of its
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
6
<PAGE>
to protect the interest of the Company or any of its 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. To the best knowledge
of the Company, the continued use of the trademarks (the "Trademarks")
transferred or licensed to the Company or its subsidiaries pursuant to a
Trademark License Agreement with Lanco, Inc., Lernco, Inc., Limited Stores,
Inc. Lane Bryant, Inc., Lane Bryant Direct Holding, Inc. and the
Partnership (the "Trademark Agreement"), an asset purchase agreement with
CDM Corp. (the "CDM Agreement"), an agreement and license of trademarks
agreement with The TJX Companies, Inc. ("TJX"), Chadwick's and CDM Corp.
(the "CDM Trademark Agreement"), a Trademark License Agreement with TJX
(the "TJX Trademark Agreement"), and the License Agreement with Sears Shop
at Home Services, Inc. which enables the Company or its subsidiaries 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) will not result in
any infringement of the rights of others in the United States, and the
Company has no knowledge of any such claim as to the Trademarks transferred
or licensed to the Company 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, (x) affiliates of The Limited,
Inc. are the owners of such Trademarks transferred or licensed to the
Company pursuant to the Trademark Agreement in the United States,
(y) affiliates of Sears are the owners of such Trademarks licensed to the
Company pursuant to the Sears Agreement in the United States, and (z)
affiliates of TJX are the owners of such Trademarks transferred or licensed
to the Company pursuant to the CDM Agreement, the CDM Trademark Agreement
and the TJX Trademark Agreement, and, as of the date hereof, the Company
has 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,
affiliates of The Limited, Inc., 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.
(xvii) 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 sale of the Securities under this Agreement, the
U.S. Purchase Agreement and the Repurchase Agreements or the consummation
of the transactions contemplated by this Agreement, the U.S. Purchase
Agreement, the Repurchase Agreements and the Amended Credit Facility,
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 International
Securities are offered or (z) those that if not obtained would not
reasonably be expected to result in a Material Adverse Effect.
(xviii) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents,
certificates and other authorizations (collectively, "Governmental
Licenses") issued by 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 permits,
licenses, approvals, consents, certificates, or other authorizations would
not have a Material Adverse Effect; the Company and its 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 neither
the Company nor any of its 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.
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(xix) Title to Property. The Company and its subsidiaries have good and
marketable title to all real property owned by the Company and its
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 Prospectuses 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 or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and any of its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, 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 nor any of its
subsidiaries has any notice of any claim of any sort that has been asserted
by anyone adverse to the rights of the Company or any of its subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or any of its subsidiaries to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xx) Investment Company Act. The Company is not, and upon the sale of the
Securities and the Common Stock Repurchase as herein contemplated will not
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").
(xxi) 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) neither the Company nor any of its
subsidiaries are in violation 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 and its 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, 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 or any of its 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 or any of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xxii) 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.
(xxiii) Filings of Tax Returns. The Company and its 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.
To the best knowledge of the Company, after due inquiry, all such tax
returns and amendments thereto are (or will be) true, correct and complete
in all material respects when filed. All material 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. The Company is not 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
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aggregate, result in a Material Adverse Effect. No material deficiency or
adjustment for any taxes has been proposed, asserted, assessed or, to the
knowledge of the Company, threatened against the Company or its
subsidiaries. There are no tax liens upon any of the properties or assets,
real or personal, tangible or intangible, of the Company or any of its
subsidiaries, except for statutory liens for taxes not yet due or
delinquent.
(xxiv) 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 general 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.
(xxv) 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.
(xxvi) No Violations of Regulations G, T, U or X. Neither the sale or
delivery of the Securities nor the Common Stock Repurchase will violate
Regulations G, T, U, or X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board of Governors.
(xxvii) No Violation. The consummation by the Company and the Selling
Stockholders of the Common Stock Repurchase will not result in any
violation of the General Corporation Law of the State of Delaware.
(xxviii) No Violation of Regulation M. The Company has not taken any
action that would violate Rule 102 of Regulation M of the 1934 Act.
(xxix) Listing. The Common Stock is listed on the New York Stock Exchange
and has been registered under Section 12(b) of the Securities Exchange Act
of 1934, as amended.
(b) Representations and Warranties by the Major Selling Stockholders. Each
of FS Equity Partners II, L.P., a California limited partnership ("FSEP II"),
FS Equity Partners III, L.P., a Delaware limited partnership ("FSEP III"), FS
Equity Partners International, L.P., a Delaware limited partnership ("FSEP
International"), M&P Distributing Co., a Nevada corporation ("M&P Distributing
Co."), and William C. Johnson (collectively referred to herein as the "Major
Selling Stockholders"), solely in such Major Selling Stockholder's capacity as
a Major Selling Stockholder, severally and not jointly, represents and
warrants to each International Manager and the Company 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
International Manager, as to itself as follows:
(i) Good and Marketable Title. Such Major Selling Stockholder has good
and valid title to the Securities being sold by it pursuant to this
Agreement and the U.S. Purchase Agreement, free and clear of all liens,
encumbrances, security interests and claims whatsoever; and upon sale and
delivery of, and payment for, such Securities, as provided herein and the
U.S. Purchase Agreement, at the Closing Time, such Major Selling
Stockholder will convey to the Underwriters good and valid title to such
Securities, free and clear of all liens, encumbrances, security interests
and claims whatsoever. Upon sale and delivery of, and payment for, such
Securities, as provided herein and in the U.S. Purchase Agreement, and
provided that the Global Coordinator does not have notice of any "adverse
claim" (within the meaning of Article 8 of the Uniform Commercial Code of
the State of New York), the Global Coordinator will be a "protected
purchaser" (within the meaning of Article 8 of the Uniform Commercial Code
of the State of New York) with respect to the Securities and will acquire
the Securities free of any "adverse claim" (within the meaning of Article 8
of the Uniform Commercial Code of the State of New York).
(ii) Authorization of Agreements. Such Major Selling Stockholder has the
full right, power and authority to enter into this Agreement, the U.S.
Purchase Agreement and the applicable Repurchase Agreement (and in the case
of William C. Johnson, the Power of Attorney and Custody Agreement with
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<PAGE>
Lowenstein, Sandler, Kohl, Fisher & Boylan ("Lowenstein") (the "Johnson
Power of Attorney and Custody Agreement")) and to sell, transfer and
deliver the Securities to be sold by such Major Selling Stockholder
hereunder and thereunder. The execution and delivery of this Agreement, the
U.S. Purchase Agreement and the applicable Repurchase Agreement (and in the
case of William C. Johnson, the Johnson Power of Attorney and Custody
Agreement) and the sale and delivery of the Securities to be sold by such
Major Selling Stockholder and the consummation of the transactions
contemplated herein and therein and compliance by such Major Selling
Stockholder with its obligations hereunder and thereunder have been duly
authorized by such Major Selling Stockholder 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 under, or result in the
creation or imposition of any tax, lien, charge or encumbrance upon the
Securities to be sold by such Major Selling Stockholder pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other agreement or instrument to which such Major
Selling Stockholder is a party or by which such Major Selling Stockholder
may be bound, or to which any of the property or assets of such Major
Selling Stockholder is subject, nor will such action result in any
violation of the provisions of the charter or by-laws or other
organizational instrument of such Major Selling Stockholder, if applicable,
or any applicable treaty, law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over such Major Selling
Stockholder or any of its properties, except for such breaches, defaults,
taxes, liens, charges, encumbrances or violations that would not have a
material adverse effect on the ability of such Major Selling Stockholder to
consummate the transactions contemplated by this Agreement, the U.S.
Purchase Agreement or the applicable Repurchase Agreement, or its ability
to sell, transfer and deliver the Securities to be sold by such Major
Selling Stockholder hereunder and thereunder.
(iii) Accurate Disclosure.
(A) To the actual knowledge of FSEP II, FSEP III, FSEP International
and William C. Johnson, without independent investigation, the
representations and warranties of the Company contained in Section 1(a)
hereof are true and correct; with respect solely to FSEP II, FSEP III,
FSEP International and William C. Johnson, such Major Selling
Stockholder has reviewed the Registration Statement and the
Prospectuses, and such part of the Registration Statement and the
Prospectuses comprising information under the caption "Principal and
Selling Stockholders" which specifically relates to such Major Selling
Stockholder will not, at the date the Registration Statement becomes
effective, contain any 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 and, at the date of the
Prospectuses, at the Closing Time and at each Date of Delivery (if
any), will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they are made, not misleading.
(B) With respect solely to M&P Distributing Co., such parts of the
Registration Statement and the Prospectuses comprising information
under the caption "Principal and Selling Stockholders" which
specifically relates to such Selling Stockholder, will not, at the date
the Registration Statement becomes effective, contain any 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, and, at the date of the Prospectuses, at the Closing Time
and at each Date of Delivery (if any), will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(iv) 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 sale of the Securities by such Major Selling
Stockholder under this Agreement, the U.S. Purchase Agreement and the
applicable Repurchase Agreement or the consummation of the transactions
contemplated by this Agreement, the U.S. Purchase Agreement and the
applicable Repurchase Agreement by such Major Selling Stockholder, except
(x) such as have been already obtained
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<PAGE>
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 International Securities are offered or (z) those that if not
obtained would not reasonably be expected to have a material adverse effect
on the ability of such Major Selling Stockholder to consummate the
transactions contemplated by this Agreement, the U.S. Purchase Agreement or
the applicable Repurchase Agreement, or its ability to sell, transfer or
deliver the Securities to be sold by such Major Selling Stockholder
hereunder and thereunder.
(v) Absence of Manipulation. Such Major Selling Stockholder has not taken
and will not take, directly or indirectly, any action designed to or which
has constituted or which might reasonably be expected to cause or result
under the 1934 Act or otherwise, in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities.
(vi) No Violation of Regulation M. Such Major Selling Stockholder has not
taken any action that would violate Rule 102 of Regulation M of the 1934
Act.
(vii) Certificates Suitable for Transfer. Solely as to William C.
Johnson, certificates for all of the Securities to be sold by such Major
Selling Stockholder pursuant to this Agreement, in suitable form for
transfer by delivery or accompanied by duly executed instruments of
transfer or assignment in blank with signatures guaranteed, have been
placed in custody with the Custodian with irrevocable conditional
instructions to deliver such Securities to the Underwriters pursuant to
this Agreement.
(viii) Form W-9. In order to document the Underwriters' compliance with
the reporting and withholdings provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Major Selling Stockholder will deliver to the U.S.
Representatives prior to or at the Closing Time a properly completed and
executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu
thereof).
(c) Representations and Warranties by the Non-Major Selling
Stockholders. Each of NYNEX Master Trust, a trust governed by the laws of the
State of New York ("NYNEX"), 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."), ARAMARK/Gall's Group, Inc.
("Aramark"), and TJX (collectively referred to herein as the "Non-Major
Selling Stockholders"), solely in such Non-Major Selling Stockholder's
capacity as a Non-Major Selling Stockholder, severally and not jointly,
represents and warrants to each International Manager and the Company 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 International Manager, as to itself as follows:
(i) Good and Marketable Title. Such Non-Major Selling Stockholder has
(and in the case of TJX, upon conversion of the $20 million principal
amount Convertible Subordinated Note payable by the Company to TJX (the
"Note") in accordance with the Power of Attorney and Custody Agreement
between TJX and Lowenstein (the "TJX Power of Attorney and Custody
Agreement") will have) good and valid title to the Securities being sold by
it pursuant to this Agreement and the U.S. Purchase Agreement, free and
clear of all liens, encumbrances, security interests and claims whatsoever;
and upon sale and delivery of, and payment for, such Securities, as
provided herein and the U.S. Purchase Agreement, at the Closing Time, such
Non-Major Selling Stockholder will convey to the Underwriters good and
valid title to such Securities, free and clear of all liens, encumbrances,
security interests and claims whatsoever. Upon sale and delivery of, and
payment for, such Securities, as provided herein and in the U.S. Purchase
Agreement, and provided that the Global Coordinator does not have notice of
any "adverse claim" (within the meaning of Article 8 of the Uniform
Commercial Code of the State of New York), the Global Coordinator will be a
"protected purchaser" (within the meaning of Article 8 of the Uniform
Commercial Code of the State of New York) with respect to the Securities
and will acquire the Securities free of any "adverse claim" (within the
meaning of Article 8 of the Uniform Commercial Code of the State of New
York).
(ii) Authorization of Agreements. Such Non-Major Selling Stockholder has
the full right, power and authority to enter into this Agreement, the U.S.
Purchase Agreement, the applicable Repurchase Agreement
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and the applicable Power of Attorney and Custody Agreement with Lowenstein
(the "Power of Attorney and Custody Agreement") and to sell, transfer and
deliver the Securities to be sold by such Non-Major Selling Stockholder
hereunder and thereunder. The execution and delivery of this Agreement, the
U.S. Purchase Agreement, the applicable Repurchase Agreement and the
applicable Power of Attorney and Custody Agreement and the sale and
delivery of the Securities to be sold by such Non-Major Selling Stockholder
and the consummation of the transactions contemplated herein and therein
and compliance by such Non-Major Selling Stockholder with its obligations
hereunder and thereunder have been duly authorized by such Non-Major
Selling Stockholder 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 under, or result in the creation or imposition of any
tax, lien, charge or encumbrance upon the Securities to be sold by such
Non-Major Selling Stockholder pursuant to any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license, lease or
other agreement or instrument to which such Non-Major Selling Stockholder
is a party or by which such Non-Major Selling Stockholder may be bound, or
to which any of the property or assets of such Non-Major Selling
Stockholder is subject, nor will such action result in any violation of the
provisions of the charter or by-laws or other organizational instrument of
such Non-Major Selling Stockholder, if applicable, or any applicable
treaty, law, statute, rule, regulation, judgment, order, writ, or decree of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over such Non-Major Selling Stockholder or any of its
properties, except for such breaches, defaults, taxes, liens, charges,
encumbrances or violations that would not have a material adverse effect on
the ability of such Non-Major Selling Stockholder to consummate the
transactions contemplated by this Agreement, the U.S. Purchase Agreement,
the applicable Repurchase Agreement, or the applicable Power of Attorney
and Custody Agreement, or its ability to sell, transfer and deliver the
Securities to be sold by such Non-Major Selling Stockholder hereunder and
thereunder.
(iii) Accurate Disclosure. Such parts of the Registration Statement and
the Prospectuses comprising information under the caption "Principal and
Selling Stockholders" which specifically relates to such Non-Major Selling
Stockholder, will not, at the date the Registration Statement becomes
effective, contain any 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, and, at the date of the Prospectuses, at
the Closing Time and at each Date of Delivery (if any), will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading.
(iv) 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 sale of the Securities by such Non-Major Selling
Stockholder under this Agreement, the U.S. Purchase Agreement and the
applicable Repurchase Agreement or the consummation of the transactions
contemplated by this Agreement, the U.S. Purchase Agreement, the applicable
Repurchase Agreement and the applicable Power of Attorney and Custody
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
International Securities are offered or (z) those that if not obtained
would not reasonably be expected to have a material adverse effect on the
ability of such Non-Major Selling Stockholder to consummate the
transactions contemplated by this Agreement, the U.S. Purchase Agreement,
the applicable Repurchase Agreement or the applicable Power of Attorney and
Custody Agreement, or its ability to sell, transfer or deliver the
Securities to be sold by such Non-Major Selling Stockholder hereunder and
thereunder.
(v) Absence of Manipulation. Such Non-Major Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to cause or
result under the 1934 Act or otherwise, in stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of the Securities.
(vi) No Violation of Regulation M. Such Non-Major Selling Stockholder has
not taken any action that would violate Rule 102 of Regulation M of the
1934 Act.
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(vii) Due Execution of Power of Attorney and Custody Agreement. Such Non-
Major Selling Stockholder has duly executed and delivered, in the form
heretofore furnished to the Lead Managers, the Power of Attorney and
Custody Agreement with Lowenstein as attorney-in-fact (the "Attorney-in-
Fact"); the Attorney-in-Fact is authorized to deliver or cause to be
delivered the Securities to be sold by such Non-Major Selling Stockholder
hereunder, the U.S. Purchase Agreement and the applicable Repurchase
Agreement and to accept or direct payment therefor, to execute and deliver
this Agreement, the U.S. Purchase Agreement and the applicable Repurchase
Agreement and the certificate referred to in Section 5(i) on behalf of such
Non-Major Selling Stockholder), to sell, assign and transfer to the
International Managers the International Securities to be sold by such Non-
Major Selling Stockholder hereunder, to determine the purchase price to be
paid by the International Managers to such Non-Major Selling Stockholder as
provided in Section 2(a) hereof, and otherwise to act on behalf of such
Non-Major Selling Stockholder in connection with this Agreement, the U.S.
Purchase Agreement and the applicable Repurchase Agreement. The
representations and warranties of such Non-Major Selling Stockholder in the
applicable Power of Attorney and Custody Agreement are, and at the Closing
Time and as of each Date of Delivery (if any) will be, true and correct.
The parties hereto agree that the Attorney-in-Fact shall have no liability
as a result of any inaccuracy or breach of a representation or warranty by
any Non-Major Selling Stockholder.
(viii) Certificates Suitable for Transfer. Certificates for all of the
Securities to be sold by such Non-Major Selling Stockholder pursuant to
this Agreement, in suitable form for transfer by delivery or accompanied by
duly executed instruments of transfer or assignment in blank with
signatures guaranteed, have been placed in custody with the Custodian with
irrevocable conditional instructions to deliver such Securities to the
Underwriters pursuant to this Agreement (in the case of TJX, the Note has
been placed in such custody with appropriate conversion power pursuant to
the TJX Power of Attorney and Custody Agreement).
(ix) Form W-9. In order to document the Underwriters' compliance with the
reporting and withholdings provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Non-Major Selling Stockholder will deliver to the Lead
Managers prior to or at the Closing Time a properly completed and executed
United States Treasury Department Form W-9 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
(d) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the
Lead Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager and
to each Selling Stockholder as to the matters covered thereby, without
personal liability for the officer signing such certificate; and any
certificate signed by or on behalf of any Selling Stockholder as such and
delivered to the Global Coordinator, the Lead Managers or to counsel for the
International Managers pursuant to the terms of this Agreement shall be deemed
a representation and warranty by such Selling Stockholder to the Company and
to the International Managers as to the matters covered thereby without
personal liability therefor except where such certificate is executed by or on
behalf of such Selling Stockholder in such Selling Stockholder's individual
capacity, provided, however, that the Attorney-in-Fact shall have no liability
as to the matters covered by any such certificate.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial International Securities. On the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, each Selling Stockholder, severally and not jointly, agrees to
sell, at the price per share set forth in Schedule B, to each International
Manager, the number of Initial International Securities set forth in Schedule
C opposite the name of such Selling Stockholder, and each International
Manager, severally and not jointly, agrees to purchase, at the price per share
set forth in Schedule B, from each Selling Stockholder the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Manager, plus any additional number of Initial International
Securities which such International Manager may become obligated to purchase
pursuant to the provisions of Section 10 hereof subject, in each case, to such
adjustments among the International Managers as the Lead Managers in their
sole discretion shall make to eliminate any sales or purchases of fractional
securities.
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(b) International 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 Selling Stockholders, severally and not
jointly, grant an option to each International Manager, severally and not
jointly, to purchase up to the additional number of shares of Common Stock set
forth in Schedule C opposite the name of the Selling Stockholders under the
heading "Number of International Option Securities" 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 International
Securities but not payable on the International 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 International Securities upon written notice by the Global
Coordinator to the Company and the Attorney-in-Fact setting forth the number
of International Option Securities as to which the several International
Managers are then exercising the option and the time and date of payment and
delivery for such International Option Securities. Any such time and date of
delivery for the International Option Securities (a "Date of Delivery") shall
be determined by the Global Coordinator, 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
Global Coordinator, the Company and the Selling Stockholders. If the option is
exercised as to all or any portion of the International Option Securities,
each of the International Managers, acting severally and not jointly, will
purchase that proportion of the total number of International Option
Securities then being purchased which the number of Initial International
Securities set forth in Schedule A opposite the name of such International
Manager bears to the total number of Initial International Securities, subject
in each case to such adjustments as the Global Coordinator in its 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 International 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 Global
Coordinator, the Company and the Selling Stockholders, at 10:00 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 Global
Coordinator, the Company and the Selling Stockholders (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the
purchase price for, and delivery of certificates for, such International
Option Securities shall be made at the above-mentioned offices, or at such
other place as shall be agreed upon by the Global Coordinator, the Company and
the Selling Stockholders, on each Date of Delivery as specified in the written
notice from the Global Coordinator to the Company and the Attorney-in-Fact.
Payment shall be made by the International Managers to the Selling
Stockholders other than M & P Distributing Co. and the FS Stockholders (as
defined herein) by wire transfer of immediately available funds to bank
accounts designated in writing by the Attorney-in-Fact pursuant to each
Selling Stockholder's Power of Attorney and Custody Agreement against delivery
to the Lead Managers for the respective accounts of the International Managers
of certificates for the International Securities to be purchased by them. In
the case of M & P Distributing Co. and the FS Stockholders, payment shall be
made by the International Managers to each of M & P Distributing Co. and the
FS Stockholders by wire transfer of immediately available funds to their
respective bank accounts designated in writing by each of them against
delivery to the Lead Managers for the respective accounts of the International
Managers of certificates for the International Securities to be purchased by
them. It is understood that each International Manager has authorized the Lead
Managers, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial International Securities and
the International Option Securities, if any, which it has agreed to purchase.
Merrill Lynch, individually and not as representative of the International
Managers, may (but shall not be obligated to) make payment of the purchase
price for the Initial International Securities or the International Option
Securities, if any, to be purchased by any International Manager whose funds
have not been received by the Closing Time or the relevant
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Date of Delivery, as the case may be, but such payment shall not relieve such
International Manager from its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial International
Securities and the International Option Securities, if any, shall be in such
denominations and registered in such names as the Lead Managers may request in
writing at least two full business days before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the
Initial International Securities and the International Option Securities, if
any, will be made available for examination and packaging by the Lead Managers
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.
SECTION 3. Covenants of the Company. The Company covenants with each
International Manager and each Selling Stockholder 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 Global Coordinator and
the Attorney-in-Fact 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 Prospectuses or any amended Prospectuses
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 Prospectuses 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 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 Global Coordinator and
the Attorney-in-Fact 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 Prospectuses, will furnish the Global Coordinator and the Selling
Stockholders 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 Global Coordinator and the Selling
Stockholders or counsel for the International Managers shall reasonably
object.
(c) Delivery of Registration Statements. The Company has furnished or will
deliver to the Lead Managers and counsel for the International Managers, and
to the Selling Stockholders and counsel for the Selling Stockholders, without
charge, copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein) and copies of all consents and certificates of experts, and
will also deliver to the Lead Managers, without charge, a 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
International Managers 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 furnished or will deliver to
each International Manager and each Selling Stockholder, without charge, as
many copies of each preliminary prospectus as such International Manager or
such Selling Stockholder 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 International Manager, without charge, during the period
when the International 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
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International Prospectus (as amended or supplemented) as such International
Manager may reasonably request for the purposes contemplated by the 1933 Act
or the 1934 Act or the respective applicable rules and regulations of the
Commission thereunder. The International Prospectus and any amendments or
supplements thereto furnished to the International Managers and the Selling
Stockholders 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, the U.S.
Purchase Agreement and in the Prospectuses. If at any time when a prospectus
is required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the International
Managers or the Company, to amend the Registration Statement or amend or
supplement any Prospectuses in order that the Prospectuses 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 Prospectuses 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 Prospectuses comply with such requirements, and the Company will furnish
to the International Managers and each Selling Stockholder such number of
copies of such amendment or supplement as the International Managers may
reasonably request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the International Managers, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Global Coordinator 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) Restriction on Sale of Securities. During a period of 90 days from the
date of this Agreement, the Company will not, without the prior written
consent of the Global Coordinator, 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 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 or under
the U.S. Purchase Agreement, (B) the Common Stock Repurchase, (C) 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 Prospectuses, (D) 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 Prospectuses or (E) any shares of
Common Stock issued pursuant to any non-employee director stock plan or
dividend reinvestment plan.
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(i) Reporting Requirements. The Company, during the period when the
Prospectuses are 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.
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 International Managers and the
Selling Stockholders of this Agreement, any Agreement among International
Managers and such other documents as may be required in connection with the
offering, purchase, sale or delivery of the Securities, (iii) the preparation
and delivery of the certificates for the Securities to the International
Managers, (iv) the fees and disbursements of the Company's counsel and
accountants and other advisors, of Lowenstein, counsel for certain of the
Selling Stockholders, and of Richards & O'Neil, special counsel for certain of
the Selling Stockholders, (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 International Managers in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (vi) the
printing and delivery to the International Managers and the Selling
Stockholders of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation and delivery to the International Managers and the Selling
Stockholders 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 the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale
of the Securities and (x) the fees and expenses of continuing the listing of
the Common Stock on the New York Stock Exchange.
(b) Expenses of the Selling Stockholders. The Underwriters shall not be
responsible for, or liable for, any costs and expenses of any of the Selling
Stockholders incident to its obligations hereunder. Subject to Section 4(a)
above, the Selling Stockholders, severally and not jointly, will pay all
expenses incident to the performance of their respective obligations under,
and the consummation of the transactions contemplated by this Agreement and
the U.S. Purchase Agreement, including (i) any stock or other transfer taxes
and any stamp or other duties payable upon the sale or delivery of the
Securities to the International Managers and the transfer of the Securities
from the Selling Stockholders to the International Managers and between the
International Managers and the U.S. Underwriters, and (ii) except as described
in (a)(iv) above, the fees and disbursements of their respective counsel and
accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
International Managers in accordance with the provisions of Section 5(u) or
Section 9(a)(i) hereof, the Company shall reimburse the International Managers
for all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the International Managers.
SECTION 5. Conditions of International Managers' Obligations. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company and the Selling
Stockholders contained in Section 1 hereof or in certificates of any officer
of the Company or any subsidiary of the Company or on behalf of any Selling
Stockholder delivered pursuant to the provisions hereof, to the performance by
the Company and the Selling Stockholders of their 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 International Managers. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b)
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(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 Lead Managers 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 International Managers, together with signed or reproduced
copies of such letter for each of the other International Managers and for
each Selling Stockholder to the effect set forth in Exhibit A hereto and to
such further effect as counsel to the International Managers may reasonably
request. 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
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 International Managers. 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) Opinions of Counsel for the FS Stockholders. At Closing Time, the Lead
Managers shall have received the favorable opinion, dated as of Closing Time,
of Riordan & McKinzie, counsel for FSEP II, FSEP III and FSEP International
(collectively referred to herein as the "FS Stockholders") as Selling
Stockholders, in form and substance satisfactory to counsel for the
International Managers, together with signed or reproduced copies of such
letter for each of the other International Managers to the effect set forth in
Exhibit B-1 hereto and to such further effect as counsel to the International
Managers may reasonably request. 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 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 International Managers. 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 the applicable
Selling Stockholders and certificates of public officials.
(d) Opinions of Counsel for M & P Distributing Co. At Closing Time, the Lead
Managers shall have received the favorable opinion, dated as of Closing Time,
of Davis, Polk & Wardwell, counsel for M & P Distributing Co., as a Selling
Stockholder, in form and substance satisfactory to counsel for the
International Managers, together with signed or reproduced copies of such
letter for each of the other International Managers to the effect set forth in
Exhibit B-1 hereto and to such further effect as counsel to the International
Managers may reasonably request. 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 counsel for the International Managers. 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 the applicable
Selling Stockholders and certificates of public officials.
(e) Opinions of Counsel for Certain Selling Stockholders. At Closing Time,
the Lead Managers shall have received the favorable opinion, dated as of
Closing Time, of Lowenstein, special counsel for NYNEX, Leeway & Co., Aramark,
William C. Johnson and TJX as Selling Stockholders, in form and substance
satisfactory to counsel for the International Managers, together with signed
or reproduced copies of such letter for each of the other International
Managers to the effect set forth in Exhibit B-2 hereto and to such further
effect as counsel to the International Managers may reasonably request. 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 Jersey, 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
International Managers. 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 the applicable Selling Stockholders and
certificates of public officials.
(f) Opinions of Counsel for the Selling Stockholders. At Closing Time, the
Lead Managers shall have received the favorable opinions, dated as of Closing
Time, of Davis, Polk & Wardwell, counsel for M & P Distributing Co., and
Richards & O'Neil, special counsel to the other Selling Stockholders, in form
and substance
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satisfactory to counsel for the International Managers, together with signed
or reproduced copies of such letter for each of the other International
Managers to the effect set forth in Exhibit B-3 hereto and to such further
effect as counsel to the International Managers may reasonably request. 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 counsel for the
U.S. 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 the applicable Selling Stockholders and certificates of
public officials.
(g) Opinion of Counsel for International Managers. At Closing Time, the Lead
Managers shall have received the favorable opinion, dated as of Closing Time,
of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the International
Managers, together with signed or reproduced copies of such letter for each of
the other International Managers to the effect set forth in clauses (i), (ii),
(v) (solely as to preemptive or other similar rights arising by operation of
law or under the charter or by-laws of the Company), (vii) (solely as to the
Purchase Agreement and the U.S. Purchase Agreement), (viii), (ix), (xi),
(xiii) and (xxi) 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 U.S. 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.
(h) Officers' Certificate. At Closing Time, there shall not have been, since
the date of the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the Lead
Managers shall have received a certificate of the President, the Vice Chairman
of the Board or the Chief Executive Officer of the Company, and of 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 has 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.
(i) Certificate of Selling Stockholders. The FS Stockholders, M & P
Distributing Co., the Selling Stockholders or the Attorney-in-Fact shall have
each furnished to the Lead Managers and the Company a certificate, dated the
date of the Closing Time, to the effect that the representations and
warranties of the applicable Selling Stockholders in this Agreement are true
and correct in all material respects on and as of the Closing Time to the same
effect as if made at the Closing Time and each applicable Selling Stockholder
has complied with all the agreements and satisfied all the conditions on his
or its part to be performed or satisfied prior to the Closing Time.
(j) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Lead Managers shall have received from Coopers & Lybrand a
letter dated such date, in form and substance satisfactory to the Lead
Managers, together with signed or reproduced copies of such letter for the
Company, each of the other International Managers and any Selling Stockholder
who meets the requirements of Statement of Auditing Standard No. 72 containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectuses.
(k) Bring-down Comfort Letter. At the Closing Time, the Lead Managers shall
have received from Coopers & Lybrand a letter, dated as of the Closing Time,
together with signed or reproduced copies of such letter for the Company, each
of the other International Managers and any Selling Stockholder who meets the
requirements of Statement of Auditing Standard No. 72 to the effect that they
reaffirm the statements made in the letter
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furnished pursuant to subsection (j) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.
(l) Listing. At the Closing Time and at the Date of Delivery, the Securities
shall continue to be listed on the New York Stock Exchange.
(m) 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.
(n) Lock-up Agreements. At the date of this Agreement, the Lead Managers
shall have received agreements substantially in the form of Exhibit C hereto
signed by each of the persons and entities listed on Schedule D hereto.
(o) Purchase of Initial U.S. Securities. Contemporaneously with the purchase
by the International Managers of the Initial International Securities under
this Agreement, the International Managers shall have purchased the Initial
U.S. Securities under the U.S. Purchase Agreement.
(p) Common Stock Repurchase. Contemporaneously with the purchase by the
Underwriters of the Securities under this Agreement and the U.S. Purchase
Agreement, the Company shall have completed the Common Stock Repurchase.
(q) Execution of Amended Credit Facility. Each of the parties to the Amended
Credit Facility has performed all of such party's obligations under the
Amended Credit Facility required to be performed on or prior to the Closing
Time.
(r) Execution of Repurchase Agreements. Each of the parties to each of the
Repurchase Agreements has performed all of such party's obligations under each
of such Repurchase Agreements required to be performed on or prior to the
Closing Time.
(s) Conditions to Purchase of International Option Securities. In the event
that the International Managers exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the International Option Securities,
the representations and warranties of the Company and the Selling Stockholders
contained in Section 1 hereof and the statements in any certificate of any
officer of the Company or any subsidiary of the Company or on behalf of any
Selling Stockholder delivered pursuant to the provisions hereof shall be true
and correct as of each Date of Delivery and, at the relevant Date of Delivery,
the Lead Managers shall have received:
(i) Officers' Certificate. A certificate, dated such Date of Delivery, of
the President, the Vice Chairman of the Board or the Chief Executive
Officer of the Company, and the Chief Financial Officer of the Company
confirming that the certificate delivered at the Closing Time pursuant to
Section 5(h) 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 International Managers, dated such Date of Delivery,
relating to the International 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) Certificate of Selling Stockholders. A certificate dated such Date
of Delivery, of the Selling Stockholders or the Attorney-in-Fact confirming
that the certificate delivered at the Closing Time pursuant to Section 5(i)
hereof remains true and correct as of such Date of Delivery.
(iv) Opinion of Counsel for the FS Stockholders. The favorable opinion of
Riordan & McKinzie, counsel for the FS Stockholders as Selling
Stockholders, in form and substance satisfactory to counsel for the
International Managers, dated such Date of Delivery, relating to the
International 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.
(v) Opinion of Counsel for M & P Distributing Co. The favorable opinion
of Davis, Polk & Wardwell, counsel for M & P Distributing Co. as a Selling
Stockholder, in form and substance satisfactory to counsel for the
International Managers, dated such Date of Delivery, relating to the
International Option Securities
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to be purchased on such Date of Delivery and otherwise to the same effect
as the opinion required by Section 5(d) hereof.
(vi) Opinion of Counsel for certain Selling Stockholders. The favorable
opinion of Lowenstein, counsel for NYNEX, Leeway & Co., Aramark, William C.
Johnson and TJX as Selling Stockholders, in form and substance satisfactory
to counsel for the International Managers, dated such Date of Delivery,
relating to the International Option Securities to be purchased on such
Date of Delivery and otherwise to the same effect as the opinion required
by Section 5(e) hereof.
(vii) Opinion of Counsel for the Selling Stockholders. The favorable
opinions of Davis, Polk & Wardwell, counsel for M & P Distributing Co., and
Richards & O'Neil, special counsel for the other Selling Stockholders, in
form and substance satisfactory to counsel for the International Managers,
dated such Date of Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(f) hereof.
(viii) Opinion of Counsel for International Managers. The favorable
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
International Managers, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(g)
hereof.
(ix) Bring-down Comfort Letter. A letter from Coopers & Lybrand, in form
and substance satisfactory to the Lead Managers and dated such Date of
Delivery, substantially in the same form and substance as the letter
furnished to the Lead Managers pursuant to Section 5(j) 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.
(t) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the International Managers shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the sale of the Securities as herein contemplated and upon the
Common Stock Repurchase, 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 and the Selling
Stockholders in connection with the sale of the Securities as herein
contemplated shall be satisfactory in form and substance to the Lead Managers
and counsel for the International Managers.
(u) 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 International
Option Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several International Managers to purchase the relevant
International Option Securities, may be terminated by the Lead Managers by
written notice to the Company, the FS Stockholders, M & P Distributing Co. and
the Attorney-in-Fact 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 by the Company. The Company agrees to indemnify and hold
harmless (i) each Selling Stockholder, each person, if any, who controls such
Selling Stockholder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and each of their respective officers, directors,
and employees in accordance with the terms of the Registration Rights
Agreement, dated as of February 26, 1997 by and among the Company and each of
the Selling Stockholders (the "Registration Rights Agreement") and (ii) each
International Manager and each person, if any, who controls any International
Manager within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act, as follows:
(x) 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
21
<PAGE>
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 Prospectuses (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;
(y) 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(e) below) any such settlement is effected with the written consent of the
Company; and
(z) against any and all expense whatsoever, as incurred (including,
subject to Section 6(d) hereof, 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, to the extent
that any such expense is not paid under (x) or (y) above;
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 (A)
by any Selling Stockholder, or (B) by any International Manager through the
Global Coordinator 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 International
Prospectus (or any amendment or supplement thereto) and, provided, further,
that (i) the Company will not be liable to any International Manager with
respect to any preliminary prospectus to the extent that such loss, liability,
claim, damage or expense resulted from the fact that such International
Manager, in contravention of this Agreement or applicable law, sold Securities
to a person to whom such International Manager failed to send or give, at or
prior to the Closing Date, a copy of the International Prospectus as then
amended and supplemented if the Company has previously furnished copies
thereof (sufficiently in advance of the Closing Date to allow distribution by
the Closing Date) to the International Managers and the loss, liability,
claim, damage or expense of such International Manager 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 International Prospectus.
(b) Indemnification by the Selling Stockholders. Each Selling Stockholder
severally (but not jointly) agrees to indemnify and hold harmless (i) 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, in
accordance with the terms of the Registration Rights Agreement; (ii) each
other Selling Stockholder and each person, if any, who controls such Selling
Stockholder within the meaning of Section 15 of the 1933 Act and Section 20 of
the 1934 Act, as well as the respective officers, directors and employees of
each of the foregoing and (iii) each International Manager and each person, if
any, who controls any International Manager 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) 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 International Prospectus (or any amendment or supplement
thereto) in reliance upon, and in conformity with, written information
relating specifically to such Selling Stockholder furnished to the Company by
or on behalf of such Selling Stockholder expressly for use in the portion of
the Registration Statement (or any amendment thereto) captioned "Principal and
Selling Stockholders"; provided, however, that (x) the liability to the
International Managers of any Selling Stockholder under this
Section 6(b)(iii), together with any liability to the
22
<PAGE>
International Managers of a Selling Stockholder arising from or based upon a
breach by such Selling Stockholder of its representations in this Agreement or
in the Power of Attorney and Custody Agreement, shall be limited to an amount
equal to the proceeds of the sale of International Securities by such Selling
Stockholder (net of underwriting discounts and commissions but before
deducting expenses) received by such Selling Stockholder in connection with
the registration and sale of the International Securities) and (y) the
foregoing indemnity provided under Section 6(b)(iii) with respect to any
preliminary prospectus shall not inure to the benefit of any International
Manager (or to the benefit of any person controlling such International
Manager) from whom the person asserting any such loss, liability, claim or
damage purchased International Securities if such untrue statement or omission
or alleged untrue statement or omission made in such preliminary prospectus is
eliminated or remedied in the International Prospectus (as amended or
supplemented by the Company if the Company shall have furnished any amendments
or supplements thereto) and a copy of the International Prospectus (as so
amended or supplemented), which at such time had been provided to the
International Managers for their use, shall not have been furnished to such
person at or prior to the written confirmation of sale of such Securities to
such person.
(c) Indemnification by the International Managers. Each International
Manager 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, and each Selling Stockholder
and each person, if any, who controls such Selling Stockholder 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) 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 International Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such International Manager
through the Lead Managers expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the International
Prospectus (or any amendment or supplement thereto).
(d) 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)(ii) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, in the case of parties indemnified pursuant to Section 6(c)
above, counsel to the indemnified parties shall be selected by the Company,
and in the case of parties indemnified pursuant to Section 6(a)(i) above,
counsel to the indemnified parties shall be selected by the Selling
Stockholder (and shall be reasonably satisfactory to Merrill Lynch). 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. 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.
23
<PAGE>
(e) 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) 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 party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(f) No Effect on Separate Agreement. The provisions of this Section 6 and
Section 7 hereof shall not affect any separate agreement among the Company and
the Selling Stockholders with respect to indemnification and contribution.
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, (a) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the International Managers on the
other hand from the offering of the International Securities pursuant to this
Agreement, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but
also the relative fault of the Company and the Selling Stockholder on the one
hand and of the International Managers 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 and (b) as between the Company on the one hand and each Selling
Stockholder on the other, or as among the Selling Stockholders, as the case
may be, in such proportion as is appropriate to reflect the relative fault of
the Company and of each Selling Stockholder in connection with such statements
or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholders
on the one hand and the International Managers on the other hand in connection
with the offering of the International 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 International Securities pursuant to this
Agreement (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Stockholders bear to the
total underwriting discounts and commissions received by the International
Managers, 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.
The relative fault of the Company and the Selling Stockholders on the one
hand and the International Managers 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 and the Selling
Stockholders or by the International Managers, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The relative fault of the Company on the one hand
and of each Selling Stockholder, and with respect to the Selling Stockholders
among themselves, on the other, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Stockholders and the International Managers 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 International
Managers 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
24
<PAGE>
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 International Manager
shall be required to contribute any amount in excess of the amount by which
the total price at which the International Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such International Manager has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission, and no Selling Stockholder shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities of such Selling Stockholder were offered to the public (less
underwriting discounts and commissions but before deducting expenses) exceeds
the amount of any damages which such Selling Stockholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. Each Selling Stockholder's obligations to
contribute pursuant to this Section 7 are several and not joint.
Notwithstanding the foregoing, no indemnifying party shall be responsible
for contributing any amount hereunder unless indemnification from such
indemnifying party under subsections (a), (b) and (c) of Section 6, as the
case may be, was provided for hereunder in accordance with its terms.
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 a
International Manager 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
International Manager, 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 and each director of a Selling Stockholder, and each person, if any,
who controls a Selling Stockholder 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 a Selling Stockholder. The International Managers' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of International 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, any of its
subsidiaries or the Selling Stockholders submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any International Manager or controlling person, or by
or on behalf of the Company or the Selling Stockholders, and shall survive
delivery of the International Securities to the International Managers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Lead Managers may terminate this Agreement, by
notice to the Company, the FS Stockholders, M & P Distributing Co. and the
Attorney-in-Fact, 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 International Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
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 Lead Managers, 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
25
<PAGE>
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 International Managers. If one or
more of the International Managers 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 Lead Managers shall
have the right, within 24 hours thereafter, to make arrangements for one or
more of the non-defaulting International Managers, 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 Lead Managers 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 International Securities to be purchased on such date, each of the non-
defaulting International Managers 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 U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
International Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the International Managers to purchase and of the Selling
Stockholders to sell the International Option Securities to be purchased and
sold on such Date of Delivery, shall terminate without liability on the part
of any non-defaulting International Manager.
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
International Managers to purchase and the Selling Stockholders to sell the
relevant International Option Securities, as the case may be, either the Lead
Managers 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 Prospectuses 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
International Managers shall be directed to the Representatives c/o Merrill
Lynch at North Tower, World Financial Center, New York, New York 10281-1201,
attention: Syndicate Department; with copies to Skadden, Arps, Slate, Meagher
& Flom LLP, 300 South Grand Avenue, 34th Floor, Los Angeles, California 90071,
attention: Gregg A. Noel, Esq.; 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: Thomas M. Cleary, Esq.; notices to the FS
Stockholders shall be directed to Riordan & McKinzie, 300 South Grand Avenue,
29th Floor, Los Angeles, California 90071, attention: Thomas M. Cleary, Esq.;
notices to M & P Distributing Co. shall be directed to Davis, Polk & Wardwell,
450 Lexington Avenue, New York, New York 10017, attention: David L.
26
<PAGE>
Caplan, Esq.; and notices to NYNEX, Leeway & Co., Aramark, William C. Johnson
and TJX shall be directed to Lowenstein, Sandler, Kohl, Fisher & Boylan, 65
Livingston Avenue, Roseland, New Jersey 07068, attention: George J. Mazin,
Esq.
SECTION 12. Parties. This Agreement shall each inure to the benefit of and
be binding upon the International Managers and the Company, the Selling
Stockholders 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 International Managers and the Company, the
Selling Stockholders 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 International Managers and the Company, the
Selling Stockholders 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 International Manager 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 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.
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, the Selling Stockholders and the Company in
accordance with its terms.
Very truly yours,
BRYLANE INC.
By: _________________________________
Name:
Title:
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: _________________________________
Name:
Title:
27
<PAGE>
FS EQUITY PARTNERS III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: _________________________________
Name:
Title:
FS EQUITY PARTNERS INTERNATIONAL,
L.P.
By: FS&Co. International, L.P.
Its: General Partner
By: FS International Holdings
Limited
Its: General Partner
By: _________________________________
Name:
Title:
M & P DISTRIBUTING CO.
By: _________________________________
Name:
Title:
_____________________________________
As attorney-in-fact on behalf of
Aramark,
William C. Johnson, Leeway & Co.,
NYNEX and TJX
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
LAZARD CAPITAL MARKETS
NATIONSBANC MONTGOMERY SECURITIES, INC.
J.P. MORGAN SECURITIES LTD.
By: MERRILL LYNCH INTERNATIONAL
By: _________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
28
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INTERNATIONAL
NAME OF UNDERWRITER SECURITIES
------------------- -------------
<S> <C>
Merrill Lynch International...................................
Lazard Capital Markets........................................
NationsBanc Montgomery Securities, Inc........................
J.P. Morgan Securities Ltd....................................
---------
Total ...................................................... 1,000,000
=========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
BRYLANE INC.
1,000,000 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 International. 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 International Securities
but not payable on the International Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
INITIAL INTERNATIONAL
INTERNATIONAL OPTION
NAME OF SELLING STOCKHOLDER SECURITIES SECURITIES
--------------------------- ------------- -------------
<S> <C> <C>
FSEP II.......................................... 264,861 39,729
FSEP III......................................... 276,470 41,471
FSEP International............................... 10,364 1,555
M & P Distributing Co............................ 323,498 48,525
William C. Johnson............................... 1,941 291
Aramark.......................................... 11,112 1,667
Leeway & Co...................................... 32,350 4,852
NYNEX............................................ 32,350 4,852
TJX.............................................. 47,054 7,058
--------- -------
Total.......................................... 1,000,000 150,000
========= =======
</TABLE>
Sch C-1
<PAGE>
SCHEDULE D
FSEP II
FSEP III
FSEP International
The Limited, Inc.
The TJX Companies, Inc.
Leeway & Co.
NYNEX
ARAMARK/Gall's Group, Inc.
Peter J. Canzone
Sheila R. Garelik
Robert A. Pulciani
Ronald P. Spogli
John M. Roth
Mark J. Doran
Samuel P. Fried
William K. Gerber
William C. Johnson
Peter M. Starrett
Daniel Carr
Dhananjaya Rao
Carol Meyrowitz
Sch D-1
<PAGE>
EXHIBIT A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has the been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company 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 International Purchase Agreement, the Repurchase Agreements and
the Amended Credit Facility.
(iii) To the best of such counsel's knowledge, the Company is duly qualified
as a foreign corporation 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.
(iv) As of the Closing Time, the issued and outstanding capital stock of the
Company as of August 2, 1997 is as set forth in the Prospectus in the column
entitled "As Adjusted" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses); the issued and outstanding
capital stock of the Company have been duly authorized and validly issued and
are fully paid and non-assessable and were not issued in violation of the
preemptive or other similar rights of any securityholder of the Company; and
no holder of the Securities is subject to personal liability exclusively by
reason of being such a holder.
(v) The sale 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.
(vi) Each subsidiary has been duly incorporated and is validly existing as a
corporation or a partnership, as the case maybe, in good standing under the
laws of the jurisdiction of its organization, has corporate power or
partnership power, as the case may be, and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus and,
to the best of such counsel's knowledge, is duly qualified as a foreign
corporation or foreign partnership, as the case maybe, 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, all of the issued and outstanding
capital stock or partnership units, as the case may be, of each 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 or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity; none of the outstanding shares of
capital stock or partnership units, as the case may be, of any subsidiary was
issued in violation of the preemptive or similar rights of any securityholder
of such subsidiary.
(vii) Each of the Purchase Agreement and the International Purchase
Agreement has been duly and validly authorized, executed and delivered by the
Company; and each Repurchase Agreement, and the Amended Credit Facility have
been duly authorized, executed and delivered by the Company, and, to such
counsel's knowledge, the other parties thereto, and each Repurchase Agreement
and the Amended Credit Facility create a valid and binding obligation of the
Company and will be enforceable against the Company 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).
A-1
<PAGE>
(viii) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses 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.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses and each amendment or supplement to the
Registration Statement and Prospectuses 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.
(x) If Rule 434 has been relied upon, the Prospectuses were not "materially
different," as such term is used in Rule 434, from the prospectuses included
in the Registration Statement at the time it became effective.
(xi) 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.
(xii) 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 or any of its 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 International
Purchase Agreement, the Amended Credit Facility and the Repurchase Agreements
or the performance by the Company of its obligations thereunder.
(xiii) The information in the Prospectuses under "Description of Capital
Stock--Common Stock," "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.
(xiv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectuses that are not described
as required.
(xv) 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.
(xvi) 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 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 or under the laws and
regulations of jurisdictions outside the United States in which the
International Securities are offered, as to which we express no opinion) is
necessary or required in connection with the offering 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
International Purchase Agreement, the Amended Credit Facility or the
Repurchase Agreements.
A-2
<PAGE>
(xvii) The execution, delivery and performance of each of the Purchase
Agreement, the International Purchase Agreement, the Repurchase Agreements and
the Amended Credit Facility, and the consummation of the transactions
contemplated therein and in the Registration Statement (including, but not
limited to, the Common Stock Repurchase) and compliance by the Company with
its obligations under the Purchase Agreement, the International Purchase
Agreement, the Amended Credit Facility and the Repurchase 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 a Repayment Event
(as defined in Section 1(a)(xviii) of the Purchase Agreement and the
International Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its 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 or any of its
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 or any of its subsidiaries
is subject, and which have been identified to us on the Certificate (except
for such conflicts, breaches or defaults or Liens that are described in the
Prospectus or 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 or any of its 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 or any of its subsidiaries or any of their respective
properties, assets or operations.
(xviii) To the best of such counsel's knowledge, except as described in the
Prospectuses, 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.
(xix) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the 1940 Act.
(xx) Such counsel has participated in conferences with officers and other
representatives of the Company and its subsidiaries, counsel employed by the
Company and its subsidiaries, representatives of the independent public
accountants for the Company and its subsidiaries, representatives of the
Underwriters and counsel for the Underwriters, at which conferences the
contents of the Registration Statement and Prospectuses 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 Prospectuses, and
have not made any independent check or verification thereof, except as
specifically provided in such opinions, on the basis of the foregoing, and
relying as to materiality to an extent such counsel deems appropriate upon the
opinions of officers and other representatives of the Company, 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
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 Prospectuses (except for
financial statements and schedules and other financial data included therein,
as to which counsel need make no statement), as of its date (unless the term
"Prospectuses" 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 Prospectuses 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-3
<PAGE>
EXHIBIT B-1
FORM OF OPINION OF COUNSEL
FOR THE SELLING STOCKHOLDERS
TO BE DELIVERED PURSUANT TO
SECTIONS 5(c) AND (d)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign (other than the filing of the Registration
Statement, the issuance of the order of the Commission declaring the
Registration Statement effective, and such authorizations, approvals or
consents as may be necessary under state securities and "blue sky" laws, and
such as have been obtained or may be required under the laws and regulations
of jurisdictions outside the United States in which the International
Securities are offered, or by the bylaws and rules of the NASD in connection
with the purchase and distribution by the Underwriters of the Securities to be
sold by the Selling Stockholders, as to which we need express no opinion) is
necessary or required to be obtained by the Selling Stockholder for the
performance by the Selling Stockholder of its obligations under the Purchase
Agreement, the International Purchase Agreement, the applicable Repurchase
Agreement, or in connection with the offer, sale or delivery of the
Securities.
(ii) The execution, delivery and performance of the Purchase Agreement, the
International Purchase Agreement, the applicable Repurchase Agreement and the
sale and delivery of the Securities and the consummation of the transactions
contemplated in the Purchase Agreement, the International Purchase Agreement,
the Repurchase Agreements and in the Registration Statement and compliance by
the Selling Stockholder with its obligations under the Purchase Agreement, the
International Purchase Agreement and the Repurchase Agreement, have been duly
authorized by such Selling Stockholder, and to our knowledge, do not and will
not, whether with or without giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default under or result in the
creation or imposition of any tax, lien, charge or encumbrance upon the
Securities or any property or assets of the Selling Stockholder pursuant to,
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other instrument or agreement to which the Selling
Stockholder is a party or by which it may be bound, or to which any of the
property or assets of the Selling Stockholder may be subject, nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Stockholder, if applicable, or any law or administrative
regulation of any governmental agency or body or to our knowledge, any
judgment or order or any administrative or court decree having jurisdiction
over the Selling Stockholder or any of its properties.
(iii) The Repurchase Agreement has been duly authorized by the Selling
Stockholder and constitutes the legal, valid and binding agreements of the
Selling Stockholders and will be enforceable against the Selling Stockholders
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 principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(iv) Each of the Purchase Agreement and the International Purchase Agreement
has been duly authorized, executed and delivered by or on behalf of the
Selling Stockholders.
(v) To the best of our knowledge such parts of the Registration Statement
and the Prospectus comprising information under the caption "Principal and
Selling Stockholders" which specifically relate to the Selling Stockholders
are accurate in all material respects at the date the Registration Statement
became effective and at the date of the Prospectus.
B1-1
<PAGE>
EXHIBIT B-2
FORM OF OPINION OF COUNSEL
FOR THE SELLING STOCKHOLDERS
TO BE DELIVERED PURSUANT TO
SECTION 5(e)
(i) No filing with, or consent, approval, authorization, license, order,
registration, qualification or decree of, any court or governmental authority
or agency, domestic or foreign (other than the filing of the Registration
Statement, the issuance of the order of the Commission declaring the
Registration Statement effective, and such authorizations, approvals or
consents as may be necessary under state securities and "blue sky" laws, and
such as have been obtained or may be required under the laws and regulations
of jurisdictions outside the United States in which the International
Securities are offered, or by the bylaws and rules of the NASD in connection
with the purchase and distribution by the Underwriters of the Securities to be
sold by the Selling Stockholders, as to which we need express no opinion) is
necessary or required to be obtained by the Selling Stockholders for the
performance by the Selling Stockholders of their obligations under the
Purchase Agreement, the International Purchase Agreement or in the applicable
Power of Attorney and Custody Agreement, or in connection with the offer, sale
or delivery of the Securities.
(ii) The Power of Attorney and Custody Agreements have been duly authorized
by the Selling Stockholders and the Custodian appointed thereunder is
authorized to deliver the Securities on behalf of the Selling Stockholders in
accordance with the terms of the Purchase Agreement and the International
Purchase Agreement.
(iii) The execution, delivery and performance of the Purchase Agreement, the
International Purchase Agreement, the applicable Repurchase Agreement and the
sale and delivery of the Securities and the consummation of the transactions
contemplated in the Purchase Agreement, the International Purchase Agreement,
the Repurchase Agreements and in the Registration Statement and compliance by
the Selling Stockholders with their obligations under the Purchase Agreement,
the International Purchase Agreement and the Repurchase Agreement, have been
duly authorized by the Selling Stockholders, and to our knowledge, do not and
will not, whether with or without giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default under or result in the
creation or imposition of any tax, lien, charge or encumbrance upon the
Securities or any property or assets of the Selling Stockholders pursuant to,
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other instrument or agreement to which the Selling
Stockholders are a party or by which they may be bound, or to which any of the
property or assets of the Selling Stockholders may be subject, nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Stockholders, if applicable, or any law, administrative
regulation, or to our knowledge, any judgment or order of any governmental
agency or body or any administrative or court decree having jurisdiction over
the Selling Stockholders or any of their properties.
(iv) The Power of Attorney and Custody Agreements and the Repurchase
Agreements have been duly authorized by the Selling Stockholders and
constitutes the legal, valid and binding agreements of the Selling
Stockholders and will be enforceable against the Selling Stockholders 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 principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(v) Each of the Purchase Agreement and the International Purchase Agreement
has been duly authorized, executed and delivered by or on behalf of the
Selling Stockholders.
(vi) To the best of our knowledge such parts of the Registration Statement
and the Prospectus comprising information under the caption "Principal and
Selling Stockholders" which specifically relate to the Selling Stockholders
are accurate in all material respects at the date the Registration Statement
became effective and at the date of the Prospectus.
B2-1
<PAGE>
EXHIBIT B-3
FORM OF OPINIONS OF RICHARDS & O'NEIL, SPECIAL COUNSEL FOR THE SELLING
STOCKHOLDERS, AND DAVIS, POLK & WARDWELL, COUNSEL FOR
M & P DISTRIBUTING CO. TO BE DELIVERED PURSUANT TO SECTION 5(f)
(i) Upon physical delivery to Merrill Lynch, as Global Coordinator for the
several Underwriters (the "Buyer") in the State of New York of the securities
identified on Schedule 1 hereto (the "Securities") registered in the Buyer's
name, the Buyer will acquire the Securities free of any adverse claims (within
the meaning of Section 8-102(a)(1) of the Uniform Commercial Code as currently
in effect in the State of New York).
The opinion set forth in paragraph (i) is subject to the following
qualifications:
(a) We have assumed that neither the Buyer nor any other underwriter has
notice of any adverse claims with respect to the Securities.
(b) Our opinion is limited to the Uniform Commercial Code as currently in
effect in the State of New York, and such opinion does not address (i) laws
other than the Uniform Commercial Code as currently in effect in the State
of New York, (ii) collateral of a type not subject to the Uniform
Commercial Code as currently in effect in the State of New York, and
(iii) what law governs whether adverse claims can be asserted against the
Buyer.
B3-1
<PAGE>
SCHEDULE 1 TO EXHIBIT B-3
<TABLE>
<CAPTION>
REGISTERED OWNER
NAME OF ISSUER CERTIFICATE NUMBER OF CERTIFICATE
- -------------- ------------------ ----------------
<S> <C> <C>
</TABLE>
B4-1
<PAGE>
EXHIBIT C
[FORM OF LOCK-UP FROM DIRECTORS AND OTHER STOCKHOLDERS PURSUANT TO SECTION
5(i)]
October 14, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
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 [parent of a stockholder of/a director of/a stockholder
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, Montgomery Securities 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 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 90 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 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.
Very truly yours,
Signature:
___________________________
Print Name:
__________________________
C-1
<PAGE>
[FORM OF LOCK-UP FROM OFFICERS PURSUANT TO SECTION 5(I)]
October 14, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
LAZARD FRERES & CO. LLC
NATIONSBANC MONTGOMERY SECURITIES, INC.
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, an executive officer 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, Montgomery Securities 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 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, from the date of the
Purchase Agreement until December 15, 1997, 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
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.
Very truly yours,
Signature:
__________________________
Print Name:
_________________________
C-2
<PAGE>
EXHIBIT 10.82
================================================================================
$375,000,000.00
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of
April 30, 1997,
as amended and restated as of
October [ ], 1997,
among
Brylane, L.P.,
The Lenders Listed Herein,
Morgan Guaranty Trust Company of New York,
as Administrative Agent,
and
Merrill Lynch Capital Corporation,
as Documentation Agent
================================================================================
[CS&M Ref No. 1385-309]
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1.01. Definitions....................................................... 2
SECTION 1.02. Accounting Terms and Determinations............................... 27
SECTION 1.03. Types of Borrowings............................................... 28
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend............................................... 28
SECTION 2.02. Method of Borrowing............................................... 29
SECTION 2.03. Notes............................................................. 31
SECTION 2.04. Interest Rate Elections........................................... 31
SECTION 2.05. Interest Rates.................................................... 33
SECTION 2.06. Commitment Fees................................................... 35
SECTION 2.07. Termination or Reduction of Commitments........................... 36
SECTION 2.08. Mandatory Repayments and Prepayments.............................. 37
SECTION 2.09. Optional Prepayments.............................................. 40
SECTION 2.10. General Provisions as to Payments................................. 40
SECTION 2.11. Funding Losses.................................................... 41
SECTION 2.12. Computation of Interest and Fees.................................. 41
SECTION 2.13. Letters of Credit................................................. 42
SECTION 2.14. Swingline Loans................................................... 47
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness..................................................... 48
SECTION 3.02. Each Credit Event................................................. 50
</TABLE>
-i-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.01. Existence and Power............................................... 51
SECTION 4.02. Corporate and Governmental Authorization; No Contravention........ 51
SECTION 4.03. Binding Effect.................................................... 52
SECTION 4.04. Financial Information; Title to Properties........................ 52
SECTION 4.05. Litigation........................................................ 53
SECTION 4.06. Compliance with ERISA............................................. 53
SECTION 4.07. Taxes............................................................. 53
SECTION 4.08. Parent Corporation................................................ 53
SECTION 4.09. Subsidiaries...................................................... 54
SECTION 4.10. Not an Investment Company......................................... 54
SECTION 4.11. Compliance with Laws.............................................. 54
SECTION 4.12. Agreements........................................................ 54
SECTION 4.13. Federal Reserve Regulation........................................ 55
SECTION 4.14. Disclosure........................................................ 55
SECTION 4.15. Governmental Approvals............................................ 55
SECTION 4.16. Security Interests................................................ 55
SECTION 4.17. Employment and Management Agreements.............................. 56
SECTION 4.18. Capitalization.................................................... 56
SECTION 4.19. Environmental Matters............................................. 56
ARTICLE V
COVENANTS
SECTION 5.01. Information....................................................... 57
SECTION 5.02. Payment of Obligations............................................ 60
SECTION 5.03. Maintenance of Property; Insurance; Casualty and Condemnation..... 60
SECTION 5.04. Conduct of Business and Maintenance of Existence.................. 61
SECTION 5.05. Compliance with Laws.............................................. 62
SECTION 5.06. Inspection of Property, Books and Records......................... 62
SECTION 5.07. Fiscal Year....................................................... 63
SECTION 5.08. Further Assurances................................................ 63
SECTION 5.09. Subsidiaries; Partnerships........................................ 63
SECTION 5.10. Amendment of Certain Documents.................................... 64
SECTION 5.11. Debt; Preferred Stock; Rate Protection Agreements................. 64
</TABLE>
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SECTION 5.12. Restricted Payments............................................... 66
SECTION 5.13. Mergers, Consolidations, Acquisitions and Sales of Assets......... 68
SECTION 5.14. Transactions with Affiliates...................................... 69
SECTION 5.15. Sale and Lease-Back Transactions.................................. 70
SECTION 5.16. Investments....................................................... 70
SECTION 5.17. Negative Pledge................................................... 71
SECTION 5.18. Use of Proceeds and Letters of Credit............................. 72
SECTION 5.19. Grants of Negative Pledges or Dividend Restrictions............... 72
SECTION 5.20. Changes in Accounting............................................. 73
SECTION 5.21. Fixed Charge Coverage Ratio....................................... 73
SECTION 5.22. Minimum Adjusted Net Worth........................................ 73
SECTION 5.23. Debt Coverage Ratio............................................... 74
SECTION 5.24. Capital Expenditures.............................................. 74
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default................................................. 75
SECTION 6.02. Notice of Default................................................. 78
ARTICLE VII
THE AGENT, SECURITY AGENT AND ISSUING BANKS
SECTION 7.01. Appointment and Authorization..................................... 78
SECTION 7.02. Agent and Affiliates.............................................. 78
SECTION 7.03. Action by Agent................................................... 78
SECTION 7.04. Consultation with Experts......................................... 79
SECTION 7.05. Liability of Agent................................................ 79
SECTION 7.06. Indemnification................................................... 79
SECTION 7.07. Credit Decision................................................... 79
SECTION 7.08. Successor Agent................................................... 80
SECTION 7.09. Agents Fees....................................................... 80
SECTION 7.10. Sub-Agents........................................................ 80
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ARTICLE VIII
CHANGE IN CIRCUMSTANCES
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SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.......... 81
SECTION 8.02. Illegality........................................................ 81
SECTION 8.03. Increased Cost and Reduced Return................................. 82
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate Loans......... 83
SECTION 8.05. Replacement of Lenders............................................ 84
SECTION 8.06. Taxes............................................................. 85
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices........................................................... 87
SECTION 9.02. No Waivers........................................................ 87
SECTION 9.03. Expenses; Documentary Taxes; Indemnification...................... 87
SECTION 9.04. Sharing of Set-Offs............................................... 88
SECTION 9.05. Amendments and Waivers............................................ 89
SECTION 9.06. Successors and Assigns............................................ 90
SECTION 9.07. Collateral........................................................ 91
SECTION 9.08. Waiver of Trial by Jury........................................... 91
SECTION 9.09. New York Law...................................................... 92
SECTION 9.10. Counterparts; Integration......................................... 92
SECTION 9.11. Limitation on Recourse............................................ 92
SECTION 9.12. Interest Rate Limitation.......................................... 92
SECTION 9.13. Effect of Amendment and Restatement............................... 92
</TABLE>
Exhibit A - Note
Exhibit B - Form of Borrowing Base Certificate
Exhibit C - Guarantee Agreement
Exhibit D - Forms of Opinions of Borrower's Counsel
Exhibit E - Form of Issuing Bank Agreement
Exhibit F - Form of Assignment and Acceptance
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Schedule 1 - Commitments
Schedule 2 - Mortgaged Properties
Schedule 4.08 - Subsidiaries
Schedule 4.16 - Employment and Management Agreements
Schedule 5.14 - Certain Fees
Schedule 5.17 - Certain Liens
</TABLE>
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AGREEMENT dated as of April 30, 1997, as amended and
restated as of October [ ], 1997, among BRYLANE, L.P., the
LENDERS listed on the signature pages hereof, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK, as Administrative Agent, and MERRILL
LYNCH CAPITAL CORPORATION, as Documentation Agent.
Preliminary Statement
---------------------
Reference is made to the Existing Credit Agreement (such term , and
all other capitalized terms in this preliminary statement, being used as
hereinafter defined). The Borrower has requested the Lenders to amend and
restate the Existing Credit Agreement in the form hereof and, subject to the
terms and conditions of this Agreement, to extend credit to the Borrower, in the
aggregate principal amount of up to $375,000,000, in the form of (i) Term Loans
to be made by the Lenders on the Amendment Effective Date in an aggregate
principal amount not in excess of $175,000,000, (ii) Revolving Loans to be made
by the Lenders from time to time during the Revolving Loan Availability Period
in an aggregate principal amount at any time outstanding not in excess of
$200,000,000 (subject to certain limitations specified herein), (iii) Swingline
Loans to be made by the Swingline Lender from time to time during the Revolving
Loan Availability Period in an aggregate principal amount not in excess of
$15,000,000 and (iv) Letters of Credit to be issued by the Issuing Banks from
time to time during the Revolving Loan Availability Period in an aggregate
amount at any time outstanding not in excess of $75,000,000 (subject to certain
limitations specified herein); provided that the sum of Revolving Loans,
--------
Swingline Loans and Letters of Credit shall not exceed $200,000,000. The
proceeds of the Term Loans shall be used by the Borrower to refinance Debt
outstanding under the Existing Credit Agreement on the Amendment Effective Date
and to make payments to the Parent Corporation to finance the repurchase of up
to 2,500,000 shares of common stock of the Parent Corporation. The proceeds of
the Revolving Loans and the Swingline Loans shall be used by the Borrower for
general corporate purposes, including to finance the working capital
requirements of the Borrower. Letters of Credit shall be issued only for
general corporate purposes in the ordinary course of business of the Borrower.
Accordingly, the parties hereto agree as follows:
<PAGE>
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ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used herein, have
------------
the following meanings:
"Acquisition" means the purchase by the Borrower of substantially all
the assets (excluding cash and certain accounts receivable) of Chadwick's, Inc.
and its subsidiary, CDM Corp., pursuant to the Asset Purchase Agreements.
"Adjusted EBITDA" means, for any period, the sum of (a) Consolidated
Net Income for such period, excluding extraordinary or nonrecurring gains or
losses, plus (b) depreciation, amortization (including amortization of deferred
financing costs and of the initial write-up of inventories resulting from the
acquisition of a business, including the Acquisition) and interest expense
deducted in determining such Consolidated Net Income, plus (c) income taxes
deducted in determining such Consolidated Net Income.
"Adjusted London Interbank Offered Rate" has the meaning set forth in
Section 2.05(b).
"Administrative Questionnaire" means, with respect to each Lender, the
administrative questionnaire in the form submitted to such Lender by the Agent
and submitted to the Agent (with a copy to the Borrower) duly completed by such
Lender.
"Affiliate" means any Person (other than a Subsidiary) directly or
indirectly controlling, controlled by or under common control with the Borrower.
As used in this definition, the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. For purposes of this Agreement and the other Loan
Documents, any Person that directly or indirectly owns 10% or more of the
regularly voting common equity securities of the Parent Corporation, together
with its affiliates, shall be deemed to be an Affiliate of the Borrower.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as administrative agent for the Lenders hereunder, and its successors
in such capacity.
<PAGE>
-3-
"Amendment Effective Date" means the date on which the amendment and
restatement of the Existing Credit Agreement provided for herein becomes
effective in accordance with Section 3.01.
"Applicable Lending Office" means, with respect to any Lender, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Applicable Percentage" of any Lender means the percentage of the
aggregate Revolving Commitments represented by such Lender's Revolving
Commitment.
"Asset Purchase Agreements" means, collectively, (i) the Asset
Purchase Agreement, dated as of October 18, 1996, among The TJX Companies, Inc.,
Chadwick's, Inc. and the Borrower, and (ii) the Asset Purchase Agreement, dated
as of October 18, 1996, between CDM Corp. and the Borrower.
"Asset Sale Prepayment Event" means any sale, assignment, transfer or
other disposition of, or casualty to or condemnation of, any assets or
properties of the Borrower or any Subsidiary, other than (a) sales of inventory
and used or surplus equipment in the ordinary course of business, (b) sales of
credit card receivables pursuant to the Credit Card Agreement and (c) any other
event that would constitute an "Asset Sale Prepayment Event" if the Borrower
intends to reinvest the Net Cash Proceeds therefrom in capital assets within six
months after receipt of such Net Cash Proceeds (any such event described in this
clause (c) being referred to as a "Reinvestment Event"); provided that (i) if
--------
the Net Cash Proceeds from any Reinvestment Event, plus the Net Cash Proceeds
from any previous Reinvestment Event that have not yet been reinvested in
capital assets, exceed $15,000,000, then an "Asset Sale Prepayment Event" shall
be deemed to have occurred with Net Cash Proceeds equal to such excess, and (ii)
if the Net Cash Proceeds from any Reinvestment Event have not been fully
reinvested in capital assets by the date that is six months after the receipt of
such Net Cash Proceeds, an "Asset Sale Prepayment Event" shall be deemed to have
occurred on such date with Net Cash Proceeds equal to the Net Cash Proceeds from
such Reinvestment Event (excluding any excess portion thereof referred to in
clause (i) above) minus the reinvested portion; provided further that, if a
-------- -------
Reinvestment Event constitutes a casualty or condemnation, then (A) clause (i)
above shall not apply to Net Cash Proceeds therefrom consisting of insurance
proceeds or condemnation awards and (B) the six-month period referred to in
clause (ii) above shall be extended for such period of time as the Borrower is
actively and diligently engaged in the repair or replacement of the affected
asset or property.
"Assignee" has the meaning set forth in Section 10.06(c).
<PAGE>
-4-
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means at any time a loan outstanding hereunder which
bears interest at such time at a rate based on the Base Rate pursuant to a
Notice of Borrowing or Notice of Interest Rate Election (or in the case of the
Borrower's failure to timely provide such a notice) or pursuant to Article VIII.
"Base Rate Margin" means, with respect to any Base Rate Loan
outstanding on any day:
(A) 0.00%, if such day falls within a Level I Pricing Period or a
Level II Pricing Period;
(B) 0.125%, if such day falls within a Level III Pricing Period;
(C) 0.25%, if such day falls within a Level IV Pricing Period; or
(D) 0.50%, if such day falls within a Level V Pricing Period.
"Borrower" means Brylane, L.P., a Delaware limited partnership, and
its successors.
"Borrowing" has the meaning set forth in Section 1.03.
"Borrowing Base" means, at any time, an amount equal to the sum of (a)
70% of the excess of (i) the book value of the Borrower's inventory as of such
date, minus (ii) the book value of any such inventory that is classified for
purposes of the Borrower's financial statements as slow-moving or obsolete
inventory, plus (b) 50% of the excess of (i) the book value (net of accumulated
depreciation) of the Borrower's property, plant and equipment as of such date
minus (ii) the aggregate outstanding principal amount of Capital Financing Debt
as of such date. The Borrowing Base at any time shall be determined by
reference to the most recent Borrowing Base Certificate delivered to the Agent,
absent any error in such Borrowing Base Certificate.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit B hereto, duly completed and executed by the chief financial officer,
chief accounting officer or treasurer of the Borrower.
<PAGE>
-5-
"Capital Expenditures" means, with respect to any period, (a) the
additions to property, plant and equipment and other capital expenditures of the
Borrower and its Consolidated Subsidiaries for such period, as the same are (or
would be) set forth, in accordance with generally accepted accounting
principles, in a consolidated statement of cash flow of the Borrower for such
period, and (b) any other additions to assets or expenditures of the Borrower
and its Consolidated Subsidiaries during such period financed with Capital
Financing Debt, whether or not such other additions to assets or expenditures
are (or would be) set forth in such statement of cash flow (but without
duplication of amounts described in clause (a) above); provided that Permitted
--------
Acquisitions shall not constitute "Capital Expenditures" for purposes of this
Agreement.
"Capital Financing Debt" means (a) Debt (including obligations under
capital leases) incurred to finance the acquisition, construction, improvement
or lease of property, plant or equipment or other capital assets; provided that
--------
such Debt is incurred at the time of or within 90 days after such acquisition or
lease, or during or within 90 days after the substantial completion of such
construction or improvement; and (b) any Debt incurred to refinance Debt
described in clause (a) above, provided that the principal amount of such
refinancing Debt does not exceed the principal amount of Debt being refinanced.
"Cash Available for Principal Payments" means, for any period,
Consolidated Net Income for such period, plus, without duplication, (a)
----
depreciation, amortization (including amortization of the initial write-up of
inventories resulting from the acquisition of a business, including pursuant to
the Acquisition) and other noncash items deducted in determining such
Consolidated Net Income, (b) the amount, if any, by which Net Working Investment
decreased during such period and (c) the amount, if any, of cash received by the
Borrower and its Subsidiaries during such period (net of any expenses
attributable thereto not deducted in determining such Consolidated Net Income)
pursuant to transactions not in the ordinary course of business, to the extent
receipt of such cash is (x) not included in income in determining such
Consolidated Net Income but to be included in income in a later period or
periods and (y) not attributable to a Prepayment Event or Reinvestment Event,
minus, without duplication, (i) the amount of any noncash items included in
- -----
income in determining such Consolidated Net Income, (ii) the amount, if any, by
which Net Working Investment increased during such period, (iii) the amount of
Capital Expenditures made during such period (but excluding Capital Expenditures
to the extent financed with Capital Financing Debt or financed with Net Cash
Proceeds from a Reinvestment Event), (iv) to the extent not deducted in
determining such Consolidated Net Income, the amount, if any, paid by the
Borrower during such period as cash consideration for Permitted Acquisitions
(provided that no deduction shall be permitted pursuant to this clause (iv)
after the aggregate cumulative amount of cash consideration for Permitted
Acquisitions equals $50,000,000), (v) the amount, if any, of
<PAGE>
-6-
items included in income in determining such Consolidated Net Income
representing cash received and included in calculating "Cash Available for
Principal Payments" in a previous period pursuant to clause (c) above, (vi) the
amount, if any, by which deferred compensation decreased during such period,
(vii) to the extent not deducted in determining such Consolidated Net Income,
the amount of Tax Advances and Tax Distributions paid in cash during such period
in compliance with Section 5.12, and (viii) in the case of the fiscal year
ending on the Saturday closest to and January 31, 1998, to the extent not
deducted in determining such Consolidated Net Income for such fiscal year, the
aggregate amount, if any, paid by the Borrower during such fiscal year in cash
in respect of post-closing purchase price adjustments and tax adjustments
pursuant to the Asset Purchase Agreements; provided that, for purposes of the
--------
foregoing, Consolidated Net Income shall be determined without regard to any
gains, losses, taxes or expenses resulting from or incurred in connection with a
Prepayment Event or Reinvestment Event.
A "Change of Control" shall be deemed to have occurred if (i) any
partnership interest in the Borrower shall be owned by any Person other than the
Parent Corporation and the Parent Corporation's wholly owned subsidiaries, (ii)
any person or group (within the meaning of Rule 13d-5 of the Securities and
Exchange Commission as in effect on the date hereof) other than a Person or
Persons in the Initial Control Group shall become the beneficial owner (within
the meaning of Rule 13d-3 of such Commission as in effect on the date hereof) of
voting securities (including any options, rights or warrants to purchase, and
any securities convertible into or exchangeable for, voting securities) of the
Parent Corporation representing 20% or more of the voting power represented by
all outstanding securities of the Parent Corporation, or (iii) less than a
majority of the seats (other than vacant seats) on the board of directors of the
Parent Corporation shall at any time be occupied by persons who were (x)
nominated by a Person or Persons in the Initial Control Group, or (y) appointed
by directors so nominated, or (c) at any time a "Change of Control", as defined
in the Subordinated Debt Documents, shall occur.
"Class" has the meaning set forth in Section 1.03.
"Commitment" means, with respect to each Lender, its Term Commitment
or Revolving Loan Commitment or all such Commitments, as the context may
require.
"Consolidated Adjusted Net Worth" means at any date (a) the partners'
capital of the Borrower as of such date, adjusted to eliminate (i) the effects
on Consolidated Net Income of the amortization of the initial write-up of
inventories resulting from the Acquisition or any other acquisition of a
business on or after the Effective Date, and (ii) any accounting adjustments
resulting from the Conversion, minus (b) the amount, if any, of Tax Advances and
Management Notes outstanding on such date, to the extent
<PAGE>
-7-
such outstanding Tax Advances and Management Notes are included in determining
the amount referred to in clause (a) above.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Borrower and its Consolidated Subsidiaries for such
period.
"Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which would be consolidated with those of the Borrower in
its consolidated financial statements if such statements were prepared as of
such date.
"Conversion" means the reorganization of the ownership of the Borrower
pursuant to which the Borrower became a wholly owned subsidiary of the Parent
Corporation.
"Convertible Subordinated Debt" means Debt of the Borrower and the
Parent Corporation in the aggregate principal amount of $20,000,000 in respect
of convertible subordinated notes issued as part of the consideration for the
Acquisition, maturing approximately 9-1/2 years after the Effective Date and
convertible into shares of common stock of the Parent Corporation.
"Credit Card Agreements" means (a) the Credit Card Processing
Agreement in effect on the Effective Date between the Borrower and World
Financial Network National Bank, as amended and in effect from time to time, (b)
the Accounts Receivable Purchase Agreement in effect on the Effective Date
between the Borrower and Alliance Data Systems Corporation, as amended and in
effect from time to time, and (c) any successor, replacement or additional
agreement providing for similar services and transactions.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all obligations of
such Person as an account party in respect of letters of credit and bankers'
acceptances, (vi) all Debt of others secured by a Lien on any asset of such
Person, whether or not such Debt is assumed by such Person, and (vii) all Debt
of others Guaranteed by such Person. The amount of any Debt described in clause
(vi) above shall be deemed to be limited to the fair market value of the assets
on which a Lien has been granted to secure such Debt unless such Debt has been
assumed or Guaranteed by such Person. The amount of any Debt described in
clause (vii) above shall be limited to
<PAGE>
-8-
the maximum amount payable under the applicable Guarantee of such Person if such
Guarantee contains limitations on the amount payable thereunder.
"Debt Coverage Ratio" means, at any date, the ratio of (i) the
consolidated Debt of the Borrower and its Consolidated Subsidiaries (excluding
(a) Letter of Credit Exposure and the amount of any other outstanding letters of
credit, except to the extent such Letter of Credit Exposure and other
outstanding letters of credit represent unreimbursed drawings thereunder;
provided that amounts excluded under this clause (a) shall not exceed
- --------
$75,000,000, and (b) contingent liabilities to repurchase accounts receivable
pursuant to the Credit Card Agreements, to the extent such contingent
liabilities constitute Debt), determined on a consolidated basis as of such
date, divided by (ii) Adjusted EBITDA for the most recent period of four
consecutive fiscal quarters of the Borrower ended on or prior to such date;
provided that if the Acquisition or a Permitted Acquisition has occurred during
- --------
the period since the commencement of the period of four consecutive fiscal
quarters for which such Adjusted EBITDA has been determined and on or prior to
such date of determination, then such Adjusted EBITDA shall be determined on a
pro forma basis (i.e., based on the assumption that the Acquisition or such
----
Permitted Acquisition, as the case may be, occurred on the first day of such
period of four consecutive fiscal quarters) in accordance with generally
accepted accounting principles.
"Debt Prepayment Event" means the incurrence by the Borrower or any
Subsidiary after the Effective Date of any Debt referred to in clause (iv) of
Section 5.11(a).
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Descriptive Materials" means the Materials prepared by J.P. Morgan
Securities Inc., Merrill Lynch Capital Corporation and the Borrower in
connection with the Financing Transactions.
"Documentation Agent" means Merrill Lynch Capital Corporation in its
capacity as documentation agent for the Lenders hereunder.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Lender, its office located
at its address set forth in its Administrative Questionnaire (or identified in
its Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Lender may
<PAGE>
-9-
hereafter designate as its Domestic Lending Office by notice to the Borrower and
the Agent.
"Effective Date" means the date that the Existing Credit Agreement
became effective in accordance with its terms.
"Environmental and Safety Laws" means any and all applicable Federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, approvals, concessions, grants, franchises,
licenses, agreements with Governmental Authorities or other governmental
restrictions or requirements binding upon the Borrower or any of its
Subsidiaries, as applicable, relating to the environment, or to employee health
or safety as it pertains to the use or handling of or exposure to noxious odors
or toxic, caustic or radioactive substances, materials or wastes (including,
without limitation, petroleum or petroleum products, polychlorinated biphenyls
(PCBs), asbestos or asbestos containing materials) or to the preservation or
reclamation of natural resources as a result of the actual or threatened
emission, discharge or release of pollutants or contaminants into the
environment including, without limitation, ambient air, surface water,
groundwater, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of any
such pollutants, contaminants, toxic, caustic or hazardous substances, materials
or wastes or the clean-up or other remediation thereof, including the Hazardous
Materials Transportation Act, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste
Amendments of 1984, the Federal Water Pollution Control Act, as amended by the
Clean Water Act of 1977, the Clean Air Act of 1970, as amended, the Toxic
Substances Control Act of 1976, the Occupational Safety and Health Act of 1970,
as amended, the Emergency Planning and Community Right-to-Know Act of 1986, the
Safe Drinking Water Act of 1974, as amended, and any similar or implementing
state law, and all amendments or regulations promulgated hereunder.
"Equity Prepayment Event" means the issuance of additional partnership
interests or equity securities, or receipt of additional capital contributions,
by the Borrower or the Parent Corporation, or any other equity investment in the
Borrower or the Parent Corporation, in each case after the Effective Date;
provided that (a) the foregoing shall not constitute "Equity Prepayment Events"
- --------
to the extent attributable to equity investments by members of management of the
Borrower (either made directly in the Borrower or indirectly by any partner in
or stockholder of the Borrower from funds obtained, directly or indirectly, from
such members of management) unless either (i) the aggregate Net Cash Proceeds
therefrom exceed $2,500,000 during any fiscal year of the Borrower or (ii) after
giving effect thereto the aggregate cumulative amount of Net Cash
<PAGE>
-10-
Proceeds therefrom since December 9, 1996, exceeds the sum of $1,000,000 plus
the aggregate cumulative amount of Restricted Payments made since December 9,
1996, pursuant to clause (e) of Section 5.12, in which case the foregoing shall
constitute "Equity Prepayment Events" to the extent of any such excess referred
to in clause (i) or (ii) above; (b) the foregoing shall not constitute an
"Equity Prepayment Event" to the extent attributable to the issuance by VP
Holding Corporation of preferred stock on or about December 9, 1996, and the
investment of the proceeds thereof, directly or indirectly, in the Borrower; and
(c) the foregoing shall not constitute an "Equity Prepayment Event" to the
extent attributable to the issuance and sale of common stock by the Parent
Corporation to a participant in a Parent Corporation Stock Plan pursuant to the
terms thereof.
"Equity Prepayment Percentage" means, with respect to the Net Cash
Proceeds of any Equity Prepayment Event, (i) 100%, if the Debt Coverage Ratio at
the time of receipt of such Net Cash Proceeds (but calculated prior to giving
effect to the receipt and application thereof) is greater than or equal to
4.0:1, (ii) 75%, if such Debt Coverage Ratio is greater than or equal to 3.0:1
but less than 4.0:1, (iii) 50%, if such Debt Coverage Ratio is greater than or
equal to 2.0:1 but less than 3.0:1 or (iv) 0.0% if such Debt Coverage Ratio is
less than 2.0:1.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower, are treated as a single employer under
Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Lender, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Euro-
Dollar Lending Office) or such other office, branch or affiliate of such Lender
as it may hereafter designate as its Euro-Dollar Lending Office by notice to the
Borrower and the Agent.
"Euro-Dollar Loan" means at any time a loan outstanding hereunder
which bears interest at such time at a rate based on the Adjusted London
Interbank Offered Rate pursuant to a Notice of Borrowing or Notice of Interest
Rate Election.
<PAGE>
-11-
"Euro-Dollar Margin" means, with respect to any Euro-Dollar Loan
outstanding on any day:
(A) 0.75%, if such day falls within a Level I Pricing Period;
(B) 0.875%, if such day falls within a Level II Pricing Period;
(C) 1.125%, if such day falls within a Level III Pricing Period;
(D) 1.25%, if such day falls within a Level IV Pricing Period; or
(E) 1.50%, if such day falls within a Level V Pricing Period.
"Euro-Dollar Reference Banks" means the principal London offices of
Midland Bank PLC, NationsBank of North Carolina, N.A. and Morgan Guaranty Trust
Company of New York.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.05(b).
"Event of Default" has the meaning set forth in Section 6.01.
"Excess Cash Flow" means, for any period, the excess, if any, of Cash
Available for Principal Payments for such period over the sum of (a) principal
payments made during such period in respect of Term Loans, but excluding (i) any
such principal payments made pursuant to subsection (e) or (f) of Section 2.08
or clause (iv) of Section 5.11(a) plus (b) principal payments made during such
period in respect of Capital Financing Debt (other than pursuant to a
refinancing) and any Debt incurred in reliance upon clause (iv) of Section
5.11(a).
"Existing Credit Agreement" means the Credit Agreement dated as of
April 30, 1997, among the Borrower, certain lenders, Morgan Guaranty Trust
Company of New York, as administrative agent, and Merrill Lynch Capital
Corporation, as documentation agent, as amended and in effect immediately prior
to the Amendment Effective Date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of l%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank
<PAGE>
-12-
of New York on the Domestic Business Day next succeeding such day, provided that
--------
(i) if such day is not a Domestic Business Day, the Federal Funds Rate for such
day shall be such rate on such transactions on the next preceding Domestic
Business Day as so published on the next succeeding Domestic Business Day, and
(ii) if no such rate is so published on such next succeeding Domestic Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to
Morgan Guaranty Trust Company of New York on such day on such transactions as
determined by the Agent.
"Finance Corp." means Brylane Capital Corp., a Delaware corporation,
and its successors.
"Financing Transactions" means the transactions contemplated by the
Loan Documents, including the borrowing of the Loans and the grant of security
interests under the Security Documents.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
the sum of (i) Adjusted EBITDA for such period plus (ii) rental expense deducted
in determining Consolidated Net Income for such period divided by (b) the sum of
rental expense and interest expense (excluding any portion of interest expense
representing amortization of financing costs paid in a previous period) deducted
in determining Consolidated Net Income for such period.
"FS&Co." means Freeman Spogli & Co., a California general partnership.
"Governmental Authority" means any federal, state, local or foreign
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), provided that the term Guarantee shall not include endorsements for
--------
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
<PAGE>
-13-
"Guarantee Agreement" means the Guarantee Agreement among the Parent
Corporation, the Subsidiaries and the Agent, substantially in the form of
Exhibit C hereto, as amended from time to time.
"Incremental Capital Expenditures" means any Capital Expenditures made
in reliance upon the proviso to Section 5.24.
"Initial Control Group" means (i) FS&Co. and its affiliates and (ii)
The Limited and its subsidiaries; provided that the Borrower and its
--------
Subsidiaries shall not be considered to be affiliates of FS&Co. or subsidiaries
of The Limited for purposes of identifying the "Initial Control Group".
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing or Notice of Interest Rate Election; provided that:
---------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c) below, end on the last Euro-Dollar Business
Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment of
principal of the Loans of the applicable Class is required to be made under
subsection (a), (b) or (c) of Section 2.08 but does not end on such date,
then (i) the principal amount (if any) of each Euro-Dollar Loan required to
be repaid on such date shall have an Interest Period ending on such date
and (ii) the remainder (if any) of each such Euro-Dollar Loan shall have an
Interest Period determined as set forth above;
(2) with respect to each Base Rate Borrowing, the period commencing
on the date of such Borrowing and ending on the next Quarterly Payment Date that
occurs thereafter; provided that:
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<PAGE>
-14-
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b)(i) below) which would otherwise end on a day which
is not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment of
principal of the Loans of the applicable Class is required to be made under
subsection (a), (b) or (c) of Section 2.08 but does not end on such date,
then (i) the principal amount (if any) of each Base Rate Loan required to
be repaid on such date shall have an Interest Period ending on such date
and (ii) the remainder (if any) of each such Base Rate Loan shall have an
interest Period determined as set forth above; and
(3) with respect to each Swingline Loan, the period commencing on the
date of such Loan and ending such number of days thereafter (but not exceeding
14 days) as the Borrower may elect in accordance with Section 2.04; provided
--------
that:
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"Investment" means any investment in any Person, whether by means of
share purchase, capital contribution, loan, time deposit or otherwise.
"Issuing Banks" means (i) Corestates Bank and (ii) any other Lender
that shall enter into an Issuing Bank Agreement as provided in Section 2.13(m),
in each case in their capacities as the issuers of Letters of Credit, and their
respective successors in such capacity.
"Issuing Bank Agreement" has the meaning set forth in Section 2.13.
"Lender" means each bank or other financial institution listed on the
signature pages hereof, each Assignee which becomes a Lender pursuant to Section
9.06(c), and their respective successors. References herein to a Lender or
Lenders may include the Issuing Bank or the Swingline Lender or both as the
context requires.
<PAGE>
-15-
"Letter of Credit" means any letter of credit issued pursuant to
Section 2.13. Each letter of credit outstanding under the Existing Credit
Agreement immediately prior to the Amendment Effective Date shall continue to
constitute a Letter of Credit as though issued hereunder on the Amendment
Effective Date.
"Letter of Credit Disbursement" means a payment or disbursement made
by an Issuing Bank pursuant to a Letter of Credit.
"Letter of Credit Exposure" means at any time the sum of (i) the
aggregate undrawn amount of all outstanding Letters of Credit plus (ii) the
aggregate amount of all Letter of Credit Disbursements not yet reimbursed by the
Borrower as provided in Section 2.13. The Letter of Credit Exposure of any
Lender at any time shall mean its Applicable Percentage of the aggregate Letter
of Credit Exposure at such time.
"Level I Pricing Period" means any period during which the Pricing
Ratio is less than or equal to 2.00:1 and no Event of Default has occurred and
is continuing.
"Level II Pricing Period" means any period during which the Pricing
Ratio is greater than 2.00:1 but less than or equal to 2.50:1 and no Event of
Default has occurred and is continuing.
"Level III Pricing Period" means any period during which the Pricing
Ratio is greater than 2.50:1 but less than or equal to 3.00:1 and no Event of
Default has occurred and is continuing.
"Level IV Pricing Period" means any period during which the Pricing
Ratio is greater than 3.00:1 but less than or equal to 3.50:1 and no Event of
Default has occurred and is continuing.
"Level V Pricing Period" means any period that is not a Level I
Pricing Period, a Level II Pricing Period, a Level III Pricing Period or a Level
IV Pricing Period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, the Borrower or any Subsidiary shall be
deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such asset.
<PAGE>
-16-
"Loan" means a Term Loan or a Revolving Loan (whether made as a Base
Rate Loan or a Euro-Dollar Loan) or a Swingline Loan, and "Loans" means Term
Loans or Revolving Loans or Swingline Loans or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, the Letters of
Credit, the Guarantee Agreement, the Trademark Collateral Agreement and the
Security Documents.
"London Interbank Offered Rate" has the meaning set forth in Section
2.05(b).
"Management Notes" means promissory notes payable to the Borrower from
members of management of the Borrower and contributed to the Borrower as an
equity investment in the Borrower; provided that the aggregate principal amount
--------
of such promissory notes at any time outstanding shall not exceed $3,500,000.
"Margin Stock" has the meaning given such term under Regulation U.
"Material Adverse Effect" means (i) a materially adverse effect on the
assets, financial condition or results of operations of the Borrower and its
Consolidated Subsidiaries taken as a whole, (ii) material impairment of the
ability of the Borrower or any Subsidiary to perform any material Obligations
under the Loan Documents, or (iii) material impairment of the rights of or
benefits available to the Lenders under any Loan Document.
"Material Debt" means Debt of the Borrower and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal amount exceeding $5,000,000.
"Maturity Date" means October [ ], 2002.
"Maximum Subordinated Debt Prepayment" means, with respect to any
Equity Prepayment Event, (i) if the Equity Prepayment Percentage with respect
thereto is 100%, then $0.00, (ii) if the Equity Prepayment Percentage with
respect thereto is 75%, then an amount equal to 25% of the Equity Prepayment
Percentage of the Net Cash Proceeds in respect of such Equity Prepayment Event,
(iii) if the Equity Prepayment Percentage with respect thereto is 50%, then an
amount equal to 50% of the Equity Prepayment Percentage of the Net Cash Proceeds
in respect of such Equity Prepayment Event, or (iv) if the Equity Prepayment
Percentage with respect thereto is 0.0%, then $0.00.
<PAGE>
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"Minimum Adjusted Net Worth" means, at any date, the sum of (a)
$80,000,000, plus (b) 90% (or, if as of the end of the fiscal quarter for which
an amount is being calculated for purposes of this clause (b) "Minimum Adjusted
Net Worth" exceeds $150,000,000, then 50%) of the excess of (i) Consolidated Net
Income in respect of each fiscal quarter of the Borrower ending after December
9, 1996, and prior to such date of determination (adjusted as provided below),
minus (ii) as long as the Borrower is a partnership, the decrease in
Consolidated Adjusted Net Worth attributable to Tax Advances and Tax
Distributions made in respect of the Tax Distribution Amount for such fiscal
quarter, plus (c) 90% of each increase in Consolidated Adjusted Net Worth
attributable to the issuance of additional partnership interests or equity
securities by, or capital contributions to, or other equity investments in, the
Borrower after the Effective Date; provided that (i) "Minimum Adjusted Net
--------
Worth" shall not decrease if the amount determined pursuant to clause (b) above
in respect of any fiscal quarter is negative (and any such negative amount shall
be disregarded in calculating "Minimum Adjusted Net Worth") and (ii) for
purposes of clause (b) above, Consolidated Net Income shall be adjusted to
eliminate the effects thereon of the amortization of the initial write-up of
inventories resulting from the Acquisition and any accounting adjustments
resulting from the Conversion.
"Mortgage" means a mortgage, deed of trust or other security document
granting a lien on a Mortgaged Property to secure the Obligations.
"Mortgaged Property" means each real property and the improvements
thereto identified on Schedule 2.
"Net Cash Proceeds" means, with respect to any Prepayment Event or
Reinvestment Event or any other event requiring a calculation of "Net Cash
Proceeds" hereunder, an amount equal to the cash proceeds (including insurance
proceeds and condemnation awards) received by the Borrower and its Subsidiaries
from or in respect of such event (including cash received as proceeds from any
noncash consideration received in respect of any such event), less (i) any
expenses reasonably incurred by the Borrower and its Subsidiaries in respect of
such event, (ii) in the case of an Asset Sale Prepayment Event or Reinvestment
Event, amounts required to be applied to repay Debt (other than Loans or
Subordinated Debt) associated with the assets or properties subject to such
Event and reasonable reserves established in good faith by the Borrower to
satisfy any indemnification obligations undertaken in connection with such Event
or to pay other retained liabilities associated with such assets or properties,
(iii) taxes paid or payable by the Borrower and its Subsidiaries (as determined
reasonably and in good faith by the chief financial officer or chief accounting
officer of the Borrower) in respect of such event and (iv) as long as the
Borrower is a partnership, the increase, if any, in the Tax Distribution
<PAGE>
-18-
Amount attributable to such event (as determined reasonably and in good faith by
the chief financial officer or chief accounting officer of the Borrower).
"Net Working Investment" means, at any date (i) the consolidated
current assets of the Borrower and its Consolidated Subsidiaries (excluding
cash, Temporary Cash Investments and the unamortized portion of the initial
write-up of inventories resulting from the Transactions) minus (ii) the
consolidated current liabilities of the Borrower and its Consolidated
Subsidiaries (excluding any current liabilities in respect of Debt), all
determined as of such date. Net Working Investment at any date may be a
positive or negative number. Net Working Investment increases when it becomes
more positive or less negative and decreases when it become less positive or
more negative.
"Note" means a promissory note of the Borrower payable to a Lender,
substantially in the form of Exhibit A hereto for the applicable Class,
evidencing the obligation of the Borrower to repay the Loans made by such Lender
of a particular Class, and "Notes" means any of or all such promissory notes
issued hereunder.
"Notice of Borrowing" has the meaning set forth in Section 2.02.
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.04.
"Obligations" means (a) the due and punctual payment by the Borrower
of (i) the principal of and interest on the Loans, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrower under Section
2.13 in respect of any Letter of Credit Disbursement, when and as due, including
interest thereon, if any, (iii) all other monetary obligations of the Borrower
to the Agent, the Security Agent, the Issuing Banks and the Lenders under this
Agreement and the other Loan Documents to which the Borrower is or is to be a
party and (iv) all monetary obligations of the Borrower under any Rate
Protection Agreement entered into with a counterparty that was a Lender at the
time such Rate Protection Agreement was entered into, (b) the due and punctual
performance of all other obligations of the Borrower under this Agreement and
the other Loan Documents and (c) the due and punctual payment and performance of
all obligations of each Subsidiary under the Loan Documents to which it is or is
to be a party.
"Parent" means, with respect to any Lender, any Person controlling
such Lender.
"Parent Corporation" means Brylane, Inc., a Delaware Corporation, and
its successors.
<PAGE>
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"Parent Corporation Stock Plan" means an employee stock purchase plan
(or similar employee benefit arrangement) for employees of the Borrower and its
Subsidiaries that is administered by the Parent Corporation and qualifies under
Section 423 of the Internal Revenue Code.
"Participant" has the meaning set forth in Section 9.06(b).
"Partnership Agreement" means the partnership agreement of the
Borrower, as amended from time to time.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Acquisition" means (a) any acquisition by the Borrower of
assets or properties (other than Investments) to be utilized in the Borrower's
business, or comprising a separate business of the same type conducted by the
Borrower prior to such acquisition, excluding assets and properties acquired in
the ordinary course of business or (b) any acquisition by the Borrower of all
the outstanding capital stock of a corporation; provided that (i) no Default has
--------
occurred and is continuing at the time of, or would result from, such
acquisition, (ii) the consideration paid by the Borrower in connection with such
acquisition consists entirely of cash or common stock or Permitted Preferred
Stock of the Parent Corporation, or warrants or options to acquire any such
common stock or Permitted Preferred Stock, or a combination thereof, (iii) the
aggregate cash consideration paid by the Borrower in connection with such
acquisition and all previous acquisitions constituting "Permitted Acquisitions"
does not exceed the sum of (A) $50,000,000 plus (B) the Net Cash Proceeds from
Equity Prepayment Events previously received by the Borrower minus (C) the sum
of the aggregate amount that the Borrower has expended to make Restricted
Payments pursuant to clauses (f) and (g) of Section 5.12 plus the aggregate
principal amount of Term Loans required to have been prepaid pursuant to
subsection (e) of Section 2.08 in respect of such Net Cash Proceeds and pursuant
to clause (g) of Section 5.12 in order to permit Restricted Payments thereunder,
and (iv) if such acquisition is made pursuant to clause (b) above, then (A)
substantially all the business of the acquired corporation is of the same type
as the business conducted by the Borrower prior to such acquisition, (B) the
acquired corporation does not have any Debt that will remain outstanding after
giving effect to such acquisition (other than Debt that would be permitted under
clause (vii) of Section 5.11(a) if incurred by the Borrower at the time of such
acquisition), (C) such corporation does not have any subsidiaries (other than
subsidiaries that are liquidated or merged into the Borrower within 90 days
after such acquisition or that constitute Permitted Subsidiaries) and (D) such
corporation is liquidated or merged into the Borrower within 90 days after such
acquisition.
<PAGE>
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Notwithstanding the foregoing, the Acquisition shall not be considered to be a
"Permitted Acquisition".
"Permitted Preferred Stock" means preferred stock issued by the Parent
Corporation that is not subject to any mandatory redemption, repurchase or
exchange requirements.
"Permitted Subsidiary" means any Subsidiary that (i) is a Wholly Owned
Consolidated Subsidiary and (ii) complies with the requirements set forth in
Section 5.04(c) or, in the case of Finance Corp., Section 5.04(b).
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Internal Revenue Code and is either (i) maintained by a
member of the ERISA Group for employees of a member of the ERISA Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions.
"Pledge Agreement" means the Pledge Agreement dated as of April 30,
1997, among the Borrower, the Subsidiaries parties thereto and the Security
Agent, as amended from time to time.
"Prepayment Event" means an Asset Sale Prepayment Event, a Debt
Prepayment Event or an Equity Prepayment Event.
"Pricing Ratio" means, at any date, the ratio of (i) the consolidated
Debt of the Borrower and its Consolidated Subsidiaries (excluding (a) the Letter
of Credit Exposure and the amount of any other outstanding letters of credit,
except to the extent such Letter of Credit Exposure and other outstanding
letters of credit represent unreimbursed drawings thereunder; provided that
--------
amounts excluded under this clause (a) shall not exceed $75,000,000, and (b)
contingent liabilities to repurchase accounts receivable pursuant to the Credit
Card Agreements, to the extent such contingent liabilities constitute Debt),
determined on a consolidated basis, divided by (ii) Adjusted EBITDA for the most
recent period of four consecutive fiscal quarters of the Borrower for which
financial statements have been delivered to the Agent; provided that, solely for
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purposes
<PAGE>
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of this definition, the consolidated Debt of the Borrower and its Consolidated
Subsidiaries shall be determined for purposes of clause (i) above on the basis
of (a) Term Loans outstanding on the last day of the most recent fiscal quarter
covered by the financial statements referred to in clause (ii) above, and (b)
the daily average outstanding amount of all other Debt during such most recent
period of four consecutive fiscal quarters; provided further that if the
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Acquisition or a Permitted Acquisition has occurred during the period since the
commencement of the period of four consecutive fiscal quarters for which such
Adjusted EBITDA has been determined and on or prior to such date of
determination, then such Adjusted EBITDA shall be determined on a pro forma
basis (i.e., based on the assumption that the Acquisition or such Permitted
----
Acquisition, as the case may be, occurred on the first day of such period of
four consecutive fiscal quarters) in accordance with generally accepted
accounting principles. A change in the Pricing Ratio shall be effective on the
date of receipt by the Agent of the Borrower's financial statements
demonstrating such change.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Payment Date" means each day that is the last Euro-Dollar
Business Day preceding the Saturday closest to January 31, April 30, July 31 and
October 31, of each year.
"Rate Protection Agreements" means interest rate protection
agreements, foreign currency exchange agreements and other interest or exchange
rate hedging, cap, collar or swap arrangements.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reinvestment Event" has the meaning set forth in the definition of
the term "Asset Sale Prepayment Event".
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA, or the regulations issued thereunder, with respect to a Plan
(other than those excepted from such reporting requirements by virtue-thereof).
"Required Lenders" means at any time Lenders with Loans, Letter of
Credit Exposure and unused Commitments representing at least a majority of the
sum of the aggregate principal amount of Loans outstanding and the aggregate
amount of the Letter of Credit Exposure and unused Commitments at such time.
<PAGE>
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"Restricted Payment" means (a) any Tax Advance, Tax Distribution or
other distribution by the Borrower to any one or more of the partners in the
Borrower or otherwise on account of any partnership interest in the Borrower,
(b) any payment or other consideration on account of the purchase, redemption,
retirement or acquisition of (i) any partnership interest in the Borrower or any
shares of the Parent Corporation's capital stock, (ii) any option, warrant or
other right to acquire any partnership interest in the Borrower or any shares of
the Parent Corporation's capital stock, (c) any payment or prepayment of
principal of or premium (if any) or interest on or any other amount in respect
of any Subordinated Debt, or (d) any payment or other consideration on account
of the prepayment, purchase, redemption, retirement, defeasance, acquisition,
termination, cancelation or compromise of any Subordinated Debt.
"Revolving Loan" means a loan made by a Lender pursuant to Section
2.01(c).
"Revolving Loan Availability Period" means the period from and
including the Effective Date to but excluding the Maturity Date, or such earlier
date as the Revolving Loan Commitments shall have expired or been terminated.
"Revolving Loan Commitment" means, as to any Lender, the obligation of
such Lender to make Revolving Loans to the Borrower and to acquire
participations in Letters of Credit in an aggregate principal amount at any one
time outstanding not exceeding the amount set forth opposite such Lender's name
in Schedule 1 hereto under the caption "Revolving Loan Commitment", as the same
may be reduced from time to time pursuant to Section 2.07 and subject to the
limitations of Sections 2.01(c) and 2.13.
"Security Agent" means Morgan Guaranty Trust Company of New York in
its capacity as security agent under the Security Documents and its successors
in such capacity.
"Security Agreement" means the Security Agreement dated as of April
30, 1997, among the Borrower, its Subsidiaries and the Security Agent, as
amended from time to time.
"Security Documents" means the Mortgages, the Pledge Agreement, the
Security Agreement and all other security agreements, mortgages, deeds of trust
and other documents and instruments executed and delivered pursuant to Section
5.08 in order to secure any Obligations.
"Stock Repurchase" means the repurchase by the Parent Corporation of
up to 2,500,000 shares of its common stock pursuant to the common stock
repurchase offer
<PAGE>
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described in the Form S-1 Registration Statement of the Parent Corporation filed
with the Securities and Exchange Commission on September 16, 1997, as amended
from time to time.
"Subordinated Debt" means the Convertible Subordinated Debt and Debt
in respect of the Subordinated Notes or any Debt incurred in compliance with
clause (ii) of Section 5.11(a) to refinance the Convertible Subordinated Debt or
the Subordinated Notes.
"Subordinated Debt Documents" means any indentures, notes or other
agreements, instruments or securities evidencing or governing the terms of any
Subordinated Debt, including any agreements or instruments pursuant to which any
Subordinated Debt is guaranteed or secured.
"Subordinated Debt Prepayment Amount" has the meaning set forth in
Section 2.08(e).
"Subordinated Guarantee Agreement" means an agreement pursuant to
which a Subsidiary Guarantees Subordinated Debt and which (i) is required by the
terms of a Subordinated Debt Document, (ii) is subordinated to such Subsidiary's
Debt in respect of the Obligations on the same terms that the Subordinated Debt
is required to be subordinated, (iii) is unsecured and (iv) does not impose any
additional covenants or other obligations (other than covenants and obligations
already contained in the Subordinated Debt Documents which become applicable by
virtue of such agreement) upon such Subsidiary.
"Subordinated Notes" means the senior subordinated notes due September
1, 2003 jointly issued by the Borrower and Finance Corp. in the aggregate
principal amount of $125,000,000.
"Subsidiary" means any corporation or other entity (including any
partnership) of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Borrower.
"Swingline Exposure" means at any time the aggregate principal amount
of all Swingline Loans outstanding at such time. The Swingline Exposure of any
Lender at any time shall mean its Applicable Percentage of the Swingline
Exposure at such time.
"Swingline Lender" means [ ], in its capacity as
lender of Swingline Loans hereunder, and its successors in such capacity.
<PAGE>
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"Swingline Loan" means a loan made by the Swingline Lender pursuant to
Section 2.14.
"Tax Advance" means any loan made to a partner in the Borrower in
accordance with Section 5.01(c) of the Partnership Agreement.
"Tax Distribution" means any distribution made to a partner in the
Borrower in accordance with Section 5.01(b) or (d) of the Partnership Agreement.
"Tax Distribution Amount" means, in respect of any period during which
the Borrower is a partnership, an amount equal to (a) the sum of the highest
marginal Federal income tax rate and highest state and local income or franchise
tax rate applicable to any corporate partner in the Borrower on its income from
the Borrower for such period, expressed as a percentage, multiplied by (b) the
Borrower's taxable income for such period; provided that (i) the foregoing shall
--------
be determined giving effect to the deduction of state and local income and
franchise taxes for purposes of determining Federal income taxes, (ii) the
foregoing shall be determined giving effect to any carry forward of cumulative
tax losses of the Borrower from any previous period (to the extent not
previously utilized) since the organization of the Borrower and any investment
tax credits and other tax credits generated by the Borrower and (iii) the tax
rates determined pursuant to clause (a) above shall be based on the actual tax
rates applicable to the Parent Corporation. The "Tax Distribution Amount" for
any period may be estimated for any period, provided that such estimate is
reasonably made by the Borrower's chief financial officer or chief accounting
officer in good faith, but in the event that the Borrower files any Federal
income tax return that is inconsistent with its estimate for any period (or in
the event that it is subsequently determined that such estimate or the amounts
reflected in any such Federal income tax return were incorrect) then an
appropriate adjustment shall be made to the Tax Distribution Amount for the next
succeeding period or periods to reflect such discrepancy. The "Tax Distribution
Amount" also shall be increased by the amount of any Tax Distribution to be made
in accordance with Section 5.01(d) of the Partnership Agreement.
"Temporary Cash Investment" means any Investment in (i) direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, (ii) commercial paper
rated in the highest grade by a nationally recognized credit rating agency,
(iii) time deposits with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000, (iv)
repurchase agreements with respect to securities described in clause (i) above
entered into with an office of a bank or trust company meeting the criteria
specified in clause (iii) above, or
<PAGE>
-25-
(v) any mutual fund managed by a reputable investment manager that invests
substantially all of its assets in Investments of the type described in clauses
(i), (ii), (iii) or (iv) above; provided in each case that such Investment
--------
matures within one year from the date of acquisition thereof by the Borrower or
a Subsidiary (except that an Investment described in clause (v) above need not
satisfy the foregoing maturity requirement, but such Investment shall be subject
to redemption on demand and the Investments made by such mutual fund shall
satisfy the foregoing maturity requirement).
"Term Commitment" means, as to any Lender, the obligation of such
Lender to make Term Loans to the Borrower in an aggregate principal amount not
exceeding the amount set forth opposite such Lender's name in Schedule 1 hereto
under the caption "Term Commitment", as the same may be reduced from time to
time pursuant to Section 2.07.
"Term Loan" means a loan made by a Lender pursuant to Section 2.01(a).
"Termination Date" means the last day of the Revolving Loan
Availability Period or such earlier date as the Revolving Loan Commitments shall
have expired or been terminated, all Revolving Loans have been repaid in full,
all Letter of Credit Disbursements shall have been repaid in full, and all
Letters of Credit shall have expired or been canceled.
"The Limited" means The Limited, Inc., a Delaware corporation, and its
successors.
"Trademark Agreements" means, collectively, (i) the Trademark License
Agreement and the Electronic Media Trademark License Agreement previously
entered into among certain subsidiaries of The Limited as contemplated by the
Transaction Agreement, the rights of the licensees under which have been
assigned to the Borrower, as amended from time to time and (ii) each of (A) the
Assignment and License of Trademarks Agreement among The TJX Companies, Inc.,
Chadwick's, Inc. and the Borrower, as amended from time to time, (B) the
Trademarks License Agreement among The TJX Companies, Inc. and the Borrower, as
amended from time to time, and (C) the Trademarks License Agreement among the
TJX Companies, Inc. and Chadwick's Trade Name Sub, Inc., as amended from time to
time, each as entered into in connection with the Acquisition.
"Trademark Collateral Agreement" means the Trademark Collateral
Agreement dated as of April 30, 1997, among each of The Limited, certain
subsidiaries thereof and the Security Agent, as amended from time to time.
<PAGE>
-26-
"Transaction Agreement" means the Transaction Agreement dated as of
July 13, 1993, among VGP, VLP and certain subsidiaries of The Limited, as
amended from time to time.
"Transaction Documents" means (i) the Transaction Agreement, the
Partnership Agreement, the Credit Card Agreements, the Asset Purchase Agreements
and the Trademark Agreements and (ii) any and all contracts and agreements in
effect on the Effective Date between the Borrower and any Subsidiary, on the one
hand, and any Person in the Initial Control Group, on the other hand.
"Transactions" means the Financing Transactions and the Acquisition.
"Trigger Date" means the first date on which the Debt Coverage Ratio
is 2.50:1.00 or less for two consecutive fiscal quarters.
"Type" has the meaning set forth in Section 1.03.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the present value of all vested benefits under
such Plan exceeds (ii) the fair market value of all Plan assets, all determined
as of the then most recent valuation date for such Plan based on the actuarial
assumptions used to fund the Plan, but only to the extent that such excess
represents a potential liability of a member of the ERISA Group to the PBGC or
the Plan under Title IV of ERISA.
"VGP" means VGP Corporation, a Delaware corporation, and its
successors.
"VLP" means VLP Corporation, a Delaware corporation, and its
successors.
"Wholly Owned Consolidated Subsidiary" means any Consolidated
Subsidiary all of the shares of capital stock or other ownership interests of
which (except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
SECTION 1.02. Accounting Terms and Determinations. Unless otherwise
------------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated
<PAGE>
-27-
Subsidiaries delivered to the Lenders; provided that, if the Borrower notifies
--------
the Agent that the Borrower wishes to amend any covenant contained in Article V
or the definition of "Pricing Ratio" to eliminate the effect of any change in
generally accepted accounting principles on the operation of such covenant or
such definition (or if the Agent notifies the Borrower that the Required Lenders
wish to amend any such covenant or such definition for such purpose), then the
Borrower's compliance with such covenant or the calculation of the Pricing
Ratio, as applicable, shall be determined on the basis of generally accepted
accounting principles in effect immediately before the relevant change in
generally accepted accounting principles became effective, until either such
notice is withdrawn or such amendment becomes effective in accordance with this
Agreement.
SECTION 1.03. Types of Borrowings. The term "Borrowing" refers to
--------------------
the portion of the aggregate principal amount of Loans of any Class outstanding
hereunder which bears interest of a specific Type and for a specific Interest
Period (subject to clauses (1)(c), and (2)(b) of the definition of Interest
Period) pursuant to a Notice of Borrowing or Notice of Interest Rate Election.
Each Lender's ratable share of each Borrowing is referred to herein as a
separate "Loan". Borrowings and Loans hereunder are distinguished by "Class"
and by "Type". The "Class" of a Loan (or of a Commitment to make such a Loan or
of a Borrowing comprising such Loans) refers to whether such Loan is a Term Loan
or a Revolving Loan, each of which constitutes a Class. The "Type" of a Loan
refers to whether such Loan is a Base Rate Loan, a Euro-Dollar Loan or a
Swingline Loan. Borrowings and Loans may be identified by both Class and Type
(e.g., a "Revolving Euro-Dollar Loan" is a Loan which is both a Revolving Loan
- -----
and a Euro-Dollar Loan).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. (a) Term Loans. Each Lender
-------------------- -----------
having a Term Loan Commitment severally agrees, on the terms and conditions set
forth in this Agreement, to make a loan to the Borrower on the Amendment
Effective Date in an aggregate principal amount not exceeding its Term
Commitment.
(b) Revolving Loans. Each Lender having a Revolving Loan Commitment
----------------
severally agrees, on the terms and conditions set forth in this Agreement, to
make loans to the Borrower from time to time during the Revolving Loan
Availability Period; provided that the aggregate principal amount of such
--------
Lender's loans at any one time outstanding shall not exceed the excess of (i)
the lesser of its Revolving Loan Commitment or its Applicable Percentage of the
Borrowing Base at such time, over (ii) its Letter of Credit
<PAGE>
-28-
Exposure at such time. Within the foregoing limit, the Borrower may borrow under
this subsection (c), repay or (to the extent permitted by Section 2.09) prepay
loans made under this subsection (c) and reborrow at any time during the
Revolving Loan Availability Period under this subsection (c).
(c) Borrowings Ratable. Each Borrowing under subsection (a), (b) or
-------------------
(c) of this Section 2.01 shall be made from the Lenders ratably in proportion to
their respective Commitments of the relevant Class.
SECTION 2.02. Method of Borrowing. (a) The Borrower shall give the
--------------------
Agent notice (a "Notice of Borrowing") not later than 10:00 A.M. (New York City
time) on the date of any Base Rate Borrowing and not later than 10:00 A.M. (New
York City time) at least three Euro-Dollar Business Days before each Euro-Dollar
Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing, which shall be
$5,000,000 or a larger multiple of $1,000,000 (except that any Borrowing
may be in the aggregate amount of the unused Commitment of the applicable
Class);
(iii) whether the Loans comprising such Borrowing are to be Base Rate
Loans or Euro-Dollar Loans; and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period.
(b) Upon receipt of a Notice of Borrowing, the Agent shall promptly
notify each Lender of the contents thereof and of such Lender's share of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(c) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Lender shall (except as provided in subsection (d) of this
Section) make available its share of such Borrowing, in Federal or other funds
immediately available in New York City, to the Agent at its address specified in
or pursuant to Section 10.01. Unless the Agent determines that any applicable
condition specified in Article III has not been satisfied, the Agent will make
the funds so received from the Lenders available to the Borrower at the Agent's
aforesaid address.
<PAGE>
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(d) If any Lender (including the Swingline Lender) makes a new Loan
hereunder on a day on which the Borrower is to repay all or any part of an
outstanding Loan from such Lender, such Lender shall apply the proceeds of its
new Loan to make such repayment and only an amount equal to the difference (if
any) between the amount being borrowed and the amount being repaid shall be made
available by such Lender to the Agent as provided in subsection (b), or remitted
by the Borrower to the Agent as provided in Section 2.10, as the case may be.
(e) If the Agent has not received from the Borrower the payment
required by Section 2.13(g) by 12:30 P.M. (New York City time) on the date on
which an Issuing Bank has notified the Borrower and the Agent that payment of a
draft presented under any Letter of Credit will be made, as provided in Section
2.13(g), the Agent will promptly notify such Issuing Bank and each Lender of the
Letter of Credit Disbursement and, in the case of each Lender, its Applicable
Percentage of such Letter of Credit Disbursement. Not later than 2:00 P.M. (New
York City time) on such date, each Lender shall make available such Lender's
Applicable Percentage of such Letter of Credit Disbursement, in Federal or other
funds immediately available in New York City, to the Agent at its address
specified in or pursuant to Section 9.01, and the Agent will promptly make such
funds available to the applicable Issuing Bank. The Agent will promptly remit
to each Lender that shall have made such funds available its Applicable
Percentage of any amounts subsequently received by the Agent from the Borrower
in respect of such Letter of Credit Disbursement.
(f) Unless the Agent shall have received notice from a Lender prior
to the date of any Borrowing, or prior to the time of any required payment by
such Lender in respect of a Letter of Credit Disbursement, that such Lender will
not make available to the Agent such Lender's share of such Borrowing or
payment, the Agent may assume that such Lender has made such share available to
the Agent on the date of such Borrowing or payment in accordance with
subsections (c) and (d) or (e), as applicable, of this Section 2.02 and the
Agent may, in reliance upon such assumption, make available to the Borrower or
an Issuing Bank, as applicable, on such date a corresponding amount. If and to
the extent that such Lender shall not have so made such share available to the
Agent, such Lender and the Borrower severally agree to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available by the Agent until the
date such amount is repaid to the Agent, at (i) in the case of the Borrower, a
rate per annum equal to the higher of the Federal Funds Rate and the interest
rate applicable thereto pursuant to Section 2.05 or Section 2.13(g), as
applicable, and (ii) in the case of such Lender, the Federal Funds Rate. If
such Lender shall repay to the Agent such corresponding amount in respect of a
Borrowing, such amount so repaid shall constitute such Lender's Loan included in
such Borrowing for purposes of this Agreement.
<PAGE>
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SECTION 2.03. Notes. (a) Each Lender's Term Loans and Revolving
------
Loans shall be evidenced by a separate Note (in the form applicable to such
Class) payable to the order of such Lender for the account of its Applicable
Lending Office in an amount equal to (i) in the case of its Note evidencing Term
Loans, the aggregate principal amount of Term Loans made by such Lender (or its
predecessor in interest) on the Effective Date, or (ii) in the case of its Note
evidencing Revolving Loans, the aggregate Commitment of such Lender of such
Class.
(b) Each Lender may, by notice to the Borrower and the Agent, request
that its Loans of a particular Type and Class be evidenced by a separate Note.
Each such Note shall be in substantially the form of Exhibit A hereto applicable
to the relevant Class with appropriate modifications to reflect the fact that it
evidences solely Loans of the relevant Type. Each reference in this Agreement
to the "Note" or "Notes" of such Lender shall be deemed to refer to and include
any or all of such Notes, as the context may require.
(c) Upon receipt of each Lender's Note or Notes pursuant to Section
3.01(b), the Agent shall mail such Note or Notes to such Lender. Each Lender
shall record the date and amount of each Loan made by it and the date and amount
of each payment of principal made by the Borrower with respect thereto, and
prior to any transfer of any of its Notes shall endorse on the schedule forming
a part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of any
--------
Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Lender is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
SECTION 2.04. Interest Rate Elections. (a) The initial Type of
------------------------
Loans comprising each Borrowing, and the duration of the initial Interest Period
applicable thereto if they are initially Euro-Dollar Loans, shall be as
specified in the applicable Notice of Borrowing. Thereafter, the Borrower may
from time to time elect to change or continue the Type of, or the duration of
the Interest Period applicable to, the Loans included in any Borrowing
(excluding overdue Loans and subject in each case to the provisions of the
definition of Interest Period and Article VIII), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
designate such Loans as Euro-Dollar Loans, may elect to continue such Loans
as Base Rate Loans for an additional Interest Period, or may elect to
designate such Loans as any combination of Base Rate Loans and Euro-Dollar
Loans; and
<PAGE>
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(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
designate such Loans as Base Rate Loans, may elect to continue such Loans
as Euro-Dollar Loans for an additional Interest Period, or may elect to
designate such Loans as any combination of Base Rate Loans and Euro-Dollar
Loans.
Notwithstanding the foregoing, the Borrower may not elect an Interest Period for
Euro-Dollar Loans of any Class unless (A) the aggregate outstanding principal
amount of such Euro-Dollar Loans (including any such Euro-Dollar Loans of the
same Class made pursuant to Section 2.01 on the date that such Interest Period
is to begin) to which such Interest Period will apply is at least $5,000,000 and
(B) such election will not result in the total number of outstanding Euro-Dollar
Borrowings exceeding 10 at any time.
(b) Any election permitted by subsection (a) of this Section may
become effective on any Euro-Dollar Business Day specified by the Borrower (the
"Election Date"); provided that the Borrower may not specify an Election Date
--------
with respect to an outstanding Euro-Dollar Loan that is not the last day of the
Interest Period therefor. Each such election shall be made by the Borrower by
delivering a notice (a "Notice of Interest Rate Election") to the Agent not
later than 10:00 A.M. (New York City time) at least one Domestic Business Day
before the Election Date, if all the resulting Loans will be Base Rate Loans,
and at least three Euro-Dollar Business Days before the Election Date, if the
resulting Loans will include Euro-Dollar Loans. Each Notice of Interest Rate
Election shall specify with respect to the outstanding Loans to which such
notice applies:
(i) the Election Date;
(ii) if the Type of Loan is to be changed, the new Type of Loan and,
if such new Type is a Euro-Dollar Loan, the duration of the first Interest
Period applicable thereto;
(iii) if such Loans are Euro-Dollar Loans and the Type of such Loans
is to be continued for an additional or different Interest Period, the
duration of such additional or different Interest Period; and
(iv) if such Loans are to be designated as a combination of Base Rate
Loans and Euro-Dollar Loans, the information specified in clauses (i)
through (iii) above as to each resulting Borrowing and the aggregate amount
of each such Borrowing.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period and the last
sentence of subsection (a) of this Section.
<PAGE>
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(c) Upon receipt of a Notice of Interest Rate Election, the Agent
shall promptly notify each Lender of the contents thereof and of such Lender's
share of such Borrowing and such notice shall not thereafter be revocable by the
Borrower.
(d) If the Borrower (i) fails to deliver a timely Notice of Interest
Rate Election to the Agent electing to continue or change the Type of, or the
duration of the Interest Period applicable to, the Loans included in any
Borrowing as provided in this Section and (ii) has not theretofore delivered a
notice of prepayment relating to such Loans, then the Borrower shall be deemed
to have given the Agent a Notice of Interest Rate Election electing to change
the Type of such Loans to (or continue the Type thereof as) Base Rate Loans,
with an Interest Period commencing on the last day of the then current Interest
Period.
SECTION 2.05. Interest Rates. (a) Each Base Rate Loan shall bear
---------------
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the sum of
the applicable Base Rate Margin at the time and the Base Rate for such day.
Such interest shall be payable for each Interest Period on the last day thereof.
Any overdue principal of and, to the extent permitted by law, overdue interest
on any Base Rate Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the sum of 2% plus the rate otherwise
applicable to such Base Rate Loan for such day. Each Swingline Loan shall be a
Base Rate Loan and shall bear interest as provided in this paragraph.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at a rate
per annum equal to the sum of the applicable Euro-Dollar Margin at the time plus
the applicable Adjusted London Interbank Offered Rate. Such interest shall be
payable for each Interest Period on the last day thereof and, if such Interest
Period is longer than three months, at intervals of three months after the first
day thereof.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100 of l%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upwards, if necessary, to the next higher 1/16 of l%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such
<PAGE>
-33-
Euro-Dollar Reference Bank to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Lender to
United States residents). The Adjusted London Interbank Offered Rate shall be
adjusted automatically on and as of the effective date of any change in the
Euro-Dollar Reserve Percentage.
(c) Any overdue principal of and, to the extent permitted by law,
overdue interest on any Euro-Dollar Loan shall bear interest, payable on demand,
for each day from and including the date payment thereof was due to but
excluding the date of actual payment, at a rate per annum equal to the sum of 2%
plus the higher of (i) the sum of the applicable Euro-Dollar Margin at the time
plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii)
the applicable Euro-Dollar Margin at the time plus the quotient obtained
(rounded upwards, if necessary, to the next higher 1/100 of l%) by dividing (x)
the average (rounded upwards, if necessary, to the next higher 1/16 of 1%) of
the respective rates per annum at which one-day (or, if such amount due remains
unpaid more than three Euro-Dollar Business Days, then for such other period of
time not longer than three months as the Agent may select) deposits in dollars
in an amount approximately equal to such overdue payment due to each of the
Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in
the London interbank market for the applicable period determined as provided
above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a
rate per annum equal to the sum of 2% plus the rate applicable to Base Rate
Loans for such day).
(d) The Agent shall determine each interest rate applicable to the
Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Lenders by telecopy, telex or cable of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(e) Each Euro-Dollar Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If any Euro-
Dollar Reference Bank does not furnish a timely quotation, the Agent shall
determine the relevant
<PAGE>
-34-
interest rate on the basis of the quotation or quotations furnished by the
remaining Euro-Dollar Reference Bank or Banks or, if none of such quotations is
available on a timely basis, the provisions of Section 8.01 shall apply.
SECTION 2.06. Commitment Fees. During the period from and including
----------------
the date of execution and delivery of this Agreement to but excluding the last
day of the Revolving Loan Availability Period, the Borrower shall pay to the
Agent for the account of the Lenders ratably in proportion to their Revolving
Loan Commitments a commitment fee at the applicable rate specified below on the
daily average amount by which the aggregate amount of the Revolving Loan
Commitments exceeds the sum of the Letter of Credit Exposure and the aggregate
outstanding principal amount of the Revolving Loans. Such commitment fee shall
accrue at the rate of (i) 0.25% per annum during any Level I Pricing Period,
(ii) 0.30% per annum during any Level II Pricing Period, (iii) 0.375% per annum
during any Level III Pricing Period or Level IV Pricing Period or (iv) 0.4375%
during any Level V Pricing Period. If the rate at which the commitment fee
accrues shall change, the daily average amount referred to above shall be
determined separately for the periods before and after such change. During the
period from and including the date of execution and delivery of this Agreement
to but excluding the Effective Date or earlier termination of the Term
Commitments, the Borrower shall pay to the Agent for the account of the Lenders
ratably in proportion to their Term Commitments a commitment fee at the rate of
0.50% per annum on the amount of their respective Term Commitments. All such
commitment fees shall accrue from and including the date of execution and
delivery of this Agreement to but excluding, in the case of the Term
Commitments, the Effective Date or earlier termination of the Term Commitments,
or, in the case of the Revolving Loan Commitments, the last day of the Revolving
Loan Availability Period. Accrued commitment fees under this paragraph shall be
calculated by the Agent as of the Effective Date, as of each Quarterly Payment
Date and as of the date of termination of the Revolving Loan Commitments in
their entirety. The Agent shall make such calculation and notify the Borrower
of the amount so calculated within three Domestic Business Days after each date
as of which such calculation is so required, and such fees shall be payable by
the Borrower upon receipt of such notice, except that commitment fees accrued
prior to the Effective Date or any earlier termination of the Commitments shall
be payable on such date.
SECTION 2.07. Termination or Reduction of Commitments. (a) During
----------------------------------------
the Revolving Loan Availability Period, the Borrower may, upon at least three
Domestic Business Days' notice to the Agent, (i) terminate the Revolving Loan
Commitments at any time, if there is no Letter of Credit Exposure at such time
and if no Revolving Loans are outstanding at such time, or (ii) ratably reduce
from time to time by an aggregate amount of $5,000,000 or any larger multiple of
$1,000,000 the aggregate amount of the Revolving Loan Commitments in excess of
the sum of the Letter of Credit Exposure and the
<PAGE>
-35-
aggregate outstanding principal amount of the Revolving Loans and Swingline
Loans; provided that the Borrower may not terminate or reduce the Revolving Loan
--------
Commitments pursuant to this subsection (a) at any time that any Term Loans
remain outstanding.
(b) After the Term Loans have been fully repaid, the Revolving Loan
Commitments shall be ratably reduced at each time that a prepayment would have
been required in respect of the Term Loans pursuant to subsection (e) or (f) of
Section 2.08 if Term Loans were then outstanding, by an amount equal to the
prepayment that would have been so required.
(c) The Term Commitments shall automatically terminate at the close
of business on the Amendment Effective Date.
SECTION 2.08. Mandatory Repayments and Prepayments. (a) Subject to
-------------------------------------
adjustment as provided in subsection (i) of this Section, on each date specified
below the Borrower shall repay Term Loans in the aggregate amount, if any, set
forth under the caption "Amount" opposite such date:
Amount
--------------
May 2, 1998 $ 2,500,000.00
August 1, 1998 $ 2,500,000.00
October 31, 1998 $ 2,500,000.00
January 30, 1999 $ 2,500,000.00
May 1, 1999 $ 5,000,000.00
July 31, 1999 $ 5,000,000.00
October 30, 1999 $ 5,000,000.00
January 29, 2000 $ 5,000,000.00
April 29, 2000 $10,000,000.00
July 29, 2000 $10,000,000.00
October 28, 2000 $10,000,000.00
February 3, 2001 $10,000,000.00
May 5, 2001 $15,000,000.00
August 4, 2001 $15,000,000.00
November 3, 2001 $15,000,000.00
February 2, 2002 $15,000,000.00
May 4, 2002 $15,000,000.00
Maturity Date $15,000,000.00
(b) Any Term Loans outstanding on the Maturity Date shall be due and
payable on such date, together with accrued interest thereon.
<PAGE>
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(c) Any Revolving Loans and Swingline Loans outstanding on the
Termination Date shall be due and payable on such date, together with accrued
interest thereon.
(d) In the event and on each occasion that the sum of the Letter of
Credit Exposure plus the aggregate outstanding principal amount of the Revolving
Loans and the Swingline Loans exceeds the lesser of the Borrowing Base or the
sum of the Revolving Loan Commitments, the Borrower shall forthwith prepay
Revolving Loans or Swingline Loans (or, if no Revolving Loans or Swingline Loans
are outstanding, provide cash collateral in respect of the Letter of Credit
Exposure pursuant to Section 2.13(k) and thereupon such cash shall be deemed to
reduce the Letter of Credit Exposure by an equivalent amount solely for purposes
of this subsection) in an amount equal to such excess.
(e) Subject to subsection (k) below, in the event and on each
occasion after the Effective Date that a Prepayment Event occurs, the Borrower
shall, promptly following (and in any event not later than the Domestic Business
Day next following) the receipt of Net Cash Proceeds in respect of such
Prepayment Event, prepay Term Loans in an aggregate principal amount equal to
100% of such Net Cash Proceeds, in the case of an Asset Sale Prepayment Event or
Debt Prepayment Event, or the applicable Equity Prepayment Percentage of such
Net Cash Proceeds, in the case of an Equity Prepayment Event; provided that (i)
--------
no such prepayment shall be required in an aggregate principal amount less than
$1,000,000 and any receipt of Net Cash Proceeds that would otherwise result in
prepayment of a lesser amount shall cumulate until the aggregate amount of Net
Cash Proceeds from Prepayment Events received and not yet applied hereunder
equals or exceeds $1,000,000, at which time such prepayment shall be made, and
(ii) in the case of an Equity Prepayment Event, if no Default has occurred and
is continuing at the time, the Borrower may, at its option, elect by notice
delivered to the Agent on or prior to the date that the prepayment in respect of
such event would be required pursuant to the foregoing provisions of this
subsection (e), to apply an amount specified in such notice (the amount so
specified, the "Subordinated Debt Prepayment Amount") to purchase, redeem,
prepay or acquire Subordinated Debt in accordance with clause (f) of Section
5.12; provided that the Subordinated Debt Prepayment Amount in respect of any
--------
Equity Prepayment Event shall not exceed the Maximum Subordinated Debt
Prepayment with respect thereto. If the Borrower delivers to the Agent a notice
with respect to an Equity Prepayment Event as provided in clause (ii) above,
then the prepayment of Term Loans required pursuant to this subsection (e) with
respect to such event shall be reduced by the Subordinated Debt Prepayment
Amount specified in such notice; provided that on the date 90 days after the
--------
date that such prepayment would have been required the Borrower shall deliver to
the Agent a certificate specifying the aggregate amount of Restricted Payments
made pursuant to clause (f) of Section 5.12 in respect of the applicable Equity
Prepayment Event and
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shall prepay Term Loans in an aggregate principal amount equal to the excess, if
any, of the Subordinated Debt Prepayment Amount specified by the Borrower in its
notice to the Agent referred to above over the aggregate amount of Restricted
Payments so made.
(f) Subject to subsection (k) below, as promptly as practicable but
in any event within 90 days after the end of each fiscal year of the Borrower,
commencing with the fiscal year ending on the Saturday closest to January 31,
1998, the Borrower shall prepay Term Loans in an aggregate principal amount
equal to the Excess Cash Flow with respect to such fiscal year multiplied by (i)
60%, if the Debt Coverage Ratio as of the last day of such fiscal year was
greater than or equal to 2.50:1 or (ii) 50%, if the Debt Coverage Ratio as of
the last day of such fiscal year was less than 2.50:1 but greater than or equal
to 2.00:1; provided that no prepayment shall be required pursuant to this
--------
subsection (f) with respect to the Excess Cash Flow for any fiscal year if the
Debt Coverage Ratio as of the last day of such fiscal year was less than 2.00:1.
The Borrower shall deliver to the Agent at or prior to the time of each
prepayment pursuant to this subsection (f) a certificate executed by the chief
financial officer of the Borrower setting forth, in a form acceptable to the
Agent, a reasonably detailed calculation of the amount of such prepayment.
(g) On the date of each repayment or prepayment of Loans pursuant to
this Section, the Borrower shall pay interest accrued on the principal amount
repaid or prepaid to the day of repayment or prepayment. The repayments and
prepayments of the Loans required by the respective subsections of this Section
and the optional prepayments permitted by Section 2.09 are separate and
cumulative, so that any one such repayment or prepayment shall reduce any other
repayment or prepayment only as and to the extent specified in subsection (i) of
this Section.
(h) Prior to the date of each mandatory repayment or prepayment
pursuant to this Section, the Borrower shall, by notice to the Agent given not
later than 11:00 A.M. (New York City time) on the third Euro-Dollar Business Day
prior to the date of such repayment or prepayment, select which outstanding
Borrowings of the required Class are to be repaid or prepaid (in accordance with
subsection (i) of this Section, if applicable); provided that the Borrower shall
--------
not elect to prepay any Euro-Dollar Borrowing if a Base Rate Borrowing of the
required Class is outstanding. Upon receipt of such notice, the Agent shall
promptly notify each Lender of the contents thereof and of such Lender's ratable
share of such prepayment, and such notice shall not thereafter be revocable by
the Borrower. Each such repayment or prepayment shall be applied to repay or
prepay ratably the respective Loans included in the Borrowings so selected.
(i) Any mandatory prepayment of the Term Loans pursuant to subsection
(e) or (f) of this Section, and any optional prepayment of the Term Loans
<PAGE>
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pursuant to Section 2.09, shall be applied to reduce the remaining scheduled
repayments of the Term Loans pursuant to subsection (a) of this Section pro
rata, except as provided in clause (iv) of Section 5.11(a) with respect to a
Debt Prepayment Event.
(j) Each Swingline Loan shall mature, and the principal amount
thereof shall be due and payable, together with accrued interest thereon, on the
last day of the Interest Period applicable to such Swingline Loan.
(k) Notwithstanding any other provisions of this Section, no
mandatory prepayment of the Term Loans shall be required pursuant to subsection
(e) or (f) of this Section after the Trigger Date so long as the Debt Coverage
Ratio remains 2.50:1.00 or less.
SECTION 2.09. Optional Prepayments. (a) Subject to subsection (b)
---------------------
below, the Borrower may, upon at least one Domestic Business Day's notice to the
Agent, in the case of Base Rate Borrowings, or three Euro-Dollar Business Days'
notice to the Agent, in the case of Euro-Dollar Borrowings, prepay any Borrowing
in whole at any time, or from time to time in part in amounts aggregating
$5,000,000 or any larger multiple of $1,000,000, by paying the principal amount
to be prepaid together with accrued interest thereon to the date of prepayment.
Each such notice of prepayment shall specify which outstanding Borrowing is to
be prepaid in connection therewith. Each such optional prepayment shall be
applied to prepay ratably the Loans of the several Lenders included in such
Borrowing.
(b) Except as provided in Section 8.02, the Borrower may not
voluntarily prepay all or any portion of the principal amount of any Euro-Dollar
Borrowing prior to the end of the related Interest Period. Any prepayment of a
Borrowing pursuant to this Section that includes Term Loans of either Class
shall be subject to the requirements of subsection (i) of Section 2.08.
(c) The Borrower may, upon notice to the Agent prior to 12:00 Noon
(New York City time) on the date of prepayment (which shall be a Domestic
Business Day), prepay any Swingline Loan in whole at any time, or from time to
time in part in amounts aggregating $1,000,000 or any multiple of $500,000 in
excess thereof, by paying the principal amount to be prepaid together with
accrued interest thereon to the date of prepayment.
(d) Upon receipt of a notice of prepayment pursuant to this Section,
the Agent shall promptly notify each Lender (or, in the case of a Swingline
Loan, the Swingline Lender) of the contents thereof and of such Lender's ratable
share of such prepayment and such notice shall not thereafter be revocable by
the Borrower.
<PAGE>
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SECTION 2.10. General Provisions as to Payments. (a) The Borrower
----------------------------------
shall make each payment of principal of, and interest on, the Loans and of fees
hereunder, not later than 12:00 Noon (New York City time) on the date when due,
in Federal or other funds immediately available in New York City, to the Agent
at its address referred to in Section 9.01. The Agent will promptly distribute
to each Lender its ratable share of each such payment received by the Agent for
the account of the Lenders. Whenever any payment of principal of, or interest
on, the Base Rate Loans or of fees shall be due on a day which is not a Domestic
Business Day, the date for payment thereof shall be extended to the next
succeeding Domestic Business Day. Whenever any payment of principal of, or
interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-
Dollar Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the date for payment thereof shall be
the next preceding Euro-Dollar Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to the Lenders hereunder that the
Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each Lender on
such due date an amount equal to the amount then due such Lender. If and to the
extent that the Borrower shall not have so made such payment, each Lender shall
repay to the Agent forthwith on demand such amount distributed to such Lender
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.11. Funding Losses. If any payment of principal with
---------------
respect to any Euro-Dollar Loan (pursuant to Article II, VI or VIII or
otherwise) is made on any day other than the last day of the Interest Period
applicable thereto, or the end of an applicable period fixed pursuant to Section
2.05(c), or if the Borrower fails to borrow, continue or prepay any Euro-Dollar
Loans after notice has been given to any Lender in accordance with Section 2.02,
2.04 or 2.08, the Borrower shall reimburse each Lender within 15 days after
demand for any resulting loss or expense incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
failure to borrow, provided that such Lender shall have delivered to the
--------
Borrower a certificate as to the amount of such loss or expense, which
certificate shall be conclusive in the absence of manifest error.
<PAGE>
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SECTION 2.12. Computation of Interest and Fees. Interest based on
---------------------------------
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All fees and other
interest shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.13. Letters of Credit. (a) The Borrower may request the
------------------
issuance, extension or renewal of Letters of Credit, in a form reasonably
acceptable to the Agent and the applicable Issuing Bank, appropriately
completed, for the account of the Borrower, at any time and from time to time
during the Revolving Loan Availability Period; provided that any Letter of
--------
Credit shall be issued only if, and each request by the Borrower for the
issuance of any Letter of Credit shall be deemed a representation and warranty
of the Borrower that, immediately following the issuance of any such Letter of
Credit, (i) the Letter of Credit Exposure shall not exceed $75,000,000, (ii) the
sum of the Letter of Credit Exposure and the aggregate principal amount of
outstanding Revolving Loans and Swingline Loans shall not exceed the then
current Borrowing Base and (iii) the sum of the Letter of Credit Exposure and
the aggregate principal amount of outstanding Revolving Loans and Swingline
Loans shall not exceed the aggregate Revolving Loan Commitments at the time.
(b) Each Letter of Credit shall expire at the close of business on
the date that is five Domestic Business Days prior to the last day of the
Revolving Loan Availability Period, unless such Letter of Credit expires by its
terms (or is required by subsection (c) below to expire) on an earlier date.
Each Letter of Credit shall provide for payments of drawings in dollars.
(c) Each issuance of any Letter of Credit shall be made on at least
three Domestic Business Days' prior written or telex notice (or such shorter
notice as shall be acceptable to the applicable Issuing Bank) from the Borrower
to the Agent (which shall give prompt notice thereof to each Lender) and the
applicable Issuing Bank specifying the date of issuance, the date on which such
Letter of Credit is to expire (which shall not be later than the earlier of (i)
the date that is five Domestic Business Days prior to the last day of the
Revolving Loan Availability Period, and (ii) subject to extension, 180 days, in
the case of documentary or trade Letters of Credit, and one year, in the case of
standby Letters of Credit, after the date of any such Letter of Credit, or, if
such Letter of Credit provides that the expiry thereof may be accelerated upon
an Event of Default with respect to the Borrower specified in clause (h) or (i)
of Section 6.01, any later date permitted under clause (i) above), the amount of
such Letter of Credit, the name and address of the beneficiary of such Letter of
Credit, whether such Letter of Credit is a documentary or trade Letter of Credit
or a standby Letter of Credit, and such other information as may be
<PAGE>
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necessary or desirable to complete such Letter of Credit. Each Issuing Bank will
give the Agent prompt notice of the issuance and amount of such Letter of Credit
and the expiration of such Letter of Credit. Each Issuing Bank also will give
the Agent and the Borrower (i) daily notice of the amount available to be drawn
under each outstanding Letter of Credit and (ii) a quarterly summary indicating,
on a daily basis during such quarter, the issuance of any Letter of Credit and
the amount thereof, the expiration of any Letter of Credit and any payment on
drafts presented under Letters of Credit.
(d) Each Issuing Bank that issues a Letter of Credit, by the issuance
of a Letter of Credit and without any further action on the part of such Issuing
Bank or the Lenders in respect thereof, hereby grants to each Lender, and each
Lender hereby acquires from such Issuing Bank, a participation in such Letter of
Credit equal to such Lender's Applicable Percentage of the aggregate amount
available to be drawn under such Letter of Credit, effective upon the issuance
of such Letter of Credit. In consideration and in furtherance of the foregoing,
each Lender hereby absolutely and unconditionally agrees to pay to the Agent, on
behalf of such Issuing Bank, in accordance with Section 2.02(e), such Lender's
Applicable Percentage of each Letter of Credit Disbursement made by such Issuing
Bank and not reimbursed by the Borrower when due in accordance with subsection
(g) of this Section; provided that the Lenders shall not be obligated to make
--------
any such payment with respect to any wrongful Letter of Credit Disbursement made
as a result of the gross negligence or wilful misconduct of the applicable
Issuing Bank.
(e) Each Lender acknowledges and agrees that its obligation to
acquire participations pursuant to subsection (d) above in respect of Letters of
Credit is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default,
and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever (subject only to the proviso in subsection
(d) above).
(f) During the Revolving Loan Availability Period (and thereafter, so
long as any Letter of Credit remains outstanding), the Borrower shall pay (i) to
the Agent for the account of the Lenders ratably in proportion to their
Revolving Loan Commitments a fee on the amount available to be drawn under each
outstanding Letter of Credit at a rate per annum equal to the applicable Euro-
Dollar Margin from time to time in effect with respect to Revolving Euro-Dollar
Loans (minus 0.25%, in the case of documentary or trade Letters of Credit), and
(ii) to each Issuing Bank for its own account, a fee at the rate per annum
specified in such Issuing Bank's Issuing Bank Agreement on the amount available
to be drawn under each outstanding Letter of Credit issued by such Issuing Bank.
Such fees shall accrue from and including the Effective Date to but excluding
the last day of the Revolving Loan Availability Period (provided that such fees
shall continue to accrue so long as any Letter of Credit remains outstanding).
Accrued fees under this
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subsection shall be calculated by the Agent as of each Quarterly Payment Date
and as of the Termination Date. The Agent shall make such calculation and notify
the Borrower of the amount so calculated within three Domestic Business Days
after each date as of which such calculation is so required, and such fees shall
be payable by the Borrower upon receipt of such notice. In addition to the
foregoing, the Borrower shall pay directly to each Issuing Bank, for its own
account, such Issuing Bank's customary processing and documentation fees in
connection with the issuance or amendment of or payment on any Letter of Credit,
payable within 15 days after demand therefor by such Issuing Bank.
(g) If an Issuing Bank shall pay any draft presented under a Letter
of Credit, the Borrower shall pay to the Agent, on behalf of such Issuing Bank,
an amount equal to the amount of such draft before 12:00 Noon (New York City
time), on the day on which such Issuing Bank shall have notified the Borrower
that payment of such draft will be made. The Agent will promptly pay any such
amounts received by it to such Issuing Bank. If the Borrower shall fail to pay
any amount required to be paid by it under this subsection when due, such unpaid
amount shall bear interest, for each day from and including the due date to but
excluding the date of payment, at a rate per annum equal to the interest rate
applicable to overdue Base Rate Revolving Loans.
(h) The Borrower's obligation to reimburse Letter of Credit
Disbursements as provided in subsection (g) above shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance with
the terms of this Agreement under any and all circumstances whatsoever, and
irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit
or any other Loan Document;
(ii) the existence of any claim, setoff, defense or other right which
the Borrower, any Subsidiary or any other person may at any time have
against the beneficiary under any Letter of Credit, any Issuing Bank, the
Agent or any Lender or any other Person in connection with this Agreement,
any other Loan Document or any other related or unrelated agreement or
transaction;
(iii) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(iv) payment by any Issuing Bank under a Letter of Credit against
presentation of a draft or other document which does not comply with the
terms of such Letter of Credit; provided that such payment was not
--------
wrongfully made as a
<PAGE>
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result of the gross negligence or wilful misconduct of the applicable
Issuing Bank; and
(v) any other act or omission or delay of any kind or any other
circumstance or event whatsoever, whether or not similar to any of the
foregoing and whether or not foreseeable, that might, but for the
provisions of this subsection (h), constitute a legal or equitable
discharge of the Borrower's obligations hereunder.
(i) It is expressly understood and agreed that, for purposes of
determining whether a wrongful payment under a Letter of Credit resulted from an
Issuing Bank's gross negligence or wilful misconduct, an Issuing Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary
and, in making any payment under any Letter of Credit (i) an Issuing Bank's
exclusive reliance on the documents presented to it under such Letter of Credit
as to any and all matters set forth therein, including reliance on the amount of
any draft presented under such Letter of Credit, whether or not the amount due
to the beneficiary thereunder equals the amount of such draft and whether or not
any document presented pursuant to such Letter of Credit proves to be
insufficient in any respect, if such document on its face appears to be in
order, and whether or not any other statement or any other document presented
pursuant to such Letter of Credit proves to be forged or invalid or any
statement therein proves to be inaccurate or untrue in any respect whatsoever
and (ii) any noncompliance in any immaterial respect of the documents presented
under such Letter of Credit with the terms thereof shall, in each case, be
deemed not to constitute wilful misconduct or gross negligence of the applicable
Issuing Bank. It is further understood and agreed that, notwithstanding the
proviso to clause (iv) of subsection (h) above, the Borrower's obligation
hereunder to reimburse Letter of Credit Disbursements will not be excused by the
gross negligence or wilful misconduct of an Issuing Bank to the extent that such
Letter of Credit Disbursement actually discharged a liability of, or otherwise
benefited, or was recovered by, the Borrower; provided that the foregoing shall
--------
not be construed to excuse an Issuing Bank from liability to the Borrower to the
extent of any direct damages suffered by the Borrower that are caused by such
Issuing Bank's gross negligence or wilful misconduct in determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof.
(j) Each Issuing Bank shall, promptly following its receipt thereof,
examine all documents purporting to represent a demand for payment under a
Letter of Credit. Each Issuing Bank shall as promptly as possible give
telephonic notification, confirmed by telex or telecopy, to the Agent and the
Borrower of such demand for payment and whether such Issuing Bank has made or
will make a Letter of Credit Disbursement thereunder, provided that the failure
to give such notice shall not relieve the
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Borrower of its obligation to reimburse any such Letter of Credit Disbursement
in accordance with this Section. The Agent shall promptly give each Lender
notice thereof.
(k) In the event that the Borrower is required pursuant to the terms
of this Agreement or any other Loan Document to provide cash collateral in
respect of the Letter of Credit Exposure, the Borrower shall deposit in an
account with the Security Agent, for the benefit of the Lenders, an amount in
cash equal to the Letter of Credit Exposure (or such lesser amount as shall be
required hereunder or thereunder). Such deposit shall be held by the Security
Agent as collateral for the payment and performance of the Obligations. The
Security Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest
earned on the investment of such deposits in Temporary Cash Investments, which
investments shall be made as directed by the Borrower (unless such investments
shall be contrary to applicable law or regulation or a Default shall have
occurred and be continuing, in which case investments shall be made at the
option and sole but reasonable discretion of the Security Agent), such deposits
shall not bear interest. Interest or profits, if any, on such investments shall
accumulate in such account. Moneys in such account shall automatically be
applied by the Security Agent to reimburse each Issuing Bank for Letter of
Credit Disbursements and, if the maturity of the Loans has been accelerated, to
satisfy the Obligations. If the Borrower is required to provide an amount of
cash collateral hereunder as a result of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Domestic Business days after all Events of Default have been cured or
waived. If the Borrower is required to provide an amount of cash collateral
hereunder pursuant to Section 2.08(d), such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower upon demand; provided that, after
--------
giving effect to such return, (i) the sum of the Letter of Credit Exposure plus
the aggregate outstanding principal amount of Revolving Loans would not exceed
the lesser of the aggregate Revolving Loan Commitments or the Borrowing Base and
(ii) no Default shall have occurred and be continuing.
(l) All letters of credit outstanding under the Existing Credit
Agreement as of the Effective Date shall be deemed to have been issued hereunder
on the Effective Date and shall constitute "Letters of Credit" for all purposes
of the Loan Documents.
(m) The Borrower, the Agent and any Lender that is willing to be an
Issuing Bank hereunder may agree that such Lender shall be an Issuing Bank by
the execution and delivery of an agreement substantially in the form of Exhibit
I (an "Issuing Bank Agreement"). The Agent shall notify the Lenders of the
identity of any Issuing Bank appointed pursuant to this subsection (m). The
Borrower also may terminate the status of any Issuing Bank as an Issuing Bank
hereunder at any time by at least three Domestic Business Days' prior notice to
such Issuing Bank and the Agent, and the Agent shall
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thereupon notify the Lenders of such termination; provided that such termination
--------
shall operate only to relieve such Issuing Bank of its obligation to issue
Letters of Credit hereunder and shall not affect such Issuing Bank's status as
an Issuing Bank or its rights and obligations hereunder with respect to any
Letters of Credit previously issued by it.
SECTION 2.14. Swingline Loans. (a) During the Revolving Loan
----------------
Availability Period the Swingline Lender agrees, on the terms and conditions set
forth in this Agreement, to lend to the Borrower from time to time amounts that
will not result in (i) the aggregate principal amount of outstanding Swingline
Loans at any time exceeding $15,000,000, or (ii) the sum of the Letter of Credit
Exposure and the aggregate principal amount of all outstanding Swingline Loans
and Revolving Loans at any time exceeding the total Revolving Loan Commitments.
All Swingline Loans shall be made in Dollars.
(b) In order to request a Swingline Loan, the Borrower shall notify
the Agent of such request not later than 1:00 P.M. (New York City time) on the
day of a proposed Swingline Loan, specifying the proposed date (which shall be a
Domestic Business Day) and amount of the requested Swingline Loan (which shall
be $[1,000,000] or a larger multiple of $[500,000]) and the duration of the
Interest Period applicable thereto, subject to the definition of Interest
Period. The Agent will promptly advise the Swingline Lender of any such notice
received from the Borrower. The Swingline Lender shall make each Swingline Loan
available to the Borrower by means of a credit to the general deposit account of
the Borrower with the Swingline Lender by 2:00 P.M. (New York City time) on the
requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Lenders
not later than 10:00 a.m., New York City time, on any Domestic Business Day
require the Lenders to acquire participations on such Business Day in all or a
portion of the Swingline Loans outstanding. Such notice shall specify the
aggregate amount of Swingline Loans in which the Lenders will acquire
participations. In furtherance of the foregoing, each Lender hereby absolutely
and unconditionally agrees, upon receipt of notice as provided above, to pay to
the Agent, for the account of the Swingline Lender, such Lender's Applicable
Percentage of such Swingline Loan or Loans. Each Lender acknowledges and agrees
that its obligation to acquire participations in Swingline Loans pursuant to
this paragraph is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default
or reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
Each Lender shall comply with its obligation under this paragraph by wire
transfer of immediately available funds, in the same manner as provided in
Section 2.02 with respect to Loans made by such Lender (and Section 2.02 shall
apply, mutatis mutandis, to the payment obligations of the Lenders). The Agent
------- --------
shall notify the Borrower of any participations in any Swingline Loan acquired
<PAGE>
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pursuant to this paragraph. Any amounts received by the Swingline Lender from
the Borrower in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Agent; any such amounts received by the Agent shall be promptly
remitted by the Agent to the Lenders that shall have made their payments
pursuant to this paragraph and to the Swingline Lender, as their interests may
appear. The purchase of participations in a Swingline Loan pursuant to this
paragraph shall not relieve the Borrower of any default in the payment thereof.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become effective,
--------------
and the Existing Credit Agreement shall be amended and restated in its entirety
as provided herein, on the date that each of the following conditions shall have
been satisfied (or waived in accordance with Section 9.05):
(a) receipt by the Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party);
(b) receipt by the Agent for the account of each Lender of a duly
executed Note or Notes, dated on or before the Amendment Effective Date
complying with the provisions of Section 2.03;
(c) receipt by the Agent of opinions of each of Riordan & McKinzie,
Richards & O'Neil, L.L.P., Foley, Hoag & Elliot and Ice Miller Donadio &
Ryan, in each case as counsel for the Borrower, substantially in the forms
of Exhibits D-1, D-2, D-3 and D-4 hereto, respectively, and covering such
additional matters relating to the transactions contemplated hereby as the
Required Lenders may reasonably request;
(d) receipt by the Agent of a certificate signed by the Chairman and
Chief Executive Officer and any Vice President of the Borrower, dated the
Effective Date, to the effect set forth in clauses (c) and (d) of Section
3.02;
<PAGE>
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(e) receipt by the Agent of counterparts of the Guarantee Agreement
duly executed by the parties thereto;
(f) receipt by the Security Agent of all documents it may reasonably
request to confirm the continued effectiveness of the Security Documents,
the grant and perfection of valid, first-priority security interests
thereunder and any other matters relevant thereto, all in form and
substance satisfactory to the Security Agent;
(g) the Required Lenders shall not have advised the Agent that, in
their judgment, there shall have occurred a material adverse change in the
assets, financial condition, prospects or results of operations of the
Borrower and its Subsidiaries, taken as a whole;
(h) the Parent Corporation shall consummate the Stock Repurchase
substantially simultaneously with the effectiveness of this Agreement and
the Amendment Effective Date for aggregate consideration not exceeding
$135,000,000;
(i) the Borrower shall have made arrangements satisfactory to the
Agent and the Documentation Agent to repay all loans outstanding under the
Existing Credit Agreement, together with accrued and unpaid interest, fees
and other amounts owing thereunder, in each case on the Amendment Effective
Date, without prejudice to the ability of the Borrower hereunder to
refinance such amounts with the proceeds of Loans made on the Amendment
Effective Date, and after giving effect thereto the only Debt of the
Borrower and its Subsidiaries on the Amendment Effective Date will be
Loans, Subordinated Debt and other Debt that was permitted by the Existing
Credit Agreement;
(j) receipt by the Agent of all fees and other compensation payable to
the Agent, the Documentation Agent, the Lenders or the Security Agent on or
prior to the Amendment Effective Date pursuant to their agreements with the
Borrower;
(k) receipt by the Agent of the certificate to be delivered on the
Amendment Effective Date pursuant to Section 5.03(b) and satisfaction of
the Lenders with the amount and scope of the Borrower's insurance coverage
set forth therein and the identity of the insurers providing such coverage;
and
(l) receipt by the Agent of all documents it may reasonably request
relating to the existence of the Borrower and its Subsidiaries, the
corporate authority for and the validity of the Loan Documents, and any
other matters relevant hereto, all in form and substance satisfactory to
the Agent;
<PAGE>
-48-
provided that this Agreement shall not become effective or be binding on any
- --------
party hereto unless all of the foregoing conditions are satisfied not later than
[ ], 1997. The Agent shall promptly notify the Borrower and the
Lenders of the Amendment Effective Date, and such notice shall be conclusive and
binding on all parties hereto. Each of the parties hereto agrees that, as of the
Amendment Effective Date, each Lender shall be deemed to have assigned a
proportionate part of its rights and obligations under this Agreement and the
Notes to the other Lenders to the extent necessary such that the Commitments of
the Lenders as of the Amendment Effective Date shall be as set forth in Schedule
1 hereto and the participation of each Lender in any outstanding Letters of
Credit shall be proportionate to its pro rata share of the Commitments, and the
Lenders agree to assume, as of the Amendment Effective Date, such rights and
obligations to such extent.
SECTION 3.02. Each Credit Event. The obligation of any Lender to
------------------
make a Loan on the occasion of any Borrowing (it being understood that, for
purposes of this Section, a "Borrowing" does not include a change or
continuation of the Type of, or the duration of the Interest Period applicable
to, a previously outstanding Borrowing pursuant to Section 2.04) and of the
Issuing Bank to issue, extend or renew a Letter of Credit is subject to the
satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by
Section 2.02 or a notice requesting issuance, extension or renewal of a
Letter of Credit as required by Section 2.13(c) or receipt by the Swingline
Lender of a notice requesting a Swingline Loan as required by Section 2.14,
as applicable;
(b) the fact that, immediately after such Borrowing or the issuance,
extension or renewal of such Letter of Credit, the aggregate outstanding
principal amount of the Loans of each Class and the Letter of Credit
Exposure will not exceed the limitations set forth in Sections 2.01,
2.13(a) and 2.14;
(c) the fact that, immediately after such Borrowing or issuance,
extension or renewal of such Letter of Credit, no Default shall have
occurred and be continuing; and
(d) the fact that the representations and warranties of the Borrower
contained in this Agreement and the other Loan Documents shall be true on
and as of the date of such Borrowing or issuance, extension or renewal of
such Letter of Credit (except to the extent such representations and
warranties expressly relate solely to an earlier date).
<PAGE>
-49-
Each Borrowing hereunder and the issuance, extension or renewal of each Letter
of Credit hereunder shall be deemed to be a representation and warranty by the
Borrower on the date of such Borrowing or issuance as to the facts specified in
clauses (b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Existence and Power. The Borrower is a limited
--------------------
partnership duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, and has all powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted or proposed to be conducted.
SECTION 4.02. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention. The execution, delivery and performance by each of the Borrower
- --------------
and its Subsidiaries of this Agreement and the other Loan Documents to which it
is to be a party and the consummation of the Financing Transactions are within
its powers, have been duly authorized by all necessary action on the part of the
Borrower, its partners, the Subsidiaries and their respective stockholders or
partners (as applicable), require no action by or in respect of, or filing with,
any Governmental Authority (other than (i) such as have been duly taken or made,
(ii) filings required to perfect Liens granted under the Security Documents and
(iii) compliance with "bulk sales" laws) and do not contravene, or constitute a
default under, any provision of applicable law or regulation or of the
partnership agreement, certificate of incorporation or By-laws (as applicable)
of the Borrower or any Subsidiary or of any judgment, injunction, order or
decree or (to the extent that such contravention or default could result in a
Material Adverse Effect) any agreement or other instrument binding upon the
Borrower or any Subsidiary or result in the creation or imposition of any Lien
(other than the Liens of the Security Documents) on any asset of the Borrower or
any of its Subsidiaries, in each case both before and after giving effect to the
Financing Transactions.
SECTION 4.03. Binding Effect. This Agreement constitutes a valid and
---------------
binding agreement of the Borrower and the other Loan Documents, when executed
and delivered in accordance with this Agreement, will constitute valid and
binding obligations of each of the Borrower and the Subsidiaries party thereto,
in each case enforceable in accordance with its terms.
<PAGE>
-50-
SECTION 4.04. Financial Information; Title to Properties. (a) The
-------------------------------------------
consolidated balance sheet of the Borrower as of February 1, 1997 and the
related consolidated statements of operations, partnership equity and cash flows
for each of the two fiscal years ended February 1, 1997, reported on by Coopers
& Lybrand and set forth in the Descriptive Materials, copies of which have been
delivered to each of the Lenders, fairly present, in conformity with generally
accepted accounting principles, the consolidated financial position of the
Borrower as of such date and the results of its operations and cash flows for
such years.
(b) The unaudited consolidated balance sheet of the Borrower as of
August 2, 1997, and the related unaudited consolidated statements of operations
and cash flows for the 13-week and 26-week periods ended August 2, 1997, set
forth in the Descriptive Materials, copies of which have been delivered to each
of the Lenders, fairly present, in conformity with generally accepted accounting
principles applied on a basis consistent with the financial statements referred
to in subsection (a) of this Section (except as disclosed therein), the
consolidated financial position of the Borrower as of such date and the results
of its operations for such periods (subject to normal year-end adjustments).
(c) The unaudited pro forma consolidated statement of income for the
26-week period ended August 2, 1997, set forth in the Descriptive Materials, has
been derived from the historical financial statements for such period referred
to in subsection (a) of this Section adjusted to give effect to the Transactions
on the basis described therein. Such pro forma consolidated statement of income
presents fairly, on a pro forma basis, the Borrower's consolidated income for
such period, assuming that the adjustments specified therein had occurred as
described therein.
(d) Since August 2, 1997, there has been no material adverse change
in the assets, financial condition or results of operations of the Borrower and
its Consolidated Subsidiaries, considered as a whole.
(e) Each of the Borrower and the Subsidiaries has good and marketable
title to, or valid leasehold interests in, all its material properties and
assets, except for minor defects in title that do not interfere with its ability
to conduct its business as currently conducted or proposed to be conducted or to
utilize such properties and assets for their intended purposes.
SECTION 4.05. Litigation. There is no injunction, stay, decree or
-----------
order of any Governmental Authority or any action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
of an adverse decision, which in any such case could
<PAGE>
-51-
have a Material Adverse Effect or which in any manner draws into question the
validity of this Agreement or the other Loan Documents.
SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group
----------------------
has, in all material respects, fulfilled its obligations under the minimum
funding standards of ERISA and the Internal Revenue Code with respect to each
Plan and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Internal Revenue Code with respect to each Plan. No
member of the ERISA Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Internal Revenue Code in respect of any Plan,
(ii) failed to make any contribution or payment to any Plan, or made any
amendment to any Plan, which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security under ERISA or the Internal
Revenue Code or (iii) incurred any material liability under Title IV of ERISA
other than a liability to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.07. Taxes. The Borrower and its Subsidiaries have filed or
------
caused to be filed all United States Federal income tax returns and all other
material tax returns which are required to be filed by them and have paid or
caused to be paid all taxes shown to be due on such returns or pursuant to any
assessment received by the Borrower or any Subsidiary, except where the same may
be contested in good faith by appropriate proceedings. The charges, accruals
and reserves on the books of the Borrower and its Subsidiaries in respect of
taxes or other governmental charges are, in the opinion of the Borrower,
adequate.
SECTION 4.08. Parent Corporation. As of the Amendment Effective
-------------------
Date, the Borrower is, directly or indirectly, wholly owned by the Parent
Corporation, the Parent Corporation does not have any subsidiaries, other than
the Borrower and the Subsidiaries and subsidiaries resulting from transfers to
the Parent Corporation of capital stock of corporations holding partnership
interests in the Borrower, and neither the Parent Corporation nor any of its
subsidiaries described above have any material assets (other than partnership
interests in the Borrower and assets of the Borrower and the Subsidiaries) or
liabilities (other than (i) liabilities fully indemnified by The Limited, (ii)
liabilities that also constituted liabilities of the Borrower prior to the
Conversion and (iii) liabilities of the Borrower and the Subsidiaries).
SECTION 4.09. Subsidiaries. Each of the Borrower's Subsidiaries is a
-------------
corporation, a general partnership or a limited partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has all corporate or partnership powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted. As of the
<PAGE>
-52-
Amendment Effective Date, the only Subsidiaries of the Borrower shall be the
Subsidiaries identified on Schedule 4.10, each of which shall be a Permitted
Subsidiary.
SECTION 4.10. Not an Investment Company. The Borrower is not an
--------------------------
"investment company", nor is it controlled by an "investment company", within
the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.11. Compliance with Laws. Neither the Borrower nor any of
---------------------
the Subsidiaries is in violation of any law, rule or regulation, or in default
with respect to any judgment, writ, injunction or decree applicable to it of any
Governmental Authority, that (individually or in the aggregate) could result in
a Material Adverse Effect.
SECTION 4.12. Agreements. (a) Except as disclosed in the
-----------
Descriptive Materials, neither the Borrower nor any of the Subsidiaries is a
party to any agreement or instrument or subject to any partnership or corporate
restriction that has resulted or could result in a Material Adverse Effect.
Neither the Borrower nor any of the Subsidiaries is a party to any agreement or
instrument or subject to any restriction (other than restrictions on the payment
of dividends or partnership distributions imposed by law) that restricts or
impairs (i) the ability of the Borrower and its Subsidiaries to grant to the
Security Agent Liens on any of their assets to secure the Obligations or (ii)
the ability of any Subsidiary to pay dividends on its capital stock or
distributions to its partners, as applicable.
(b) Neither the Borrower nor any of the Subsidiaries is in default in
any manner under any provision of any indenture or other agreement or instrument
evidencing Debt, or any other agreement or instrument to which it is a party or
by which it or any of its properties or assets are or may be bound, where such
default could result in a Material Adverse Effect.
SECTION 4.13. Federal Reserve Regulations. Neither the Borrower nor
----------------------------
any of the Subsidiaries is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying Margin Stock.
SECTION 4.14. Disclosure. All information (including the Descriptive
-----------
Materials but excluding projected financial information) furnished in writing by
or on behalf of the Borrower or any Subsidiary to the Agent or any Lender for
purposes of or in connection with this Agreement or any transaction contemplated
hereby was true and accurate in all material respects or based on reasonable
estimates on the date as of which such information was stated or certified. The
Borrower has disclosed to the Lenders in writing any and all facts (other than
prevailing economic conditions affecting similarly situated businesses
generally) known to any officer of the Borrower which materially and adversely
affect or may materially and adversely affect (to the extent the Borrower can
<PAGE>
-53-
now reasonably foresee) the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, considered as a
whole. All projected financial information which has been furnished by or on
behalf of the Borrower or any Subsidiary to the Agent or any Lender was, at the
time so furnished, believed by the Borrower to have been prepared in a
reasonable manner and based on reasonable assumptions with respect to the
Borrower's business; provided that no representation is made by the Borrower
--------
that the future results of the Borrower will equal those set forth in such
projected financial information.
SECTION 4.15. Governmental Approvals. As of the Amendment Effective
-----------------------
Date, all consents and approvals of, and filings and registrations with, and all
other actions in respect of, all Governmental Authorities required in order to
consummate the Financing Transactions shall have been obtained, given, filed or
taken and shall be in full force and effect.
SECTION 4.16. Security Interests. (a) The security interests
-------------------
created in favor of the Security Agent under the Pledge Agreement will at all
times after the execution and delivery of the Pledge Agreement constitute valid,
first-priority, perfected security interests in the Pledged Securities (as
defined therein), and such Pledged Securities will be subject to no Liens (other
than unperfected Liens imposed by law) or security interests of any other
Person. No filings or recordings are or will be required in order to perfect
the security interests in the Pledged Securities created under the Pledge
Agreement.
(b) The security interests created in favor of the Security Agent for
the benefit of the Lenders under the Security Documents will constitute valid,
perfected security interests in the collateral subject thereto, subject only to
Liens permitted by the Loan Documents.
SECTION 4.17. Employment and Management Agreements. Except as
-------------------------------------
disclosed in Schedule 4.18, as of the Amendment Effective Date (after giving
effect to the Transactions) there are no (a) employment agreements covering
management employees of the Borrower, (b) agreements for management or
consulting services to which the Borrower is a party or by which it is bound, or
(c) collective bargaining agreements or other labor agreements covering any of
the employees of the Borrower.
SECTION 4.18. Capitalization. As of the Amendment Effective Date,
---------------
the only general partner in the Borrower is VGP, which is a wholly-owned
subsidiary of the Parent Corporation. As of the Amendment Effective Date, there
are no outstanding subscriptions, options, warrants, calls, rights (including
preemptive rights) or other agreements or commitments of any nature relating to
any partnership interests in the
<PAGE>
-54-
Borrower, except as provided for in the Partnership Agreement and except with
respect to management plans and arrangements and the Convertible Subordinated
Debt.
SECTION 4.19. Environmental Matters. Except as disclosed in the
----------------------
environmental audit reports delivered to the Agent prior to the date of
execution of this Agreement, each of the Borrower and the Subsidiaries has
complied with all Environmental and Safety Laws, except for any noncompliance
that, individually or in the aggregate, could not reasonably be anticipated to
result in a Material Adverse Effect. None of the Borrower and the Subsidiaries
has received notice of any failure so to comply which alone or together with any
other such failure could result in a Material Adverse Effect. Except as
disclosed in the environmental audit reports delivered to the Agent prior to the
date of execution of this Agreement, the facilities of the Borrower and the
Subsidiaries do not treat, store or dispose of any hazardous wastes, hazardous
substances, hazardous materials, toxic substances or toxic pollutants, as those
terms are used in any Environmental and Safety Laws, in violation thereof where
such violation could result, individually or together with other violations, in
a Material Adverse Effect.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Lender has any Commitment
hereunder or any amount payable under any Loan Document remains unpaid or any
Letter of Credit remains outstanding:
SECTION 5.01. Information. The Borrower will deliver to each of the
------------
Lenders:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower, consolidated and consolidating balance
sheets of the Borrower and its Consolidated Subsidiaries as of the end of
such fiscal year and the related consolidated and consolidating statements
of income and cash flows for such fiscal year, setting forth in each case
in comparative form the figures for the previous fiscal year, all reported
on by Coopers & Lybrand or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower,
consolidated balance sheets of the Borrower and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
statements of income and cash flows for
<PAGE>
-55-
such quarter and for the portion of the Borrower's fiscal year ended at the
end of such quarter, setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation, generally accepted accounting
principles and consistency by the chief financial officer or the chief
accounting officer of the Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the
chief financial officer or the chief accounting officer of the Borrower (i)
setting forth in reasonable detail a list of Investments in order to
establish whether the Borrower was in compliance with Section 5.16, (ii)
setting forth in reasonable detail the calculations required to establish
whether the Borrower was in compliance with the requirements of Sections
5.21, 5.22 and 5.23 on the date of such financial statements, (iii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto, (iv)
stating whether, since the date of the most recent financial statements
previously delivered pursuant to this Section, there has been any material
change in the generally accepted accounting principles applied in the
preparation of such statements and, if so, describing such change, (v)
identifying any Reinvestment Events that occurred during the previous six-
month period and the status of the reinvestment of the Net Cash Proceeds
thereof, (vi) as long as the Borrower is a partnership, setting forth the
Tax Distribution Amount and a reasonably detailed calculation thereof, and
(vii) setting forth the Pricing Ratio and a reasonably detailed calculation
thereof;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent public accountants which reported on such statements (i)
stating whether anything has come to their attention to cause them to
believe that any Default existed on the date of such statements and (ii)
confirming the calculations set forth in the officer's certificate
delivered simultaneously therewith pursuant to subclauses (ii), (vi) and
(vii) of clause (c) above;
(e) as soon as available and in any event within 20 days after the
Saturday closest to the last day of each calendar month, a summary
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of such Saturday and the related summary consolidated
statement of income for the fiscal month then ended and for the portion of
the Borrower's fiscal year then ended, setting forth in each case in
comparative form the figures for the corresponding fiscal month and the
corresponding portion of the Borrower's previous fiscal year, prepared in
<PAGE>
-56-
accordance with generally accepted accounting principles (subject to normal
year-end adjustments);
(f) within 20 days after the Saturday closest to the last day of each
calendar month (commencing with the month ending April 30, 1997, a
Borrowing Base Certificate as of such Saturday certified by the chief
financial officer or chief accounting officer of the Borrower (which
certificate the Agent and the Security Agent shall have the right to audit
at the expense of the Borrower; provided that not more than two such audits
--------
may be conducted at the Borrower's expense during any fiscal year of the
Borrower unless an Event of Default has occurred and is continuing);
(g) prompt notice of any default or alleged default under or breach or
alleged breach of the Trademark Agreements or Credit Card Agreements;
(h) prompt notice of each Prepayment Event or Reinvestment Event,
including a reasonably detailed calculation of the Net Cash Proceeds
therefrom;
(i) within five days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a certificate
of the chief financial officer or the chief accounting officer of the
Borrower setting forth the details thereof and the action which the
Borrower is taking or proposes to take with respect thereto;
(j) promptly upon the delivery or mailing thereof to the shareholders
of the Parent Corporation, copies of all reports, financial information
(including budgets or projections), proxy statements and other information
so delivered or mailed;
(k) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the Borrower, the Parent Corporation or Finance
Corp. shall have filed with the Securities and Exchange Commission;
(l) if and when any member of the ERISA Group (i) becomes aware of or
gives or is required to give notice to the PBGC of any Reportable Event
with respect to any Plan which might constitute grounds for or result in a
termination of such Plan by the PBGC under Title IV of ERISA, or knows that
the plan administrator of any Plan has become aware of or has given or is
required to give notice of any Reportable Event, a copy of the notice of
such Reportable Event given or required to be given to the PBGC if any such
notice is required;
<PAGE>
-57-
(ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA under circumstances that would result in a material
amount of withdrawal liability, a copy of such notice; (iii) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer any Plan, a copy of such notice; or (iv)
within 10 days after the due date for filing with the PBGC pursuant to
Section 412(n) of the Internal Revenue Code a notice of failure to make a
required installment or other payment with respect to a Plan, a statement
of the chief financial officer or the chief accounting officer of the
Borrower setting forth details as to such failure and the action that the
Borrower proposes to take with respect thereto, together with a copy of any
such notice given to the PBGC;
(m) promptly upon delivery thereof to the holders of Subordinated
Debt, copies of any and all reports, notices, financial information
(including any budgets or projections) and other information delivered to
such holders, to the extent not duplicative of information previously
delivered to the Lenders; and
(n) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Lender, may reasonably request.
SECTION 5.02. Payment of Obligations. The Borrower will pay and
-----------------------
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities, including,
without limitation, tax liabilities, except in connection with a good faith
contest with the applicable obligee, and will maintain, and will cause each
Subsidiary to maintain, in accordance with generally accepted accounting
principles, appropriate reserves for the accrual of any of the same.
SECTION 5.03. Maintenance of Property; Insurance; Casualty and
------------------------------------------------
Condemnation. (a) The Borrower will keep, and will cause each Subsidiary to
- -------------
keep, all property useful and necessary in its business in good working order
and condition, ordinary wear and tear excepted.
(b) The Borrower will maintain, and will cause each Subsidiary to
maintain, (i) physical damage insurance on all real and personal property on an
all risks basis (including the perils of flood and quake), covering the repair
and replacement cost of all such property and consequential loss coverage for
business interruption and extra expense (such consequential loss coverage to be
in a reasonable amount in relation to the Borrower's gross revenues), (ii)
public liability insurance (including products/completed operations liability
coverage) in such amounts (on a per occurrence basis) as is customary with
prudent companies similarly situated in the same or similar businesses, and
(iii) such other insurance coverage in such amounts and with respect to such
risks as shall be
<PAGE>
-58-
required by the terms of any other Loan Document or as the Required Lenders may
reasonably request. All such insurance shall be provided by financially sound
and reputable insurers or such other insurers as the Required Lenders may
approve in writing. The Borrower will deliver to the Lenders (i) on the
Effective Date, a certificate dated such date showing the amount of coverage as
of such date, (ii) upon request of any Lender through the Agent from time to
time full information as to the insurance carried, (iii) within five days of
receipt of notice from any insurer a copy of any notice of cancelation or
material change in coverage from that existing on the Effective Date and (iv)
forthwith, notice of any cancelation or nonrenewal of coverage by the Borrower.
(c) The Borrower will furnish to the Agent and the Lenders prompt
written notice of any casualty or other insured damage to any portion of any
Mortgaged Property or the commencement of any action or proceeding for the
taking of any Mortgaged Property or any part thereof or interest therein under
power of eminent domain or by condemnation or similar proceeding. If any such
event results in Net Cash Proceeds (whether in the form of insurance proceeds,
condemnation award or otherwise), the Security Agent is authorized to collect
such Net Cash Proceeds and, if received by the Borrower or any Subsidiary, such
Net Cash Proceeds shall be paid over to the Security Agent; provided that if the
--------
aggregate Net Cash Proceeds in respect of such event are less than $5,000,000,
such Net Cash Proceeds shall be paid over to the Borrower unless a Default has
occurred and is continuing. All such Net Cash Proceeds retained by or paid over
to the Security Agent shall be held by the Security Agent and released from time
to time to pay the costs of repairing, restoring or replacing the affected
property in accordance with the terms of the applicable Mortgage, subject to the
provisions of the applicable Mortgage regarding application of such Net Cash
Proceeds during a Default. If any Net Cash Proceeds retained by or paid over to
the Security Agent as provided above continue to be held by the Security Agent
on the date that is two years after the collection of such Net Cash Proceeds,
then such Net Cash Proceeds shall be applied to prepay Term Loans as provided in
Section 2.08(e).
SECTION 5.04. Conduct of Business and Maintenance of Existence. (a)
-------------------------------------------------
The Borrower will continue, and will cause each Subsidiary to continue, to
engage in business of the same general type as conducted by the Borrower and its
Subsidiaries prior to the Amendment Effective Date, and will preserve, renew and
keep in full force and effect, and will cause each Subsidiary to preserve, renew
and keep in full force and effect, their respective existences and their
respective rights, privileges and franchises necessary or desirable in the
normal conduct of business.
(b) All outstanding shares of Finance Corp.'s capital stock shall be
owned directly by the Borrower, Finance Corp.'s only business or activity shall
be the issuance of
<PAGE>
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the Subordinated Debt and activities incidental thereto and Finance Corp. shall
not own or acquire any assets.
(c) The only business or activity of a Permitted Subsidiary (other
than Finance Corp.) shall be (i) creative design activities associated with the
preparation of catalogues in connection with the Borrower's business, (ii) the
production and distribution of such catalogues, (iii) other activities
incidental to the Borrower's business, (iv) the leasing of property and
employment of management and employees for purposes of the foregoing activities,
(v) other activities incidental to such Permitted Subsidiary's business and (vi)
ownership of interests in other Permitted Subsidiaries. Without limiting the
generality of the foregoing, Permitted Subsidiaries (including Finance Corp.)
shall not own or acquire any inventory or collect or hold any revenues or other
proceeds generated from the sale of inventory, all of which activities shall be
conducted by the Borrower. The Borrower will not permit any Permitted
Subsidiary to incur any Debt (other than pursuant to the Guarantee Agreement,
the Security Documents and a Subordinated Guarantee Agreement and, in the case
of Finance Corp., the Subordinated Debt) or other liability (other than
liabilities for franchise taxes and similar liabilities incidental to its
existence).
(d) The only business or activity of the Parent Corporation and its
subsidiaries (other than the Borrower and its Subsidiaries) shall be the
ownership of the Borrower and activities incidental thereto, which may include
the establishment and administration of Parent Corporation Stock Plans. Without
limiting the generality of the foregoing, neither the Parent Corporation nor any
of its Subsidiaries (other than the Borrower and its Subsidiaries) will (i) have
any subsidiaries, other than the Borrower and its Subsidiaries and, in the case
of the Parent Corporation, wholly owned subsidiaries through which it indirectly
holds partnership interests in the Borrower, or (ii) have any material assets
(other than partnership interests in the Borrower) or liabilities (other than
(A) liabilities fully indemnified by The Limited, (B) liabilities that also
constituted liabilities of the Borrower prior to the Conversion, (C) liabilities
of the Borrower and its Subsidiaries and (D) liabilities arising by operation of
law or otherwise incidental to its existence).
SECTION 5.05. Compliance with Laws. The Borrower will comply, and
---------------------
cause each Subsidiary to comply, with all applicable laws, ordinances, rules,
regulations, and requirements of governmental authorities (including, without
limitation, Environmental and Safety Laws and ERISA and the rules and
regulations thereunder) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings or where the failure to
comply, either alone or combined with other failures to comply, could not have a
Material Adverse Effect.
<PAGE>
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SECTION 5.06. Inspection of Property, Books and Records. The
------------------------------------------
Borrower will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Subsidiary to permit, representatives of any Lender
at such Lender's expense to visit and inspect any of their respective
properties, to examine and make abstracts from any of their respective books and
records and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants, all at
such reasonable times and as often as may reasonably be desired; provided that
--------
(a) reasonable advance notice shall be given to the Borrower of any such visit
or inspection of properties and (b) the Borrower shall be afforded an
opportunity to participate in any such discussions with independent public
accountants.
SECTION 5.07. Fiscal Year. The Borrower will cause its fiscal year
------------
to end on the Saturday closest to January 31 in each year.
SECTION 5.08. Further Assurances. The Borrower will execute any and
-------------------
all further documents, financing statements, agreements and instruments, and
take all further action, which may be required under applicable law, or which
the Required Lenders or the Agent or Security Agent may reasonably request, in
order to effectuate the transactions contemplated by the Loan Documents and in
order to grant, preserve, protect and perfect the validity and first priority of
the security interests created or intended to be created by the Security
Documents. In addition, (a) the Borrower will deliver prompt written notice to
the Lenders of each Permitted Acquisition describing the assets and properties
acquired and the Borrower will, at the Borrower's cost and expense, promptly
secure the Obligations by pledging or creating, or causing to be pledged or
created, first priority (subject to Liens incurred prior to the applicable
Permitted Acquisition) perfected security interests with respect to such assets
and properties as the Agent or the Required Lenders shall reasonably designate,
and (b) if the Borrower shall form or acquire any additional Subsidiary, the
Borrower will, at the Borrower's expense, cause such Subsidiary to become a
party to the Guarantee Agreement and the Security Agreement and pledge (or cause
to be pledged) the capital stock of such Subsidiary under the Pledge Agreement.
Such additional security interests and Liens will be created under security
agreements, mortgages, deeds of trust and other instruments and documents in
form and substance reasonably satisfactory to the Required Lenders, and the
Borrower shall deliver or cause to be delivered to the Lenders all such
instruments and documents (including legal opinions, title insurance policies
and lien searches) as the Required Lenders shall reasonably request to evidence
compliance with this Section 5.08. The Borrower agrees to provide such evidence
as the Required Lenders shall reasonably request as to the perfection and
(subject to Liens incurred prior to the applicable Permitted Acquisition) first
priority status of each such security interest and Lien.
<PAGE>
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SECTION 5.09. Subsidiaries; Partnerships. The Borrower will not have
---------------------------
any Subsidiaries other than (i) Wholly Owned Consolidated Subsidiaries acquired
pursuant to Permitted Acquisitions and liquidated or merged into the Borrower
within 90 days after the date of acquisition and (ii) Permitted Subsidiaries.
The Borrower will not, and will not permit any of its Subsidiaries to, enter
into any partnership (other than a partnership that is a Permitted Subsidiary)
or joint venture.
SECTION 5.10. Amendment of Certain Documents. The Borrower will not
-------------------------------
permit any amendment or modification to be made to, or any waiver of its rights
or the rights of any Subsidiary under, any Transaction Document or Subordinated
Debt Document, other than (a) amendments, modifications and waivers with respect
to the Credit Card Agreements that are not, individually or in the aggregate,
materially adverse to the interests of the Lenders, (b) amendments,
modifications and waivers with respect to the Trademark Agreement that are not,
individually or in the aggregate, adverse to the interests of the Borrower or
the Lenders, (c) amendments, modifications and waivers with respect to the
Subordinated Debt Documents limited to (i) immaterial changes necessary to
comply with the Trust Indenture Act of 1939, as amended, in connection with
registration under the Securities Act of 1933 and (ii) other changes that would
not result in the Subordinated Debt governed by such Subordinated Debt Documents
having terms and conditions that would not be permitted terms and conditions for
Subordinated Debt incurred to refinance the Convertible Subordinated Debt or the
Subordinated Notes (as the case may be), as described in the proviso to clause
(ii) of Section 5.11(a), and (d) amendments to the Partnership Agreement that
will not have the effect of increasing the amount of Tax Advances or Tax
Distributions and that are not, individually or in the aggregate, adverse to the
interests of the Borrower or the Lenders; provided that any such amendment,
--------
modification or waiver permitted hereunder shall be made only after prior notice
to the Lenders, and copies thereof shall be delivered to the Lenders.
SECTION 5.11. Debt; Preferred Stock; Rate Protection Agreements. (a)
--------------------------------------------------
The Borrower will not, nor will it permit any of its Subsidiaries to, incur or
at any time be liable with respect to any Debt, except:
(i) Debt outstanding under this Agreement and the other Loan
Documents;
(ii) unsecured Subordinated Debt in an aggregate principal amount not
exceeding $125,000,000 (in respect of the Subordinated Notes or any
permitted refinancing thereof) and $20,000,000 (in respect or the
Convertible Subordinated Debt or any permitted refinancing thereof) at any
time outstanding; provided that any Subordinated Debt incurred to refinance
--------
the Subordinated Notes or the Convertible Subordinated Debt shall have
terms and conditions no less favorable to the Borrower and the Lenders than
the Subordinated Notes or the Convertible
<PAGE>
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Subordinated Debt, as the case may be, and, without limiting the generality
of the foregoing, shall (A) not require any payment of principal earlier
than the original scheduled maturity date of the Subordinated Notes or the
Convertible Subordinated Debt, as the case may be (except pursuant to
mandatory repurchase provisions that are the same as, or more favorable to
the Borrower than, those applicable to the Subordinated Notes or the
Convertible Subordinated Debt, as the case may be), (B) bear interest at a
fixed rate that is equal to or less than the rate of interest borne by the
Subordinated Notes or the Convertible Subordinated Debt, as the case may
be, and (C) have terms of subordination, covenants, events of default,
mandatory offers to repurchase and other material terms that are the same
as, or more favorable to the Borrower and the Lenders than, those
applicable to the Subordinated Notes or the Convertible Subordinated Debt,
as the case may be; provided further that any Subordinated Debt to be
-------- -------
incurred after the Effective Date shall not be incurred without reasonable
prior notice to the Lenders and prior delivery to the Lenders of copies of
the Subordinated Debt Documents to be executed and delivered in connection
therewith;
(iii) Capital Financing Debt in an aggregate principal amount not
exceeding (A) $10,000,000 at any time outstanding prior to the end of the
fiscal year ending on the Saturday closest to January 31, 1998, and (B)
$30,000,000 at any time outstanding thereafter;
(iv) unsecured Debt for borrowed money issued solely for cash
consideration; provided that the incurrence of such Debt shall constitute a
--------
Debt Prepayment Event and (A) all the proceeds of such Debt shall be
applied forthwith to the prepayment of Term Loans or, after the Term Loans
are fully repaid, the reduction of Revolving Loan Commitments and (B)
notwithstanding any contrary provision in this Agreement, any prepayment of
Term Loans of either Class required by clause (A) above shall be applied to
reduce subsequent scheduled repayments thereof pursuant to Section 2.08(a)
in reverse chronological order;
(v) Debt arising under the Credit Card Agreements, to the extent that
payment obligations thereunder are deemed to constitute Debt; provided that
--------
the foregoing shall not be construed to permit the sale of accounts
receivable pursuant to the Credit Card Agreements with recourse to the
Borrower or otherwise on terms and conditions (other than price) materially
less favorable to the Borrower than those specified in the Credit Card
Agreements as in effect on the Effective Date;
(vi) other unsecured Debt in an aggregate principal amount not
exceeding $5,000,000 at any time outstanding;
<PAGE>
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(vii) Debt in respect of the financing of insurance premiums for
insurance obtained in the ordinary course of business; provided that the
--------
amount of such Debt relating to any policy of insurance shall not at any
time exceed the amount that the Borrower or a Subsidiary would be entitled
to receive as a refund of insurance premium if such insurance policy were
to be canceled at such time; and
(viii) unsecured Debt of any Wholly Owned Consolidated Subsidiary
owing to the Borrower in respect of an Investment made by the Borrower in
such Subsidiary in compliance with Section 5.16;
provided that the Borrower shall not permit any Subsidiary to incur or become
- --------
liable for any Debt, whether or not permitted above, other than (1) Subordinated
Debt of Finance Corp. permitted under clause (ii) above, (2) Debt of a Wholly
Owned Consolidated Subsidiary acquired pursuant to a Permitted Acquisition that
is outstanding at the time of such acquisition to the extent permitted under
clause (vi) above, (3) Debt arising under the Guarantee Agreement or any
Security Document to which such Subsidiary is a party, (4) Subordinated Debt
arising under a Subordinated Guarantee Agreement to which such Subsidiary is a
party, if such Subsidiary is required to enter into such Subordinated Guarantee
Agreement by the terms of the Subordinated Debt Documents and if such Subsidiary
also Guarantees the Obligations pursuant to the Guarantee Agreement, and (5)
Debt permitted under clause (vii) or (viii) above.
(b) The Borrower will not, nor will it permit any of its Subsidiaries
to, issue any additional capital stock or partnership interests other than, in
the case of the Borrower, additional partnership interests issued in accordance
with the Partnership Agreement.
(c) The Borrower will from time to time enter into, and maintain in
effect, such Rate Protection Agreements as shall be necessary so that at all
times at least 45% of its long-term Debt (determined on a consolidated basis in
accordance with generally accepted accounting principles) consists of Debt that
bears a fixed rate of interest and Debt that is hedged pursuant to Rate
Protection Agreements to effectively bear interest at a fixed rate or to cap the
rate of interest thereon.
SECTION 5.12. Restricted Payments. The Borrower will not, nor will
--------------------
it permit any of its Subsidiaries to, declare or make or agree to make, directly
or indirectly, any Restricted Payment, except (a) the Borrower may pay interest
on the Subordinated Debt as and when due unless prohibited by the terms of
subordination applicable thereto; (b) the Borrower may refinance Subordinated
Debt with the proceeds of, or exchange Subordinated Debt for, Subordinated Debt
permitted under clause (ii) of Section 5.11(a) if no Default has occurred and is
continuing or would result therefrom; (c) the Borrower
<PAGE>
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may make Tax Advances and Tax Distributions if (i) no Default described in
clause (a) of Section 6.01 has occurred and is continuing, (ii) the Borrower is
a partnership at the time such Tax Advance or Tax Distribution is made and (iii)
the aggregate cumulative amount of Tax Advances and Tax Distributions does not
exceed the aggregate cumulative Tax Distribution Amounts for periods completed
since the Effective Date; (d) the Borrower may make Restricted Payments to VGP,
VLP or the Parent Corporation as reimbursement of out-of-pocket expenses
actually incurred by such Affiliates to third parties (not including other
Affiliates or employees of Affiliates) in connection with their respective
existences, the administration of the Borrower and the Subsidiaries and
activities incidental thereto, provided that aggregate Restricted Payments
pursuant to this clause (d) shall not exceed $250,000 during any fiscal year of
the Borrower; (e) the Borrower may make Restricted Payments in order to redeem,
repurchase or otherwise reacquire equity interests in the Parent Corporation
(including Restricted Payments to any partner or shareholder in the Borrower in
order to permit such partner or shareholder (either directly or indirectly
through additional payments or distributions to its parent entities) to redeem,
repurchase or otherwise reacquire equity interests in the Parent Corporation
from members of the Borrower's management, if (i) no Default has occurred and is
continuing and (ii) after giving effect to any such Restricted Payment, the
aggregate cumulative amount of Restricted Payments made pursuant to this clause
(e) shall not exceed the sum of $2,000,000 plus the amount of Net Cash Proceeds
received by the Borrower on or after the Effective Date and prior to making such
Restricted Payment from capital contributions attributable to the issuance by
the Parent Corporation of additional equity securities to members of management
of the Borrower; provided that Management Notes may be forgiven or returned
--------
without regard to the limitation in clause (e)(ii) above and the forgiveness or
return thereof shall not be treated as Restricted Payments for purposes of
determining compliance with such clause (e)(ii); (f) if an Equity Prepayment
Event occurs with respect to which the Equity Prepayment Percentage is greater
than 0.0%, the Borrower may purchase, redeem, prepay or acquire Subordinated
Debt if (i) no Default has occurred and is continuing, (ii) any Restricted
Payments made pursuant to this clause (f) shall be made within the 90-day period
provided for in Section 2.08(e) following delivery by the Borrower to the Agent
of a notice in accordance with Section 2.08(e) electing to make such Restricted
Payments in lieu of prepaying Term Loans as a result of an Equity Prepayment
Event, (iii) the aggregate amount of Restricted Payments made pursuant to this
clause (f) during any 90-day period referred to above shall not exceed the
Subordinated Debt Prepayment Amount specified in the applicable notice and (iv)
the aggregate principal amount of Subordinated Debt permitted by clause (ii) of
Section 5.11 (a) shall be permanently reduced by the aggregate principal amount
of Subordinated Debt purchased, redeemed, prepaid or acquired pursuant to this
clause (f); (g) if an Equity Prepayment Event occurs with respect to which the
Equity Prepayment Percentage is 0.0%, the Borrower may purchase, redeem, prepay
or acquire Subordinated Debt provided that (i) no Default has occurred and is
continuing, (ii) within two Domestic
<PAGE>
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Business Days after each Restricted Payment pursuant to this clause (g) the
Borrower shall make an optional prepayment of Term Loans in accordance with
Section 2.09 in an aggregate principal amount equal to the amount of such
Restricted Payment and notify the Agent that such optional prepayment is being
made in order to permit Restricted Payments pursuant to this clause (g) and
(iii) the sum of the aggregate Restricted Payments made pursuant to this clause
(g) plus the aggregate principal amount of Term Loans required to be prepaid as
a result of the foregoing clause (ii) of this clause (g) shall not exceed the
excess of (A) the Net Cash Proceeds from all Equity Prepayment Events after the
Effective Date with respect to which the Equity Prepayment Percentage was 0.0%
over (B) the aggregate amount of cash consideration paid by the Borrower in
connection with Permitted Acquisitions in reliance upon Net Cash Proceeds
referred to in clause (A); (h) the Borrower may make matching contributions on
behalf of its qualifying employees to a Parent Corporation Stock Plan pursuant
to the terms thereof; (i) the Borrower may make cash payments to the Parent
Corporation for the purpose of the repurchase of shares of its common stock in
the open market or otherwise, but only to the extent necessary to permit the
repurchase of a number of shares equal to the number of shares issued pursuant
to a Parent Corporation Stock Plan, provided that (1) no Default has occurred
--------
and is continuing at the time of, or would result from, such cash payment; (2)
the amount of such cash payments during any fiscal year of the Borrower may not
exceed $3,000,000; and (3) the sum of all cash payments made under this clause
(i) from and after the Effective Date shall not exceed $10,000,000; (j) the
Borrower may make cash payments to the Parent Corporation for the purpose of the
repurchase of up to 2,500,000 shares of its common stock pursuant to the Stock
Repurchase; and (k) if at the time thereof and after giving effect thereto no
Default has occurred and is continuing and the Debt Coverage Ratio is (and at
all times during the period of two consecutive fiscal quarters ended on or
immediately prior to such time was) 2.00 to 1.0 or less, the Borrower may (i)
make cash payments to the Parent Corporation in any fiscal year not exceeding in
the aggregate 50% of Consolidated Net Income for the immediately preceding
fiscal year and (ii) make payments on account of the prepayment, purchase,
redemption, defeasance, acquisition, termination, cancelation or compromise of
any Subordinated Debt in any fiscal year not exceeding in the aggregate the
difference of Excess Cash Flow for the immediately preceding fiscal year minus
the principal amount of Term Loans required to be prepaid in respect of such
Excess Cash Flow, provided in each case that (A) the Debt Coverage Ratio remains
--------
2.00 to 1.0 or less and (B) the sum of all Restricted Payments made pursuant to
this clause (k) in any fiscal year plus the principal amount of Term Loans
required to be prepaid in respect of Excess Cash Flow for the immediately
preceding fiscal year shall not exceed Excess Cash Flow for such immediately
preceding fiscal year.
SECTION 5.13. Mergers, Consolidations, Acquisitions and Sales of
--------------------------------------------------
Assets. (a) The Borrower will not, nor will it permit any of its Subsidiaries
- -------
to, merge into or consolidate with any other Person, or permit any other Person
to merge into or
<PAGE>
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consolidate with it, or purchase or otherwise acquire (in one transaction or a
series of related transactions) any material assets, except that (i) the
foregoing shall not prohibit the consummation of the Acquisition, (ii) the
foregoing shall not prohibit the acquisition of assets in the ordinary course of
business (including Capital Expenditures permitted by Section 5.24), (iii) the
foregoing shall not prohibit Permitted Acquisitions, subject to 30 days' prior
written notice to the Lenders of such Permitted Acquisition describing the
material terms of such Permitted Acquisition and delivery to the Lenders prior
to consummation of such Permitted Acquisition of a certificate of the chief
financial officer or the chief accounting officer of the Borrower, setting forth
calculations establishing to the reasonable satisfaction of the Agent that the
Borrower will be in compliance with Section 5.23 upon giving effect to such
Permitted Acquisition, (iv) if at the time thereof and immediately after giving
effect thereto no Default shall have occurred and be continuing any Wholly Owned
Consolidated Subsidiary (other than Finance Corp.) may merge or liquidate into
the Borrower in a transaction in which the Borrower is the survivor and (v) the
foregoing shall not prohibit capital contributions to the Borrower made in cash
or Investments by the Borrower in Subsidiaries permitted under Section 5.16;
provided that the acquisition of assets by Subsidiaries shall be subject to the
- --------
further restrictions set forth in Section 5.04.
(b) The Borrower will not, nor will it permit any of its Subsidiaries
to, sell, assign, transfer or otherwise dispose of any asset, including any
stock, without the prior written consent of the Required Lenders to such sale,
assignment, transfer or disposition and the terms thereof; provided, however,
-------- -------
that the foregoing shall not prohibit the sale of (i) inventory in the ordinary
course of business, (ii) used or surplus equipment in the ordinary course of
business, (iii) credit card receivables pursuant to the Credit Card Agreements,
and (iv) other tangible personal property and real property not exceeding
$3,000,000 in fair market value in any fiscal year of the Borrower; provided
--------
further, however, that such sales shall be made for fair market value and solely
- ------- -------
for cash consideration.
SECTION 5.14. Transactions with Affiliates. The Borrower will not,
-----------------------------
nor will it permit any of its Subsidiaries to, directly or indirectly, (a) make
any Investment in an Affiliate, (b) sell, lease or otherwise transfer any assets
to or perform services for an Affiliate, (c) purchase, lease or acquire assets
or services from an Affiliate, or (d) enter into any other transaction directly
or indirectly with or for the benefit of an Affiliate (including, without
limitation, Guarantees and assumptions of obligations of an Affiliate); provided
--------
that (i) the Borrower or any of its Subsidiaries may enter into any such
transaction with an Affiliate that does not involve the payment of financial or
management advisory fees or similar consideration to an Affiliate if the
monetary or business consideration arising therefrom would not be less
advantageous to the Borrower or such Subsidiary than the monetary or business
consideration which it would obtain in a
<PAGE>
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comparable arm's length transaction with a Person not an Affiliate, (ii) the
foregoing shall not prohibit the grant of warrants or options to acquire equity
interests in the Parent Corporation pursuant to management incentive
arrangements, (iii) the foregoing shall not prohibit the Restricted Payments
permitted under Section 5.12 and (iv) the foregoing shall not prohibit the
Transactions or the execution, delivery and performance by the Borrower of a
stockholders agreement and registration rights agreement substantially in the
respective forms attached to the Partnership Agreement and (v) the foregoing
shall not prohibit the payment described in Schedule 5.14.
SECTION 5.15. Sale and Lease-Back Transactions. The Borrower will
---------------------------------
not, nor will it permit any of its Subsidiaries to, enter into any arrangement,
directly or indirectly, with any Person whereby it shall sell or transfer any
asset, real or personal, whether now owned or hereafter acquired, and thereafter
rent or lease such asset or other assets which it intends to use for
substantially the same purpose or purposes as the asset being sold or
transferred, except that the Borrower may enter into any such arrangement within
90 days after acquiring the asset that is sold or transferred; provided that (i)
--------
for purposes of determining compliance with clause (iii) of Section 5.11(a),
such arrangement shall be deemed to constitute Capital Financing Debt in a
principal amount equal to the amount that would constitute Debt if such
arrangement were accounted for as a capital lease and (ii) the Borrower shall
not enter into any such arrangement if, after giving effect thereto, the
Borrower would not be in compliance with clause (iii) of Section 5.11(a).
SECTION 5.16. Investments. The Borrower will not, nor will it permit
------------
any of its Subsidiaries to, make or acquire any Investment in any Person
(including any Subsidiary) other than:
(a) Temporary Cash Investments;
(b) the acquisition by the Borrower of all the outstanding capital
stock of a corporation pursuant to a Permitted Acquisition;
(c) the Management Notes;
(d) Tax Advances permitted under Section 5.12; and
(e) Investments consisting of advances and capital contributions made
by the Borrower in cash to any Permitted Subsidiary; provided that (i) such
--------
Investments in Finance Corp. shall be limited to amounts necessary to
discharge franchise taxes and similar liabilities incidental to its
existence, (ii) such Investments in any other Permitted Subsidiary shall be
limited to amounts necessary to discharge liabilities permitted to be
incurred by such Subsidiaries
<PAGE>
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under Section 5.04, (iii) no such Investment shall be made more than five
Domestic Business Days prior to the date that payment is to be made in
respect of the liability to be discharged with the proceeds of such
Investment and (iv) such Investments shall be represented by promissory
notes or capital stock pledged pursuant to the Pledge Agreement or
partnership interests subject to a perfected Lien in favor of the Security
Agent.
SECTION 5.17. Negative Pledge. The Borrower will not, nor will it
----------------
permit any of its Subsidiaries to, create, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired by it, except Liens granted under the
Security Documents and except:
(a) any Lien (other than a Lien securing Debt) existing on any asset
(other than an asset subject to a security interest granted under the
Pledge Agreement or the Security Agreement) prior to the acquisition
thereof by the Borrower or a Consolidated Subsidiary and not created in
contemplation of such acquisition;
(b) Liens for taxes not delinquent or being contested in good faith
and by appropriate proceedings;
(c) deposits or pledges to secure obligations under workers'
compensation, social security or similar laws, or under unemployment
insurance;
(d) mechanics', workers', materialmen's, warehousemen's, landlords' or
other like Liens arising in the ordinary course of business with respect to
obligations which are not due or which are being contested in good faith;
(e) easements, rights-of-way, charges, covenants, restrictions and
matters of public record, survey defects and imperfections of title that do
not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business, in each
case affecting real property;
(f) the reservation by any prior grantor of any right, title or
interest in and to all oil, gas and other hydrocarbon substances, minerals,
ores and metals of every nature and kind in and under real property that do
not in the aggregate materially detract from the value of its assets or
materially impair the use thereof in the operation of its business;
(g) any Liens securing Capital Financing Debt; provided that such Lien
--------
does not attach to any asset other than the asset financed by such Capital
Financing Debt and proceeds thereof;
<PAGE>
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(h) Liens, if any, on credit card receivables sold pursuant to the
Credit Card Agreements that arise under the Credit Card Agreements by
virtue of such sale and proceeds thereof;
(i) Liens incurred in the ordinary course of business to secure
performance of surety and indemnity bonds, leases and other contracts
(other than to secure Debt);
(j) interests (other than Debt) of a lessor or lessee arising under a
lease;
(k) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with
imported goods, which duties are not delinquent or are being contested in
good faith by appropriate proceedings;
(l) unperfected Liens on inventory arising in the ordinary course of
business securing trade accounts payable to suppliers of such inventory
which are not past due or which are being contested in good faith; and
(m) Liens arising in the ordinary course of its business which (i) do
not attach to any asset subject to a security interest granted under the
Security Documents, (ii) do not secure Debt or any other monetary
obligation (other than judgments and appeal bonds not exceeding $2,000,000
in the aggregate) and (iii) do not in the aggregate materially detract from
the value of its assets or materially impair the use thereof in the
operation of its business.
SECTION 5.18. Use of Proceeds and Letters of Credit. The Letters of
--------------------------------------
Credit and the proceeds of the Loans made under this Agreement will be used by
the Borrower only for the purposes set forth in the preliminary statement of
this Agreement. None of such proceeds will be used, directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of buying or carrying
any Margin Stock.
SECTION 5.19. Grants of Negative Pledges or Dividend Restrictions.
----------------------------------------------------
The Borrower will not, nor will it permit any of its Subsidiaries to, agree to
or become bound by any agreement or other arrangement that would restrict or
impair (i) the ability of the Borrower and its Subsidiaries to grant to the
Security Agent a Lien on any of their respective properties or assets (provided
that the foregoing shall not prohibit restrictions in (a) agreements entered
into in connection with the incurrence of Capital Financing Debt that restrict
or impair the ability to grant Liens on the asset financed thereby while such
Capital Financing Debt remains outstanding or (b) the Credit Card Agreements
that
<PAGE>
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restrict or impair the ability to grant Liens on accounts receivable sold
thereunder) or (ii) the ability of any Subsidiary of the Borrower to pay
dividends on its capital stock.
SECTION 5.20. Changes in Accounting. The Borrower will not, nor will
----------------------
it permit any of its Subsidiaries to, change its accounting policies or
practices from those utilized in the preparation of the financial statements of
the Borrower referred to in Section 4.04, except as permitted or required by
generally accepted accounting principles consistently applied.
SECTION 5.21 Fixed Charge Coverage Ratio. The Fixed Charge Coverage
----------------------------
Ratio for the period of four consecutive fiscal quarters ending on the last day
of each fiscal quarter of the Borrower set forth below will not be less than the
ratio set forth below opposite such fiscal quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Ending on: Ratio
- ------------------------- -----
<S> <C>
November 1, 1997 2.20:1.0
January 31, 1998 2.20:1.0
May 2, 1998 2.20:1.0
August 1, 1998 2.20:1.0
October 31, 1998 2.40:1.0
January 30, 1999 2.40:1.0
May 1, 1999 2.40:1.0
July 31, 1999 2.40:1.0
October 30, 1999 2.75:1.0
January 29, 2000 2.75:1.0
April 29, 2000 2.75:1.0
July 29, 2000 2.75:1.0
October 28, 2000 3.0:1.0
February 3, 2001 3.0:1.0
May 5, 2001 3.0:1.0
August 4, 2001 3.0:1.0
November 3, 2001 3.0:1.0
February 2, 2002 3.0:1.0
May 4, 2002 3.0:1.0
August 3, 2002 3.0:1.0
</TABLE>
SECTION 5.22. Minimum Adjusted Net Worth. Consolidated Adjusted Net
---------------------------
Worth will not at any date be less than Minimum Adjusted Net Worth at such date.
<PAGE>
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SECTION 5.23. Debt Coverage Ratio. The Debt Coverage Ratio will not
--------------------
at any time during any period set forth below be greater than the ratio set
forth below with respect to such period:
<TABLE>
<CAPTION>
Period
From and Including To and Excluding Ratio:
------------------ ---------------- ------
<S> <C> <C>
Effective Date January 31, 1998 4.5:1
January 31, 1998 January 30, 1999 3.9:1
January 30, 1999 January 29, 2000 3.40:1
January 29, 2000 February 3, 2001 2.8:1
February 3, 2001 February 2, 2002 2.25:1
February 2, 2002, and at all times thereafter 2.0:1
</TABLE>
SECTION 5.24. Capital Expenditures. Capital Expenditures during any
---------------------
fiscal year of the Borrower, commencing with the fiscal year ending on the
Saturday closest to January 31, 1998, will not exceed the sum of (a) $12,500,000
plus (b) during any fiscal year of the Borrower other than the first such fiscal
year, the excess of $12,500,000 over the amount of Capital Expenditures during
the immediately preceding fiscal year; provided that additional Capital
--------
Expenditures not exceeding an aggregate of $50,000,000 for all such periods will
be permitted in excess of those permitted by clauses (a) and (b) above, except
that not more than $7,000,000 of such additional Capital Expenditures shall be
permitted during the first two such fiscal years; and provided further that, to
the extent that Capital Expenditures after December 9, 1996, but prior to the
Saturday closest to January 31, 1997, do not exceed $4,000,000, the excess of
$4,000,000 over the actual amount expended during such period may be added to
the amount of Capital Expenditures permitted under clause (a) above for the
fiscal year ending on the Saturday closest to January 31, 1998.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the following
------------------
events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay (i) when due any principal of any
Loan or any reimbursement obligation in respect of a Letter of Credit
Disbursement or
<PAGE>
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(ii) within three Domestic Business Days of the date due, any interest on
any Loan, any fees or any other amount payable hereunder or under any other
Loan Document;
(b) the Borrower shall fail to observe or perform (i) any covenant
contained in clause (a) or (b) of Section 5.01 for three Domestic Business
Days after notice thereof has been given to the Borrower by the Agent at
the request of any Lender or (ii) any covenant contained in clause (i) of
Section 5.01 or in Section 5.07 or in Sections 5.09 to 5.24, inclusive;
(c) the Borrower or any Subsidiary shall fail to observe or perform
any covenant or agreement contained in any Loan Document (other than those
covered by clause (a) or (b) above) for 10 days after written notice
thereof has been given to the Borrower by the Agent at the request of any
Lender;
(d) any representation, warranty, certification or statement made by
the Borrower or any Subsidiary in any Loan Document or in any certificate,
financial statement or other document delivered pursuant to any Loan
Document shall prove to have been incorrect in any material respect when
made (or deemed made);
(e) the Borrower or any Subsidiary shall fail to make any payment of
principal, interest or premium in respect of any Material Debt (other than
the Obligations) at maturity;
(f) any event or condition (including, without limitation, failure to
make any payment when due) shall occur which results in the acceleration of
the maturity of any Material Debt or enables (or, with the giving of notice
or lapse of time or both, would enable) the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof or
to require the prepayment, redemption or repurchase thereof or to terminate
any commitment to lend such Debt;
(g) any of the Trademark Agreements (other than those referred to in
clause (ii) of the definition thereof) or the Credit Card Agreements shall
be canceled, terminated or repudiated (other than termination of a Credit
Card Agreement in connection with the replacement thereof with another
Credit Card Agreement), or any event shall occur that results in any of
such Trademark Agreements having a term that expires earlier than the
initial term thereof, or any default, breach or other event shall occur
that would permit a termination of any of such Trademark Agreements (if the
Trademark Collateral Agreement were not in
<PAGE>
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effect) or the Credit Card Agreements and shall continue beyond any
applicable grace period;
(h) the Parent Corporation, the Borrower or any Subsidiary (i) shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
(ii) shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or (iii) shall make a general assignment for the
benefit of creditors, or (iv) shall fail generally to pay its debts as they
become due, or (v) shall take any corporate action to authorize any of the
foregoing;
(i) an involuntary case or other proceeding shall be commenced against
the Parent Corporation, the Borrower or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Parent Corporation, the Borrower or any Subsidiary under the
Federal bankruptcy laws as now or hereafter in effect;
(j) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $1,000,000 which it shall have become
liable to pay to the PBGC or to a Plan under Title IV of ERISA or Section
412 of the Internal Revenue Code; or notice of intent to terminate a Plan
or Plans having aggregate Unfunded Liabilities in excess of $2,000,000
(collectively, a "Material Plan") shall be filed under Title IV of ERISA by
any member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate or to cause a trustee to be appointed to administer any
Material Plan or a proceeding shall be instituted by a fiduciary of any
Plan against any member of the ERISA Group to enforce Section 515 or
4219(c)(5) of ERISA where the amount in controversy exceeds $2,000,000 and
such proceeding shall not have been dismissed within 30 days thereafter; or
a Reportable Event or Reportable Events shall have occurred with respect to
a Material Plan and the Agent shall have notified the Borrower that the
Required Lenders have made a determination that, on the basis of such
Reportable Event or Reportable Events, there are reasonable grounds for the
termination of
<PAGE>
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such Material Plan by the PBGC or for the appointment by an appropriate
United States District Court of a trustee to administer such Material Plan;
(k) one or more judgments or orders for the payment of money in an
aggregate amount in excess of $2,000,000 shall be rendered against the
Borrower, any Subsidiary or any combination thereof and shall continue
unsatisfied and unstayed for a period of 10 days, or any action shall be
legally taken by a judgment creditor to levy upon assets or properties of
the Borrower or any Subsidiary to enforce any such judgment;
(l) a Change of Control shall occur; or
(m) any security interest purported to be created by any Security
Document shall cease to be, or shall be asserted by the Borrower or any
Subsidiary not to be, a valid, perfected, first priority security interest
in respect of any material amount of collateral, other than as a result of
an act or omission of the Security Agent, the Agent or any Lender and
subject to exceptions as to priority expressly permitted under the Loan
Documents;
then, and in every such event, the Agent shall (i) if requested by Lenders
having more than 50% in aggregate amount of the Commitments, by notice to the
Borrower terminate the Commitments and they shall thereupon terminate, (ii) if
requested by Lenders holding Notes evidencing more than 50% in aggregate
principal amount of the Loans, by notice to the Borrower declare the Notes
(together with accrued interest thereon) to be, and the Notes shall thereupon
become, immediately due and payable (in whole or, in the sole discretion of the
Lenders, from time to time in part) without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower, (iii)
if requested by Lenders having more than 50% of the Letter of Credit Exposure,
require cash collateral as contemplated by Section 2.13(k) in an amount not
exceeding the Letter of Credit Exposure, (iv) exercise and direct the Security
Agent to exercise remedies available under the Guarantee Agreement, the Security
Documents or otherwise, as requested by the Required Lenders, or (v) any
combination of the foregoing; provided that in the case of any of the Events of
--------
Default specified in clause (h) or (i) above with respect to the Parent
Corporation or the Borrower without any notice to the Parent Corporation or the
Borrower or any other act by the Agent or the Lenders, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon) shall
become immediately due and payable (in whole) without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower.
<PAGE>
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SECTION 6.02. Notice of Default. The Agent shall give notice to the
------------------
Borrower under clause (b)(i) or (c) of Section 6.01 promptly upon being
requested to do so by any Lender, and shall thereupon notify all the Lenders
thereof.
ARTICLE VII
THE AGENT, SECURITY AGENT AND ISSUING BANKS
SECTION 7.01. Appointment and Authorization. Each Lender irrevocably
------------------------------
appoints and authorizes each of the Agent, the Security Agent, the Swingline
Lender and any Issuing Bank (each being referred to as an "Agent" for purposes
of this Article VII) to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to such Agent by the terms hereof or thereof, together with all such powers as
are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Each Lender that is an Agent
---------------------
shall have the same rights and powers under this Agreement as any other Lender
and may exercise or refrain from exercising the same as though it were not an
Agent, and each such Lender and its affiliates may accept deposits from, lend
money to, and generally engage in any kind of business with the Borrower or any
Subsidiary or affiliate of the Borrower as if it were not an Agent.
SECTION 7.03. Action by Agent. The obligations of any Agent under
----------------
the Loan Documents are only those expressly set forth herein and therein.
Without limiting the generality of the foregoing, no Agent shall be required to
take any action with respect to any Default, except as expressly provided in
Article VI.
SECTION 7.04. Consultation with Experts. Each Agent may consult with
--------------------------
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither any Agent nor any of its
-------------------
directors, officers, agents, or employees shall be liable for any action taken
or not taken by it in connection herewith (i) with the consent or at the request
of the Required Lenders or (ii) in the absence of its own gross negligence or
willful misconduct. Neither any Agent nor any of its directors, officers,
agents or
<PAGE>
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employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any statement, warranty or representation made in connection with
this Agreement or any borrowing hereunder; (ii) the performance or observance of
any of the covenants or agreements of the Borrower or any Subsidiary; (iii) the
satisfaction of any condition specified in Article III, except receipt of items
required to be delivered to it; or (iv) the validity, effectiveness or
genuineness of this Agreement, any other Loan Document or Transaction Document
or any other instrument or writing furnished in connection herewith. No Agent
shall incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a telecopy, bank wire,
telex or similar writing) believed by it to be genuine or to be signed by the
proper party or parties.
SECTION 7.06. Indemnification. Each Lender shall, ratably in
----------------
accordance with its Loans, Letter of Credit Exposure and unused Commitment,
indemnify each Agent (to the extent not reimbursed by the Borrower) against any
cost, expense (including counsel fees and disbursements), claim, demand, action,
loss or liability (except such as result from such Agent's gross negligence or
willful misconduct) that such Agent may suffer or incur in connection with this
Agreement or any other Loan Document or any action taken or omitted by such
Agent hereunder or thereunder.
SECTION 7.07. Credit Decision. Each Lender acknowledges that it has,
----------------
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.08. Successor Agent. Any Agent (other than an Issuing Bank
----------------
in respect of Letters of Credit issued by it) may resign at any time by giving
written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a successor to
such Agent after consultation with the Borrower (but the foregoing shall not be
construed to require any consent or approval by the Borrower). If no successor
to such Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent, which, in the case of the Agent under this Agreement,
shall be a commercial bank organized or licensed under the laws of the United
States of America or of any State thereof and having a combined capital and
surplus of at least $500,000,000. Upon the acceptance of its appointment as an
Agent by a successor Agent, such successor Agent shall thereupon succeed to and
become vested with all the rights and duties of the retiring Agent, and the
retiring Agent shall be discharged from its
<PAGE>
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duties and obligations. After any retiring Agent's resignation, the provisions
of this Article shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was an Agent.
SECTION 7.09. Agents Fees. The Borrower shall pay to each Agent for
------------
its own account fees in the amounts and at the times previously agreed upon
between the Borrower and such Agent.
SECTION 7.10. Sub-Agents. Each Agent may perform any of its
-----------
obligations and exercise any of its rights under the Loan Documents by or
through sub-agents. The provisions of this Article VII shall inure to the
benefit of any sub-agent of any Agent in the same manner and to the same extent
as they inure to the benefit of such Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
-------------------------------------------------
Unfair. If on or prior to the first day of any Interest Period for any Euro-
- -------
Dollar Borrowing:
(a) the Agent is advised by the Euro-Dollar Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to
the Euro-Dollar Reference Banks in the relevant market for such Interest
Period, or
(b) Lenders having 50% or more of the aggregate amount of the
Commitments or Loans of the relevant Class advise the Agent that the
Adjusted London Interbank Offered Rate, as the case may be, as determined
by the Agent will not adequately and fairly reflect the cost to such
Lenders of funding their Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and the Lenders,
whereupon until the Agent notifies the Borrower that the circumstances giving
rise to such suspension no longer exist, the obligations of the Lenders to make
Euro-Dollar Loans shall be suspended. Unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any Euro-Dollar Borrowing
for which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
<PAGE>
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SECTION 8.02. Illegality. If, on or after the date of this
-----------
Agreement, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Euro-Dollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
make it unlawful or impossible for any Lender (or its Euro-Dollar Lending
Office) to make, maintain or fund its Euro-Dollar Loans and such Lender shall so
notify the Agent, the Agent shall forthwith give notice thereof to the other
Lenders and the Borrower, whereupon until such Lender notifies the Borrower and
the Agent that the circumstances giving rise to such suspension no longer exist,
the obligation of such Lender to make Euro-Dollar Loans shall be suspended.
Before giving any notice to the Agent pursuant to this Section, such Lender
shall designate a different Euro-Dollar Lending Office if such designation will
avoid the need for giving such notice and will not, in the judgment of such
Lender, be otherwise disadvantageous to such Lender. If such Lender shall
determine that it may not lawfully continue to maintain and fund any of its
outstanding Euro-Dollar Loans to maturity and shall so specify in such notice,
the Borrower shall immediately prepay in full the then outstanding principal
amount of each such Euro-Dollar Loan, together with accrued interest thereon.
Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall
borrow a Base Rate Loan in an equal principal amount from such Lender (on which
interest and principal shall be payable contemporaneously with the related Euro-
Dollar Loans of the other Lenders), and such Lender shall make such a Base Rate
Loan.
SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after
----------------------------------
the date hereof the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency:
(i) shall subject any Lender (or its Applicable Lending Office) to any
tax, duty or other charge with respect to its Euro-Dollar Loans, its Notes,
its participations in Letters of Credit or its obligation to make Euro-
Dollar Loans or acquire participations in Letters of Credit, or shall
change the basis of taxation of payments to any Lender (or its Applicable
Lending Office) of the principal of or interest on its Euro-Dollar Loans or
any other amounts due under this Agreement in respect of its Euro-Dollar
Loans or its obligation to make Euro-Dollar Loans (except for changes in
the rate of tax on, or determined by reference to, the overall net income
of such Lender or its Applicable Lending Office imposed by the
<PAGE>
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jurisdiction in which such Lender's principal executive office or
Applicable Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System, but excluding with respect to any Euro-Dollar Loan any such
requirement included in an applicable Euro-Dollar Reserve Percentage)
against assets of, deposits with or for the account of, or credit extended
by, any Lender (or its Applicable Lending Office) or shall impose on any
Lender (or its Applicable Lending Office) or on the London interbank market
any other condition affecting its Euro-Dollar Loans, its Notes, its
participations in Letters of Credit or its obligation to make Euro-Dollar
Loans or acquire participations in Letters of Credit;
and the result of any of the foregoing is to increase the cost to such Lender
(or its Applicable Lending Office) of making or maintaining any Euro-Dollar Loan
or holding or acquiring a participation in any Letter of Credit, or to reduce
the amount of any sum received or receivable by such Lender (or its Applicable
Lending Office) under this Agreement or under its Note with respect thereto, by
an amount deemed by such Lender to be material, then, within 15 days after
demand by such Lender (with a copy to the Agent), the Borrower shall pay to such
Lender such additional amount or amounts as will compensate such Lender for such
increased cost or reduction.
(b) If any Lender shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or any request
or directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on capital of such Lender (or its Parent)
as a consequence of such Lender's obligations hereunder to a level below that
which such Lender (or its Parent) could have achieved but for such adoption,
change, request or directive (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by such Lender to be material,
then from time to time, within 15 days after demand by such Lender (with a copy
to the Agent), the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender (or its Parent) for such reduction.
(c) Each Lender will promptly notify the Borrower and the Agent of
any event of which it has knowledge, occurring after the date hereof, which will
entitle such Lender to compensation pursuant to this Section and will designate
a different Applicable
<PAGE>
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Lending Office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender. A certificate of any Lender claiming
compensation under this Section and setting forth the additional amount or
amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any reasonable
averaging and attribution methods.
SECTION 8.04. Base Rate Loans Substituted for Affected Fixed Rate
---------------------------------------------------
Loans. If (a) the obligation of any Lender to make Euro-Dollar Loans has been
- ------
suspended pursuant to Section 8.02 or (b) any Lender has demanded compensation
under Section 8.03(a) and the Borrower shall, by at least five Euro-Dollar
Business Days' prior notice to such Lender through the Agent, have elected that
the provisions of this Section shall apply to such Lender, then, unless and
until such Lender notifies the Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer apply:
(i) all Loans which would otherwise be made by such Lender as Euro-
Dollar Loans shall be made instead as Base Rate Loans (on which interest
and principal shall be payable contemporaneously with the related Euro-
Dollar Loans of the other Lenders); and
(ii) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead.
SECTION 8.05. Replacement of Lenders. In the event (a) any Lender
-----------------------
delivers a notice under Section 8.02 or (b) any Lender demands compensation
pursuant to Section 8.03, then the Borrower may, at its sole expense and
effort, require such Lender to assign, without recourse (in accordance with
Section 9.06), all of its rights and obligations under this Agreement and the
Notes to an Assignee which shall assume such assigned obligations; provided that
--------
(i) such assignment shall not conflict with any law, rule or regulation or order
of any court or other Governmental Authority having jurisdiction, (ii) the
Borrower shall have received the written consent of the Agent (and of an Issuing
Bank, if such Lender has a Revolving Loan Commitment) and (iii) such Assignee
(or, in the case of amounts other than principal, interest and accrued Fees, the
Borrower) shall have paid to the transferor Lender in immediately available
funds an amount equal to the sum of the principal of and interest accrued to the
date of such payment on the outstanding Loans and participations in Letter of
Credit Disbursements of such Lender, plus all Fees and other amounts accrued for
the account of such Lender hereunder (including any amounts under Section 2.11
and Section 8.03, it being understood that such assignment shall be treated as a
prepayment for purposes of Section 2.11); provided further that if prior to any
-------- -------
such assignment the circumstances or event that resulted in such
<PAGE>
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Lender's notice under Section 8.02 or demand for compensation under Section
8.03, as the case may be, cease to cause such Lender to suffer increased costs
or reductions in amounts received or receivable or reduction in return on
capital, or cease to have the consequences specified in Section 8.02, as the
case may be (including as a result of any action taken by such Lender), or if
such Lender shall waive its right to claim further compensation under Section
8.03 in respect of such circumstances or event or shall withdraw its notice
under Section 8.02 in respect of such circumstances or event, as the case may
be, then such Lender shall not thereafter be required to make any such
assignment hereunder.
SECTION 8.06. Taxes. (a) For the purposes of this Section 8.06, the
------
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by the
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Lender, each Issuing Bank and
---------
the Agent, taxes imposed on its income, and franchise or similar taxes imposed
on it, by a jurisdiction under the laws of which such Lender, such Issuing Bank
or the Agent (as the case may be) is organized or in which its principal
executive office is located or, in the case of each Lender, in which its
Applicable Lending Office is located and (ii) in the case of each Lender, any
United States withholding tax imposed on such payments but only to the extent
that such Lender is subject to United States withholding tax at the time such
Lender first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made pursuant to this Agreement or under any other Loan
Document or from the execution or delivery of, or otherwise with respect to,
this Agreement or any other Loan Document.
(b) Any and all payments by the Borrower to or for the account of any
Lender, any Issuing Bank or the Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
--------
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) such Lender, such Issuing Bank or the Agent (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) the Borrower shall make such deductions,
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv)
<PAGE>
-82-
the Borrower shall furnish to the Agent, at its address referred to in Section
9.01, the original or a certified copy of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Lender, each Issuing Bank
and the Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section) paid by such Lender, such Issuing Bank or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto. This indemnification
shall be paid within 15 days after such Lender, such Issuing Bank or the Agent
(as the case may be) makes demand therefor.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Lender listed on the signature pages hereof and on
or prior to the date on which it becomes a Lender in the case of each other
Lender, and from time to time thereafter if requested in writing by the Borrower
(but only so long as such Lender remains lawfully able to do so), shall provide
the Borrower and the Agent with (i) Internal Revenue Service form 1001 or 4224,
as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender is entitled to benefits under an income tax
treaty to which the United States is a party which exempts the Lender from
United States withholding tax or reduces the rate of withholding tax on payments
of interest for the account of such Lender or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States or (ii) if such Lender is not a
"bank" or other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Code form 1001 or 4224 pursuant
to clause (i) above, a Certificate re Non-Bank Status together with two original
copies of Internal Revenue Service form W-8 (or any successor form prescribed by
the Internal Revenue Service) and any other statement of exemption required
under the Internal Revenue Code or the regulations issued thereunder to
establish that such Lender is entitled to the benefits under an income tax
treaty to which the United States is a party which exempts the Lender from
United States withholding tax or reduces the rate of withholding tax on payments
of interest for the account of such Lender.
(e) For any period with respect to which a Lender has failed to
provide the Borrower or the Agent with the appropriate form pursuant to Section
8.06(d) (unless such failure is due to a change in treaty, law or regulation
occurring subsequent to the date on which such form originally was required to
be provided), such Lender shall not be entitled to indemnification under Section
8.06(b) or (c) with respect to Taxes imposed by the United States; provided that
--------
if a Lender, which is otherwise exempt from or subject to a reduced rate of
withholding tax, becomes subject to Taxes because of its failure to deliver
<PAGE>
-83-
a form required hereunder, the Borrower shall take such steps as such Lender
shall reasonably request to assist such Lender to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Lender pursuant to this Section, then such Lender will change
the jurisdiction of its Applicable Lending Office if such change (i) will
eliminate or reduce any such additional payment which may thereafter accrue and
(ii) in the judgment of such Lender, is not otherwise disadvantageous (other
than in a de minimis respect) to such Lender.
-- -------
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
--------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case the Borrower, each Issuing Bank, the Swingline Lender or
the Agent, at its address or telecopy number set forth on the signature pages
hereof (with a copy to Freeman Spogli & Co. Incorporated, 599 Lexington Avenue,
18th Floor, New York, NY 10022, Attention: Mr. J.M. Roth, in the case of any
notice to the Borrower relating to a Default), (y) in the case of any Lender, at
its address or telex number set forth in its Administrative Questionnaire or (z)
in the case of any party, at such other address or telecopy or telex number as
such party may hereafter specify for the purpose by notice to the Agent and the
Borrower. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answer back is received, (ii) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid, or (iii) if given by any
other means, when delivered at the address specified in this Section; provided
--------
that notices to the Agent under Article II or Article VIII shall not be
effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent, the
-----------
Security Agent, any Issuing Bank or any Lender in exercising any right, power or
privilege hereunder or under any other Loan Document shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
<PAGE>
-84-
SECTION 9.03. Expenses; Documentary Taxes; Indemnification. (a) The
---------------------------------------------
Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, the
Security Agent, the Documentation Agent and (in the case of expenses relating to
the issuance of a Letter of Credit) the Issuing Bank, including fees and
disbursements of special counsel for the Agent and the Documentation Agent, in
connection with the preparation of this Agreement and the other Loan Documents,
any primary or secondary syndication of the credit facilities hereunder, any
waiver or consent hereunder or thereunder or any amendment hereof or thereof or
any Default or alleged Default hereunder and (ii) if an Event of Default occurs,
all reasonable out-of-pocket expenses incurred by the Agent, the Security Agent,
any Issuing Bank or any Lender, including fees and disbursements of counsel, in
connection with such Event of Default and collection, bankruptcy and other
enforcement proceedings resulting therefrom. The Borrower shall indemnify each
Lender against any transfer taxes, documentary taxes, assessments or charges
made by any Governmental Authority by reason of the execution and delivery of
this Agreement or the other Loan Documents.
(b) The Borrower agrees to indemnify the Agent, the Security Agent,
the Documentation Agent, each Issuing Bank and each Lender and hold the Agent,
the Security Agent, each Issuing Bank and each Lender harmless from and against
any and all liabilities, losses, damages, costs and expenses of any kind,
including, without limitation, the reasonable fees and disbursements of counsel,
which may be incurred by any Lender (or by the Agent, the Documentation Agent,
the Security Agent or any Issuing Bank in connection with its actions as such)
in connection with any investigative, administrative or judicial proceeding
(whether or not the Agent, the Documentation Agent, the Security Agent, such
Issuing Bank or such Lender shall be designated a party thereto) relating to or
arising out of any Loan Document or any actual or proposed use of proceeds of
Loans or Letters of Credit hereunder; provided that neither the Agent, the
--------
Documentation Agent, the Security Agent, any Issuing Bank nor any Lender shall
have the right to be indemnified hereunder for its own gross negligence or
wilful misconduct as determined by a court of competent jurisdiction.
(c) The provisions of this Section 9.03 shall remain in effect and
survive regardless of any termination of this Agreement or the repayment of the
Obligations.
SECTION 9.04. Sharing of Set-Offs. Each Lender agrees that if it
--------------------
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of its claims in respect of
Letter of Credit Disbursements and principal and interest due with respect to
any Note held by it which is greater than the proportion received by any other
Lender in respect of the aggregate amount of claims in respect of Letter of
Credit Disbursements and principal and interest due with respect to any Note
held by such other Lender, the Lender receiving such
<PAGE>
-85-
proportionately greater payment shall purchase such participations in the claims
in respect of Letter of Credit Disbursements and Notes held by the other
Lenders, and such other adjustments shall be made, as may be required so that
all such payments of claims in respect of Letter of Credit Disbursements and of
principal and interest with respect to the Notes held by the Lenders shall be
shared by the Lenders pro rata; provided that nothing in this Section shall
--------
impair the right of any Lender to exercise any right of set-off or counterclaim
it may have and to apply the amount subject to such exercise to the payment of
indebtedness of the Borrower other than its indebtedness under the Loan
Documents. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in a Letter of Credit
or Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.05. Amendments and Waivers. Any provision of this
-----------------------
Agreement or any other Loan Document may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed or otherwise approved in
writing by the Borrower and the Required Lenders (and, if the rights or duties
of the Agent, the Security Agent, the Swingline Lender or the Issuing Banks are
affected thereby, by the Agent, the Security Agent, the Swingline Lender or the
Issuing Banks, as the case may be); provided that no such amendment or waiver
--------
shall (i) increase the Commitment of any Lender or subject any Lender to any
additional obligation without the consent of such Lender, (ii) reduce the
principal of or rate of interest on any Loan or any fees hereunder without the
consent of each Lender affected thereby, (iii) postpone the date fixed for any
payment of principal of any Loan under Section 2.08(a), (b) or (c) or for any
reimbursement of a Letter of Credit Disbursement or payment of interest on any
Loan or any fees hereunder or for any reduction or termination of any Commitment
without the consent of each Lender affected thereby, (iv) permit the termination
of the Trademark Agreement or any Credit Card Agreements, or any amendment or
waiver thereof that would be materially adverse to the interests of the Borrower
or the Lenders, without the consent of each Lender, (v) permit the release of
any material amount of collateral under any Security Document (except as
provided therein), without the consent of each Lender, (vi) change the
percentage of the Commitments, the percentage of the aggregate unpaid principal
amount of the Notes or the number of Lenders which shall be required for the
Lenders or any of them to take any action under this Section or any other
provision of this Agreement, without the consent of each Lender, or (vii) change
any provisions of any Loan Document in a manner that by its terms adversely
affects the rights in respect of payments due to Lenders holding Loans of any
Class differently than those holding Loans of any other Class, without the
consent of Lenders holding a majority in interest of the outstanding Loans and
unused Commitments of each affected Class (in addition to any other consent
required under any other clause of this Section).
<PAGE>
-86-
SECTION 9.06. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Borrower may not
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of all Lenders.
(b) Any Lender may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in any or all of its
Commitment or its Loans or its participations in Letters of Credit. In the
event of any such grant by a Lender of a participating interest to a
Participant, whether or not upon notice to the Borrower and the Agent, such
Lender shall remain responsible for the performance of its obligations
hereunder, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement. Any agreement pursuant to which any Lender
may grant such a participating interest shall provide that such Lender shall
retain the sole right and responsibility to enforce the obligations of the
Borrower hereunder including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement; provided
--------
that such participation agreement may provide that such Lender will not agree to
any modification, amendment or waiver described in clause (i), (ii), (iii), (iv)
or (v) of Section 9.05 without the consent of the Participant. The Borrower
agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of Article VIII and Section 2.11 with
respect to its participating interest. An assignment or other transfer which is
not permitted by subsection (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this subsection (b).
(c) Any Lender may at any time assign to one or more banks or other
financial institutions (each an "Assignee") all, or a proportionate part of all,
of its rights and obligations under this Agreement and the Notes, and such
Assignee shall assume such rights and obligations, pursuant to an instrument
executed by such Assignee and such transferor Lender, with (and subject to) the
subscribed consent of the Borrower and the Agent (except in each case in the
case of assignments to Lenders or Affiliates of Lenders), which consents shall
not be unreasonably withheld, and, in the case of an assignment of a Revolving
Loan Commitment, the Issuing Banks and the Swingline Lender; provided that (i)
--------
each such assignment shall be in a minimum amount of $5,000,000 or, if less, all
the remaining rights and obligations of the transferor Lender, and (ii) any such
assignment of rights and obligations in respect of any Class of Loans or
Commitments shall be made ratably of all rights and obligations in respect of
such Class but shall not require a ratable assignment of rights and obligations
in respect of another Class. Upon execution and delivery of such an instrument,
payment by such Assignee to such transferor Lender of an amount equal to the
purchase price agreed between such transferor Lender and such
<PAGE>
-87-
Assignee, delivery to the Agent of an executed copy of such instrument and
payment to the Agent by the Assignor of a processing fee of $3,500, then such
Assignee shall be a Lender party to this Agreement and shall have all the rights
and obligations of a Lender with a Commitment as set forth in such instrument of
assumption, and the transferor Lender shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this subsection (c), the transferor Lender, the Agent and the Borrower shall
make appropriate arrangements so that, if required, a new Note or Notes are
issued to the Assignee, at the Borrower's expense. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Agent certification as to exemption
from deduction or withholding of any United States Federal income taxes in
accordance with Section 8.06. The Agent will maintain a copy of each instrument
of assignment delivered to and accepted by it pursuant to this Section 9.06(c)
and a register for the recordation of the names and addresses of the Lenders and
the Commitment of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The Agent will not grant its consent to any
assignment by any Lender without recording such assignment in the Register.
(d) Any Lender may at any time assign all or any portion of its
rights under this Agreement and its Notes to a Federal Reserve Bank. No such
assignment shall release the transferor Lender from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Lender's
rights shall be entitled to receive any greater payment under Section 8.03 or
8.06 than such Lender would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.06
requiring such Lender to designate a different Applicable Lending Office under
certain circumstances or at a time when the circumstances giving rise to such
greater payment did not exist.
SECTION 9.07. Collateral. Each of the Lenders represents to the
-----------
Agent and each of the other Lenders that it in good faith is not relying upon
any Margin Stock as collateral in the extension or maintenance of the credit
provided for in this Agreement.
SECTION 9.08. Waiver of Trial by Jury. Each of the parties hereto
------------------------
irrevocably waives any and all rights to trial by jury in any legal proceeding
arising out of or relating to this Agreement or any other Loan Document or the
transactions contemplated hereby.
<PAGE>
-88-
SECTION 9.09. New York Law. THIS AGREEMENT AND EACH NOTE SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 9.10. Counterparts; Integration. This Agreement may be
--------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 9.11. Limitation on Recourse. Notwithstanding any contrary
-----------------------
provision of this Agreement or any other Loan Document, it is expressly agreed
that the Agent, the Security Agent, each Issuing Bank and each Lender shall look
solely to the assets of the Borrower (and of any Subsidiary party to the
Guarantee Agreement or any Security Document) for the payment and performance of
the obligations of the Borrower hereunder and thereunder, without recourse
against any partner in the Borrower or any assets of such partner on account of
such obligations.
SECTION 9.12. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein or in the Notes to the contrary, if at any time the applicable interest
rate, together with all fees and charges which are treated as interest under
applicable law (collectively the "Charges"), as provided for herein or in any
other Loan Document, or otherwise contracted for, charged, received, taken or
reserved by any Lender, shall exceed the maximum lawful rate (the "Maximum
Rate") which may be contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest payable under the
Note or Notes held by such Lender, together with all Charges payable to such
Lender, shall be limited to the Maximum Rate.
SECTION 9.13. Effect of Amendment and Restatement. Accrued interest
------------------------------------
and fees under the Existing Credit Agreement prior to the Amendment Effective
Date shall not be affected by this Agreement; provided that interest rates and
--------
fees accruing on and after the Amendment Effective Date shall be calculated in
accordance with, and after giving effect to, this Agreement. After giving
effect to the effectiveness of this Agreement on the Amendment Effective Date,
the other Loan Documents shall continue in full force and effect, including,
without limitation, with respect to the creation and perfection of valid, first
priority security interests in the collateral hereunder. Unless and until the
Amendment Effective Date, the Existing Credit Agreement shall continue in full
force and effect and not be affected hereby.
<PAGE>
-89-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
BRYLANE, L.P.,
by VGP CORPORATION,
General Partner,
by
-------------------------------
Title: Vice President,
Treasurer and Secretary
463 Seventh Avenue
21st Floor
New York, NY 10018
Attention of Chief
Financial Officer
Telecopy number:212-613-9567
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent,
by
-------------------------------
Title: Vice President
60 Wall Street
New York, N.Y. 10260
Attention of Deborah A. Brodheim
Telex number:177615 MGT UT
Telecopy number:212-648-5018
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
-------------------------------
Title: Vice President
<PAGE>
-90-
MERRILL LYNCH CAPITAL CORPORATION,
by
-------------------------------
Title: Vice President
World Financial Center
North Tower
250 Vesey Street
7th Floor
New York, NY 10281-1307
BANKBOSTON, N.A.,
by
-------------------------------
Title: Vice President
100 Federal Street
Boston, MA 02106-2016
DEUTSCHE BANK AG, NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
by
-------------------------------
Title: Assistant Vice President
31 West 52nd Street
New York, NY 10019
by
-------------------------------
Title: Director
<PAGE>
-91-
FLEET NATIONAL BANK,
by
-------------------------------
Title: Assistant Vice President
One Federal Street
Boston, MA 02211
WELLS FARGO BANK, N.A.
by
-------------------------------
Title: Vice President
333 South Grand Avenue
9th Floor
Los Angeles, CA 90071
THE FUJI BANK, LIMITED,
by
-------------------------------
Title: Joint General Manager
225 West Wacker Drive
Suite 2000
Chicago, IL 60606
<PAGE>
-92-
THE LONG-TERM CREDIT BANK OF JAPAN, LTD.,
by
-------------------------------
Title: Deputy General Manager
350 South Grand Avenue
Suite 3000
Los Angeles, CA 90071
PNC BANK, NATIONAL ASSOCIATION
by
-------------------------------
Title: Vice President
249 Fifth Avenue
2nd Floor
Pittsburgh, PA 15222-2707
UNION BANK OF CALIFORNIA, N.A.,
by
-------------------------------
Title: Senior Vice President
350 California Street
San Francisco, CA 94104-1402
CORESTATES BANK,
by
-------------------------------
Title: Vice President
1345 Chestnut Street
Philadelphia, PA 19101
<PAGE>
-93-
CAISSE NATIONALE DE CREDIT AGRICOLE,
by
-------------------------------
Title: First Vice President
520 Madison Avenue
New York, NY 10022
NATIONAL CITY BANK OF INDIANA,
by
-------------------------------
Title: Vice President
101 West Washington Street
Indianapolis, IN 46255
THE SUMITOMO BANK, LTD.,
by
-------------------------------
Title: Vice President
450 Lexington Avenue
Suite 1700
New York, NY 10017
by
-------------------------------
Title: Vice President and
Manager
<PAGE>
-94-
ARAB BANKING CORPORATION,
by
-------------------------------
Title: Vice President
277 Park Avenue
32nd Floor
New York, NY 10172-3299
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST,
by
-------------------------------
Title: Senior Vice President/
Portfolio Manager
One Parkview Plaza
5th Floor
Oakbrook Terrace, IL 60181
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY,
by
-------------------------------
Title: Managing Director
1295 State Street
Springfield, MA 01109
METROPOLITAN LIFE INSURANCE CO.,
by
-------------------------------
Title: Assistant Vice President
334 Madison Avenue
Convent Station, NJ 07961
<PAGE>
-95-
KZH HOLDING CORPORATION,
by
-------------------------------
Title: Authorized Agent
c/o Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, NY 10001
PARIBAS CAPITAL FUNDING,
by
-------------------------------
Title: Director
787 7th Avenue
32nd Floor
New York, NY 10019
AMSOUTH BANK OF ALABAMA,
by
-------------------------------
Title: Commerical Banking
Officer
1900 5th Avenue North
11th Floor
Birmingham, AL 35203
THE BANK OF NEW YORK,
by
-------------------------------
Title: Vice President
One Wall Street
New York, NY 10286
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to this inclusion in the Registration Statement on Amendment No.
2 to Form S-1 (File No. 333-35715) of our report dated April 12, 1997, on our
audits of the consolidated financial statements of Brylane 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.
Columbus, Ohio
October 10, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in amendment number 2 to the Registration
Statement on Form S-1 (File No. 333-35715) 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
October 10, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Amendment No.
2 to Form S-1 (File No. 333-35715) 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
October 10, 1997
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<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-04-1997
<PERIOD-END> AUG-02-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,835
<ALLOWANCES> 1,931
<INVENTORY> 188,543
<CURRENT-ASSETS> 253,434
<PP&E> 141,983
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0
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<TOTAL-LIABILITY-AND-EQUITY> 689,127
<SALES> 274,656
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