<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12703
BRYLANE INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3794198
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
463 Seventh Avenue
New York, NY 10018
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 613-9500
Securities registered pursuant to Section 12(b) of the Act: Common Stock, par
value $.01 per share
Name of each exchange on which registered: New York Stock Exchange (the "NYSE")
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO _____
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on April 16, 1998, based on the closing price
at which the Common Stock was sold on the NYSE as of April 16, 1998, was $59.00.
The number of shares of the Registrant's Common Stock outstanding as of
April 16, 1998 was 18,408,650 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A (including the Appendix thereto) are incorporated by
reference in Part III of this Report.
================================================================================
<PAGE>
BRYLANE INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended January 31, 1998
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1. Business.......................................... 2
Item 2. Properties........................................ 17
Item 3. Legal Proceedings................................. 17
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 17
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................... 18
Item 6. Selected Financial Data........................... 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 22
Item 8. Financial Statements and Supplementary Data....... 33
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............ 33
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation............................ 34
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................. 34
Item 13. Certain Relationships and Related Transactions.... 34
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K................ 35
</TABLE>
<PAGE>
PART I
As used in this Annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "Brylane" refer to Brylane
Inc., a Delaware corporation, its wholly-owned subsidiaries VP Holding
Corporation, a Delaware corporation ("VP Holding"), VGP Corporation, a Delaware
corporation ("VGP"), VLP Corporation, a Delaware corporation ("VLP"), and
Brylane, L.P., a Delaware limited partnership (the "Partnership"), and the
Partnership's predecessor companies. The term "subsidiaries" refers to the
following subsidiaries and partnerships of the Partnership: B.L. Catalog
Distribution, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Partnership ("B.L. Distribution"), B.L. Catalog Distribution Partnership, an
Indiana general partnership ("B.L. Distribution Partnership"), B.L. Management
Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Partnership ("B.L. Management"), B.L. Management Services Partnership, a New
York general partnership ("B.L. Management Partnership"), B.N.Y. Service Corp.,
a Delaware corporation and a wholly-owned subsidiary of the Partnership ("B.N.Y.
Service"), K.S. Management Services, Inc., a Delaware corporation and a wholly-
owned subsidiary of the Partnership ("K.S. Management"), C.O.B. Management
Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the
Partnership ("C.O.B. Management"), Chadwick's Tradename Sub., Inc., a Delaware
corporation and a wholly-owned subsidiary of the Partnership ("Tradename Sub"),
and Brylane Capital Corp., a Delaware corporation and a wholly-owned subsidiary
of the Partnership ("Brylane Capital"), unless the context indicates otherwise.
Unless otherwise indicated, as used in this Form 10-K: (i) all references
to a fiscal year shall mean the fiscal year of the Company which commences in
such year (for example, the fiscal year commencing February 2, 1997 and ending
January 31, 1998 is referred to herein as "fiscal 1997" or "1997"), and (ii) all
numerical and financial data for Brylane includes numerical and financial data
for the Chadwick's catalog operations beginning December 9, 1996 for the eight
weeks ended February 1, 1997, unless the context indicates otherwise.
On February 26, 1997, as a result of the Exchange Transaction (as defined
herein) and in connection with the Initial Public Offering (as defined herein)
of Brylane Inc., the Partnership became an indirect wholly-owned subsidiary of
Brylane Inc. Prior to the Exchange Transaction, Brylane Inc. had no
stockholders and no assets. For periods presented prior to February 26, 1997,
the information, including the financial statements, presented in this Form 10-K
relate to the Partnership as if it had been a wholly-owned subsidiary of Brylane
Inc.
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING
STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "ITEM 1. BUSINESS--
GENERAL", "--MARKETING--LIST MANAGEMENT" AND "--COMPETITION", AND "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "--LIQUIDITY AND CAPITAL RESOURCES", AS WELL AS WITHIN THIS FORM
10-K GENERALLY. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW UNDER "RISK FACTORS". THE COMPANY UNDERTAKES NO OBLIGATION TO
PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS
THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
Lane Bryant(R), Roaman's(R), Lerner(R), Sue Brett(R), Chadwick's(R),
Chadwick's of Boston, Ltd.(R), KingSize(R), Hunters Run(R), David Benjamin(R),
Lasting Comfort(R), Venezia(R), Forenza(R) and Bridgewater(R) are federally
registered trademarks which are owned or licensed by the Company. Jessica
London, Brett and Peak Performance 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, Classics and Big & Tall are common law trademarks which are owned
by Sears, Roebuck and Co.
1
<PAGE>
ITEM 1. BUSINESS
GENERAL
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with catalogs that target consumers of both special and regular
size apparel. Through its Lane Bryant and Roaman's catalogs, Brylane is the
leading catalog retailer of women's special size apparel (sizes 14 through 56)
and, through its KingSize catalog, is a leading catalog retailer of men's
special size apparel (sizes XL to 9XL). The Company's Chadwick's of Boston
catalog division ("Chadwick's"), which the Company acquired in December 1996, is
the nation's largest off-price women's catalog retailer, and offers a broad
selection of high quality apparel at prices typically 25% to 50% below the
regular prices of department and specialty retail stores. Brylane also reaches
the women's regular size apparel market (sizes 4 to 18) through its Lerner
catalog. In addition, the Company has recently introduced and continues to
develop several new catalog concepts. The Company successfully launched the
Bridgewater (regular size women's, men's and children's apparel) in fiscal 1996
and Jessica London (off-price special size women's apparel) and Brett (regular
size men's apparel) catalogs in fiscal 1997. Brylane also markets apparel to
some of these same customer segments through four catalogs which it distributes
under the "Sears" name to customers of Sears, Roebuck and Co. under an exclusive
licensing arrangement with Sears Shop at Home Services, Inc. ("Sears").
Brylane's merchandising strategy is to provide value-priced apparel with a
consistent quality and fit, to concentrate on apparel with limited fashion risk,
and to offer a broad selection of sizes, styles and colors.
HISTORY AND BACKGROUND
Brylane's catalog retail business dates back to the mailing of the first
Lane Bryant catalog in 1924 and the first Roaman's catalog during the 1940s.
Both Lane Bryant and Roaman's were acquired by The Limited, Inc. ("The Limited")
in the early 1980s. In 1985, the Lerner catalog business was launched to
capitalize on the Lerner name, which had developed as The Limited's Lerner
retail store operations grew to over 800 stores during the 1980s.
On August 30, 1993, affiliates of Freeman Spogli & Co. Incorporated, a
private investment firm ("FS&Co."), and The Limited formed the Partnership to
acquire these catalog businesses (the "Brylane Acquisition"). FS&Co., together
with certain members of management, acquired a 60% aggregate interest in the
Partnership, while The Limited retained the remaining 40%. For accounting
purposes, the Brylane Acquisition was recorded as of August 1, 1993.
On October 16, 1995, the Partnership acquired the KingSize catalog division
(the "KingSize Acquisition") of WearGuard Corporation ("WearGuard"), a wholly-
owned subsidiary of ARAMARK Corporation ("ARAMARK"). In connection with the
KingSize Acquisition, WearGuard assigned to Brylane its license to distribute
the Sears Big & Tall catalog, as well as its interest in certain trademarks,
including the KingSize(R) registered trademark. As consideration for the sale
of the KingSize catalog division, WearGuard received a payment of $52.5 million
and 350,000 newly issued limited partnership units in the Partnership. In order
to fund a portion of the purchase price, the Company amended its then existing
1993 bank credit facility to provide for an additional $35.0 million term loan.
For accounting purposes, the KingSize Acquisition was recorded as of October 1,
1995.
On December 9, 1996, Brylane acquired the Chadwick's of Boston catalog
division of The TJX Companies, Inc. ("TJX"), excluding substantially all
accounts receivable (the "Chadwick's Acquisition"). In connection with the
Chadwick's Acquisition, Brylane and TJX entered into a services agreement, as
well as an inventory purchase agreement pursuant to which TJX has committed to
purchase certain amounts of Chadwick's excess inventory through January 2000.
As consideration for the sale of the Chadwick's of Boston catalog division,
affiliates of TJX received aggregate cash payments of $189.8 million (which is
net of purchase price adjustments of $32.9 million) and a $20.0 million
Convertible Note due 2006 of the Partnership (all of which had been converted as
of April 14, 1998). In order to fund a portion of the cash paid in connection
with the Chadwick's Acquisition and to repay its then existing indebtedness
under its 1993 bank credit facility, the Partnership entered into the 1996 Bank
Credit Facility (as defined herein). See "Item 7. Management's Discussion and
Analysis of Financial Condition and
2
<PAGE>
Results of Operations--Liquidity and Capital Resources". In addition, in
connection with the Chadwick's Acquisition, the Partnership received an
aggregate of $51.3 million in new equity from certain affiliates of FS&Co.,
Leeway & Co., a Massachusetts partnership, as nominee for the Long-Term
Investment Trust, a trust governed by the laws of the State of New York ("Leeway
& Co."), NYNEX Master Trust, a trust governed by the laws of the State of New
York ("NYNEX"), and WearGuard.
On February 26, 1997, in connection with the initial public offering of
Brylane Inc. (the "Initial Public Offering"), the Partnership became a wholly-
owned subsidiary of Brylane Inc. pursuant to an exchange transaction in which
Brylane Inc. acquired, directly, and indirectly through the acquisition of
wholly-owned subsidiaries, a 100% ownership interest in the Partnership in
exchange for shares of the common stock, $.01 par value (the "Common Stock"), of
Brylane Inc. (the "Exchange Transaction"). In connection with the Exchange
Transaction, the Partnership retained all of its assets, operations and
liabilities. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".
In October 1997, certain stockholders of the Company (including affiliates
of FS&Co. and an affiliate of The Limited) completed an offering of 5,000,000
shares of Common Stock at a price to the public of $46.00 per share, and
concurrent therewith, the Company repurchased from these same stockholders an
aggregate of 2,500,000 shares of Common Stock at the same price (the "Common
Stock Repurchase"). The Company financed the Common Stock Repurchase (and
related fees) through the incurrence of additional long-term debt in the
aggregate principal amount of approximately $116.8 million.
On April 3, 1998, Pinault-Printemps-Redoute, S.A., a company organized
under the laws of France ("PPR"), through an affiliate, REDAM LLC, a Delaware
limited liability company, acquired Common Stock from certain stockholders of
the Company (including all of the Common Stock held by affiliates of FS&Co. and
an affiliate of The Limited, as well as 533,109 shares held by certain members
of management of the Company) (the "PPR Stock Purchase"). As a result of the
PPR Stock Purchase, PPR acquired approximately 43.7% of the outstanding shares
of Common Stock. In connection with the PPR Stock Purchase, the Company and PPR
entered into a governance agreement (the "Governance Agreement") pursuant to
which PPR's ability to acquire additional Common Stock and to take other actions
is limited. As consideration for the sale, PPR paid the selling stockholders a
price of $51.00 per share.
CUSTOMERS
The Company has a substantial and loyal customer base. As of December 31,
1997, Brylane's combined customer files contained 23.4 million customer names
(including 2.7 million names from the Sears catalogs customer file), of which
approximately 10.9 million are active customers (including 1.2 million customers
from the Sears catalogs 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 December 31, 1997. The Company defines a customer as someone who
has placed an order with any of the Company's established catalogs, excluding
its Sears catalogs, within the last 48 months, and an active customer as one who
has placed at least one order with these catalogs within the last 12 months.
Certain of the Company's customers purchase from more than one of the Company's
catalogs and are therefore considered to be a separate customer of each such
catalog.
CHADWICK'S. The Chadwick's catalog targets women between the ages of 25
and 55 who wear regular size apparel (sizes 4 to 20) and seek high quality
merchandise at prices well below those offered by department and specialty
stores. In addition, Chadwick's has expanded its merchandise offerings to
target women who wear petite and special size apparel (sizes 2 to 26). Brylane
believes that the median age of the Chadwick's customer is 42, and that the
typical customer has an income level equal to or above the national average. As
of December 31, 1997, the Chadwick's customer file contained 11.0 million
customer names, of which 4.8 million names are active customers. The average
order by a Chadwick's customer during fiscal 1997 was approximately $87.
LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's catalogs target
value-conscious women who wear special sizes (sizes 14 to 56). Brylane believes
that the median age of its women's special size customer segment is 51, and that
the typical customer has an income level somewhat below that of the national
average. As
3
<PAGE>
of December 31, 1997, the Lane Bryant and Roaman's customer files contained 4.2
million and 2.1 million customer names, respectively, of which approximately 2.2
million and 1.1 million names are active customers of Lane Bryant and Roaman's,
respectively. The average order by a Lane Bryant and Roaman's customer during
fiscal 1997 was approximately $75 and $74, respectively.
LERNER. The Lerner catalog targets younger, value-conscious women age 25
and up who wear sizes 4 to 18 and purchase at low to budget 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 December 31, 1997, the Lerner customer file contained 2.7 million customer
names, of which 1.2 million are active customers. The average order by a Lerner
customer during fiscal 1997 was approximately $78.
SEARS CATALOGS. Through its licensing agreement with Sears, the Company
has expanded its customer base by offering Lane Bryant, Roaman's, Lerner, Sue
Brett (discontinued March 1998) 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 already existing customers
of the Company. Brylane believes that the median age and income level of its
Sears customer is close to that of the average customer of the Company's
comparable catalogs. As of December 31, 1997, the Sears catalogs customer file
contained 2.7 million customer names, of which 1.2 million are active customers.
The average order by a Sears customer during fiscal 1997 was approximately $76
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 December 31,
1997, the KingSize customer file contained 378,000 customer names, of which
193,000 are active customers. The average order by a KingSize customer during
fiscal 1997 was approximately $93.
SUE BRETT. The Sue Brett catalog targets mature regular size women who
wear sizes 6 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 December 31, 1997, the Sue Brett
customer file contained 434,000 customer names, of which 251,000 are active
customers. The average order by a Sue Brett customer during fiscal 1997 was
approximately $71.
As a result of the Chadwick's Acquisition, and the Company's conclusion
that the Sue Brett catalog targeted customers very similar to those targeted by
Chadwick's and Lerner, the Company has determined to discontinue its circulation
of the Sue Brett (and Sears Classics) catalogs effective March 1998. The
Company intends to continue to utilize the Sue Brett customer file in connection
with the circulation of its Chadwick's and Lerner catalogs, and to continue to
use the Sue Brett trade name in connection with its other catalogs' apparel
offerings.
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 approximately 73,000
stock keeping units ("SKUs"), in sizes 2 to 26. The average price point per
item sold by Chadwick's in fiscal 1997 was approximately $27. Chadwick's offers
nationally recognized brand names, including Pierre Cardin, Herman Geist, JG
Hook and Blassport. The private label brand names featured in the Chadwick's
catalog include, among others, Savannah (which Brylane uses under license from
TJX), Fads, Stephanie Andrews and JL Plum.
4
<PAGE>
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 approximately 22% of Chadwick's
net sales in 1997.
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 approximately 83,000 and 49,000 SKUs, respectively, in sizes 14
to 56. The average price point per item sold by both Lane Bryant and Roaman's
in fiscal 1997 was approximately $22.
Lane Bryant and Roaman's catalogs feature private label brand names which
have higher gross profit margins than national brand merchandise. Private label
brand names used on merchandise included in the Lane Bryant and Roaman's
catalogs include, among others, Hunters Run, Venezia, Lasting Comfort and
Forenza, which Brylane uses under licenses from The Limited and the Roaman's
private label brand name, which is owned by the Company. See "--Trademarks,
Tradenames and Licenses".
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 1997 was
approximately $23.
Consistent with the Company's other catalogs, the Lerner catalog places
great emphasis on its product sourcing strategy to enable the Company to offer
quality, value-priced, private label merchandise. The private label brand names
featured on merchandise included in the Lerner catalog include, among others,
David Benjamin and Forenza, which Brylane uses under license from The Limited,
as well as certain other private label brand names which are owned by certain of
Brylane's vendors. See "--Trademarks, Tradenames and Licenses".
SEARS CATALOGS. The merchandise offered in the Sears catalogs is the same
as that offered in the comparable Company catalog: Woman's View (Lane Bryant
and Roaman's); Smart Choice (Lerner); Classics (Sue Brett); and Big & Tall
(KingSize). This allows the Company to fill the orders generated by these
catalogs with minimal incremental inventory risk. The Company has discontinued
circulation of its Classics catalogs effective March 1998. See "Customers--Sue
Brett" and "--Sears Agreement".
KINGSIZE. The KingSize catalog offers a broad selection of quality
contemporary, traditional and basic men's apparel in sizes XL to 9XL. Although
the KingSize catalog also offers some fashion-oriented items, most of the
merchandise in the KingSize catalog has limited fashion risk. Brylane believes
that KingSize offers a broader selection of sizes and styles than most specialty
and department stores and competing catalogs. Approximately 59% of KingSize's
sales (including Big & Tall) are in sizes 3XL or larger. The average price
point per item sold by KingSize in fiscal 1997 was approximately $27. In
addition, in October 1997, the Company mailed its first stand-alone Brett
catalog, which is targeted at the regular size men's apparel segment.
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 (discontinued March 1998) offered quality
contemporary, traditional and basic women's merchandise in sizes 6 to 24. The
average price point per item sold by Sue Brett in fiscal 1997 was approximately
$28.
5
<PAGE>
MARKETING
There are several important elements to the Company's marketing strategy.
PROMOTIONAL STRATEGIES. The Company has implemented highly effective
promotional incentives in many of its catalogs. Promotional incentives include
deferred and installment billing, free delivery for new customers, free express
delivery for orders of a certain size, "buy one, get one free" strategies,
pricing discounts when purchasing an additional item, and discount offers.
Brylane also uses promotions based on its private label credit cards, such as
credit limit increases to stimulate additional sales from existing customers and
to promote customer loyalty. 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. In addition, the Company has expanded the use of these
programs to its other catalogs.
PRIVATE LABEL CREDIT CARDS. Brylane views the use of credit as an
important marketing tool with existing and new customers. Approximately 92.5%
of the Company's total fiscal 1997 sales (including sales from the Company's
Sears catalogs) were paid for using credit cards. Approximately 51% of the
Company's fiscal 1997 sales (excluding sales from Company's Sears catalogs) from
the Lane Bryant, Roaman's, Lerner, Sue Brett and KingSize catalogs were paid for
using Brylane's private label credit cards. Through private label cards, the
total amount of credit available to the Company's customers who hold third party
cards can be increased, and credit may be made available to certain of its
customers who may not qualify for third party cards, but are eligible for the
generally lower credit limits available under the private label cards. The
Company successfully tested a Chadwick's private label credit card in the fall
of 1997. For catalogs distributed under the Sears Agreement (as defined
herein), customers can use the Sears credit card (but not Brylane's private
label cards). The Sears credit card is administered by an affiliate of Sears,
which assumes all risks associated with the collection of those credit card
receivables.
The Company offers its customers the Lane Bryant, Roaman's, Lerner, Sue
Brett and KingSize private label credit cards which are issued by World
Financial Network National Bank ("World Financial"), 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.
World Financial 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) and remits the balance of such amount 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).
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 (as
defined) 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.
6
<PAGE>
The Credit Card Agreement will remain in effect until terminated (i) by
either party on not less than twelve months' notice delivered on or after July
1, 2005, (ii) by either party upon a breach by the other party of any of its
material obligations under the Credit Card Agreement, (iii) by World Financial
on not less than twelve months' notice if any competitor of The Limited or any
of its affiliates acquires "control" of Brylane (as defined in the Credit Card
Agreement), or (iv) automatically upon certain bankruptcy events involving
Brylane. See "Risk Factors--Relationship with The Limited". In the event that
the Credit Card Agreement should terminate, 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).
LIST MANAGEMENT. An important element of the Company's marketing strategy
is the improved segmentation of its existing customer files. Brylane currently
employs customer file segmentation analyses, based on the recency, frequency and
monetary value of past purchases, to create catalog circulation strategies that
are designed to increase customer response rates and average sales per catalog.
In the fall of 1997, Brylane installed (and is currently testing) a modeling and
scoring software program that uses more sophisticated multi-variable regression
analyses to create its predictive purchasing models. The Company believes that
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 currently testing increasingly
sophisticated statistical circulation models to improve its ability to predict
customer purchasing 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 Brylane. The Company has 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 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 1995, 1996 and 1997 was 22.6%, 24.1%, and
25.0% respectively, of shipped sales.
In fiscal 1997, Brylane received approximately 82.1% of customer orders
through its toll-free phone service. Brylane utilizes a toll-free service with
separate telemarketing groups and toll-free numbers for each catalog. The
Company's telemarketing operations are conducted in Indianapolis and 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 1,900 telemarketing/customer
service stations. In fiscal 1997, Brylane processed approximately 30.4 million
calls at its Indianapolis, Greenwood, San Antonio and West Bridgewater
facilities, and Brylane outsourced 3.6 million calls to a third-party call
center. The number of associates manning these stations varies greatly during
the hours of each day of each selling season, based on anticipated call volume.
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
7
<PAGE>
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 sales items or other promotions to customers.
Brylane's promotional selling efforts resulted in an additional $31.5 million in
net sales during fiscal 1997 and an additional $24.0 million in fiscal 1996.
The telephone switches at Brylane's four facilities enable it to efficiently
balance its incoming telephone calls during periods of heavy call volume.
Brylane's telephone switch at its Indianapolis telephone center 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 four 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.
The Company plans to integrate its existing Brylane and Chadwick's
telemarketing order entry systems in order to provide its customer service
representatives with improved information including past purchases, data on
customer orders and updated catalog information. This additional information is
expected to increase the ability of these 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. The integrated systems will utilize "universal
agents" that receive both telephone orders and customer service calls which the
Company believes will lead to an increase in productivity. The Company also
expects that the integrated systems 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 19.5 million shipments in fiscal 1997. In the fall of 1994,
Brylane developed and implemented "one-pass picking", a highly sophisticated and
efficient method for gathering the merchandise needed to fill customer orders,
at its Indianapolis fulfillment center. 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
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 14.5 million shipments in 1997 and has the
capacity to process approximately 25% 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 73% and 88% of orders shipped
from the Indianapolis facility and the West Bridgewater facility, respectively,
in fiscal 1997, are managed to obtain the benefits of various mailing rate
discount programs offered by the United States Postal Service ("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
8
<PAGE>
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
The Company emphasizes private label merchandise, which accounted for 83.0%
of Brylane's net sales (excluding the Chadwick's catalog) in fiscal 1997.
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 53% of Chadwick's net
sales in fiscal 1997. 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 21.3% of purchased merchandise in fiscal 1997. No single
supplier, however, accounted for more than 4.7% of merchandise purchased in
fiscal 1997. Brylane's purchases from foreign suppliers accounted for 30.3% of
merchandise purchased in fiscal 1997.
To ensure the distinct merchandising focus of its catalogs, the Company
conducts purchasing separately for its Chadwick's, Lane Bryant, Roaman's, Lerner
and KingSize catalogs and, within each catalog, has dedicated buyers for
specific product lines. The Company's merchandising staff actively monitors the
apparel markets and offerings by other catalog and retail stores in an effort to
ensure that the Company's offerings are competitive in design and price. To
improve purchasing efficiency, the Company also relies on "pre-mailing" programs
(i.e., limited catalog distribution prior to the start of a selling season) to
test customer acceptance of new product offerings.
INVENTORY MANAGEMENT
The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions, while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at the
end of each season. The Company maintains higher inventory levels for basic
apparel items which are not generally fashion sensitive. Inventory levels for
items with greater fashion risk are maintained at lower levels, with the goal of
selling all such merchandise prior to the end of a season. The Company's
disciplined inventory control systems enable it to maintain minimum inventory
levels, which the Company is able to replenish quickly as a result of its close
relationships with its domestic suppliers. These lower levels of inventory
enable the Company to avoid excessive markdowns and to reduce its losses on
overstocks at the end of each selling season. When overstocks do occur, Brylane
is generally successful in selling the goods through relationships it has
established with 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.
9
<PAGE>
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 1995, 1996 and 1997, cancellations were 5.1%, 5.7% and 7.8%,
respectively, of the total dollar value of orders received.
MANAGEMENT INFORMATION SYSTEMS
Brylane's management information systems provide support to all segments of
its operations, including merchandising, marketing, telemarketing, fulfillment,
customer service, financial reporting and inventory management. Chadwick's
management information systems are currently supported by TJX's mainframe
computer. In connection with the Chadwick's Acquisition, Brylane entered into a
services agreement with TJX whereby TJX agreed to provide services relating to
the Chadwick's business for approximately three years. During this period, the
Company will evaluate alternative sources for these services, including
transferring certain of the functions to Brylane and having Chadwick's perform
certain of the functions itself.
Brylane's management information systems are supported by an IBM mainframe
computer that processes up to 85 million transactions per month. This computer
is connected to approximately 2,350 terminals between Brylane's three
telemarketing facilities and its New York and Hingham, Massachusetts offices.
See "Item 2. Properties".
SEARS AGREEMENT
In March 1994, Brylane entered into an exclusive licensing agreement with
Sears (as amended, the "Sears Agreement") to produce a special size women's
apparel catalog (Woman's View), based on Brylane's Lane Bryant and Roaman's
catalogs, for distribution to customers of Sears, Roebuck and Co. Brylane has
also been mailing catalogs based on Brylane's Lerner catalog (Smart Choice)
since the first quarter of 1994, and the Sue Brett catalog (Classics) since the
third quarter of 1994, to these customers. In October 1995, in connection with
the KingSize Acquisition, Brylane and Sears expanded the Sears Agreement to
include an exclusive license to produce and distribute the Sears Big & Tall
catalog, based on Brylane's KingSize catalog, to customers of Sears, Roebuck and
Co. The Woman's View, Smart Choice and Big & Tall catalogs are currently being
mailed to individuals who are not existing customers of Brylane and who are
included in the more than 30 million name customer file of Sears, Roebuck and
Co.
As amended, the initial term of the Sears Agreement continues through July
31, 2001. The Sears Agreement can be renewed by the parties for additional one
year terms thereafter; provided, that the Company and Sears may terminate the
agreement upon twelve months' and eighteen months' notice, respectively, prior
to the end of the initial term or any renewal thereof. Under the Sears
Agreement, the catalogs mailed are substantially similar to Brylane's comparable
catalogs, but have a Sears logo and a different name. The merchandise is
identical to that contained in Brylane's comparable catalogs, which allows
Brylane to fill incremental customer orders by increasing the amount of
merchandise that it purchases, rather than increasing the number of different
kinds of merchandise categories that it keeps in inventory. This approach
limits Brylane's incremental inventory risk. Customers' calls are answered by
telemarketing representatives using the Sears Shop At Home name for the women's
and men's apparel catalogs, and customers can pay for their purchases using a
Sears credit card or various bank credit cards. Brylane performs all
merchandising, fulfillment, telemarketing and management information functions
through its existing facilities. In the event that the Sears Agreement
terminates, Brylane will retain the names of all customers who have purchased
through the Sears catalogs covered by such agreement and, at that point, Brylane
will be able to mail Brylane's other catalogs to these customers.
COMPETITION
The retail apparel business is highly competitive. Lane Bryant, Roaman's
and Woman's View compete in the sale of special size women's apparel primarily
with other mail order companies, department stores and specialty retailers,
including the Lane Bryant retail stores operated by The Limited, Catherines
Stores and United Retail Group (which is partially 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
10
<PAGE>
Pueblo and Regalia), Blair and Hanover Direct (Silhouettes). 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 Blair as well as the J.C. Penney catalog and Phoenix Big &
Tall catalogs) and discount stores. In addition, sales of clothing through home
television shopping networks or other electronic media could provide additional
sources of competition for the Company. The Company does not believe that it
has any significant competition in the special size or off-price segment of the
women's apparel catalog retail market. However, there can be no assurance that
other retailers of apparel will not decide to enter into the Company's markets.
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 relationship 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".
As a result of the PPR Stock Purchase, certain noncompetition and
nonsolicitation provisions previously contained in the Transaction Agreement
pursuant to which affiliates of FS&Co. and The Limited formed the Partnership
(the "Transaction Agreement"), and that were binding upon The Limited, have
terminated, and The Limited can now compete directly with Brylane in the retail
catalog business for special size women's apparel. However, the Company
continues to retain the use in connection with its business of the Lane
Bryant(R), Lerner(R) and other trademarks licensed to it by The Limited pursuant
to the terms of the Trademark Agreement, as specified further therein. See "--
Trademarks, Trade Names and Licenses" and "Risk Factors--Competition and Other
Business Factors".
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, (i) to sell merchandise through the Internet and
other electronic media, (ii) to 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) to 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 divest itself within one to two
years of such acquisition of any competitive business which accounts for more
than 5% of the annual revenues of such acquired company.
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. In connection with the Brylane Acquisition, Brylane
became a party to a trademark license agreement with The Limited and certain of
its affiliates (the "Licensors") (as amended, the "Trademark Agreement")
pursuant to which Brylane uses the Lane Bryant and Lerner registered trademarks,
as well as certain other trademarks used as private label brand names
(collectively, the "Trademarks"), under a royalty-free license from The Limited
(the "License").
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 Lane Bryant, Roaman's and Lerner catalog businesses operated
by the Company (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) October 20, 2007
(March 31, 1999 for use in connection with men's wear) (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
11
<PAGE>
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".
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.
Brylane uses the Woman's View, Smart Choice and Big & Tall trademarks
pursuant to the licensing arrangements contained in the Sears Agreement. See
"--Sears Agreement". In addition, the Company also licenses certain other marks
from TJX and other third parties. While certain of these licensed names are
important to the Company's business, management does not believe that the loss
of any of the marks licensed from TJX would have a material adverse effect upon
the Company's business, financial condition and results of operations.
The Company uses the Lane Bryant, Lerner, Woman's View, Smart Choice, Big &
Tall, Chadwick's, Chadwick's of Boston, Ltd., 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, Forenza, Venezia, Savannah, Fads, JL Plum
and Stephanie Andrews, are used for certain of the Company's apparel offerings,
as well as in other marketing and merchandising activities. Such trademarks are
important to the operations of the Company. See "Risk Factors--Relationship
with The Limited".
ASSOCIATES
The Company's skilled and dedicated associates are a key resource. At
January 31, 1998, the Company employed (directly or indirectly through its
subsidiaries) approximately 6,400 individuals, including part-time and full-time
associates. During peak sales periods, the Company hires approximately 1,200
additional part-time and temporary associates. Approximately 1,400 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, 2000. The Company considers its labor
relations and overall employee relations to be good.
REGULATORY MATTERS
The Company currently collects sales and use tax on merchandise sales in
the states of Indiana, Maryland, Massachusetts, New York and Texas because the
Partnership has physical presence in those states. 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
12
<PAGE>
decision or that Congress may pass legislation in the future permitting states
in which the Company does not have a physical presence to require it to collect
and remit sales and use taxes with respect to sales in such states.
Accordingly, there can be no assurance that the Company will not have an
obligation to collect and remit sales and use taxes in states in addition to
those states in which it is presently required to collect and remit such taxes.
The Company's business, and the direct mail industry in general, is subject
to regulation by a variety of state and federal laws and regulations related to,
among other things, advertising, offering and extending credit, imports and
sales tax. Legislation has been proposed in the past designed to impose a
ceiling on the rates charged in connection with the extension of credit through
credit cards. It is impossible to predict whether such legislation will be
enacted and, if enacted, what form it will take. However, any such legislation
could have an adverse impact on the Company's credit card financing
arrangements. The Company's imported products are subject to United States
customs duties, and some of the Company's imported products are subject to
import quotas when imported from particular countries. In the ordinary course
of its business, the Company may from time to time be subject to claims for
duties, and the Company's imported products may be subject to other import
restrictions. United States customs duties currently are between 0% and 48.0%
(with an average rate of 15.3%) of appraised value on certain items of
inventory. During fiscal 1997, Brylane made approximately 30.3% of its
merchandise purchases from foreign suppliers. See "Risk Factors--Dependence on
Suppliers; Foreign Sourcing".
RISK FACTORS
The following risk factors should be carefully reviewed in addition to the
other information contained in this Annual Report on Form 10-K.
COMPETITION AND OTHER BUSINESS FACTORS
The retail apparel business is highly competitive. Each of the Company's
women's catalogs compete in the sale of women's apparel with other catalog
retailers, department stores, discount stores and specialty retailers. In
particular, Lane Bryant, Roaman's, Jessica London and Woman's View compete in
the sale of special size women's apparel with the Lane Bryant retail stores
operated by The Limited, and Lerner and Smart Choice compete in the sale of
women's sportswear and other apparel with the Lerner retail stores operated by
The Limited. Chadwick's competes with many retail sellers of apparel, including
T.J. Maxx and Marshalls, each of which is owned by TJX. The Company's KingSize
and Big & Tall catalogs compete in the sale of special size men's apparel with
specialty retailers, department stores, other mail order companies and discount
stores. In addition, sales of clothing through home television shopping
networks or other electronic media could provide additional sources of
competition for Brylane in the future. Some of the Company's competitors may
have greater financial resources than the Company. An increase in the amount of
competition faced by the Company could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Item 1.
Business--Competition".
The Company's future performance will be subject to a number of other
factors beyond its control, including declines in discretionary consumer
spending or in demand for apparel generally, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, although the Company believes that its strategy of providing a
broad range of basic merchandise that is current, but not "leading edge", limits
fashion risk, it is still subject to risks associated with changes in fashion
preferences. Misjudgment by the Company as to fashion trends or consumer
preferences, or a downturn in discretionary consumer spending, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company benefits from the name recognition and reputation generated by
the Lane Bryant retail stores and the Lerner retail stores which are operated by
The Limited. At present, The Limited operates over 775 Lane Bryant stores and
over 725 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.
13
<PAGE>
The Transaction Agreement pursuant to which affiliates of FS&Co. and The
Limited formed the Partnership (as amended, the "Transaction Agreement")
contained 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
terminated as a result of the PPR Stock Purchase. Consequently, The Limited can
now compete directly with Brylane in the retail catalog business for special
size women's apparel. However, the Company has continued to retain the use in
connection with its business of the Lane Bryant(R), Lerner(R) and other
trademarks licensed to it by The Limited pursuant to the terms of the Trademark
Agreement (as defined), as specified further therein. There can be no assurance
that such competition will not have a material adverse effect on Brylane. See
"Business--Trademarks, Tradename and Licenses" and "--Relationship with The
Limited".
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 October
20, 2007 (except in connection with the use of the trademarks on men's wear, for
which the termination date is March 31, 1999), subject to earlier termination
as described in the paragraphs that follow. The Company has determined to use
the Lane Bryant(R) and Lerner(R) trademarks in its catalogs and in general
advertising and promotional materials, and not as labels or tags on any garments
or other merchandise it distributes. The other trademarks covered by the
Trademark Agreement are used for certain of the Company's apparel offerings, as
well as other marketing and merchandising activities.
The Trademark Agreement and each of the licenses granted thereunder will
terminate on October 20, 2007 (March 31, 1999 for use in connection with men's
wear), unless earlier terminated by (i) the Company with six months' notice on
or after August 20, 1998, (ii) 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, or (y) two or four years after the occurrence of
certain mergers, consolidations or business combinations. See "Business--
Trademarks, Tradename and Licenses".
Unless renewed, upon a termination of the Trademark Agreement, the Company
would need to create new names and trademarks for its 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.
LEVERAGE AND CERTAIN RESTRICTIONS IMPOSED BY LENDERS
As of January 31, 1998, after giving effect to the Common Stock Repurchase,
the Company had total outstanding indebtedness of $358.8 million, as compared
with total stockholders' equity of $155.0 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 "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
14
<PAGE>
SEARS AGREEMENT
In March 1994, Brylane entered into the Sears Agreement which, as amended,
provides the Company with an exclusive license to distribute its Woman's View,
Smart Choice, Classics and Big & Tall catalogs to customers selected by the
Company from the more than 30 million name customer file of Sears, Roebuck and
Co. (as amended, the "Sears Agreement"). As amended, the initial term of the
Sears Agreement expires on July 31, 2001 and automatically continues for
additional one-year terms thereafter; provided, that the Company and Sears may
terminate the Sears Agreement upon twelve months' and eighteen months' written
notice, respectively, prior to the end of the initial term or any renewal
thereof. In addition, upon the default of either Sears or the Company, the
Sears Agreement may be terminated by the non-defaulting party either immediately
or upon the payment of all sums owed by such non-defaulting party under the
Sears Agreement, depending on the type of default. Events of default under the
Sears Agreement include, among others, (i) the material failure of the Company
to comply with the operating policies and procedures set forth in the Sears
Agreement; (ii) the material failure of the Company to actively follow any
mutually agreed upon circulation and mailing plan; (iii) any bankruptcy or
insolvency proceedings being commenced against either party; and (iv) the
inability of either party to pay debts as they come due.
A termination of the Sears Agreement could have a material adverse effect
on the Company's business, financial condition and results of operations. Upon
termination of the Sears Agreement, the Company will retain the names of all
customers who have purchased through the Sears catalogs covered by such
agreement and, at that point, the Company will be able to mail the Company's
other catalogs to these customers. However, no assurance can be given as to the
extent that the Company will be able to retain these individuals as customers of
the Company. See "Item 1. Business--Sears Agreement".
IMPACT OF INCREASES IN COSTS OF POSTAGE, PAPER AND PRINTING
Increases in postal rates and paper and printing costs have a direct impact
on the cost of the production and mailing of the Company's catalogs and
promotional materials, as well as the Company's order fulfillment. Like others
in the catalog industry, the Company passes on a significant portion of the
costs of order fulfillment directly to its customers, but it does not directly
pass on the costs of preparing and mailing catalogs and other promotional
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, the Company believes that paper prices will increase in
the first half of fiscal 1998 and the increase should be in a 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 "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations".
CONTROL OF THE COMPANY
PPR beneficially owns approximately 44% of the Company. By virtue of its
ownership of a large percentage of the outstanding Common Stock, PPR is in a
position to exercise substantial influence over actions that require the consent
of stockholders. In addition, pursuant to the terms of the Governance
Agreement, the Company has agreed to use its best efforts to have the Board of
Directors of the Company include up to five nominees of PPR in the slate of
nominees presented by the Board of Directors for election at each stockholder
meeting at which
15
<PAGE>
directors are to be elected. The number of directors that PPR may nominate
declines with its percentage of Common Stock.
DEPENDENCE ON SUPPLIERS; FOREIGN SOURCING
Brylane's concentration on private label merchandise in its special size
catalogs, and the broad range of merchandise offered in its 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 1997, Brylane made approximately 30.3% of its merchandise
purchases from foreign suppliers. Although all of the Company's foreign
purchases are denominated in U.S. dollars, the Company is subject to a number of
risks which are beyond its control, including currency and exchange risks,
changes in duties, quotas or other import restrictions, the imposition of taxes
or other charges on imports, disruptions or delays in shipments and
transportation, political instability, and labor disputes and strikes. There
can be no assurance that the occurrence of any destabilizing event abroad will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "Item 1. Business--Private Label
Purchasing and Vendor Relationships" and "Item 1. Business--Regulatory Matters".
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of the Company's growth strategy is to pursue strategic
acquisitions that either expand or complement the Company's business.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations and the
assimilation and retention of the personnel of the acquired companies, and
potential adverse short-term effects on the Company's operating results. In
addition, the Company may require additional debt or equity financing for future
acquisitions, which may not be available on terms favorable to the Company, if
at all. The inability of the Company to successfully finance, complete and
integrate strategic acquisitions in a timely manner could have an adverse impact
on the Company's ability to effect a portion of its growth strategy.
RISK OF DISASTER
The Company conducts its fulfillment operations from facilities located in
Indianapolis, Indiana and West Bridgewater, Massachusetts. If a disaster (such
as a tornado or fire) were to destroy or significantly damage either of these
facilities, the Company would need to obtain alternative facilities from which
to conduct its fulfillment operations and would need to replenish its inventory,
both of which would result in significantly increased operating costs and
significant delays in the fulfillment of customer orders. While the Company
maintains business interruption insurance, such increased costs or delays would
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS RELATED TO UNIONIZED EMPLOYEES
At January 31, 1998, the Company had approximately 6,400 associates,
including approximately 1,400 associates of Chadwick's who were members of a
labor union. The Company's agreement with such labor union expires on December
31, 2000. 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.
16
<PAGE>
ITEM 2. PROPERTIES
The principal executive offices of the Company are located in New York, New
York in approximately 90,000 square feet of leased office space. The Company
owns its 750,000 square foot fulfillment and telemarketing center located on
approximately 26 acres of land in Indianapolis, Indiana. Recently, the Company
leased an additional 125,000 square feet of warehouse space in Plainfield,
Indiana. The Company also leases approximately 73,000 square feet in San
Antonio, Texas, and approximately 13,400 square feet in Greenwood, Indiana, for
telemarketing operations related to the Brylane catalogs. The executive offices
of the Company's KingSize operations, currently occupying approximately 8,000
square feet of leased office space, were moved in April 1998 from Hingham,
Massachusetts to New York, New York. In addition, the executive offices,
telemarketing center, warehouse and fulfillment center of the Company's
Chadwick's operations are located in a Company-owned facility in West
Bridgewater, Massachusetts that contains approximately 580,000 square feet of
space. The Company leases an additional 126,000 square foot facility in West
Bridgewater, Massachusetts for returns processing and customer service related
to Chadwick's. The Company 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 took possession of the Taunton facility immediately upon
its completion, which occurred in Spring 1998. As of April 14, 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.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of business.
The Company does not believe that unfavorable outcomes in such litigation would
have a material adverse effect on its business, financial condition and results
of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "BYL" and began trading on February 21, 1997. The following table
sets forth, for the periods indicated, the high and low closing prices for 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)... $29.3750 $21.2500
Second Quarter................................ 39.5000 26.5000
Third Quarter................................. 49.3750 37.7500
Fourth Quarter................................ 54.8750 42.0000
1998:
First Quarter (through April 16, 1998)........ $61.1250 $49.4375
</TABLE>
The closing price of the Common Stock on April 16, 1998 was $59.00 per
share. As of April 16, 1998, there were approximately 118 holders of the
Company's Common Stock named as holders of record by ChaseMellon Shareholder
Services, L.L.C., 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 is 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 "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources". At
January 31, 1998, the Partnership could not have made any such distribution to
the Company by virtue of the restrictions 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.
RECENT SALES OF UNREGISTERED SECURITIES
On February 26, 1997, in connection with the closing of the Exchange
Transaction, (i) M&P Distributing Company, an affiliate of The Limited (the
"Limited Stockholder"), WearGuard, Leeway & Co. and NYNEX received shares of
Common Stock in exchange for their interests in the Partnership; (ii)
Chadwick's, Inc., a wholly-owned subsidiary of TJX ("Chadwick's, Inc." or the
"TJX Noteholder"), received from the Company the substitute Convertible
Subordinated Note Due 2006 issued by Brylane Inc., and the Partnership (the
"Convertible Note") on substantially the same terms and conditions as the
Partnership Note (as defined herein); (iii) certain affiliates of FS&Co. (FS
Equity Partners II, L.P. ("FSEP II"), FS Equity Partners III, L.P. ("FSEP III"),
and FS Equity Partners International, L.P. ("FSEP International")), and Mr.
Sodini and Ms. Bourneuf received shares of Common Stock in exchange for their
shares of common stock of VP Holding; (iv) the officer and director holders of
shares of common stock of VP Holding received shares of Common Stock pursuant to
the Brylane Subscription Plan (as defined herein) or the Senior Management Plan
(as defined herein); and (v) Mr. Rao and Ms. Meyrowitz received shares of Series
A Preferred Stock (as defined herein) in exchange for their shares of VP Holding
Preferred Stock. Such exchanges were on a one-to-one basis. Since each of the
holders of the shares of common stock and preferred stock of VP Holding, the
interests in the Partnership and the Convertible Subordinated Note Due 2006 in
the original principal amount of $20.0 million (bearing interest at an initial
rate of 6%) issued by the Partnership to the TJX Noteholder in connection with
the Chadwick's Acquisition (the "Partnership Note") agreed at the time of their
respective original acquisitions of their shares or partnership interests or
Partnership Note to exchange their shares,
18
<PAGE>
partnership interests or Partnership Note for shares of Common Stock or the
Convertible Note, as the case may be, in connection with the Exchange
Transaction, the Company believes that none of the foregoing transactions
involved a "sale" within the meaning of the Securities Act. Such exchanges
would also be exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act. No underwriter participated in the
transaction. The Series A Preferred Stock is convertible into shares of Common
Stock on a one-to-one basis. The shares of Series A Preferred Stock "vest" or
become convertible in three equal annual installments commencing December 9,
1997, as long as Mr. Rao or Ms. Meyrowitz, as applicable, remain employed by
Brylane (subject to certain accelerating events). On December 9, 1999, "vested"
shares will, at the option of the holders thereof, either be redeemed by the
Company for $20.00 per share (subject to adjustment for stock splits, dividends
or reclassifications) or converted into one share of Common Stock (subject to
adjustment for stock splits, dividends or reclassifications). In the event of a
"change of control" (as defined in Brylane Inc.'s Certificate of Designation of
the Series A Preferred Stock) each "vested" share, at the option of the holder
thereof, may be redeemed for $20.00 per share or converted into one share of
Common Stock, while "unvested" shares must be redeemed for $20.00 per share.
The Convertible Note is convertible at any time, in whole or in part, at the
option of the TJX Noteholder into a total of 727,273 shares of Common Stock at a
conversion price of $27.50 per share (subject to adjustment for stock splits and
similar events). As of April 14, 1998, the entire principal amount of the
Convertible Note had been converted into 727,273 shares at $27.50 per share.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain historical data of Brylane for the
periods indicated. The balance sheet data as of July 31, 1993, January 29,
1994, January 28, 1995, February 3, 1996 and February 1, 1997, and the
statements of operations data for the twenty-six weeks ended July 31, 1993 and
January 29, 1994, and the fiscal years ended January 28, 1995, February 3, 1996
and February 1, 1997, have been derived from the combined and consolidated
financial statements of the predecessor company of Brylane (the "Predecessor")
and the Partnership, as appropriate. The balance sheet data at January 31, 1998
and the statements of operations data for the fiscal year ended January 31, 1998
have been derived from the consolidated financial statements of the Company.
The information below should be read in conjunction with the audited financial
statements and related notes thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
PREDECESSOR PARTNERSHIP COMPANY
------------- ------------------------------------------------------------ ------------
FISCAL YEAR
FISCAL YEAR ENDED ENDED
------------------------------------------
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED JAN. 28, FEB. 3, FEB. 1, JAN. 31,
JULY 31, 1993 JAN. 29, 1994 1995 1996(1) 1997(2) 1998
------------- --------------- ---------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER UNIT/SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................. $242,086 $ 247,780 $578,530 $ 601,055 $ 705,353 $ 1,314,839
Cost of goods sold.................... 122,530 124,224 288,217 298,414 346,572 674,324
Non-recurring inventory charge(3)..... -- 11,487 2,614 569 1,657 3,315
-------- --------- -------- ----------- ----------- -----------
Gross margin.......................... 119,556 112,069 287,699 302,072 357,124 637,200
Operating expenses:
Catalog and advertising.............. 61,165 66,860 153,830 174,446 186,985 302,232
Fulfillment.......................... 18,335 21,477 41,656 37,333 55,450 124,372
Support services..................... 12,964 13,377 35,152 37,024 54,422 89,260
Intangibles and organization cost
amortization....................... -- 2,121 4,242 4,707 6,518 10,972
-------- --------- -------- ----------- ----------- -----------
Total operating expenses......... 92,464 103,835 234,880 253,510 303,375 526,836
-------- --------- -------- ----------- ----------- -----------
Operating income...................... 27,092 8,234 52,819 48,562 53,749 110,364
Interest expense, net................. -- 10,060 19,576 20,624 24,026 27,707
-------- --------- -------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary charge................ 27,092 (1,826) 33,243 27,938 29,723 82,657
Provision for income taxes(4)......... 10,600 75 89 88 315 31,545
-------- --------- -------- ----------- ----------- -----------
Net income (loss) before extraordinary
charge............................... 16,492 (1,901) 33,154 27,850 29,408 51,112
Extraordinary charge, net of tax(5)... -- -- -- -- 2,456 4,077
-------- --------- -------- ----------- ----------- -----------
Net income (loss)..................... $ 16,492 $ (1,901) $ 33,154 $ 27,850 $ 26,952 $ 47,035
======== ========= ======== =========== =========== ===========
(table continued on following page)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR PARTNERSHIP COMPANY
------------- ------------------------------------------------------------ ------------
FISCAL YEAR
FISCAL YEAR ENDED ENDED
------------------------------------------
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED JAN. 28, FEB. 3, FEB. 1, JAN. 31,
JULY 31, 1993 JAN. 29, 1994 1995 1996(1) 1997(2) 1998
------------- --------------- ----------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT PER UNIT/SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA:
Income (loss) before income taxes and
extraordinary charge................ $ 27,092 $ (1,826) $ 33,243 $ 27,938 $ 29,723 $ 82,657
Provision for income taxes(6)........ 10,600 (676) 12,300 10,337 10,998 30,996
-------- --------- -------- ----------- ----------- -----------
Income (loss) before extraordinary
charge.............................. 16,492 (1,150) 20,943 17,601 18,725 51,661
Extraordinary charge, net of related
taxes............................... -- -- -- -- 1,547 4,077
-------- --------- -------- ----------- ----------- -----------
Net income (loss).................... $ 16,492 $ (1,150) $ 20,943 $ 17,601 $ 17,178 $ 47,584
======== ========= ======== =========== =========== ===========
Supplemental basic earnings per
unit/share:
Income per unit/share before
extraordinary charge.............. $ 1.39 $ 1.41 $ 2.78
Extraordinary charge per unit/share. -- 0.12 0.22
----------- ----------- -----------
Net income per unit/share........... $ 1.39 $ 1.29 $ 2.56
=========== =========== ===========
Supplemental diluted earnings per
unit/share:
Income per unit/share before
extraordinary charge.............. $ 1.36 $ 1.31 $ 2.69
Extraordinary charge per unit/share. -- 0.11 0.21
----------- ----------- -----------
Net income per unit/share........... $ 1.36 $ 1.20 $ 2.48
=========== =========== ===========
Weighted average unit/shares
outstanding:
Basic................................ 12,658,144 13,270,220 18,606,048
Diluted.............................. 12,933,969 14,389,835 19,412,973
BALANCE SHEET DATA (END OF PERIOD):
Total assets.......................... $ 95,882 $ 255,051 $286,491 $ 327,903 $ 705,234 $ 720,200
Long-term debt (including current
portion and revolver)................ -- 229,070 214,168 226,740 427,362 358,753
Partnership/Stockholders' equity
(deficit)............................ 42,789 (31,333) 1,777 27,187 103,863 155,038
OPERATING AND OTHER DATA:
EBITDA(7)............................. $ 28,566 $ 23,425 $ 62,785 $ 57,488 $ 69,145 $ 135,727
Cash flows from operating activities.. 14,059 7,512 39,002 33,562 13,023 66,604
Cash flows from investing activities.. (165) (295,870) (5,287) (60,543) (233,098) 20,148
Cash flows from financing activities.. (13,894) 298,393 (15,255) 5,955 215,891 (84,954)
</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 the respective acquisition dates, as
more fully described in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations". The increases in inventory
value had been fully amortized into cost of goods sold as of April 30, 1994
for the Brylane Acquisition, as of February 3, 1996 for the KingSize
Acquisition and as of January 31, 1998 for the Chadwick's Acquisition.
(4) Represents provision for income taxes as a corporate division of The Limited
for the twenty-six weeks ended July 31, 1993, as a partnership for the
twenty-six weeks ended January 29, 1994 and the fiscal years ended January
28, 1995, February 3, 1996 and February 1, 1997, and as a corporation for
the fiscal year ended January 31, 1998.
(5) Consists of deferred financing fees written off in connection with the
repayment of the 1993 Bank Credit Facility and the 1996 Bank Credit
Facility.
21
<PAGE>
(6) Amount reflects 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 write-off of
deferred financing fees and non-cash compensation expense related to the
Brylane, L.P. 1993 Partnership Unit Option Plan. The use of such
information is intended only to supplement the conventional income statement
presentation and is not considered as an alternative to net income or any
other indicator of Brylane's operating performance which is presented in
accordance with generally accepted accounting principles above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Item 6. Selected Financial Data" and the consolidated and combined financial
statements and related notes thereto which appear elsewhere in this Form 10-K.
The Company uses a 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 1997 reflect non-recurring inventory charges 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 1997. In addition, the
Company's results reflect additional amortization expense of $5.2 million per
year associated with the write-up of certain intangible assets related to the
Chadwick's Acquisition. 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.
In addition to the amortization expense related to the Chadwick's
Acquisition described above, the Company's results reflect the amortization of
intangible assets related to the Brylane Acquisition of $4.4 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 "Item 6. Selected Financial Data". The termination date
of the Company's Trademark Agreement with The Limited was accelerated to October
20, 2007 in October 1997. The amortization of intangible assets described above
reflects such acceleration.
In connection with certain amendments to options previously granted under
the Brylane, L.P. 1993 Partnership Unit 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 $0.7 million was expensed in
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 $51.2 million in indebtedness outstanding
under the 1997 Bank Credit Facility as well as a mandatory payment of $1.8
million. See "--Liquidity and Capital Resources".
To finance the Common Stock Repurchase, the Company entered into an
amendment to its 1997 Bank Credit Facility (the "Amended 1997 Bank Credit
Facility") and borrowed approximately $116.8 million thereunder. Borrowings
under the Amended 1997 Bank Credit Facility bear interest at LIBOR plus 1.25%.
The Amended 1997 Bank Credit Facility contains 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
22
<PAGE>
indebtedness, and limitations on the amount of the Company's capital
expenditures and common stock dividends. 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".
RESULTS OF OPERATIONS
The following tables set forth certain operating data of the Company for
the periods indicated.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
--------------------------------- -------------
FISCAL YEAR ENDED
------------------------------------------------
FEB. 3, 1996(1) FEB. 1, 1997(2) JAN. 31, 1998
---------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales....................................................................... $601,055 $705,353 $1,314,839
Gross margin before non-recurring inventory charge.............................. 302,641 358,781 640,515
Non-recurring inventory charge.................................................. 569 1,657 3,315
-------- -------- ----------
Gross margin.................................................................... 302,072 357,124 637,200
Operating expenses:
Catalog and advertising...................................................... 174,446 186,985 302,232
Fulfillment.................................................................. 37,333 55,450 124,372
Support services............................................................. 37,024 54,422 89,260
Amortization of acquisitions intangibles and organization costs.............. 4,707 6,518 10,972
-------- -------- ----------
Operating income................................................................ 48,562 53,749 110,364
Add back: Non-recurring inventory charge(3)................................. 569 1,657 3,315
Amortization of acquisitions intangibles and organization costs(4) 4,707 6,518 10,972
Non-cash compensation expense(5).................................. -- 2,400 700
-------- -------- ----------
Operating income before acquisitions related and non-recurring adjustments... $ 53,838 $ 64,324 $ 125,351
======== ======== ==========
</TABLE>
23
<PAGE>
The following table sets forth certain operating data of the Company
expressed as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
PARTNERSHIP COMPANY
--------------------------------- -------------
FISCAL YEAR ENDED
------------------------------------------------
FEB. 3, 1996(1) FEB. 1, 1997(2) JAN. 31, 1998
---------------- --------------- -------------
<S> <C> <C> <C>
Net sales.................................................................. 100.0% 100.0% 100.0%
Gross margin before non-recurring inventory charge......................... 50.4 50.8 48.7
Non-recurring inventory charge............................................. 0.1 0.2 0.2
----- ----- -----
Gross margin............................................................... 50.3 50.6 48.5
Operating expenses:
Catalog and advertising.................................................. 29.0 26.5 23.0
Fulfillment.............................................................. 6.2 7.9 9.5
Support services......................................................... 6.2 7.7 6.8
Amortization of acquisitions intangibles and organization costs.......... 0.8 0.9 0.8
----- ----- -----
Operating income........................................................... 8.1 7.6 8.4
Add back: Non-recurring inventory charge(3)........................... 0.1 0.2 0.2
Amortization of acquisitions intangibles and organization
costs(4).................................................. 0.8 0.9 0.8
Non-cash compensation expense(5)............................ -- 0.4 0.1
----- ----- -----
Operating income before acquisitions related and non-recurring adjustments. 9.0% 9.1% 9.5%
===== ===== =====
</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
$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 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 February 3, 1996 for the KingSize Acquisition, and as of January
31, 1998 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
4, 1997, includes amortization of the remaining trademark of $7,578,000 over
a ten-year life. 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 $175,715,000 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.
24
<PAGE>
The following table sets forth certain historical operating data of Brylane
and Chadwick's on an unaudited combined basis for the fiscal years 1996 and 1997
to include net sales, cost of sales and operating expenses for Chadwick's. The
unaudited combined information for the year ended February 1, 1997 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 (the first day of fiscal 1996).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
FEB. 1, JAN. 31,
1997(1) 1998
-------------------------------
<S> <C> <C>
(IN THOUSANDS)
Net sales.................................................................... $1,167,527 $1,314,839
Gross margin before non-recurring inventory charge........................... 566,910 640,515
Non-recurring inventory charge............................................... 1,657 3,315
---------- ----------
Gross margin................................................................. 565,253 637,200
Operating expenses:
Catalog and advertising..................................................... 279,582 302,232
Fulfillment................................................................. 101,218 124,372
Support services............................................................ 82,026 89,260
Amortization of acquisitions intangibles and organization costs............. 6,518 10,972
---------- ----------
Operating income............................................................. 95,909 110,364
Add back: Non-recurring inventory charge(2)................................. 1,657 3,315
Amortization of acquisitions intangibles and organization costs(3) 6,518 10,972
Non-cash compensation expense(4).................................. 2,400 700
---------- ----------
Operating income before acquisitions related and non-recurring adjustments... $ 106,484 $ 125,351
========== ==========
</TABLE>
The following table expresses the above operating data as a percentage of net
sales for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------
FEB. 1, JAN. 31,
1997(1) 1998
------------------------
<S> <C> <C>
Net sales........................................................................... 100.0% 100.0%
Gross margin before non-recurring inventory charge.................................. 48.5 48.7
Non-recurring inventory charge...................................................... 0.1 0.2
----- -----
Gross margin........................................................................ 48.4 48.5
Operating expenses:
Catalog and advertising............................................................ 23.9 23.0
Fulfillment........................................................................ 8.7 9.5
Support services................................................................... 7.0 6.8
Amortization of acquisitions intangibles and organization costs.................... 0.6 0.8
----- -----
Operating income.................................................................... 8.2 8.4
Add back: Non-recurring inventory charge(2)........................................ 0.1 0.2
Amortization of acquisitions intangibles and organization costs(3)....... 0.6 0.8
Non-cash compensation expense(4)......................................... 0.2 0.1
----- -----
Operating income before acquisitions related and non-recurring adjustments.......... 9.1% 9.5%
===== =====
</TABLE>
(footnotes on following page)
25
<PAGE>
_______________
(1) The fiscal year ended February 1, 1997 includes a 53-week period for
Chadwick's.
(2) The non-recurring inventory charges 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 effective date of the Chadwick's
Acquisition. The increase in inventory value has been fully amortized into
cost of goods sold as of January 31, 1998.
(3) Represents amortization of goodwill and other intangible assets related to
the Brylane Acquisition of $125,450,000 over a 30-year composite life and of
organizational costs of $300,000 over five years and subsequent to October
4, 1997, includes amortization of the remaining trademark of $7,578,000 over
a 10-year life. 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 $175,715,000 over a 40-year life, and a customer file of
$4,020,000 over a five-year life.
(4) Represents non-cash compensation expense related to amendments to options
granted under the Brylane, L.P. 1993 Partnership Unit Option Plan.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES. Net sales as reported for the fiscal year ended January 31,
1998 increased to $1,314.8 million from $705.4 million for the fiscal year ended
February 1, 1997. 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 fiscal 1996
increased 12.6% to $1,314.8 million from $1,167.5 million. The sales gain was
due primarily to an increase in circulation and an increase in the average order
size across all businesses.
GROSS MARGIN. Gross margin for the fiscal year ended January 31, 1998
increased to $637.2 million (48.5% of net sales) from $357.1 million (50.6% of
net sales) for fiscal 1996. The lower gross margin 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.
Gross margin on a combined basis including Chadwick's for fiscal 1996 and
eliminating the effects of the non-recurring inventory charge in the 1997 period
increased to $640.5 million (48.7% of net sales) in 1997 from $566.9 million
(48.5% of net sales) in 1996. The gross margin as a percent of net sales
increased due to higher initial mark-ups from improved merchandise sourcing.
CATALOG AND ADVERTISING EXPENSE. Catalog and advertising expense is
comprised of the costs to produce and distribute catalogs, primarily paper,
printing and catalog mailing costs, and the cost of acquiring names of
prospective customers. For fiscal 1997, catalog and advertising expense
increased to $302.2 million (23.0% of net sales) from $187.0 million (26.5% of
net sales) for fiscal 1996. The decrease on a percent of net sales basis was
primarily due to the inclusion of Chadwick's and its associated catalog and
advertising expense and net sales.
Catalog and advertising expense on a combined basis including Chadwick's
for fiscal 1996 decreased on a percent of net sales basis to 23.0% ($302.2
million) in 1997 from 23.9% ($279.6 million) in 1996. This decrease on a
percent of net sales basis was primarily due to the renegotiation of certain
printing contracts and an increase in the sales productivity per catalog.
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 fiscal
1997 increased to $124.4 million (9.5% of net sales) from $55.5 million (7.9% of
net sales) for 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 primarily as a result of its specialized garment packing techniques.
26
<PAGE>
Fulfillment expense on a combined basis including Chadwick's for fiscal
1996 increased on a percent of net sales basis to 9.5% ($124.4 million) in 1997
from 8.7% ($101.2 million) in 1996. This increase on a percent of net sales
basis was primarily due to increased payroll in the distribution centers,
telemarketing and other areas to meet increased customer demand and to ensure a
high level of customer service, as well as increased shipping promotions.
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 fiscal 1997
increased to $89.3 million (6.8% of net sales) from $54.4 million (7.7% of net
sales) for fiscal 1996. The decrease 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
fiscal 1996 decreased as a percent of net sales to 6.8% ($89.3 million) in 1997
from 7.0% ($82.0 million) in 1996. The decrease on a percent of net sales basis
is primarily due to expense management as well as the leverage resulting from
strong sales performance.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization
cost amortization expense for fiscal 1997 included $4.4 million related to the
Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $5.2
million related to the Chadwick's Acquisition. Acquisition related intangibles
and organization cost amortization expense for 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.
OPERATING INCOME. Operating income before acquisitions related and non-
recurring adjustments for fiscal 1997 increased to $125.4 million (9.5% of net
sales) from $64.3 million (9.1% of net sales) for fiscal 1996. As a percent of
net sales, operating income increased primarily as a result of the decrease in
catalog and advertising and support services expenses, partially offset by the
increase in fulfillment expense, as described above.
Operating income before acquisitions related and non-recurring adjustments,
on a combined basis including Chadwick's for fiscal 1996 increased to $125.4
million (9.5% of net sales) in 1997 from $106.5 million (9.1% 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 and support services expenses,
partially offset by the increase in fulfillment expense, as described above.
INTEREST EXPENSE. Interest expense, net, in fiscal 1997 increased to $27.7
million (2.1% of net sales) from $24.0 million (3.4% of net sales) for fiscal
1996. The increase is due to 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 and the term loan of the Amended 1997
Bank Credit Facility. In October 1997, the Company also increased borrowings to
provide additional funding for the repurchase of 2,500,000 shares of Common
Stock.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE. Income as reported
before income taxes and extraordinary charge increased to $82.7 million for
fiscal 1997 from $29.7 million for fiscal 1996. This increase was due to the
inclusion of Chadwick's.
INCOME TAXES. Income taxes for fiscal 1997 were $31.5 million or 38.2% of
income before extraordinary charge. Income taxes on supplemental income before
extraordinary charge were $31.0 million or 37.5%. 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 37.5% 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, net of tax,
was recorded in fiscal 1997 as a result of the early retirement of the debt
outstanding under the 1996 Bank Credit Facility.
27
<PAGE>
NET INCOME. After giving effect to the extraordinary charge, net income
increased to $47.0 million ($2.53 per share) for fiscal 1997 from $27.0 million
($2.03 per unit) for 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 in the fifty-three weeks
ended February 3, 1996. The increase in net sales is 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 MARGIN. Gross margin 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 margin 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 margin 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 margin as a percent of net sales is 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 is due to an increase in staffing to support the growth of the
business and to an increase in the license fee paid to Sears, partially offset
by an increase in licensing revenue received from third parties.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization
cost amortization expense in fiscal 1996 included $4.2 million related to the
Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $0.9
million related to the Chadwick's Acquisition. Acquisition related intangibles
and organization cost amortization expense in fiscal 1995 included $4.2 million
related to the Brylane Acquisition and $0.5 million related to the KingSize
Acquisition.
OPERATING INCOME. Operating income before acquisitions 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 margin, 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.
28
<PAGE>
EXTRAORDINARY CHARGE. An extraordinary charge of $2.5 million was recorded
in fiscal 1996 as a result of the early retirement of a portion of the debt
outstanding under the 1993 Bank Credit Facility.
NET INCOME. After giving effect to the extraordinary charge, net income
decreased to $27.0 million for fiscal 1996 from $27.9 million for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital needs, principally
building inventory to meet increased sales, and its capital expenditure
requirements through funds generated from operations. The Company's liquidity
requirements have also included servicing the debt incurred to finance various
acquisitions and will also include servicing the debt incurred to finance the
Common Stock Repurchase.
Cash flow provided by operating activities increased to $66.6 million in
fiscal 1997, from $13.0 million in fiscal 1996. This increase was due primarily
to an increase in net income, before non-cash related expenses, of $88.3 million
in fiscal 1997 compared to $46.5 million in fiscal 1996. During fiscal 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 purchase price adjustment to further reduce
its outstanding indebtedness by $103.9 million (which included prepayments of
$10.0 million on the 1996 Bank Credit Facility and $92.1 million on the 1997
Bank Credit Facility and a mandatory payment of $1.8 million), as well as to
effect $12.7 million in capital expenditures as discussed further below.
The Company's capital expenditures were $12.7, $3.9 million and $7.3
million for fiscal 1997, 1996 and 1995, respectively. Of the total capital
expenditures of $12.7 million made in fiscal 1997, $3.0 million was incurred for
fulfillment center enhancements, $7.0 million for telemarketing systems
replacement and enhancements, $1.3 million in office improvements for the San
Antonio and New York locations, and $1.4 million for miscellaneous improvements.
The Company's capital expenditures for fiscal 1998 are currently estimated
to be $13.0 million, including $2.5 million for expenditures at the Taunton,
Massachusetts facility, $3.5 million for management information systems, $1.2
million for expenditures related to Gramercy Home, and $4.0 million related to a
new receiving system for the Indianapolis fulfillment center. The remaining
$1.8 million of capital expenditures in fiscal 1998 will be spent on routine
maintenance and upgrades for the Company's fulfillment centers. Brylane plans
to fund its capital expenditures for fiscal 1998 using cash generated from
operations and drawing on its available funds under its Revolving Credit
Facility.
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
consisted of (i) a $111.7 million four-year 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 "1997
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 1997 Term Loans were used to repay Brylane's existing indebtedness under the
1996 Bank Credit Facility.
29
<PAGE>
The Company prepaid $62.1 million on the Tranche A Term Loan of the 1997
Bank Credit Facility during fiscal 1997. In addition, the Company made $1.8
million of scheduled payments on the 1997 Term Loans during fiscal 1997.
To finance the Common Stock Repurchase, in October 1997 the Company entered
into the Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit
Facility is comprised of (i) a $175.0 million five-year amortizing Term Loan
(the "Term Loan"), and (ii) a $200.0 million (subject to a borrowing base limit)
five-year revolving credit facility (the "Revolving Credit Facility") with a
$75.0 million sublimit for letters of credit and a $15.0 million "Swingline
Facility" (borrowings under which, while outstanding, would reduce availability
under the Revolving Credit Facility). The proceeds of the Term Loan provided 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 can be used for general corporate purposes,
including working capital needs, letters of credit and permitted acquisitions,
and was also available to provide a portion of the funds necessary to effect the
Common Stock Repurchase.
The Term Loan requires scheduled quarterly principal payments over its
term. In addition, Brylane is obligated to make certain mandatory prepayments
of the Term Loan and the Revolving Credit Facility under certain circumstances.
Borrowings under the Term Loan and Revolving Credit Facility bear interest at
one of two rates selected by the Partnership: (i) a margin over the higher of
(A) the Prime Rate and (B) the federal funds rate plus 0.5% or (ii) a margin
over LIBOR (as defined) for specified interest periods. The margin for each
rate varies based on the ratio of the Partnership's net debt to operating cash
flow ratio. Borrowings under the Revolving Credit Facility and the Term Loan
currently bear interest at LIBOR plus 1.25%. The Term Loan begins amortizing on
May 1, 1998 and scheduled principal payments on the Term Loan of the Amended
1997 Bank Credit Facility will aggregate approximately $10.0 million in fiscal
1998 and $20.0 million in fiscal 1999.
The Amended 1997 Bank Credit Facility contains 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.
As of January 31, 1998, Brylane had $49.0 million of borrowings under the
Revolving Credit Facility and, after giving effect to the issuance of letters of
credit for $49.1 million which the Company intends to pay through funds
generated from operations, had additional capacity under the Revolving Credit
Facility of approximately $101.9 million.
In connection with the Brylane Acquisition, the Partnership issued $125.0
million aggregate principal amount of its Senior Subordinated Notes. The Senior
Subordinated Notes bear interest at 10% per annum, payable semi-annually, and
mature in 2003. The Amended 1997 Bank Credit Facility and the Indenture contain
covenants (the "Covenants") that, among other things, restrict the Partnership's
ability to incur debt, make distributions, incur liens, make capital
expenditures and make investments or acquisitions. Brylane's capital
expenditures in fiscal 1997 were in compliance with the Covenants. See
"--Certain Tax Matters".
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' obligation to
purchase additional deferred billing receivables renews as it collects amounts
sufficient to bring outstanding receivables amounts below this $100 million
limitation.
ADS purchases the receivables on a limited recourse basis at a discount
from face value. The Company pays 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
30
<PAGE>
termination upon occurrence of certain events, including chargebacks and
customer default ratios above specified levels or an uncured default by the
Partnership under its Amended 1997 Bank Credit Facility.
Based on current and projected operating results and giving effect to its
total indebtedness discussed above, the Company believes that cash flow from
operations and availability under its Revolving Credit Facility 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.
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 mailings 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.
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.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. The Company has evaluated the significance of the change
from the year 1999 to the year 2000 on its existing computer systems and has
taken steps designed to ensure that its computer systems will not be adversely
affected thereby. The financial impact of such steps is not anticipated to be
material. In addition, the Company's systems rely in part on computer-based
systems of other companies. As a result, if any such company failed to become
Year 2000 compliant, the Company could be adversely affected.
CERTAIN TAX MATTERS
DEPRECIATION AND AMORTIZATION. Prior to the PPR Stock Purchase, FS&Co. and
The Limited treated the Brylane Acquisition for federal income tax purposes as a
purchase by the Partnership of a proportionate part of the assets of Brylane
(approximately 57% of each asset) and as a contribution by certain affiliates of
The Limited of the remaining portion of such assets. See "Item 1. Business--
History and Background". FS&Co. and The Limited have allocated a substantial
portion of the purchase price paid for the purchased portion of the assets to
intangible assets which are being amortized for federal income tax purposes over
a 15-year period.
The Partnership has elected under Section 754 of the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), for its 1997 tax year to
increase the tax basis of its assets by approximately $47.2 million to reflect
the federal tax gain that The Limited and its affiliates recognized in
connection with the Limited Stockholder's contribution to the Company of its
partnership interest in the Partnership pursuant to the Exchange Transaction. A
substantial portion of this adjustment in tax basis will be allocated to
intangible assets, which will be amortized for federal income tax purposes over
15 years. This adjustment to tax basis does not require a comparable basis
adjustment in the Company's financial statements, but the future tax benefit
that the Company will recognize through the amortization thereof for tax
purposes is included in a deferred tax asset of approximately $10.7 million.
TAX DISTRIBUTION. To the extent that the partners of the Partnership
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. Subsequent to the Initial Public
Offering, the Company has filed tax returns on a consolidated basis, and as
such,
31
<PAGE>
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").
The Company is under audit by the Indiana Department of Revenue ("IDR") and
anticipates an assessment will be issued. Based on discussions with the IDR,
the Company currently projects that the assessment, adjusted for the federal tax
benefit, will aggregate approximately $2.3 million including interest. The
Company intends to vigorously contest this assessment, and believes it has made
adequate provision such that final settlement of its Indiana tax liability for
the years under audit will not have a material adverse effect on its
consolidated financial statements.
ADOPTION OF ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which is effective for fiscal years beginning after
December 31, 1997. SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses). The Company intends to adopt this standard and include the
required disclosures in the financial statements prepared for its fiscal year
ending January 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements and in condensed financial statements of interim periods
issued to stockholders. The Company intends to adopt this standard and include
the required disclosures in the financial statements prepared for its fiscal
year ending January 30, 1999.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits", which is effective for fiscal
years beginning after December 15, 1997. SFAS No. 132 changes disclosure
requirements under previous accounting standards. SFAS No. 132 standardizes
disclosure requirements for pensions and other postretirement benefits and
requires additional information be disclosed for other changes in plans and
increased disclosures for certain plans. The Company intends to adopt this
standard and include the required disclosures in the financial statements
prepared for its fiscal year ending January 30, 1999.
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") No. 98-1, "Accounting For The Costs Of Computer
Software Developed Or Obtained For Internal Use", which is effective for fiscal
years beginning after December 15, 1998. SOP No. 98-1 establishes guidelines
for accounting for costs associated with internally developed or obtained
software. The Company is currently expensing all internally developed software
costs. The impact of SOP 98-1, if any, has not been determined.
32
<PAGE>
BRYLANE INC.
QUARTERLY DATA (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER UNIT/SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
MAY 3, 1997 AUG. 2, 1997 NOV. 1, 1997 JAN. 31, 1998 FULL YEAR
----------- ------------ ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
1997
- ----
Net sales............................... $328,801 $274,656 $365,454 $345,928 $1,314,839
Gross margin............................ 159,754 130,417 179,918 167,111 637,200
Income before extraordinary charge...... 9,586 10,648 16,848 14,030 51,112
Net income.............................. 5,476 10,648 16,848 14,063 47,035
Income per share before extraordinary
charge, basic(1)....................... $ .52 $ .55 $ .88 $ .81 $ 2.75
Income per share before extraordinary
charge, diluted(1)..................... .50 .53 .85 .77 2.67
Stock price range(2)
High................................... $ 29.375 $ 39.500 $ 49.375 $ 54.875
Low.................................... 21.250 26.500 37.750 42.000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------
MAY 4, 1996 AUG. 3, 1996 NOV. 2, 1996 FEB. 1, 1997 FULL YEAR
----------- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
1996
- ----
Net sales............................... $150,680 $157,945 $158,384 $238,344 $705,353
Gross margin............................ 78,018 80,709 82,574 115,823 357,124
Income before extraordinary charge...... 4,688 11,304 7,313 6,103 29,408
Net income.............................. 4,688 11,304 7,313 3,647 26,952
Income per unit before extraordinary
charge, basic(1)....................... $ .36 $ .88 $ .57 $ .42 $ 2.22
Income per unit before extraordinary
charge, diluted(1)..................... .35 .85 .55 .41 2.05
</TABLE>
The first quarter of 1997 includes an extraordinary charge of $4.1 million,
net of tax, related to the write off of deferred financing fees in connection
with the repayment of the 1993 Bank Credit Facility. The estimate of related
taxes was revised during the fourth quarter of 1997.
The fourth quarter of 1996 includes an extraordinary charge of $2.5 million
related to the write off of deferred financing fees in connection with the
repayment of the 1996 Bank Credit Facility.
As of April 3, 1998 there were 118 registered holders of record of the
Company's Common Stock. Since February 21, 1997, the Company has not declared
or paid cash dividends to its holder of Common Stock. The Company does not
intend to change such policy in the foreseeable future.
______________
(1) Earnings per unit/share information has been restated to reflect adoption
of SFAS No. 128.
(2) Brylane began trading under the symbol "BYL" on February 21, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to
be filed with the Securities and Exchange Commission within 120 days after
January 31, 1998, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to
be filed with the Securities and Exchange Commission within 120 days after
January 31, 1998, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to
be filed with the Securities and Exchange Commission within 120 days after
January 31, 1998, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to
be filed with the Securities and Exchange Commission within 120 days after
January 31, 1998, and is incorporated herein by reference.
34
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
(a)(1) INDEX TO FINANCIAL STATEMENTS:
BRYLANE INC. AND SUBSIDIARIES AND PARTNERSHIPS
Report of Independent Accountants............................................... F-1
Consolidated Balance Sheets as of February 1, 1997 and January 31, 1998......... F-2
Consolidated Statements of Income for the fiscal years ended February 3, 1996,
February 1, 1997 and January 31, 1998......................................... F-3
Consolidated Statements of Cash Flows for the fiscal years ended February
3, 1996, February 1, 1997 and January 31, 1998................................ F-5
Statements of Partnership/Stockholders' Equity for the fiscal years ended
February 3, 1996, February 1, 1997 and January 31, 1998....................... F-6
Notes to Consolidated Financial Statements...................................... F-7
(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
None.
(a)(3) EXHIBITS
2.1@@@@ First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FSEP II, FSEP III,
FSEP International, Lane Bryant Direct Holding, Inc., The
Limited, WearGuard, Leeway & Co., NYNEX, Chadwick's, Inc.
and Brylane Inc.
3.1+ Certificate of Limited Partnership of the Partnership.
3.2+ Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") dated as of August 30, 1993 (with forms
of Registration Rights Agreement (Newco) and Stockholders
Agreement (Newco) attached as exhibits thereto).
3.3+ Certificate of Incorporation of Brylane Capital 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.
3.8@@@ Amendment No. 4 to Partnership Agreement dated October 14,
1994.
3.9@@ Amendment No. 5 to Partnership Agreement dated September 22,
1995.
</TABLE>
35
<PAGE>
<TABLE>
<C> <S>
3.10@@ Amendment No. 6 to Partnership Agreement dated October 16,
1995.
3.11@@@@ Amendment No. 7 to Partnership Agreement dated October 14,
1996.
3.12@@@@ Amendment No. 8 to the Partnership Agreement dated December 5,
1996.
3.13# Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of February 26, 1997.
3.14*** Certificate of Incorporation of Brylane Inc.
3.15#### Bylaws of Brylane Inc., as amended April 3, 1998.
3.16@@@@ Certificate of Amendment of Certificate of Incorporation of VP
Holding, as filed with the Office of the Secretary of State of
Delaware on December 5, 1996.
3.17@@@@ Certificate of Designation of the Series A Convertible Redeemable
Preferred Stock of VP Holding as filed with the Office of the
Secretary of State of Delaware on December 6, 1996.
3.18@@@@@@ Form of Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of Brylane Inc. filed with the Office of
the Secretary of State of Delaware on February 14, 1997.
4.1+ Purchase Agreement dated August 20, 1993 among the Partnership,
Brylane Capital, VGP and each of the Initial Purchasers named
therein.
4.2+ Registration Rights Agreement made and entered into the 30th day
of August, 1993 among the Partnership, Brylane Capital and the
Initial Purchasers.
4.3+ Indenture dated as of August 30, 1993 among the Partnership and
Brylane Capital, as Issuers, B.L. Management, B.L. Distribution,
B.L. Management Partnership and B.L. Distribution Partnership, as
Guarantors, and United States Trust Company of New York, as
Trustee (the "Indenture").
4.4+ Form of Old Note (included at page 37 of the Indenture).
4.5+ Form of New Note (included at page 42 of the Indenture, as
amended at page 2 of the First Supplemental Indenture).
4.6+ Form of Guarantee by B.L. Management, B.L. Distribution, B.L.
Management Partnership and B.L. Distribution Partnership (included
at page 57 and in Article Fourteen of the Indenture).
4.7+ Form of Intercompany Note (included as Exhibit A to the
Indenture).
4.8+++ First Supplemental Indenture dated as of November 22, 1993 by and
among the Partnership and Brylane Capital, as Issuers, and United
States Trust Company of New York, as Trustee.
4.9* Second Supplemental Indenture dated as of January 28, 1994 among
the Partnership, Brylane Capital, B.N.Y. Service Corp. and United
States Trust Company of New York, as Trustee.
4.10@@ Third Supplemental Indenture dated as of October 16, 1995 by and
among the Partnership, Brylane Capital, KingSize Catalog Sales,
L.P., K.S. Management, KingSize Catalog Sales, Inc. and United
States Trust Company of New York, as Trustee.
</TABLE>
36
<PAGE>
<TABLE>
<C> <S>
4.11@@@@ Fourth Supplemental Indenture dated as of December 9, 1996 by
and among the Partnership, Brylane Capital, C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United States
Trust Company of New York, as Trustee.
4.12# Registration Rights Agreement dated as of February 26, 1997 by and
among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, TJX, Leeway &
Co. and NYNEX.
4.13# Stockholders Agreement dated as of February 26, 1997 by and
among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, TJX, Leeway &
Co. and NYNEX.
10.1+ Transaction Agreement dated as of July 13, 1993 among VGP, VLP
and the Transferors referred to therein (the "Transaction
Agreement").
10.2+ Amendment No. 1 to Transaction Agreement dated as of August 30,
1993.
10.3+ Addendum to Transaction Agreement dated August 30, 1993
executed by the Partnership.
10.4+ Credit Card Processing Agreement (the "Credit Card Agreement")
made as of the 30th day of August, 1993 between World Financial
Network National Bank ("World Financial") and the Partnership.
10.5@@@ Amendment No. 1 to Credit Card Agreement dated as of July 1,
xx 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").
10.7@@@@ Amendment No. 1 to Trademark License Agreement entered into as
of the 9th day of December, 1996 by and among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant
Direct Holding, Inc. and the Partnership.
10.8##### Amendment to Trademark License Agreement dated as of February
18, 1998 by and between Lanco, Inc., Lernco, Inc., Limited Stores,
Inc., Lane Bryant, Inc., Lerner Stores, Inc., Lane Bryant Direct
Holding, Inc. and the Partnership.
10.9+ Electronic Media Trademark License Agreement made as of the 20th
day of August, 1993 among the Licensors and the Licensees.
10.10+ Agreement to be Bound by the Trademark License Agreement and
the Electronic Media Trademark License Agreement executed by the
Partnership.
10.11+ Service Agreement made as of the 30th day of August, 1993
between B.L. Management and the Partnership.
10.12+ 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.
</TABLE>
37
<PAGE>
<TABLE>
<C> <S>
10.13++ 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.
10.14++ 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.
10.15++ Security Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.16++ Pledge Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Pledgors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.17++ 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.
10.18++ 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.
10.19++ 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).
10.20@@@@@@@@ Form of Amended and Restated Credit Agreement among the
Partnership, the Lenders listed therein, Morgan Guaranty, as
Administrative Agent and Merrill Lynch, as Documentation Agent.
10.21##### Second Amendment dated as March 10, 1998 to the Credit
Agreement, as amended and restated as of October 20, 1997 among
the Partnership, the Lenders party thereto, Morgan Guaranty, as
Administrative Agent and Merrill Lynch, as Documentation Agent.
10.22++ Trademark Collateral Agreement dated as of April 30, 1997 among
Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores, Inc.,
Lane Bryant, Inc. and Morgan Guaranty, as Security Agent.
10.23**** Loan Agreement made as of August 30, 1993 by and between
FSEP II, VP Holding and VGP.
10.24**** No Interest Demand Promissory Note made by FSEP II in favor of
VP Holding.
10.25**** Loan Agreement made as of August 30, 1993 by and between
FSEP III, VP Holding and VGP.
10.26**** No Interest Demand Promissory Note made by FSEP III in favor of
VP Holding.
10.27+ Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.28+ Indemnity Agreement dated as of September 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.29+ Indemnity Agreement dated as of September 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
</TABLE>
38
<PAGE>
<TABLE>
<C> <S>
10.30+[X] 1993 Employee Stock Subscription Plan of VP Holding (the
"Subscription Plan").
10.31***[X] Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.32+[X] 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).
10.33+[X] Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, Richard
L. Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida
Noriega-Wilson and Jessie Bourneuf who purchased common stock
of VP Holding under the Subscription Plan with cash and, in certain
cases, promissory note (with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits thereto).
10.34+[X] 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).
10.35***[X] Addendum dated February 18, 1994 to Stock Subscription
Agreement between VP Holding and Jules Silbert.
10.36***[X] Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
10.37+[X] 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.38+[X] Form of Performance Partnership Unit Option Agreement entered
into by and between the Partnership and each of Peter J. Canzone,
Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William
G. Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and
Jessie Bourneuf under the 1993 Option Plan.
10.39+[X] Form of Performance Partnership Unit Option Agreement entered
into by and between the Partnership and each of Arlene Silverman,
Kevin McGrain, Kevin Doyle and certain other participants under
the 1993 Option Plan.
10.40***[X] Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.41@@@@[X] Form of Amendment to Performance Partnership Unit Option
Agreement under the 1993 Option Plan.
10.42@[X] 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.43@[X] Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Peter J. Canzone, Sheila R.
Garelik, Robert A. Pulciani, Richard L. Bennett, William G.
Brosius, Bruce G. Clark, Arlene Silverman, Jules Silbert, Loida
Noriega-Wilson, Jessie Bourneuf and William C. Johnson under the
1995 Option Plan.
</TABLE>
39
<PAGE>
<TABLE>
<S> <C>
10.44@[X] 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.
10.45@@@@[X] Brylane Inc. 1996 Senior Management Stock Subscription Plan
(the "Senior Management Plan").
10.46@@@@[X] Form of Stock Subscription Agreement entered into by and
between Brylane Inc. and nine management investors who were
issued Common Stock of Brylane Inc. under the Senior
Management Plan.
10.47@@@@[X] Form of Stock Subscription Agreement entered into by and
between Brylane Inc. and William C. Johnson under the
Senior Management Plan.
10.48@@@@[X] Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.49@@@@[X] Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and certain management employees who were issued
Common Stock of Brylane Inc. under the Brylane Subscription Plan.
10.50@@@@[X] Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane
1996 Performance Option Plan").
10.51#####[X] Brylane Inc. 1998 Performance Stock Option Plan.
10.52@@@@[X] Form of Stock Option Agreement entered into by and between
Brylane Inc. and certain participants under the Brylane 1996
Performance Option Plan.
10.53@@@@[X] Form of Stock Option Agreement entered into by and between
Brylane Inc. and William C. Johnson under the Brylane 1996
Performance Option Plan.
10.54#####[X] Brylane Inc. 1996 Stock Option Plan, as amended April 1998 (the
"Brylane 1996 Option Plan").
10.55@@@@[X] Form of Stock Option Agreement entered into by and between
Brylane Inc. and certain participants under the Brylane 1996 Option
Plan.
10.56#####[X] Form of Amendment to Stock Option Agreements entered into by
and between Brylane Inc. and each of Peter J. Canzone, Robert A.
Pulciani, Sheila R. Garelik and Jules Silbert.
10.57#####[X] Form of Amendment to Stock Option Agreements entered into by
and between Brylane Inc. and each of Dhananjaya K. Rao and Carol
Meyrowitz.
10.58@ License Agreement effective as of March 1, 1994 by and between
x the Partnership and Sears Shop At Home Services, Inc. ("Sears")
(with Exhibits E and F attached thereto).
10.59@ License Agreement effective as of August 1, 1994 by and between
x WearGuard Corporation ("WearGuard") and Sears (with Exhibits E
and F attached thereto).
10.60@ First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.61@@@@ License Amendment made as of July 23, 1996 between the
xxx Partnership and Sears.
10.62##### Second Amendment to License Agreement entered into effective
March 1, 1998 by and between Sears and the Company.
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
10.63@@ Asset Purchase Agreement dated September 22, 1995 by and among
the Partnership, WearGuard and ARAMARK Corporation
("ARAMARK"), as guarantor.
10.64@@ Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.65@ Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.66@@ Letter Amendment to the Purchase Agreement dated October 16,
1995 by and between the Partnership and WearGuard.
10.67@@ Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S. Management.
10.68@@ Transition Services Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.69@@ Noncompetition Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.70#####[X] Form of Employment Agreement dated as of April 1, 1998
between B.L. Management and each of Peter J. Canzone, Robert A.
Pulciani, Jules Silbert, Kevin Doyle, Loida D. Noriega-Wilson and
Kevin McGrain.
10.71#####[X] Form of Employment Agreement dated as of April 1, 1998
between B.L. Management and each of Sheila Garelik and Arlene
Silverman.
10.72#####[X] Form of Employment Agreement dated as of April 1, 1998
between the Partnership and each of Richard Bennett, William
Brosius, Daniel L. Carr, Bruce Clark, Robert Evans, Lawrence
Kinney and Henry Wren.
10.73@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and
among TJX, Chadwick's and the Partnership.
10.74@@@@ Amendment Number One to the Asset Purchase Agreement made as
of the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.75@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and
among CDM Corp. and the Partnership.
10.76@@@@ Services Agreement dated as of December 9, 1996 between TJX and
the Partnership.
10.77@@@@@ Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.78@@@@ Inventory Purchase Agreement effective as of December 9, 1996 by
xxx and between the Partnership and TJX.
10.79#####[X] Form of Employment Agreement dated as of April 1, 1998
between the Partnership and each of Dhananjaya K. Rao and Carol
Meyrowitz.
10.80@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and
Dhananjaya K. Rao.
</TABLE>
41
<PAGE>
<TABLE>
<C> <S>
10.81@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Carol
Meyrowitz.
10.82@@@@[X] 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.
10.83@@@@ Brylane, L.P. Convertible Subordinated Note Due 2006 dated
December 9, 1996 made by the Partnership in favor of Chadwick's
(with Brylane Inc. and Brylane, L.P. Convertible Subordinated Note
Due 2006 made by Brylane Inc. and the Partnership in favor of
Chadwick's filed as an exhibit thereto).
10.84@@@@ Unit Subscription Agreement entered into as of December 5, 1996
by and among the Partnership, VP Holding, FSEP II, FSEP III,
FSEP International, VGP, VLP, WearGuard, Leeway and NYNEX.
10.85@@@@ Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
10.86@@@@@@@ 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.
10.87### Stock Purchase Agreement among FSEP II, FSEP III, FSEP
International and PPR dated as of February 19, 1998.
10.88### Stock Purchase Agreement among M&P Distributing Company and
PPR dated as of February 19, 1998.
10.89#### Governance Agreement by and between the Company and PPR
dated as of April 3, 1998.
10.90#### Registration Rights Agreement dated as of April 3, 1998 between
the Company and PPR.
21.1##### Subsidiaries of Brylane Inc./Brylane, L.P.
23.1##### Consent of Coopers & Lybrand L.L.P. regarding Brylane Inc.
27.1##### Financial Data Schedule for fiscal year ended January 31, 1998.
27.2##### Restated Financial Data Schedule for quarter ended May 3, 1997.
27.3##### Restated Financial Data Schedule for quarter ended August 2, 1997.
27.4##### Restated Financial Data Schedule for quarter ended November 1, 1997.
</TABLE>
_______________
+ Filed as an exhibit to the Partnership's Registration Statement
on Form S-4 (Registration No. 33-69532) on September 29, 1993 and
incorporated by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 9, 1993 and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 23, 1993 and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994
and incorporated by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's
Quarterly Report on Form 10-Q for the quarterly period ended
April 30, 1994 and incorporated by reference herein.
*** Filed as an exhibit to Brylane Inc.'s Registration Statement on
Form S-1 (Registration No. 33-86154) on November 9, 1994 and
incorporated by reference herein.
**** Filed as an exhibit to Amendment No. 1 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154)
on January 11, 1995 and incorporated by reference herein.
42
<PAGE>
@ Filed on December 12, 1995 as an exhibit to the Partnership's
Quarterly Report on Form 10-Q for the quarterly period ended
October 28, 1995 (the "1995 Third Quarter Form 10-Q") and
incorporated by reference herein.
@@ Filed on December 30, 1995 as an exhibit to the Partnership's
Amendment of Current Report on Form 8-K/A (File No. 33-69532) and
incorporated by reference herein.
@@@ Filed on May 3, 1996 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended February 3, 1996
("1995 Form 10-K") and incorporated by reference herein.
@@@@ Filed as an exhibit to Amendment No. 2 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
December 23, 1996 and incorporated by reference herein.
@@@@@ Filed as an exhibit to Amendment No. 3 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
January 29, 1997 and incorporated by reference herein.
@@@@@@ Filed as an exhibit to Amendment No. 4 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
February 19, 1997 and incorporated by reference herein.
@@@@@@@ Filed 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.
@@@@@@@@ Filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-35715 on
October 14, 1997 and incorporated by reference herein.
x Certain portions of this exhibit have been omitted from the
copies incorporated by reference from the Partnership's 1995
Third Quarter Form 10-Q (as defined herein) and are the subject
of an order granting confidential treatment with respect thereto.
xx Certain portions of this exhibit have been omitted from the
copies incorporated by reference from the Partnership's 1995 Form
10-K (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
xxx Certain portions of this exhibit have been omitted from the
copies filed as part of Amendment No. 2 to Brylane Inc.'s
Registration Statement on Form S-1 and are the subject of a
request for confidential treatment with respect thereto.
# 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 on March 4, 1998 as an exhibit to the Company's Current
Report on Form 8-K and incorporated by reference herein.
#### Filed on April 17, 1998 as an exhibit to the Company's Current
Report on Form 8-K and incorporated by reference herein.
##### Filed herewith.
[X] Management contract or executive compensation plan or
arrangement.
(b) REPORTS ON FORM 8-K
On March 4, 1998, Brylane Inc. filed a Current Report on Form 8-K (File
No. 33-86154) to include, under "Item 5. Other Events", a description of the
agreements whereby Pinault Printemps-Redoute, S.A., a company organized under
the laws of France ("PPR"), agreed to acquire Common Stock from certain
stockholders of the Company (including all of the Common Stock held by
affiliates of Freeman Spogli & Co. Incorporated and an affiliate of The Limited,
Inc., as well as certain shares held by certain members of management of the
Company) and to include the following exhibits relating to PPR's acquisition of
Common Stock: (i) the definitive Stock Purchase Agreements dated February 19,
1998, (ii) the Form of Governance Agreement between Brylane Inc. and PPR and
(iii) other documents relating to PPR's purchase of Common Stock.
On April 17, 1998, Brylane Inc. filed a Current Report on Form 8-K (File
No. 33-86154) to include, under "Item 1. Changes in Control of Registrant", a
description of the arrangements whereby PPR acquired approximately 43% of the
Common Stock held by certain stockholders of the Company (including all of the
Common Stock held by affiliates of Freeman Spogli & Co. Incorporated and an
affiliate of The Limited, Inc., as well as certain shares held by certain
members of management of the Company) and to include the following exhibits
relating to PPR's acquisition of Common Stock: (i) the definitive Governance
Agreement between Brylane Inc. and PPR, (ii) the amended Bylaws of Brylane Inc.,
(iii) the definitive Registration Rights Agreement between Brylane Inc. and PPR
and (iv) other documents relating to PPR's purchase of Common Stock.
43
<PAGE>
(c) EXHIBITS
The Exhibits listed on the accompanying Index to Exhibits are filed as
part of this Form 10-K.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 30th day of April, 1998.
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 Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- -----
<S> <C> <C>
/s/ PETER J. CANZONE Chief Executive Officer and Director April 30, 1998
- ----------------------- (Principal Executive Officer)
Peter J. Canzone
/s/ ROBERT A. PULCIANI Executive Vice President, Chief Financial April 30, 1998
- ------------------------ Officer, Secretary and Treasurer (Principal
Robert A. Pulciani Financial and Accounting Officer)
/s/ SERGE WEINBERG Director April 30, 1998
- ------------------------
Serge Weinberg
/s/ HARTMUT KRAMER Director April 30, 1998
- -------------------------
Harmut Kramer
/s/ JOHANNES LONING Director April 30, 1998
- -------------------------
Johannes Loning
/s/ ANTOINE METZGER Director April 30, 1998
- -------------------------
Antoine Metzger
/s/ RICHARD SIMONIN Director April 30, 1998
- -------------------------
Richard Simonin
/s/ WILLIAM C. JOHNSON Director April 30, 1998
- -------------------------
William C. Johnson
/s/ PETER M. STARRETT Director April 30, 1998
- -------------------------
Peter M. Starrett
/s/ JUDITH E. CAMPBELL Director April 30, 1998
- -------------------------
Judith E. Campbell
</TABLE>
45
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<C> <S> <C>
2.1@@@@ First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FSEP II, FSEP III,
FSEP International, Lane Bryant Direct Holding, Inc., The Limited,
WearGuard, Leeway & Co., NYNEX, Chadwick's, Inc. and Brylane
Inc.
3.1+ Certificate of Limited Partnership of the Partnership.
3.2+ Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") dated as of August 30, 1993 (with forms
of Registration Rights Agreement (Newco) and Stockholders
Agreement (Newco) attached as exhibits thereto).
3.3+ Certificate of Incorporation of Brylane Capital 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.
3.8@@@ Amendment No. 4 to Partnership Agreement dated October 14,
1994.
3.9@@ Amendment No. 5 to Partnership Agreement dated September 22,
1995.
3.10@@ Amendment No. 6 to Partnership Agreement dated October 16,
1995.
3.11@@@@ Amendment No. 7 to Partnership Agreement dated October 14,
1996.
3.12@@@@ Amendment No. 8 to the Partnership Agreement dated December 5,
1996.
3.13# Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of February 26, 1997.
3.14*** Certificate of Incorporation of Brylane Inc.
3.15#### Bylaws of Brylane Inc., as amended April 3, 1998.
3.16@@@@ Certificate of Amendment of Certificate of Incorporation of VP
Holding, as filed with the Office of the Secretary of State of
Delaware on December 5, 1996.
3.17@@@@ Certificate of Designation of the Series A Convertible Redeemable
Preferred Stock of VP Holding as filed with the Office of the
Secretary of State of Delaware on December 6, 1996.
3.18@@@@@@ Form of Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of Brylane Inc. filed with the Office of
the Secretary of State of Delaware on February 14, 1997.
4.1+ Purchase Agreement dated August 20, 1993 among the Partnership,
Brylane Capital, VGP and each of the Initial Purchasers named
therein.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<C> <S> <C>
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.
4.9* Second Supplemental Indenture dated as of January 28, 1994 among
the Partnership, Brylane Capital, B.N.Y. Service Corp. and United
States Trust Company of New York, as Trustee.
4.10@@ Third Supplemental Indenture dated as of October 16, 1995 by and
among the Partnership, Brylane Capital, KingSize Catalog Sales,
L.P., K.S. Management, KingSize Catalog Sales, Inc. and United
States Trust Company of New York, as Trustee.
4.11@@@@ Fourth Supplemental Indenture dated as of December 9, 1996 by
and among the Partnership, Brylane Capital, C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United States
Trust Company of New York, as Trustee.
4.12# Registration Rights Agreement dated as of February 26, 1997 by and
among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, TJX, Leeway &
Co. and NYNEX.
4.13# Stockholders Agreement dated as of February 26, 1997 by and
among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, TJX, Leeway &
Co. and NYNEX.
10.1+ Transaction Agreement dated as of July 13, 1993 among VGP, VLP
and the Transferors referred to therein (the "Transaction
Agreement").
10.2+ Amendment No. 1 to Transaction Agreement dated as of August 30,
1993.
10.3+ Addendum to Transaction Agreement dated August 30, 1993
executed by the Partnership.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<C> <S> <C>
10.4+ Credit Card Processing Agreement (the "Credit Card Agreement")
made as of the 30th day of August, 1993 between World Financial
Network National Bank ("World Financial") and the Partnership.
10.5@@@ Amendment No. 1 to Credit Card Agreement dated as of July 1,
xx 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").
10.7@@@@ Amendment No. 1 to Trademark License Agreement entered into as
of the 9th day of December, 1996 by and among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant
Direct Holding, Inc. and the Partnership.
10.8##### Amendment to Trademark License Agreement dated as of February
18, 1998 by and between Lanco, Inc., Lernco, Inc., Limited Stores,
Inc., Lane Bryant, Inc., Lerner Stores, Inc., Lane Bryant Direct
Holding, Inc. and the Partnership.
10.9+ Electronic Media Trademark License Agreement made as of the 20th
day of August, 1993 among the Licensors and the Licensees.
10.10+ Agreement to be Bound by the Trademark License Agreement and
the Electronic Media Trademark License Agreement executed by the
Partnership.
10.11+ Service Agreement made as of the 30th day of August, 1993
between B.L. Management and the Partnership.
10.12+ 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.
10.13++ 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.
10.14++ 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.
10.15++ Security Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.16++ Pledge Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Pledgors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.17++ 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>
48
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<C> <S> <C>
10.18++ 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.
10.19++ 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).
10.20@@@@@@@@ Form of Amended and Restated Credit Agreement among the
Partnership, the Lenders listed therein, Morgan Guaranty, as
Administrative Agent and Merrill Lynch, as Documentation Agent.
10.21##### Second Amendment dated as of March 10, 1998 to the Credit
Agreement, as amended and restated as of October 20, 1997 among
the Partnership, the Lenders party thereto, Morgan Guaranty, as
Administrative Agent and Merrill Lynch, as Documentation Agent.
10.22++ Trademark Collateral Agreement dated as of April 30, 1997 among
Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores, Inc.,
Lane Bryant, Inc. and Morgan Guaranty, as Security Agent.
10.23**** Loan Agreement made as of August 30, 1993 by and between
FSEP II, VP Holding and VGP.
10.24**** No Interest Demand Promissory Note made by FSEP II in favor of
VP Holding.
10.25**** Loan Agreement made as of August 30, 1993 by and between
FSEP III, VP Holding and VGP.
10.26**** No Interest Demand Promissory Note made by FSEP III in favor of
VP Holding.
10.27+ Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.28+ Indemnity Agreement dated as of September 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.29+ Indemnity Agreement dated as of September 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
10.30+[X] 1993 Employee Stock Subscription Plan of VP Holding (the
"Subscription Plan").
10.31***[X] Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.32+[X] 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).
10.33+[X] Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, Richard
L. Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida
Noriega-Wilson and Jessie Bourneuf who purchased common stock
of VP Holding under the Subscription Plan with cash and, in certain
cases, promissory note (with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits thereto).
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------ ----------- ------
<C> <S> <C>
10.34+[X] 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).
10.35***[X] Addendum dated February 18, 1994 to Stock Subscription
Agreement between VP Holding and Jules Silbert.
10.36***[X] Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
10.37+[X] 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.38+[X] Form of Performance Partnership Unit Option Agreement entered
into by and between the Partnership and each of Peter J. Canzone,
Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William
G. Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and
Jessie Bourneuf under the 1993 Option Plan.
10.39+[X] Form of Performance Partnership Unit Option Agreement entered
into by and between the Partnership and each of Arlene Silverman,
Kevin McGrain, Kevin Doyle and certain other participants under
the 1993 Option Plan.
10.40***[X] Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.41@@@@[X] Form of Amendment to Performance Partnership Unit Option
Agreement under the 1993 Option Plan.
10.42@[X] 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.43@[X] Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Peter J. Canzone, Sheila R.
Garelik, Robert A. Pulciani, Richard L. Bennett, William G.
Brosius, Bruce G. Clark, Arlene Silverman, Jules Silbert, Loida
Noriega-Wilson, Jessie Bourneuf and William C. Johnson under the
1995 Option Plan.
10.44@[X] 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.
10.45@@@@[X] Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan").
10.46@@@@[X] Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and nine management investors who were issued
Common Stock of Brylane Inc. under the Senior Management Plan.
10.47@@@@[X] Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and William C. Johnson under the Senior Management
Plan
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ----------- ------
<C> <S>
10.48@@@@[X] Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.49@@@@[X] Form of Stock Subscription Agreement entered into by and between
Brylane Inc. and certain management employees who were issued
Common Stock of Brylane Inc. under the Brylane Subscription Plan.
10.50@@@@[X] Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane
1996 Performance Option Plan").
10.51#####[X] Brylane Inc. 1998 Performance Stock Option Plan.
10.52@@@@[X] Form of Stock Option Agreement entered into by and between
Brylane Inc. and certain participants under the Brylane 1996
Performance Option Plan.
10.53@@@@[X] Form of Stock Option Agreement entered into by and between
Brylane Inc. and William C. Johnson under the Brylane 1996
Performance Option Plan.
10.54#####[X] Brylane Inc. 1996 Stock Option Plan, as amended April 1998 (the
"Brylane 1996 Option Plan").
10.55@@@@[X] Form of Stock Option Agreement entered into by and between
Brylane Inc. and certain participants under the Brylane 1996 Option
Plan.
10.56#####[X] Form of Amendment to Stock Option Agreements entered into by
and between Brylane Inc. and each of Peter J. Canzone, Robert A.
Pulciani, Sheila R. Garelik and Jules Silbert.
10.57#####[X] Form of Amendment to Stock Option Agreements entered into by
and between Brylane Inc. and each of Dhananjaya K. Rao and Carol
Meyrowitz.
10.58@ License Agreement effective as of March 1, 1994 by and between
x the Partnership and Sears Shop At Home Services, Inc. ("Sears")
(with Exhibits E and F attached thereto).
10.59@ License Agreement effective as of August 1, 1994 by and between
x WearGuard Corporation ("WearGuard") and Sears (with Exhibits E
and F attached thereto).
10.60@ First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.61@@@@ License Amendment made as of July 23, 1996 between the
xxx Partnership and Sears.
10.62##### Second Amendment to License Agreement entered into effective
March 1, 1998 by and between Sears and the Company.
10.63@@ Asset Purchase Agreement dated September 22, 1995 by and among
the Partnership, WearGuard and ARAMARK Corporation
("ARAMARK"), as guarantor.
10.64@@ Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.65@ Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ----------- ------
<C> <S>
10.66@@ Letter Amendment to the Purchase Agreement dated October 16,
1995 by and between the Partnership and WearGuard.
10.67@@ Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S. Management.
10.68@@ Transition Services Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.69@@ Noncompetition Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.70#####[X] Form of Employment Agreement dated as of April 1, 1998
between B.L. Management and each of Peter J. Canzone, Robert A.
Pulciani, Jules Silbert, Kevin Doyle, Loida D. Noriega-Wilson and
Kevin McGrain.
10.71#####[X] Form of Employment Agreement dated as of April 1, 1998
between B.L. Management and each of Sheila Garelik and Arlene
Silverman.
10.72#####[X] Form of Employment Agreement dated as of April 1, 1998
between the Partnership and each of Richard Bennett, William
Brosius, Daniel L. Carr, Bruce Clark, Robert Evans, Lawrence
Kinney and Henry Wren.
10.73@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and
among TJX, Chadwick's and the Partnership.
10.74@@@@ Amendment Number One to the Asset Purchase Agreement made as
of the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.75@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and
among CDM Corp. and the Partnership.
10.76@@@@ Services Agreement dated as of December 9, 1996 between TJX and
the Partnership.
10.77@@@@@ Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.78@@@@ Inventory Purchase Agreement effective as of December 9, 1996 by
xxx and between the Partnership and TJX.
10.79#####[X] Form of Employment Agreement dated as of April 1, 1998
between the Partnership and each of Dhananjaya K. Rao and Carol
Meyrowitz.
10.80@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and
Dhananjaya K. Rao.
10.81@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Carol
Meyrowitz.
10.82@@@@[X] 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.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
------- ----------- ------
<C> <S>
10.83@@@@ Brylane, L.P. Convertible Subordinated Note Due 2006 dated
December 9, 1996 made by the Partnership in favor of Chadwick's
(with Brylane Inc. and Brylane, L.P. Convertible Subordinated Note
Due 2006 made by Brylane Inc. and the Partnership in favor of
Chadwick's filed as an exhibit thereto).
10.84@@@@ Unit Subscription Agreement entered into as of December 5, 1996
by and among the Partnership, VP Holding, FSEP II, FSEP III,
FSEP International, VGP, VLP, WearGuard, Leeway and NYNEX.
10.85@@@@ Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
10.86@@@@@@@ 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.
10.87### Stock Purchase Agreement among FSEP II, FSEP III, FSEP
International and PPR dated as of February 19, 1998.
10.88### Stock Purchase Agreement among M&P Distributing Company and
PPR dated as of February 19, 1998.
10.89#### Governance Agreement by and between the Company and PPR
dated as of April 3, 1998.
10.90#### Registration Rights Agreement dated as of April 3, 1998 between
the Company and PPR.
21.1##### Subsidiaries of Brylane Inc./Brylane, L.P.
23.1##### Consent of Coopers & Lybrand L.L.P. regarding Brylane Inc.
27.1##### Financial Data Schedule for fiscal year ended January 31, 1998.
27.2##### Restated Financial Data Schedule for quarter ended May 3, 1997.
27.3##### Restated Financial Data Schedule for quarter ended August 2, 1997.
27.4##### Restated Financial Data Schedule for quarter ended November 1, 1997.
</TABLE>
_______________
+ Filed as an exhibit to the Partnership's Registration Statement
on Form S-4 (Registration No. 33-69532) on September 29, 1993 and
incorporated by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 9, 1993 and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 23, 1993 and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994
and incorporated by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's
Quarterly Report on Form 10-Q for the quarterly period ended
April 30, 1994 and incorporated by reference herein.
*** Filed as an exhibit to Brylane Inc.'s Registration Statement on
Form S-1 (Registration No. 33-86154) on November 9, 1994 and
incorporated by reference herein.
**** Filed as an exhibit to Amendment No. 1 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
January 11, 1995 and incorporated by reference herein.
@ Filed on December 12, 1995 as an exhibit to the Partnership's
Quarterly Report on Form 10-Q for the quarterly period ended
October 28, 1995 (the "1995 Third Quarter Form 10-Q") and
incorporated by reference herein.
53
<PAGE>
@@ Filed on December 30, 1995 as an exhibit to the Partnership's
Amendment of Current Report on Form 8-K/A (File No. 33-69532) and
incorporated by reference herein.
@@@ Filed on May 3, 1996 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended February 3, 1996
("1995 Form 10-K") and incorporated by reference herein.
@@@@ Filed as an exhibit to Amendment No. 2 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
December 23, 1996 and incorporated by reference herein.
@@@@@ Filed as an exhibit to Amendment No. 3 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
January 29, 1997 and incorporated by reference herein.
@@@@@@ Filed as an exhibit to Amendment No. 4 to Brylane Inc.'s
Registration Statement on Form S-1 (Registration No. 33-86154) on
February 19, 1997 and incorporated by reference herein.
@@@@@@@ Filed 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.
@@@@@@@@ Filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-35715 on
October 14, 1997 and incorporated by reference herein.
x Certain portions of this exhibit have been omitted from the
copies incorporated by reference from the Partnership's 1995
Third Quarter Form 10-Q (as defined herein) and are the subject
of an order granting confidential treatment with respect thereto.
xx Certain portions of this exhibit have been omitted from the
copies incorporated by reference from the Partnership's 1995 Form
10-K (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
xxx Certain portions of this exhibit have been omitted from the
copies filed as part of Amendment No. 2 to Brylane Inc.'s
Registration Statement on Form S-1 and are the subject of a
request for confidential treatment with respect thereto.
# 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 on March 4, 1998 as an exhibit to the Company's Current
Report on Form 8-K and incorporated by reference herein.
#### Filed on April 17, 1998 as an exhibit to the Company's Current
Report on Form 8-K and incorporated by reference herein.
##### Filed herewith.
[X] Management contract or executive compensation plan or
arrangement.
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Brylane Inc.
We have audited the accompanying consolidated balance sheets of Brylane
Inc. (the "Company"), including Brylane, L.P., a limited partnership, as of
February 1, 1997 and January 31, 1998, and the related consolidated statements
of income, cash flows and partnership/stockholders' equity of the Company for
the years ended February 3, 1996, February 1, 1997, and January 31, 1998. 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 1, 1997 and January 31, 1998,
and the consolidated results of operations and cash flows for the years ended
February 3, 1996, February 1, 1997, and January 31, 1998, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
March 27, 1998, except for
Note 16, as to which the date
is April 3, 1998
F-1
<PAGE>
BRYLANE INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 3,285 $ 5,083
Deferred receivables, net of allowance for doubtful accounts of
$1,975 and $1,474, respectively.............................................. 18,082 8,194
Accounts receivable, other.................................................... 36,775 7,851
Inventories................................................................... 168,821 219,553
Paper inventory............................................................... 9,790 23,571
Catalog costs................................................................. 31,222 28,411
Other......................................................................... 6,252 6,426
--------- ---------
TOTAL CURRENT ASSETS 274,227 299,089
Property and equipment, net..................................................... 75,970 77,095
Organization and deferred financing costs....................................... 11,114 4,832
Intangibles and other assets.................................................... 343,243 328,487
Deferred income taxes........................................................... -- 10,697
Deferred offering costs......................................................... 680 --
--------- ---------
TOTAL ASSETS $ 705,234 $ 720,200
========= =========
LIABILITIES AND EQUITY
----------------------
CURRENT LIABILITIES:
Accounts payable.............................................................. $ 93,928 $ 139,480
Accrued interest.............................................................. 8,612 7,153
Accrued expenses.............................................................. 45,356 27,528
Income taxes payable.......................................................... -- 4,024
Reserve for returns........................................................... 18,603 17,844
Revolving line of credit-current portion...................................... -- 19,000
Current portion of long-term debt............................................. 26,000 10,000
--------- ---------
TOTAL CURRENT LIABILITIES 192,499 225,029
Long-term debt.................................................................. 401,362 329,753
Other long-term liabilities..................................................... 6,010 9,010
--------- ---------
TOTAL LIABILITIES 599,871 563,792
Convertible redeemable preferred stock.......................................... 1,500 1,370
Partnership/stockholders' equity:
General partner of Brylane, L.P., 2,562,500 units............................. 25,625 --
Limited partners of Brylane, L.P., 12,908,945 units at February 1, 1997....... 159,855 --
Common stock, $.01 par value 40,000,000 shares authorized; 19,910,519
shares issued and 17,410,519 shares outstanding.............................. -- 199
Additional paid in capital.................................................... -- 303,260
Reduction for predecessor cost - carryover basis.............................. (152,067) (152,067)
Loans to management investors................................................. (2,490) (1,025)
Retained earnings............................................................. 72,940 119,671
Treasury stock, 2,500,000 shares at cost...................................... -- (115,000)
--------- ---------
Total partnership/stockholders' equity..................................... 103,863 155,038
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 705,234 $ 720,200
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARES AND PER UNIT/SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
----------- ------------ -----------
(53 WEEKS)
<S> <C> <C> <C>
Net Sales.............................................................. $601,055 $ 705,353 $ 1,314,839
Cost of goods sold..................................................... 298,983 348,229 677,639
-------- ----------- -----------
Gross margin........................................................... 302,072 357,124 637,200
Operating expenses:
Catalog and advertising............................................... 174,446 186,985 302,232
Fulfillment........................................................... 37,333 55,450 124,372
Support services...................................................... 37,024 54,422 89,260
Intangibles and organization cost amortization........................ 4,707 6,518 10,972
-------- ----------- -----------
Total operating expenses............................................... 253,510 303,375 526,836
Operating income....................................................... 48,562 53,749 110,364
Interest expense, net.................................................. 20,624 24,026 27,707
-------- ----------- -----------
Income before income taxes and extraordinary charge.................... 27,938 29,723 82,657
Provision for income taxes (Note 4).................................... 88 315 31,545
-------- ----------- -----------
Income before extraordinary charge..................................... 27,850 29,408 51,112
Extraordinary charge related to early retirement of debt, net of tax... -- 2,456 4,077
-------- ----------- -----------
Net income............................................................. $ 27,850 $ 26,952 $ 47,035
======== =========== ===========
Basic earnings per unit/share:
Income per unit/share before extraordinary charge..................... $ 2.22 $ 2.75
Extraordinary charge per unit/share................................... 0.19 0.22
----------- -----------
Net income per unit/share............................................. $ 2.03 $ 2.53
=========== ===========
Diluted earnings per unit/share:
Income per unit/share before extraordinary charge..................... $ 2.05 $ 2.67
Extraordinary charge per unit/share................................... 0.17 0.21
----------- -----------
Net income per unit/share............................................. $ 1.88 $ 2.46
=========== ===========
Weighted average units/shares outstanding:
Basic................................................................. 13,270,220 18,606,048
Diluted............................................................... 14,389,835 19,412,973
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(IN THOUSANDS, EXCEPT SHARES AND PER UNIT/SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
(53 WEEKS)
<S> <C> <C> <C>
Supplemental data (Note 4):
Historical income before provision for income taxes and extraordinary
charge.................................................................... $ 27,938 $ 29,723 $ 82,657
Supplemental provision for income taxes.................................... 10,337 10,998 30,996
----------- ----------- -----------
Supplemental income before extraordinary charge............................ 17,601 18,725 51,661
Extraordinary charge related to early retirement of debt, net of tax....... -- 1,547 4,077
----------- ----------- -----------
Supplemental net income.................................................... $ 17,601 $ 17,178 $ 47,584
=========== =========== ===========
Supplemental basic earnings per unit/share:
Income per unit/share before extraordinary charge.......................... $ 1.39 $ 1.41 $ 2.78
Extraordinary charge per unit/share........................................ -- 0.12 0.22
----------- ----------- -----------
Net income per unit/share.................................................. $ 1.39 $ 1.29 $ 2.56
=========== =========== ===========
Supplemental diluted earnings per unit/share:
Income per unit/share before extraordinary charge.......................... $ 1.36 $ 1.31 $ 2.69
Extraordinary charge per unit/share........................................ -- 0.11 0.21
----------- ----------- -----------
Net income per unit/share.................................................. $ 1.36 $ 1.20 $ 2.48
=========== =========== ===========
Weighted average units/shares outstanding:
Basic...................................................................... 12,658,144 13,270,220 18,606,048
Diluted.................................................................... 12,933,969 14,389,835 19,412,973
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
------------ ------------ ------------
(53 WEEKS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.............................................................................. $ 27,850 $ 26,952 $ 47,035
Impact of other operating activities on cash flows:
Depreciation.......................................................................... 3,650 4,821 10,376
Non-recurring inventory charge........................................................ 569 1,657 3,315
Extraordinary charge related to early retirement of debt.............................. -- 2,456 6,524
Non-cash compensation expense......................................................... -- 2,400 700
Deferred income taxes................................................................. -- -- 8,168
Amortization:
Intangibles and organization costs.................................................. 4,707 6,518 10,972
Deferred financing costs and discount on notes...................................... 1,566 1,700 1,190
Changes in operating assets and liabilities:
Accounts receivable................................................................. (549) (15,137) 10,007
Inventories......................................................................... (4,019) (32,064) (54,047)
Catalog costs and paper inventory................................................... (8,933) (2,492) (10,970)
Accounts payable and accrued expenses............................................... 479 16,262 27,600
Accrued interest.................................................................... 831 2,246 (1,459)
Income taxes payable................................................................ -- -- 4,024
Other assets and liabilities........................................................ 7,411 (2,296) 3,169
-------- --------- ---------
Net cash provided by operating activities................................................ 33,562 13,023 66,604
-------- --------- ---------
INVESTING ACTIVITIES:
Purchase price adjustment related to Chadwick's acquisition............................. -- -- 32,888
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.................................................................... (7,290) (3,932) (12,740)
-------- --------- ---------
Net cash (used in) provided by investing activities....................................... (60,543) (233,098) 20,148
-------- --------- ---------
FINANCING ACTIVITIES:
Payments on bank credit facilities...................................................... (22,524) (107,476) (591,162)
Proceeds from issuance of long-term debt................................................ 35,000 283,000 416,663
Proceeds from borrowing under revolver.................................................. -- 5,000 115,500
Equity contributions from partners...................................................... -- 51,329 --
Proceeds from issuance of preferred stock............................................... -- 1,500 --
Proceeds from initial public offering................................................... -- -- 96,000
Offering and debt issuance fees and expenses............................................ -- (7,685) (9,564)
Tax distributions to partners........................................................... (6,562) (9,854) --
Purchase of treasury stock.............................................................. -- -- (115,000)
Other................................................................................... 41 77 2,609
-------- --------- ---------
Net cash provided by (used in) financing activities....................................... 5,955 215,891 (84,954)
-------- --------- ---------
Cash and cash equivalents, at beginning of year........................................... 28,495 7,469 3,285
-------- --------- ---------
Cash and cash equivalents, at end of year................................................. $ 7,469 $ 3,285 $ 5,083
======== ========= =========
Supplemental disclosure of cash flow information:
The amounts of interest and income taxes paid during each of the periods presented
were not material except as follows:
Interest paid during the fiscal years ended........................................... $ 19,328 $ 20,581 $ 29,736
======== ========= =========
Income taxes paid..................................................................... $ 14,505
=========
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 (See note 3)........ $ 242,954
Cash portion of purchase price.......................................................... 222,954
---------
Convertible note........................................................................ $ 20,000
=========
Conversion of note into shares of common stock.......................................... $ 9,705
=========
Conversion of preferred stock to common stock........................................... $ 130
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL PARTNER
LIMITED PARTNERS COMMON STOCK ADDITIONAL
--------------------------- --------------------- PAID IN
UNITS AMOUNT SHARES AMOUNT CAPITAL
------------ ------------ ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance, January 28, 1995...................................... 12,547,500 $ 125,475 -- -- --
Net income.................................................. -- -- -- -- --
Sale of units............................................... 365,000 5,475 -- -- --
Repurchase of units......................................... (10,000) (121) -- -- --
Tax distributions payable to partners....................... -- -- -- -- --
------------ ------------ ----------- -------- -----------
Balance, February 3, 1996...................................... 12,902,500 130,829 -- -- --
Net income.................................................. -- -- -- -- --
Sale of units............................................... 2,573,945 51,441 -- -- --
Repurchase of units......................................... (5,000) (60) -- -- --
Exchange of stock options................................... -- 3,270 -- -- --
Tax distributions payable to partners....................... -- -- -- -- --
------------ ------------ ----------- -------- -----------
Balance, February 1, 1997...................................... 15,471,445 185,480 -- -- --
Net income.................................................. -- -- -- -- --
Tax distributions made to partners.......................... -- -- -- -- --
Proceeds from Initial Public Offering....................... -- -- 4,000,000 $ 40 $ 95,960
Initial Public Offering expenses............................ -- -- -- -- (8,850)
Exchange of partnership units for common stock.............. (15,471,445) (185,480) 15,471,445 155 185,325
Purchase of treasury stock.................................. -- -- (2,500,000) -- (115,000)
Recognition of deferred tax asset and opening income tax
adjustments............................................... -- -- -- -- 18,142
Repayment of management notes............................... -- -- -- -- --
Conversion of convertible note.............................. -- -- 352,908 4 9,701
Conversion of preferred stock............................... -- -- 6,500 -- 130
Exercise of stock options................................... -- -- 79,666 -- 1,144
Tax benefit related to issuance of shares under employee
benefit plans............................................. -- -- -- -- 1,008
Exchange of stock options................................... -- -- -- -- 700
------------ ------------ ----------- -------- -----------
Balance, January 31, 1998...................................... 0 $ 0 17,410,519 $199 $ 188,260
============ ============ =========== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
REDUCTION FOR
PREDECESSOR LOANS TO
COST-CARRYOVER MANAGEMENT RETAINED
BASIS INVESTORS EARNINGS TOTAL
---------------- -------------- --------------- ----------
<S> <C> <C> <C> <C>
Balance, January 28, 1995....................................... $(152,067) $(2,453) $ 30,822 $ 1,777
Net income................................................... -- -- 27,850 27,850
Sale of units................................................ -- (112) -- 5,363
Repurchase of units.......................................... -- 50 -- (71)
Tax distributions payable to partners........................ -- -- (7,732) (7,732)
--------- ------- -------- ---------
Balance, February 3, 1996....................................... (152,067) (2,515) 50,940 27,187
Net income................................................... -- -- 26,952 26,952
Sale of units................................................ -- 25 -- 51,466
Repurchase of units.......................................... -- -- -- (60)
Exchange of stock options.................................... -- -- -- 3,270
Tax distributions payable to partners........................ -- -- (4,952) (4,952)
--------- ------- -------- ---------
Balance, February 1, 1997....................................... (152,067) (2,490) 72,940 103,863
Net income................................................... -- -- 47,035 47,035
Tax distributions made to partners........................... -- -- (304) (304)
Proceeds from Initial Public Offering........................ -- -- -- 96,000
Initial Public Offering expenses............................. -- -- -- (8,850)
Exchange of partnership units for common stock............... -- -- -- --
Purchase of treasury stock................................... -- -- -- (115,000)
Recognition of deferred tax asset and opening income
tax adjustments............................................ -- -- -- 18,142
Repayment of management notes................................ -- 1,465 -- 1,465
Conversion of convertible note............................... -- -- -- 9,705
Conversion of preferred stock................................ -- -- -- 130
Exercise of stock options.................................... -- -- -- 1,144
Tax benefit related to issuance of shares under
employee benefit plans..................................... -- -- -- 1,008
Exchange of stock options.................................... -- -- -- 700
--------- ------- -------- ---------
Balance, January 31, 1998....................................... $(152,067) $(1,025) $119,671 $ 155,038
========= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
Brylane Inc., a Delaware corporation ("Brylane" or the "Company"), is a
leading catalog retailer of special-size and regular-size women's and 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 customer
through its Chadwick's, Lerner, Bridgewater and Brett (men's) 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 Freeman Spogli & Co. Incorporated
("FS&Co.") and of The Limited, Inc. ("The Limited") formed Brylane, L.P. (the
"Partnership"), 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, and 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). 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 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 ("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.
Concurrently, Brylane Inc. offered 4,000,000 shares of Common Stock to the
public through its Initial Public Offering. The historical financial statements
presented herein for periods prior to February 26, 1997 are for
F-7
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brylane, L.P. 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.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of VP Holding
Corporation ("VPH"), VGP Corporation ("VGP"), VLP Corporation ("VLP"), Brylane
L.P. 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. Services 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 Company. Material transactions
between the consolidated entities have been eliminated. Each of the wholly-
owned subsidiaries and partnerships of Brylane, L.P. (collectively, the
"Subsidiary Guarantors") has guaranteed the Partnership's 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 inconsequential to Brylane on a consolidated basis, both
individually and combined, and 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, L.P. paid to WearGuard $52.5 million in cash and issued to
WearGuard 350,000 newly issued limited partnership units in Brylane, L.P.
Brylane, L.P. financed the cash portion of the purchase price out of available
funds as well as additional borrowings under its 1993 bank credit facility
("1993 Bank Credit Facility"). The Partnership acquired the inventory,
contracts, customer lists, goodwill, accounts receivable and certain equipment
relating to the operation of the business, assumed certain liabilities, and
entered into a noncompetition agreement.
For accounting purposes, the KingSize Acquisition was recorded using the
purchase method of accounting as of 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, was allocated to the assets and liabilities
of KingSize at their estimated fair values. The fair values of assets and
liabilities were determined based on management's estimates. The allocation of
the purchase price is as follows (in thousands):
Current assets................. $10,737
Property and equipment......... 331
Intangibles and other assets... 51,903
Liabilities assumed............ (3,821)
-------
$59,150
=======
In December 1996, Brylane, L.P. completed the acquisition of certain assets
of the Chadwick's of Boston catalog division ("Chadwick's") of Chadwick's, Inc.,
a wholly-owned subsidiary of The TJX Companies ("TJX") (the "Chadwick's
Acquisition"). Chadwick's is a catalog business devoted to selling off-price
women's career, casual and social apparel. The Chadwick's Acquisition included
the purchase of inventory, property, plant and
F-8
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
equipment, customer lists, trademarks, goodwill and the assumption of certain
liabilities relating to the business by the Partnership. 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, L.P. paid TJX $189.8 million (net of purchase price adjustments of
$32.9 million) and issued to the TJX Noteholder a $20.0 million Convertible
Redeemable Note due 2006 (approximately $9.7 million of which was converted by
TJX into shares of Common Stock sold). 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 ("1996 Bank Credit Facility") and received
aggregate new equity of $51.3 million 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 adjustments of $32.9 million and
acquisition costs of $7.1 million, has been allocated to the assets and
liabilities of Chadwick's at their estimated fair values. The fair values of
assets and liabilities have been determined based on management's estimates.
The allocation of the purchase price is as follows (in thousands):
Current assets................. $ 89,990
Property and equipment......... 45,805
Intangibles and other assets... 179,734
Liabilities assumed............ (97,944)
--------
$217,585
========
The following unaudited pro forma results of operations for the year ended
February 1, 1997 assumes that the Chadwick's Acquisition occurred as of February
4, 1996. In preparing the pro forma information, 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 ("ADS"); (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 Chadwick's Acquisition been
made as of the indicated date or of results which may occur in the future (in
thousands):
UNAUDITED
FOR THE FISCAL
YEAR ENDED
FEBRUARY 1, 1997
---------------
Net sales............. $1,167,527
Operating income...... 87,118
Net income............ 49,246
(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
F-9
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 February 1, 1997 and
January 31,1998 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 amounts on deposit with financial institutions and money
market investments with initial maturities of three months or less to be cash
equivalents.
Accounts Receivable
Brylane sells eligible accounts receivable generated through Chadwick's
deferred billing programs to ADS (See note (14) "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 31, 1996. Costs associated with these transactions are
included in operations. Deferred billing accounts receivable balances are net of
allowance for doubtful accounts of $2.0 million and $1.5 million at February 1,
1997 and January 31, 1998, respectively.
Inventories
Merchandise inventories are stated at the lower of cost or market,
principally valued on the average cost basis under a standard costing system or
using the retail method of accounting, except for inventories attributable to
the initial investment in KingSize and Chadwick's which were recorded at
estimated fair value (unallocated costs). A non-recurring inventory charge
representing the estimated fair value in excess of its original historical cost,
as of the date of the KingSize Acquisition, was fully amortized in fiscal 1995
($.6 million). 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 fiscal year 1996 ($1.7
million) with the remainder being amortized during fiscal year 1997 ($3.3
million).
Catalog Costs
Catalog costs primarily consist of catalog production and mailing costs
that have not yet been fully amortized. Catalog costs are amortized over the
expected revenue stream, which is approximately three months from the date
catalogs are mailed as determined based on management's estimates.
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging principally from
10-30 years for buildings and improvements, the lesser of 10 years or the life
of the lease for leasehold improvements and 3-10 years for other property and
equipment. The cost and related accumulated depreciation or amortization of
assets sold or retired are removed from the accounts, with any resulting gain or
loss included in net income. Repairs and maintenance are charged to expense as
incurred; renewals and betterments which extend service lives are capitalized.
The Company's policy is to expense as incurred internally developed software
costs.
F-10
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization and Deferred Financing Costs
Organization costs of $.3 million 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. 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 in December 1996, 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 continues 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 amortized over the term of the related debt using the effective
interest method. In connection with the repayment of the 1996 Bank Credit
Facility in April 1997, deferred financing fees of $4.1 million (net of related
taxes) were written off as a charge to operations. Deferred financing costs of
$1.2 million incurred in connection with the amended 1997 bank credit facility
("Amended 1997 Bank Credit Facility") were capitalized and are amortized over
the term of the related debt using the effective interest method. Accumulated
amortization of organization and deferred financing costs at February 1, 1997
and January 31, 1998 were $5.5 million and $6.1 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. Subsequent to October 4, 1997 in connection with the repurchase
of common stock, the amortization of the remaining trademark agreement of $7.6
million was accelerated to a ten-year period in accordance with the provisions
of the trademark agreement. Such intangibles are amortized over a 30-year
composite life using the straight-line method. Accumulated amortization of
intangible assets was $14.6 million, and $18.9 million at February 1, 1997, and
January 31, 1998, respectively. Intangible assets associated with the KingSize
Acquisition include customer lists of $.5 million, a noncompetition agreement of
$.3 million, 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 $1.9 million and $3.3 million, at February 1, 1997, and January
31, 1998, respectively. Intangible assets associated with the Chadwick's
Acquisition include customer lists of $4.0 million and goodwill of $175.7
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 $.9 million and $6.1 million at February 1, 1997 and January
31, 1998, respectively.
Brylane's policy is to periodically review the value assigned to goodwill
to determine if it has been permanently impaired by adverse conditions which
might affect Brylane. Such reviews include an analysis of current results and
take into consideration the discounted value of projected operating cash flow
(earnings before interest, taxes and depreciation and amortization).
Income Taxes
Under the partnership form of doing business, the tax effects of profits
and losses of the Partnership were incurred by the partners. Brylane made 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 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 of Brylane, L.P.
Subsequent to the Initial Public Offering on February 26, 1997, the tax
status of the consolidated entity, Brylane Inc., was changed to that of a C-
corporation. Brylane Inc. follows Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS No. 109) which requires the Company
to establish a deferred tax liability or asset for the future tax effects of
temporary differences between book and taxable income.
F-11
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in future tax rates will result in immediate adjustments to deferred
taxes. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus the change during the period in
deferred tax assets and liabilities.
Revenue Recognition
Sales are recorded at the time of shipment. Brylane provides a reserve for
estimated merchandise returns, based on its prior customer returns experience.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings per Share, which replaces the presentation of primary
earnings per share ("EPS") with basic EPS and replaces fully diluted EPS with
diluted EPS. Basic net income per share is based on the weighted average number
of common shares outstanding during each period and diluted net income per share
is based on the weighted average number of common shares and dilutive common
share equivalents outstanding during each period. The Company's common share
equivalents consist of shares of common stock issuable upon exercise of
outstanding stock options, the conversion of preferred shares into common shares
and the conversion of a convertible note into shares of common stock.
Application of this standard resulted in a decrease in the weighted average
number of shares outstanding for basic EPS due to the exclusion of the common
stock equivalents identified above. The statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997,
with earlier application not permitted. All periods presented reflect the
adoption of SFAS No. 128. (See note (10) "Earnings Per Share").
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 pro forma income tax rates utilized
and the federal statutory rate of 35% relates primarily to state income taxes,
net of federal tax benefit.
Supplemental earnings per share 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.
Stock Option Plan
In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of
Stock-Based Compensation to Employees", which is effective for fiscal years
beginning after December 15, 1995. SFAS No.123 provides alternative accounting
treatment to Accounting Principles Board ("APB") Opinion No. 25, "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) "Stock Option Plans").
F-12
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassifications
Certain reclassifications have been made to the previous years' financial
statements to conform with the 1997 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 1, January 31,
1997 1998
----------- -----------
<S> <C> <C>
Land, buildings and improvements............ $42,455 $42,540
Furniture, fixtures and equipment........... 44,184 53,043
Leasehold improvements...................... 2,397 2,732
------- -------
89,036 98,315
Accumulated depreciation and amortization... 13,066 21,220
------- -------
Property and equipment, net................. $75,970 $77,095
======= =======
</TABLE>
(6) LONG-TERM DEBT:
To finance the Brylane Acquisition, Brylane secured financing through
proceeds from the 1993 Bank Credit Facility and the sale of the Notes. In
connection with the Chadwick's Acquisition, Brylane repaid the 1993 Bank Credit
Facility and entered into a 1996 Bank Credit Facility. On April 30, 1997,
Brylane entered into a 1997 bank credit facility which it amended on October 20,
1997, the Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit
Facility and Notes are fully and unconditionally guaranteed, jointly and
severally, by the Subsidiary Guarantors.
Amounts outstanding under long-term debt agreements are as follows (in
thousands):
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
------------- -----------
<S> <C> <C>
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................................................................................ $213,000 $ --
1996 Bank Credit Facility Tranche B Term Loan ("Tranche B Term Loan"), bearing interest
at (i) a margin over the higher of prime rate or federal funds rate plus 0.5% or (ii) a
margin over LIBOR. At February 1, 1997 the rate was LIBOR plus 2.5%. Various
maturities through February 2003............................................................ 70,000 --
1996 Bank Credit Facility revolving loan ("1996 Revolving Credit Facility"), maximum
borrowings of $125,000, sublimit for letters of credit $75,000.............................. -- --
Amended 1997 Bank Credit Facility ("Term Loan"), bearing interest at (i) a margin over
the higher of prime rate or the federal funds rate plus 0.5% or (ii) a margin over
LIBOR. At January 31, 1998, the rate was LIBOR plus 1.25%. Various maturities through
August 2002................................................................................. -- 175,000
Amended 1997 Bank Credit Facility revolving loan ("Revolving Credit Facility"), maximum
borrowings of $200,000 sublimit for letters of credit $75,000 and sublimit for
swingline loans $15,000..................................................................... -- 49,000
Convertible subordinated note, bearing interest at the rate of 6% per annum, maturing
December 9, 2006............................................................................ 20,000 10,295
Senior subordinated notes, bearing interest at the rate of 10.0% per annum, maturing
September 1, 2003........................................................................... 125,000 125,000
-------- --------
428,000 359,295
Discount on senior subordinated notes....................................................... (638) (542)
-------- --------
427,362 358,753
Less current portion........................................................................ (26,000) (29,000)
-------- --------
$401,362 $329,753
======== ========
</TABLE>
F-13
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to scheduled maturities on the Term Loan, Brylane is obligated
to make certain mandatory prepayments of the loans and the Revolving Credit
Facility under certain circumstances. Mandatory prepayment of the Term Loan is
based on Brylane, L.P.'s excess cash flow, as defined. Mandatory prepayments, if
any, are applied to reduce the principal amount of the Term Loan.
At February 1, 1997, and January 31, 1998, interest terms available to
Brylane for borrowings similar to the Term Loan and the Convertible Subordinated
Note were similar to those presently provided under the Amended 1997 Bank Credit
Facility and the Convertible Subordinated Note. Accordingly, the recorded
obligations under the Term Loan and the Convertible Subordinated Note
approximated the fair value at February 1, 1997 and January 31, 1998.
Based on quoted market prices at February 1, 1997 and January 31, 1998 the
fair market value of the Notes was approximately $130.3 million and $132.7
million, respectively. The change in fair market value is primarily
attributable to changes in bond ratings and market interest rates.
The 1996 Bank Credit Facility contained certain financial covenants which
required Brylane to meet financial ratios and tests, including a minimum
adjusted net worth test, a minimum fixed charge coverage ratio and a minimum
cash flow to net debt ratio. In addition, the 1996 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. At
February 1, 1997, Brylane was in compliance with the required covenants.
The Amended 1997 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. In addition, the Amended 1997 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. At January 31, 1998, Brylane was in
compliance with the required covenants.
The obligations of Brylane under the Amended 1997 Bank Credit Facility are
collateralized by the intangible assets of the Partnership.
As of February 1, 1997, Brylane had no borrowings under the Revolving
Credit Facility and as of January 31, 1998, Brylane had $49.0 million in
borrowings under the Revolving Credit Facility. After giving effect to the
issuance of letters of credit for $47.9 million and $49.1 million, respectively,
Brylane had additional capacity under the Revolving Credit Facility of
approximately $77.1 million and $101.9 million, respectively. As of February 1,
1997 and January 31, 1998, the aggregate principal balance outstanding under the
Term Loans of the 1996 and Amended 1997 Bank Credit Facility was $283.0 million
and $224.0 million, respectively.
At January 31, 1998, annual maturities of long-term debt by fiscal year are
as follows (in thousands):
1998........... $ 10,000
1999........... 20,000
2000........... 40,000
2001........... 70,000
2002........... 84,000
Thereafter..... 135,295
--------
Total debt..... $359,295
========
F-14
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) OPERATING LEASES:
Brylane leases office, outlet store and warehouse space and equipment under
leasing arrangements classified as operating leases which expire at various
times through fiscal 2012. Rent expense under these leases was $5.8 million,
$6.6 million and $8.7 million in the fiscal years 1995, 1996, and 1997,
respectively.
Future minimum lease payments required under these leases at January 31,
1998, are as follows (in thousands):
1998......... $ 8,991
1999......... 8,033
2000......... 6,348
2001......... 4,849
2002......... 4,248
Thereafter... 20,244
-------
$52,713
=======
(8) STOCK OPTION PLANS:
1996 Performance Option Plan
In connection with the Initial Public Offering, 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.
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 $0.7 million in fiscal 1997.
Unless canceled due to termination of employment, all options became exercisable
on January 31, 1998 and terminate 10 years from date of grant.
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year................. 615,209 622,709 644,584
Granted.......................................... 15,000 669,584 --
Cancelled........................................ (7,500) (647,709) (25,000)
-------- -------- --------
Outstanding at end of year....................... 622,709 644,584 619,584
======== ======== ========
Options exercisable at year-end.................. -- -- 619,584
Weighted-average fair value of options granted
during the year................................. $ 9.71 $ 9.99 --
</TABLE>
F-15
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1996 Option Plan
In connection with the Initial Public Offering, the Company adopted the
Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option Plan"), which acts
as the successor of 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, unless canceled due to termination of employment, all
options become exercisable in three equal annual installments on the first,
second and third anniversaries of the date of original grant.
In connection with the Chadwick's Acquisition, 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 Brylane's 1996 Option Plan as of February 3, 1996, February 1,
1997 and January 31, 1998, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1995 1996 1997
------------------- --------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
UNITS PRICE UNITS PRICE SHARES PRICE
-------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ -- 123,750 $15.00 464,604 $16.50
Granted..................................... 123,750 $15.00 340,854 17.04 268,597 35.92
Cancelled................................... -- -- (32,686) 18.58
Exercised................................... -- -- (79,666) 14.34
------- ------- -------
Outstanding at end of year.................. 123,750 15.00 464,604 16.50 620,849 25.07
Options exercisable at year-end............. -- 41,250 123,387
Weighted-average fair value of options
granted during the year.................. $ 5.81 $ 9.69 $11.58
</TABLE>
The following table summarizes information about the 1996 Option Plan at
January 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- --------------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES JANUARY 31, 1998 LIFE EXERCISE PRICE
- -------------------------- ------------------ ---------------------- ------------------
<S> <C> <C> <C>
$ 5 to 10 26,435 7.7 years $ 6.05
$11 to 15 110,091 4.6 years 15.00
$16 to 30 226,073 6.8 years 18.95
$31 to 41 258,250 6.4 years 36.10
-------
$ 5 to 41 620,849 6.3 years 25.07
=======
</TABLE>
F-16
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
------------------------------------------------------------------
NUMBER EXERCISABLE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES AT JANUARY 31, 1998 EXERCISE PRICE
------------------------ ------------------- ----------------
<S> <C> <C>
$ 5 to 10 5,679 $ 7.46
$11 to 15 68,008 15.00
$16 to 20 49,700 19.26
-------
$ 5 to 20 123,387 16.37
=======
</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 Brylane 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:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted-average risk-free interest rate........... 5.99% 6.04% 5.87%
Weighted-average expected life (years)............. 5.00 5.25 3.99
Expected volatility................................ 31.2% 31.2% 28.5%
</TABLE>
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>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income:
As reported.............................. $27,850 $26,952 $47,035
Pro forma................................ 27,658 28,351 45,283
Basic net income per unit/share:
As reported.............................. $ 2.03 $ 2.53
Pro forma................................ 2.14 2.43
Diluted net income per unit/share:
As reported.............................. $ 1.88 $ 2.46
Pro forma................................ 1.97 2.33
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, the Black-Scholes option valuation model
requires the input of highly subjective assumptions including the expected stock
price volatility. Because Brylane options have characteristics significantly
different from those of traded options, and because changes in subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not provide a reliable single measure of the
fair value of its stock options. The pro forma disclosures provided above may
not be representative of the effects on reported net income for future years.
F-17
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) STOCK SUBSCRIPTION PLAN:
In connection with the Initial Public Offering, the Company adopted the
Brylane Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan")
which is the successor of the Brylane, L.P. Subscription Plan, whereby officers,
certain key employees and a member of the Board of Directors may purchase
interests in Brylane Inc. The portion of the purchase price received in the
form of promissory notes is recorded as a reduction of stockholders' equity.
The price at which the units are purchased is set at fair value at the date of
issuance.
Activity under the Stock Subscription Plan for fiscal 1995, fiscal 1996 and
fiscal 1997 follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF PRICE PER
UNITS/SHARES UNIT/SHARE
-------------- -----------
<S> <C> <C>
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
Activity during 1997:
Issued.............................. -- --
Repurchased......................... -- --
Shares sold......................... (160,022)
-------- -------
Shares outstanding, January 31, 1998... 347,978 $ 10.22
======== =======
</TABLE>
(10) EARNINGS PER SHARE:
As discussed in Note (4) above, SFAS No. 128 replaces the presentation of
primary and fully diluted earnings per share with basic and diluted earnings per
share, and requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. All periods presented reflect the
adoption of SFAS No. 128. The impact on amounts previously reported was not
material.
F-18
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31,
1997 1998
--------------- ---------------
(IN THOUSANDS, EXCEPT SHARE AND PER
UNIT/SHARE DATA)
<S> <C> <C>
Basic EPS Computation:
Numerator....................................................... $ 26,952 $ 47,035
=========== ===========
Denominator:
Weighted average common units/shares outstanding............. 13,270,220 18,606,048
=========== ==========
Basic EPS......................................................... $ 2.03 $ 2.53
Diluted EPS Computation:
Numerator: $ 26,952 $ 47,035
Interest on convertible debt, net of income taxes............ 108 645
----------- -----------
Adjusted numerator........................................... $ 27,060 $ 47,680
=========== ===========
Denominator:
Weighted average common units/shares outstanding............. 13,270,220 18,606,048
Convertible redeemable preferred stock....................... 75,000 68,500
Convertible debt............................................. 727,273 364,060
Incremental units/shares from assumed exercise of options... 317,342 374,365
---------- ----------
Total units/shares........................................... 14,389,835 19,412,973
========== ==========
Diluted EPS....................................................... $ 1.88 $ 2.46
</TABLE>
(11) RETIREMENT PLAN:
Effective August 30, 1993, Brylane adopted the Brylane, L.P. Savings and
Retirement Plan (the "Retirement Plan"). All of the Company's employees who
have attained twenty-one years of age and have completed one year of service are
eligible to participate in the Retirement Plan. Eligible employees can
contribute up to the lesser of $9,500 or ten percent of their compensation to
the Retirement Plan on a pre-tax basis. Brylane will match up to three percent
of the participants' eligible compensation. Brylane is required to make
additional contributions to the Retirement Plan equal to four percent of each
participant's compensation up to the Social Security taxable wage base and equal
to seven percent of each participant's compensation which exceeds that amount.
An additional one percent of eligible compensation is contributed on behalf of
those participants who have completed at least five years of service. Brylane's
contributions begin to vest after three years of service, at which time such
contributions are 20% vested. Thereafter, the contributions vest at a rate of
20% each year so that Brylane's contributions are fully vested after seven years
of service. Brylane's cost under these plans was $2.9 million, $3.6 million
and $5.9 million in the fiscal years 1995, 1996, and 1997, respectively.
As a result of the Chadwick's Acquisition, Brylane participates in a multi-
employer plan that provides defined benefits to its union employees. Brylane's
expense for this plan for the eight-weeks ended February 1, 1997 and the year
ended January 31, 1998 amounted to $252,750 and $1.8 million, respectively.
F-19
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) INCOME TAXES:
The provision for income taxes consisted of (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Current:
Federal........................................ $ 21,219
State.......................................... 2,158
Deferred:
Federal........................................ 7,642
State.......................................... 526
---------
Total provision.................................. $ 31,545
=========
</TABLE>
Reconciliation between the Federal statutory rate of 35% to income before
income taxes and the income tax provision is as follows (in thousands):
<TABLE>
<CAPTION>
1997
---------
<S> <C>
Computed income taxes at statutory rate........... $ 28,930
State taxes net of Federal benefit................ 2,066
Other............................................. 549
---------
Income taxes.................................... $ 31,545
=========
</TABLE>
The significant components of net deferred tax assets and deferred tax
liabilities included on the balance sheet at January 31, 1998 are (in
thousands):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Deferred tax asset:
Inventory....................................... $ 6,957
Deferred and other compensation related items... 5,096
Intangibles..................................... 8,815
Fixed assets.................................... 417
Other........................................... 1,129
--------
Total deferred tax assets....................... 22,414
--------
Deferred tax liability:
Prepaid catalog costs and other prepaids........ (11,659)
Other........................................... (58)
--------
Total deferred tax liability.................... (11,717)
--------
Net deferred tax asset............................ $ 10,697
========
</TABLE>
A tax benefit of $1.0 million associated with the exercise of employee stock
options was recorded in equity in 1997.
F-20
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) 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.
These shares were converted to shares of Convertible Redeemable Preferred Stock
of Brylane Inc. upon consummation of the Exchange Transaction. The shares of
Brylane Inc. 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 Brylane Inc. The redemption price has been set at $20 per share
(as appropriately adjusted for stock dividends, reclassifications or splits).
One third of the Brylane Inc. Series A Convertible Redeemable Preferred Stock
vested on December 9, 1997. Six thousand five hundred shares were converted to
common stock.
(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 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 $10.3 million, $10.0 million and $10.1 million in fiscal
1995, 1996, and 1997, respectively. In addition, Brylane sold accounts
receivable to ADS and incurred discount and processing fees of $142,000 and
$14.1 million in the fiscal years 1996 and 1997, respectively.
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 after
consultation with legal counsel, any such liability will not have a material
adverse effect on the financial position or results of operations of Brylane.
The Company is under audit by the Indiana Department of Revenue ("IDR") and
anticipates an assessment will be issued. Based on discussions with the IDR,
the Company currently projects that the assessment, adjusted for the federal tax
benefit, will aggregate approximately $2.3 million including interest. The
Company intends to vigorously contest this assessment, and believes it has made
adequate provision such that final settlement of its Indiana tax liability for
the years under audit will not have a material adverse effect on its
consolidated financial statements.
(16) SUBSEQUENT EVENT:
On April 3, 1998, Brylane announced that Pinault-Printemps-Redoute, S.A.
("PPR"), of France, a leading retailer of consumer goods and distributor of
electrical supplies, completed the purchase of approximately 43.7% of the Common
Stock of Brylane for $51 per share from Freeman Spogli & Co. Incorporated and
The Limited, Inc. as well as certain other shareholders, including certain
members of management. PPR, listed on the Paris Bourse, is the parent company
of La Redoute, the largest catalog retailer in France.
F-21
<PAGE>
EXHIBIT 10.8
AMENDMENT TO TRADEMARK LICENSE AGREEMENT
----------------------------------------
THIS AMENDMENT NO. 2 (the "Amendment") is made and entered into as of
this 18th day of February, 1998, by and between Lanco, Inc., a Delaware
corporation ("Lanco"), Lernco, Inc., a Delaware corporation ("Lernco"), Limited
Stores, Inc., a Delaware corporation ("Limited Stores"), Lane Bryant, Inc., a
Delaware corporation ("Lane Bryant"), Lerner Stores, Inc., a Delaware
corporation ("Lerner Stores"), Lane Bryant Direct Holding, Inc., a Delaware
corporation ("LBDH") (as successor corporation to Lane Bryant Direct, Inc., and
Lerner Direct Inc.) (the above all collectively referred to as "Licensor"), and
Brylane, L.P., a Delaware Limited Partnership ("Brylane") ("Licensee").
WHEREAS, on August 20, 1993, certain of the parties hereto entered
into a Trademark License Agreement providing for (i) the licensing of certain
trademarks by Lanco, Lernco, Limited Stores and Lane Bryant to LBDH pursuant to
the terms and subject to the conditions set forth in the Agreement and (ii) the
assignment by LBDH of the Agreement and the licenses therewith to Brylane; and
WHEREAS, on December 9, 1996, the parties entered into Amendment No. 1
to Trademark License Agreement (as so amended, the "Agreement"); and
WHEREAS, Pinault Printemps-Redoute, S.A. ("PPR") has entered into a
Stock Purchase Agreement with Licensee (the "Investment").
WHEREAS, the parties hereto desire to amend the Agreement on the terms
hereinafter set forth and to include in the Agreement all of the provisions of
this Amendment including the foregoing recitals;
NOW THEREFORE, in consideration of the material agreements hereinafter
set forth, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Section 1 of the Agreement shall be amended to include the
following subsection.
Section 1(c). Additional Categories The scope of the Agreement shall
---------------------
include mens' wear, intimate apparel and shoes (the "Additional Categories"), as
follows:
(i) Licensor acknowledges that, prior to the Amendment of the
Agreement, Licensee has used the Marks in connection with the Additional
Categories through Catalogues and on Advertising Materials (the "Additional
Use"). Licensor hereby expressly waives any claims it may have against Licensee
which arise by virtue of any use by Licensee, prior to this Amendment of the
Agreement, of the Marks in connection with the sale of products in the
Additional Categories. This waiver does not constitute an admission by Brylane
that any breach of the Trademark License Agreement has occurred.
(ii) Licensor hereby expressly grants to Licensee the right to
continue to use the Marks in connection with the Additional Categories through
Catalogues and on Advertising Materials in a manner substantially identical to
Licensee's use of the Marks, prior to the Amendment of the Agreement, through
Licensee's Fall 1998 media buying period, such period to terminate no later than
March 31, 1999 (the "Additional Period") except that Licensee's use in
connection with intimate apparel and shoes may continue following the expiration
of the Additional Period for the Mark "Lerner" and for the Mark "Lane Bryant"
(provided the Lane Bryant Mark was used for such products prior to August 20,
1993).
2. Section 2.7 of the Agreement shall be amended to include the
following subsection:
<PAGE>
Section 2.7.7 Licensor acknowledges that Licensee may use the Marks
with other trademarks of Licensee for the purpose of the transition from use of
the Marks in connection with Apparel and the Additional Categories, provided
that Licensee obtains the prior consent of Licensor to any such use, which
consent shall not be unreasonably withheld. Licensee acknowledges that
Licensor's consent will be withheld if usage of the Marks would, in the opinion
of Licensor, create any confusion among consumers with respect to Licensor's
retail stores or disparage or adversely impacts the goodwill associated with the
Marks.
3. Section 6 of the Agreement shall be amended to add the following
subsection:
Section 6.2. Non-Competition For the purpose of Section 6.1, PPR's
---------------
business as presently conducted is not competitive with The Limited or any of
its Affiliates. Accordingly, it is specifically agreed by the parties hereto
that PPR's Investment in Licensee will not trigger an early termination of the
Agreement. The substance of the immediately preceding sentence, however, shall
not limit or waive any of The Limited's rights to early termination pursuant to
the Agreement in the event that subsequent to the effective date of this
Amendment, PPR's business activities compete with any retail or catalog business
conducted by The Limited or any of its Affiliates as of January 20, 1993.
2
<PAGE>
The parties hereto have caused this Amendment to be executed on the
day and year first above written.
LANCO, INC.
LERNCO, INC.
LIMITED STORES, INC.
LANE BRYANT, INC.
LERNER STORES, INC.
LANE BRYANT DIRECT HOLDING, INC.
By: /s/ Timothy B. Lyons
------------------------------
Name: Timothy B. Lyons
Title: Vice President
BRYLANE, L.P.
By: /s/ Robert A. Pulciani
-----------------------------
Name: Robert A. Pulciani
Title: Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
Acknowledged and accepted as those portions of this Amendment granting rights
to, or imposing obligations on The Limited, Inc.
THE LIMITED, INC.
By: Timothy B. Lyons
--------------------
Name: Timothy B. Lyons
Title: Vice President
3
<PAGE>
EXHIBIT 10.21
SECOND AMENDMENT dated as of March 10, 1998, to the Amended and Restated
Credit Agreement dated as of April 30, 1997, as amended and restated as of
October 20, 1997, and as subsequently amended (the "Credit Agreement"), among
BRYLANE, L.P. (the "Borrower"), the LENDERS party thereto (the "Lenders"),
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent for the
Lenders (in such capacity, the "Agent"), and MERRILL LYNCH CAPITAL CORPORATION,
as Documentation Agent.
A. The Borrower, the Lenders and the Agent have heretofore entered into
the Credit Agreement. Capitalized terms used herein and not defined herein
shall have the meanings assigned thereto in the Credit Agreement.
B. The Borrower wishes, and the undersigned Lenders and the Agent are
willing, upon the terms and subject to the conditions set forth herein, to amend
the definition of "Initial Control Group" in, and add certain other definitions
to, the Credit Agreement so that the sale by FS&Co. and its affiliates and The
Limited and its subsidiaries of their ownership interests in the Parent
Corporation to Pinault Printemps-Redoute, S.A. (or one or more of its direct or
indirect majority-owned subsidiaries or affiliates) will not constitute a Change
of Control.
Accordingly, in consideration of the mutual agreements herein contained and
other good and valuable consideration, receipt of which is hereby acknowledged,
the Borrower, the Lenders and the Agent hereby agree as follows:
SECTION 1. Amendment of the Credit Agreement. (a) Section 1.01 of the
---------------------------------
Credit Agreement is hereby amended as of the Amendment Effective Date (as
defined below) by (i) deleting the existing definition of "Initial Control
Group" and (ii) inserting in the appropriate alphabetical locations the
following new definitions:
(A) "Initial Control Group" means (a) prior to the Purchase, (i)
FS&Co. and its affiliates and (ii) The Limited and its subsidiaries and (b)
after the Purchase, PPR and its affiliates and subsidiaries; provided that the
--------
Borrower and its Subsidiaries shall not be considered to be affiliates of FS&Co.
or PPR or subsidiaries of The Limited or PPR for purposes of identifying the
"Initial Control Group".
(B) "PPR" means Pinault Printemps-Redoute, S.A., a French corporation.
(C) "Purchase" means the purchase by PPR (or one or more of its direct
or indirect majority-owned subsidiaries or affiliates) of the equity interests
of FS&Co. and The Limited in the Parent Corporation.
(b) Section 9.01 of the Credit Agreement is hereby amended as of the
Amendment Effective Date by inserting the words "prior to the Purchase,"
immediately following the parenthetical in the fifth line thereof.
SECTION 2. Representations and Warranties. The Borrower hereby represents
------------------------------
and warrants on and as of the Amendment Effective Date that (i) the
representations and warranties of the Borrower set forth in the Loan Documents
are true and correct in all material respects and (ii) no Default has occurred
and is continuing.
SECTION 3. Effectiveness. This Second Amendment shall become effective on
-------------
the date (the "Amendment Effective Date") of receipt by the Agent (or its
counsel) of counterparts hereof signed by the Borrower and the Required Lenders
or, in the case of any such party as to which an executed counterpart shall
<PAGE>
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.
SECTION 4. Expenses. The Borrower shall pay all reasonable out-of-pocket
--------
expenses of the Agent, including the reasonable fees and disbursements of
Cravath, Swaine & Moore, special counsel for the Agent, in connection with the
preparation of this Second Amendment.
SECTION 5. NEW YORK LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN
------------
ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Second Amendment 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.
SECTION 7. Headings. The headings of this Second Amendment are for
--------
convenience of reference only and are not part of this Second Amendment and are
not to be taken into consideration in interpreting this Second Amendment.
SECTION 8. Effect of Amendment. Unless and until this Second Amendment
-------------------
becomes effective, the Credit Agreement shall continue in effect on the terms
thereof in effect on the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be duly executed by their respective authorized officers as of the day and year
first above written.
BRYLANE, L.P.,
by BRYLANE INC., General
Partner,
by
-------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent,
by
--------------------------------------
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
by
--------------------------------------
Title:
2
<PAGE>
MERRILL LYNCH CAPITAL
CORPORATION,
by
-------------------------------------------
Title:
BANKBOSTON, N.A.,
by
-------------------------------------------
Title:
FLEET NATIONAL BANK,
by
-------------------------------------------
Title:
WELLS FARGO BANK, N.A.,
by
-------------------------------------------
Title:
THE FUJI BANK, LIMITED,
by
-------------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.,
by
-------------------------------------------
Title:
ROYAL BANK OF CANADA,
by
-------------------------------------------
Title:
3
<PAGE>
UNION BANK OF CALIFORNIA,
N.A.,
by
-------------------------------------------
Title:
CORESTATES BANK, N.A.,
by
-------------------------------------------
Title:
CREDIT AGRICOLE INDOSUEZ,
by
---------------------------
Title:
NATIONAL CITY BANK OF INDIANA,
by
---------------------------
Title:
THE SUMITOMO BANK, LTD.,
by
---------------------------
Title:
by
---------------------------
Title:
ARAB BANKING CORPORATION,
by
---------------------------
Title:
AMSOUTH BANK OF ALABAMA,
by
---------------------------
Title:
4
<PAGE>
THE BANK OF NEW YORK,
by
------------------------------
Title:
BANK LEUMI TRUST COMPANY OF
NEW YORK,
by
---------------------------
Title:
by
---------------------------
Title:
CREDIT LYONNAIS,
by
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO,
by
------------------------------
Title:
BANQUE PARIBAS,
by
------------------------------
Title:
by
------------------------------
Title:
VAN KAMPEN AMERICAN,
by
------------------------------
Title:
5
<PAGE>
EXHIBIT 10.51
BRYLANE INC.
1998 PERFORMANCE STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1998 Performance Stock
-------------------
Option Plan, dated April 21, 1998 (the "Plan"), of Brylane Inc., a Delaware
corporation (the "Company"). Under this Plan, officers, key employees and
consultants of the Company or any of its subsidiaries and members of the Board
of Directors of the Company, to be selected as set forth below, may be granted
options ("Options") to purchase shares of the common stock of the Company
("Common Stock"). For purposes of this Plan, the term "subsidiary" means any
directly or indirectly majority or wholly owned entity of the Company
(individually, a "Subsidiary" and collectively, the "Subsidiaries"). It is
intended that the Options under this Plan will either qualify for treatment as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and be designated "Incentive Stock Options" or not
qualify for such treatment and be designated "Nonqualified Stock Options."
Incentive Stock Options may only be granted to employees.
Section 2. Purpose of Plan. The purpose of the Plan and of granting
---------------
Options to specified persons is to promote the growth, development and financial
success of the Company and its Subsidiaries by providing additional incentives
to certain officers, key employees, consultants and members of the Board of
Directors (or equivalent bodies) of the Company and its Subsidiaries which will
be realized by such persons if the Company achieves targeted performance goals
as specified in particular option grants. By linking such Options to the
Company's financial performance, the Company can provide the means for such
persons to benefit directly from the Company's and its Subsidiaries' growth,
development and financial success. In furtherance of such purposes, Options
granted under the Plan shall be subject to performance criteria established as
provided herein (and may also be subject to time vesting).
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
grants of Options under the Plan shall be (a) the officers, key employees and
consultants of the Company and the Subsidiaries and (b) members of the Board of
Directors (or equivalent bodies) of the Company and its Subsidiaries. A person
who holds an Option is herein referred to as a "Participant," and more than one
Option may be granted to any Participant.
The aggregate fair market value (determined as of the time an Option
is granted) of the Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any Participant in any calendar year under
this Plan and any other incentive stock option plans (which qualify under
Section 422 of the Code) of the Company or any Subsidiary shall not exceed
$100,000.
Section 4. Administration.
--------------
(a) The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee") to be
composed of not less than two members of the Board. Members of the Committee
shall be appointed, both initially and as vacancies occur, by the Board, to
serve at the pleasure of the Board. A majority of its members shall constitute a
quorum, and the decision of a majority of those present at any meeting at which
a quorum is present shall constitute the decision of the Committee. A memorandum
signed by all of its members shall constitute the decision of the Committee
without necessity, in such event, for holding an actual meeting.
(b) The Committee is authorized and empowered to
administer the Plan and, subject to the Plan, (i) to select the Participants, to
determine the number of shares of Common Stock that are subject to each Option,
to grant Options, and to extend the time period during which an Option may be
<PAGE>
exercised; (ii) to determine the dates upon which Options shall be granted and
the terms and conditions thereof (including the performance criteria and any
related matters), which terms and conditions need not be identical as to the
various Options granted; (iii) to determine which Options are to be Incentive
Stock Options and which Options are to be Nonqualified Stock Options; (iv) to
interpret the Plan; (v) to prescribe, amend and rescind rules relating to the
Plan; (vi) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Committee; (vii) to determine the rights and obligations of Participants
under the Plan; (viii) to specify the exercise price to be paid by Participants
upon exercise of an Option; (ix) to accelerate the time during which an Option
may be exercised in accordance with the provisions of Section 16 hereof, and to
otherwise accelerate the time during which an Option may be exercised (but not
reduce the time of exercise for Options which have vested), in each case
notwithstanding the provisions in the Option Agreement (as defined in Section
13) stating the time during which it may be exercised; and (x) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The interpretation and construction by the Committee of any provision of the
Plan or of any Option granted under it shall be final, conclusive and binding.
No member of the Committee shall be liable for any action or determination made
with respect to the Plan or any Option granted hereunder.
Section 5. Shares Subject to Plan. The aggregate amount of shares of
----------------------
Common Stock for which Options may be granted pursuant to the Plan shall be
900,000 subject to adjustment as provided in Section 11 hereof. The maximum
number of shares that may be granted to a single Participant is 500,000. The
number of shares of Common Stock which may be purchased by a Participant upon
exercise of each Option shall be determined by the Committee and set forth in
each Option Agreement. Upon the expiration or termination, in whole or in part,
for any reason of an outstanding Option or any portion thereof which shall not
have vested or shall not have been exercised in full or in the event that any
shares of Common Stock acquired pursuant to the Plan are reacquired by the
Company, (a) any shares of Common Stock which have not been purchased or (b) the
shares of Common Stock reacquired, as the case may be, shall again become
available for the granting of additional Options under the Plan.
Notwithstanding the preceding sentence, shares subject to a terminated option
shall continue to be considered to be outstanding for purposes of determining
the maximum number of shares that may be issued to a single Participant.
Similarly, the repricing of an Option will be considered the grant of a new
Option for this purpose.
Section 6. Option Price. Except as provided in Section 11 or Section
------------
12 hereof, the purchase price per share (the "Option Price") of the shares of
Common Stock underlying each Option shall not be less than 100 percent of the
fair market value of such shares on the date of grant of Option; provided,
however, that if the Participant is a 10-percent stockholder of the Company (as
defined in Code Section 422(b)(6)) immediately before such Participant is
granted an Incentive Stock Option, the Option Price shall be not less than 110
percent of said fair market value. Such fair market value shall be determined
by the Committee (a) if the Company's securities are traded on a national
securities exchange or on the National Association of Securities Dealers
Automated Quotation System (or a similar successor system), on the basis of the
reported closing sales price on such date or, in the absence of a reported sales
price on such date, on the basis of the average of the reported closing bid and
asked price on such date, or (b) in the absence of both a reported sales price
and a reported bid and asked price under clause (a), the Committee shall
determine such fair market value on the basis of such evidence as it deems
appropriate in its sole discretion.
Section 7. Terms and Restrictions on Grants of Options.
-------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under the Plan subsequent to 10 years from
the date hereof. The vesting of all Options may be based on the Company's
attaining of performance criteria as specified at the time of the granting
thereof and may also be based on the passage of time. The Committee shall
determine the performance criteria (which may be based, without limitation, on
financial performance criteria established for the Company, the stock prices of
the Company's publicly traded securities, or other factors determined by the
Committee), the performance measurement period and the vesting schedule
applicable to each Option or group of Options in a schedule, a copy of which
shall be filed with the records of the Committee and attached to each Option
Agreement to which the same applies. The performance
2
<PAGE>
criteria, the performance measurement period and the vesting schedule need not
be identical for all Options granted hereunder. Following the conclusion of
each applicable performance measurement period, the Committee shall determine
the extent, if at all, to which each Option subject thereto shall have vested
based upon the applicable performance criteria and vesting schedule. To the
extent each such Option shall not have vested, and does not also vest based on
the passage of time, it shall, automatically terminate and cease to be
exercisable to such extent, notwithstanding the stated term during which it may
be exercised. The Committee shall promptly notify each affected Participant of
such determination. The Committee may periodically review the performance
criteria applicable to any Option or Options and, in its sole judgment, may
adjust the same to reflect unanticipated major events, including but not limited
to catastrophic occurrences, mergers and acquisitions.
Section 8. Exercise of Options. Once vested, and prior to its
-------------------
termination date, an Option may be exercised by the Participant by giving
written notice to the Company specifying the number of shares of Common Stock to
be purchased and accompanied by payment of the full purchase price therefor in
cash, by check or in such other form of lawful consideration as the Committee
may approve from time to time, including without limitation and in the sole
discretion of the Committee, the assignment and transfer by the Participant to
the Company of outstanding shares of Common Stock theretofore held by the
Participant in a manner intended to comply with the provisions of Rule l6b-3
under the Exchange Act, if applicable. After giving due considerations of the
consequences under Section 16 of the Exchange Act and under the Code, the
Committee may also authorize the exercise of Options by the delivery to the
Company or its designated agent of an irrevocable written notice of exercise
form together with irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the shares of Common Stock and to deliver the sale or
margin loan proceeds directly to the Company to pay the exercise price of the
Option. Once vested, and prior to its termination date, an Option may only be
exercised by the Participant or in the event of death of the Participant, by the
person or persons (including the deceased Participant's estate) to whom the
deceased Participant's rights under such Option shall have passed by will or the
laws of descent and distribution. Notwithstanding the foregoing, in the event
of disability (within the meaning of Section 22(e)(3) of the Code) of a
Participant, a designee of the Participant (or the legal representative of the
Participant if the Participant has no designee) may exercise the Option on
behalf of such Participant (provided such Option would have been exercisable by
such Participant) until the right to exercise such Option expires, as set forth
in such Participant's particular Option Agreement or this Plan.
Section 9. Issuance of Common Stock. The Company's obligation to
------------------------
issue its shares of Common Stock upon exercise of an Option is expressly
conditioned upon the compliance by the Company with any registration or other
qualification obligations with respect to such shares of Common Stock under any
state and/or federal law or rulings and regulations of any government regulatory
body and/or the making of such investment representations or other
representations and undertakings by the Participant (or the Participant's
designee, legal representative, heir or legatee, as the case may be) in order to
comply with the requirements of any exemption from any such registration or
other qualification obligations with respect to such shares of Common Stock
which the Company in its sole discretion shall deem necessary or advisable.
Such required representations and undertakings may include representations and
agreements that such Participant (or the Participant's designee, legal
representative, heir or legatee): (a) is purchasing such shares of Common Stock
for investment and not with any present intention of selling or otherwise
disposing of such shares of Common Stock; and (b) agrees to have a legend placed
upon the face and reverse of any certificates evidencing such shares of Common
Stock (or, if applicable, an appropriate data entry made in the ownership
records of the Company) setting forth (i) any representations and undertakings
which such Participant has given to the Company or a reference thereto, and (ii)
that, prior to effecting any sale or other disposition of any such shares of
Common Stock, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable without the necessity of an
opinion of counsel. Inability of the Company to obtain, from any regulatory
body having jurisdiction, authority deemed by the Company's counsel to be
3
<PAGE>
necessary for the lawful issuance and sale of any shares of Common Stock
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares of Common Stock as to which such requisite
authority shall not have been obtained. Any shares of Common Stock issued by
the Company upon exercise of an Option granted hereunder may be subject to a
right of first refusal of the Company with respect to all shares of Common Stock
proposed to be transferred by Participant, as described in Section 13 hereof and
certain other restrictions set forth in each particular Option Agreement.
Section 10. Nontransferability. An Option may not be sold, pledged,
------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution. Any permitted transferee shall
be required prior to any transfer of an Option or shares of Common Stock
acquired pursuant to the exercise of an Option to execute a written undertaking
to be bound by the provisions of the applicable Option Agreement.
Section 11. Recapitalization, Reorganization; Merger or Consolidation.
---------------------------------------------------------
(a) Subject to Section 11(b) hereof, if the outstanding
shares of Common Stock of the Company are exchanged for different securities of
the Company through a reorganization, recapitalization or reclassification or if
the number of outstanding shares is changed through a stock split or stock
dividend, an appropriate adjustment shall be made (i) in the number or kind of
shares which may be purchased pursuant to the exercise of Options, as provided
in Section 5 hereof, and (ii) in the number, exercise price, or kind of
securities subject to any outstanding Option granted under the Plan. Any such
adjustment in an outstanding Option, however, shall be made without change in
the total price applicable to the unexercised portion of the Option but with a
corresponding adjustment in the price for each share covered by the Option. In
making such adjustments, or in determining that no such adjustments are
necessary, the Committee may rely upon the advice of counsel and accountants to
the Company, and the determination of the Committee shall be final, conclusive
and binding. No fractional shares of stock shall be issued or issuable under the
Plan on account of any such adjustment.
(b) Subject to Section 16 hereof (i) upon the dissolution,
liquidation or sale of all or substantially all of the business, properties and
assets of the Company, (ii) upon any reorganization, merger, consolidation or
exchange of securities in which the Company does not survive or (iii) upon any
reorganization, merger, consolidation or exchange of securities in which the
Company does survive and any of the Company's stockholders have the opportunity
to receive cash, securities and/or other property in exchange for their shares
of Common Stock of the Company (each of the events described in clauses (i),
(ii) or (iii) is referred to herein as an "Extraordinary Event"), the Plan and
each outstanding Option shall terminate. In such event, each Participant who is
not tendered an option by the surviving entity in accordance with all of the
terms of the immediately succeeding sentence, or who does not accept any such
substituted option which is so tendered, shall have the right until 10 days
before the effective date of such Extraordinary Event to exercise, in whole or
in part, any unexpired Option or Options issued to the Participant, to the
extent that said Option is then vested and exercisable pursuant to the
provisions of said Option or Options and of Section 7 of the Plan. The Company
shall request that the surviving entity in any Extraordinary Event to tender to
any Participant an option or options to purchase other securities of the
surviving entity on the same basis as any Participant may purchase shares of
Common Stock hereunder and under the applicable Option Agreement (including
satisfaction of similar vesting provisions). The Company shall request that such
new option or options contain such terms and provisions as shall substantially
preserve the rights and benefits of any Option then outstanding under the Plan
with any changes to take into account the circumstances of the surviving entity.
(c) The grant of an Option under the Plan shall not affect
in any way the right or power of the Company to make adjustments,
reclassifications or changes in its capital or business structures or to merge,
consolidate, dissolve, or liquidate or to sell or transfer all or any part of
its business or assets.
4
<PAGE>
Section 12. Substitute Options. If the Company at any time should
------------------
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Options may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase interests in such entity held by them at
the time of succession. The Committee, in its sole and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such entity), the number of Options to be received by
each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code), the economic benefit provided by such Option is not
greater than the economic benefit represented by the option in the acquired
entity as of the date of the Company's acquisition of such entity.
Section 13. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall indicate whether such Option is to be an Incentive Stock Option or a
Nonqualified Stock Option, and if an Incentive Stock Option shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock option under Section 422 of the Code; (c) may contain provisions which
give the Company a right of first refusal to purchase any shares of Common Stock
issued pursuant to the exercise of Options granted under the Plan which a
Participant proposes to sell and (d) may contain such other terms and conditions
as the Committee deems desirable and which are not inconsistent with the Plan.
Section 14. Rights as a Stockholder. No Participant (or any legal
-----------------------
representative, heir or legatee) shall have any rights as a stockholder with
respect to any shares covered by any Option until the date of the issuance of a
stock certificate to such person upon the due exercise of such Option. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
Section 15. Termination of Options. Each Option granted under the
----------------------
Plan shall set forth a termination date thereof, in addition to any other
termination events set forth in the Plan and in each particular Option
Agreement, which, with respect to Nonqualified Stock Options, shall be no later
than ten years from the date such Option is granted and with respect to
Incentive Stock Options, shall be no later than ten years from the date such
Option is granted, unless the Participant is a 10-percent stockholder of the
Company (as described in Section 422(b)(6) of the Code) immediately before such
Option is granted, in which case the Option shall terminate no later than five
years from the date of the grant thereof. An Incentive Stock Option shall
contain any termination events required by Section 422 of the Code.
Section 16. Acceleration of Options. Notwithstanding the provisions
-----------------------
of Section 7 or Section 15 hereof, or any provision to the contrary contained in
a particular Option Agreement, the Committee, in its sole discretion, at any
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding. The decision by the Committee to
accelerate an Option or to decline to accelerate an Option shall be final,
conclusive and binding. In the event of the acceleration of the exercisability
of Options as the result of a decision by the Committee pursuant to this Section
16, each outstanding Option so accelerated shall be exercisable for a period of
at least five days from and after the date of such acceleration and upon such
other terms and conditions as the Committee may determine in its sole
discretion; provided, that such terms and conditions (other than terms and
--------
conditions relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such period
shall again become subject to the terms and conditions in effect prior to the
acceleration.
5
<PAGE>
Section 17. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
shares of Common Stock issued to the Participant upon the exercise of an Option,
as may be required from time to time under any federal or state tax laws and
regulations. This withholding of tax shall be made from the Company's (or such
Subsidiary's) concurrent or next payment of wages, salary, bonus or other income
to the Participant or by payment to the Company (or such Subsidiary) by the
Participant of the acquired withholding tax, as the Committee may determine;
provided, however, that, in the sole discretion of the Committee, the
Participant may pay such tax by reducing the number of shares of Common Stock
issued upon exercise of an Option or by surrendering shares previously acquired
by the Participant (for which purpose such shares of Common Stock shall be
valued at fair market value as determined by the Committee, which determination
shall be final, conclusive and binding).
Section 18. Effectiveness and Termination of the Plan. The Plan shall
-----------------------------------------
become effective on April 21, 1998, subject to stockholder approval. All
Options granted prior to stockholder approval shall state that such grant is
subject to and the exercisability of such Options is contingent upon stockholder
approval. If the Plan is not approved by the stockholders, the Plan and any
Options granted thereunder shall terminate. The Plan shall terminate, in
addition to the other termination events set forth in the Plan, at the earliest
of ten years and the time when all shares of Common Stock which may be issued
hereunder have been so issued; provided, however, that the Board may in its sole
discretion terminate the Plan at any other time. Subject to Section 11 hereof,
no such termination shall in any way affect any Option then outstanding.
Section 19. Time of Granting Options. The date of grant of an Option
------------------------
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted.
Section 20. Amendment of Plan. The Board of Directors of the Company
-----------------
may make such amendments to the Plan and, with the consent of each Participant
adversely affected, the Committee may make such changes in the terms and
conditions of granted Options as it shall deem advisable, taking into account
the provisions of Code Section 424(h) in the case of an Incentive Stock Option.
Such amendments and changes shall include, but not be limited to, acceleration
of the time at which an Option may be exercised, but may not, without the
approval of the stockholders (a) increase the maximum number of shares subject
to Options, except pursuant to Section 11 hereof, or (b) change the designation
of the class of employees eligible to receive Incentive Stock Options.
Section 21. Transfers and Leaves of Absence. For purposes of the
-------------------------------
Plan, (a) a transfer of a Participant's employment or consulting relationship,
without an intervening period, between the Company and a Subsidiary shall not be
deemed a termination of employment or a termination of a consulting relationship
and (b) a Participant who is granted in writing a leave of absence shall be
deemed to have remained in the employ of, or in a consulting relationship with,
the Company (or a Subsidiary, whichever is applicable) during such leave of
absence except that for purposes of exercising an Incentive Stock Option, the
Participant will be considered to have terminated employment on the 91st day of
the leave, unless his or her right to re-employment is guaranteed by statute or
contract.
Section 22. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board, the members of the
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including reasonable attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding except in relation to matters as
6
<PAGE>
to which it shall be adjudged in such action, suit or proceeding that such
Committee member is not entitled to indemnification under applicable law;
provided that within 60 days after institution of any such action, suit or
proceeding such Committee member shall in writing offer the Company the
opportunity, at the Company's expense, to handle and defend the same, and that
the Company shall not be required to indemnify a person any amount incurred
through any settlement unless the Company consents in writing to the settlement.
Section 23. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Option Agreement shall confer, intend to confer or imply
any rights of employment or any rights to a consulting or other relationship or
rights to continued employment by, or rights to a continued consulting or other
relationship with, the Company or any Subsidiary in favor of any Participant or
limit the ability of the Company, any Subsidiary or any other entity to
terminate, with or without cause, in its sole and absolute discretion, the
employment of, or consulting or other relationship with, any Participant,
subject to the terms of any written employment or consulting agreement to which
a Participant is a party.
7
<PAGE>
EXHIBIT 10.54
As Amended, April 1998
BRYLANE INC.
1996 STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1996 Stock Option Plan,
-------------------
dated October 11, 1996 (the "Plan"), of Brylane Inc., a Delaware corporation
(the "Company"). Under this Plan, officers, key employees and consultants of the
Company or any of its subsidiaries and certain members of the Board of Directors
of the Company, to be selected as set forth below, may be granted options
("Options") to purchase shares of the common stock of the Company ("Common
Stock"). For purposes of this Plan, the term "subsidiary" means any directly or
indirectly majority or wholly owned entity of the Company (individually, a
"Subsidiary" and collectively, the "Subsidiaries"). It is intended that the
Options under this Plan will either qualify for treatment as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and be designated "Incentive Stock Options" or not qualify for such
treatment and be designated "Nonqualified Stock Options." Incentive Stock
Options may only be granted to employees. This Plan is a successor to the
Brylane, L.P. 1995 Partnership Unit Option Plan and has been established, in
part, to issue Options to purchase shares of Common Stock under Section 12
hereof in exchange for options to acquire equity interests in Brylane, L.P.
Section 2. Purpose of Plan. The purpose of the Plan and of granting
---------------
Options to specified persons is to further the growth, development and financial
success of the Company and its Subsidiaries by providing additional incentives
to certain officers, key employees, consultants and members of the Board of
Directors (or equivalent bodies) of the Company or its Subsidiaries. By
assisting such persons in acquiring shares of Common Stock, the Company can
ensure that such persons will themselves benefit directly from the Company's and
its Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
grants of Options under the Plan shall be (i) the officers, key employees and
consultants of the Company and the Subsidiaries; provided that bona fide
services shall be rendered to the Company or its Subsidiaries by such consultant
and such services shall not have been in connection with the offer and sale of
securities in a capital-raising transaction and (ii) members of the Board of
Directors (or equivalent bodies) of the Company or its Subsidiaries who are not
designees of FS Stockholders (as defined in that certain Stockholders' Agreement
of Brylane, Inc.) or Lane Bryant Direct Holding, Inc. A person who holds an
Option is herein referred to as a "Participant," and more than one Option may be
granted to any Participant. The aggregate fair market value (determined as of
the time an Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any Participant in
any calendar year under this Plan and any other incentive stock option plans
(which qualify under Section 422 of the Code) of the Company or any Subsidiary
shall not exceed $100,000.
Section 4. Administration.
--------------
(a) The Plan shall be administered by a committee (the "Committee") to
be composed of not less than two members of the Board. Members of the Committee
shall be appointed, both initially and as vacancies occur, by the Board, to
serve at the pleasure of the Board. Upon the first registration of an equity
security of the Company under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), to the extent possible and advisable, the Committee may be
constituted so as to permit this Plan to comply with Rule 16b-3 promulgated
under Section 16 of the Exchange Act and Section 162(m) of the Code. The
Committee shall meet at such times and places as it determines and may meet
through a telephone conference call. A majority of its members shall constitute
a quorum, and the decision of a majority of those present at any meeting
<PAGE>
at which a quorum is present shall constitute the decision of the Committee. A
memorandum signed by all of its members shall constitute the decision of the
Committee without necessity, in such event, for holding an actual meeting.
(b) The Committee is authorized and empowered to administer the Plan
and, subject to the Plan, (i) to select the Participants, to determine the
number of shares of Common Stock which may be purchased and in general to grant
Options and to extend the time period during which a Nonqualified Stock Option
may be exercised; (ii) to determine the dates upon which Options shall be
granted and the terms and conditions thereof in a manner not inconsistent with
the Plan, which terms and conditions need not be identical as to the various
Options granted; (iii) to determine which Options are to be Incentive Stock
Options and which Options are to be Nonqualified Stock Options; (iv) to
interpret the Plan; (v) to prescribe, amend and rescind rules relating to the
Plan; (vi) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted by
the Committee; (vii) to determine the rights and obligations of Participants
under the Plan; (viii) to specify the purchase price to be paid by Participants
for shares of Common Stock; (ix) to accelerate the time during which an Option
may be exercised in accordance with the provisions of Section 16 hereof, and to
otherwise accelerate the time during which an Option may be exercised (but not
reduce the time of exercise for Options which have vested), in each case
notwithstanding the provisions in the Option Agreement (as defined in Section
13) stating the time during which it may be exercised; and (x) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The good faith interpretation and construction by the Committee of any provision
of the Plan or of any Option granted under it shall be final, conclusive and
binding. No member of the Committee shall be liable for any action or
determination made with respect to the Plan or any Option granted hereunder.
Section 5. Shares Subject to Plan. The aggregate amount of shares of
----------------------
Common Stock for which Options may be granted pursuant to the Plan shall be
1,700,000 subject to adjustment as provided in Section 11 hereof. The maximum
number of shares that may be granted to a single Participant is 400,000. The
number of shares of Common Stock which may be purchased by a Participant upon
exercise of each Option shall be determined by the Committee and set forth in
each Option Agreement. Upon the expiration or termination, in whole or in part,
for any reason of an outstanding Option or any portion thereof which shall not
have vested or shall not have been exercised in full or in the event that any
shares of Common Stock acquired pursuant to the Plan are reacquired by the
Company, (a) any shares of Common Stock which have not been purchased or (b) the
shares of Common Stock reacquired, as the case may be, shall again become
available for the granting of additional Options under the Plan.
Notwithstanding the preceding sentence, shares subject to a terminated option
shall continue to be considered to be outstanding for purposes of determining
the maximum number of shares that may be issued to a single Participant.
Similarly, the repricing of an Option will be considered the grant of a new
Option for this purpose.
Section 6. Option Price. Except as provided in Section 11 or Section
------------
12 hereof, the purchase price per share (the "Option Price") of the shares of
Common Stock underlying each Option shall be as determined by the Board in its
sole discretion; provided, first that if the Participant is a 10-percent
stockholder of the Company (as defined in Code Section 422(b)(6)) at the time
such Participant is granted an Incentive Stock Option, the Option Price shall be
not less than 110 percent of said fair market value. If used, fair market value
shall be determined by the Committee (i) if the Company's securities are traded
on a national securities exchange or on the National Association of Securities
Dealers Automated Quotation System (or a similar successor system), on the basis
of the reported closing sales price on such date or, in the absence of a
reported sales price on such date, on the basis of the average of the reported
closing bid and asked price on such date, or (ii) in the absence of both a
reported sales price and a reported bid and asked price under clause (i), the
Committee shall determine such fair market value on the basis of such evidence
as it deems appropriate in its sole discretion.
Section 7. Restrictions on Grants; Vesting of Options.
------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under the Plan subsequent to
2.
<PAGE>
10 years from the date hereof. The vesting of all Options may be based on the
passage of time. The Committee shall determine the vesting schedule applicable
to each Option or group of Options in a schedule, a copy of which shall be filed
with the records of the Committee and attached to each Option Agreement to which
the same applies. The vesting schedule need not be identical for all Options
granted hereunder. The Committee may periodically review the vesting criteria
applicable to any Option or Options and, in its sole good faith judgment, may
adjust the same to reflect unanticipated major events, including but not limited
to catastrophic occurrences, mergers and acquisitions.
Section 8. Exercise of Options. Once vested, and prior to its
-------------------
termination date, an Option may be exercised by the Participant by giving
written notice to the Company specifying the number of shares of Common Stock to
be purchased and accompanied by payment of the full purchase price therefor in
cash, by check or in such other form of lawful consideration as the Committee
may approve from time to time, including without limitation and in the sole
discretion of the Committee, the assignment and transfer by the Participant to
the Company of outstanding shares of Common Stock theretofore held by the
Participant in a manner intended to comply with the provisions of Rule l6b-3
under the Exchange Act, if applicable. After giving due considerations of the
consequences under Section 16 of the Exchange Act and under the Code, the
Committee may also authorize the exercise of Options by the delivery to the
Company or its designated agent of an irrevocable written notice of exercise
form together with irrevocable instructions to a broker-dealer to sell or margin
a sufficient portion of the shares of Common Stock and to deliver the sale or
margin loan proceeds directly to the Company to pay the exercise price of the
Option. Once vested, and prior to its termination date, an Option may only be
exercised by the Participant or in the event of death of the Participant, by the
person or persons (including the deceased Participant's estate) to whom the
deceased Participant's rights under such Option shall have passed by will or the
laws of descent and distribution. Notwithstanding the foregoing, in the event
of disability (within the meaning of Section 22(e)(3) of the Code) of a
Participant, a designee of the Participant (or the legal representative of the
Participant if the Participant has no designee) may exercise the Option on
behalf of such Participant (provided such Option would have been exercisable by
such Participant) until the right to exercise such Option expires, as set forth
in such Participant's particular Option Agreement or this Plan.
Section 9. Issuance of Common Stock. The Company's obligation to
------------------------
issue its shares of Common Stock upon exercise of an Option is expressly
conditioned upon the compliance by the Company with any registration or other
qualification obligations with respect to such shares of Common Stock under any
state and/or federal law or rulings and regulations of any government regulatory
body and/or the making of such investment representations or other
representations and undertakings by the Participant (or the Participant's
designee, legal representative, heir or legatee, as the case may be) in order to
comply with the requirements of any exemption from any such registration or
other qualification obligations with respect to such shares of Common Stock
which the Company in its sole discretion shall deem necessary or advisable.
Such required representations and undertakings may include representations and
agreements that such Participant (or the Participant's designee, legal
representative, heir or legatee): (a) is purchasing such shares of Common Stock
for investment and not with any present intention of selling or otherwise
disposing of such shares of Common Stock; and (b) agrees to have a legend placed
upon the face and reverse of any certificates evidencing such shares of Common
Stock (or, if applicable, an appropriate data entry made in the ownership
records of the Company) setting forth (i) any representations and undertakings
which such Participant has given to the Company or a reference thereto, and (ii)
that, prior to effecting any sale or other disposition of any such shares of
Common Stock, the Participant must furnish to the Company an opinion of counsel,
satisfactory to the Company and its counsel, to the effect that such sale or
disposition will not violate the applicable requirements of state and federal
laws and regulatory agencies; provided, however, that any such legend or data
entry shall be removed when no longer applicable without the necessity of an
opinion of counsel. Inability of the Company to obtain, from any regulatory
body having jurisdiction, authority reasonably deemed by the Company's counsel
to be necessary for the lawful issuance and sale of any shares of Common Stock
hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such shares of Common Stock as to which such requisite
authority shall not have been obtained. Any shares of Common Stock issued by
the Company upon exercise of an Option granted
3.
<PAGE>
hereunder may be subject to a right of first refusal of the Company with respect
to all shares of Common Stock proposed to be transferred by Participant, as
described in Section 13 hereof and certain other restrictions set forth in each
particular Option Agreement.
Section 10. Nontransferability. An Option may not be sold, pledged,
------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution. Any permitted transferee shall
be required prior to any transfer of an Option or shares of Common Stock
acquired pursuant to the exercise of an Option to execute a written undertaking
to be bound by the provisions of the applicable Option Agreement.
Section 11. Recapitalization, Reorganization; Merger or Consolidation.
---------------------------------------------------------
(a) Subject to Section 11(b) hereof, if the outstanding shares of
Common Stock of the Company are exchanged for different securities of the
Company through a reorganization, recapitalization or reclassification or if the
number of outstanding shares is changed through a stock split or stock dividend,
an appropriate adjustment shall be made (i) in the number or kind of shares
which may be purchased pursuant to the exercise of Options, as provided in
Section 5 hereof, and (ii) in the number, exercise price, or kind of securities
subject to any outstanding Option granted under the Plan. Any such adjustment
in an outstanding Option, however, shall be made without change in the total
price applicable to the unexercised portion of the Option but with a
corresponding adjustment in the price for each share covered by the Option. In
making such adjustments, or in determining that no such adjustments are
necessary, the Committee may rely upon the advice of counsel and accountants to
the Company, and the good faith determination of the Committee shall be final,
conclusive and binding. No fractional shares of stock shall be issued or
issuable under the Plan on account of any such adjustment.
(b) Subject to Section 16 hereof (i) upon the dissolution, liquidation
or sale of all or substantially all of the business, properties and assets of
the Company, (ii) upon any reorganization, merger, consolidation or exchange of
securities in which the Company does not survive, (iii) upon any reorganization,
merger, consolidation or exchange of securities in which the Company does
survive and any of the Company's stockholders have the opportunity to receive
cash, securities and/or other property in exchange for their shares of Common
Stock of the Company or (iv) upon any acquisition by any person or group (as
defined in Section 13d of the Securities Act of 1934) of beneficial ownership of
more than 50% of the Company's then outstanding shares of Common Stock (each of
the events described in clauses (i), (ii), (iii) or (iv) is referred to herein
as an "Extraordinary Event"), the Plan and each outstanding Option shall
terminate. In such event, each Participant who is not tendered an option by the
surviving entity in accordance with all of the terms of the immediately
succeeding sentence, or who does not accept any such substituted option which is
so tendered, shall have the right until 10 days before the effective date of
such Extraordinary Event to exercise, in whole or in part, any unexpired Option
or Options issued to the Participant, to the extent that said Option is then
vested and exercisable pursuant to the provisions of said Option or Options and
of Section 7 of the Plan. The Company shall use its reasonable best efforts to
cause the surviving entity in any Extraordinary Event to tender to any
Participant an option or options to purchase other securities of the surviving
entity on the same basis as any Participant may purchase shares of Common Stock
hereunder and under the applicable Option Agreement (including satisfaction of
similar vesting provisions). The Company shall use its reasonable best efforts
to cause such new option or options to contain such terms and provisions as
shall substantially preserve the rights and benefits of any Option then
outstanding under the Plan with any reasonable changes to take into account the
circumstances of the surviving entity.
(c) The grant of an Option under the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications or
changes in its capital or business structures or to merge, consolidate,
dissolve, or liquidate or to sell or transfer all or any part of its business or
assets.
4.
<PAGE>
Section 12. Substitute Options. If the Company at any time should
------------------
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Options may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase interests in such entity held by them at
the time of succession. The Committee, in its sole and absolute discretion,
shall determine the extent to which such substitute Options shall be granted (if
at all), the person or persons to receive such substitute Options (who need not
be all option holders of such entity), the number of Options to be received by
each such person, the Option Price of such Option (which may be determined
without regard to Section 6 hereof) and the terms and conditions of such
substitute Options; provided, however, that the Option Price of each such
substituted Option which is an Incentive Stock Option shall be an amount such
that, in the sole and absolute judgment of the Committee (and in compliance with
Section 424(a) of the Code), the economic benefit provided by such Option is not
greater than the economic benefit represented by the option in the acquired
entity as of the date of the Company's acquisition of such entity.
Section 13. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall indicate whether such Option is to be an Incentive Stock Option or a
Nonqualified Stock Option, and if an Incentive Stock Option shall contain terms
and conditions permitting such Option to qualify for treatment as an incentive
stock option under Section 422 of the Code; (c) may contain provisions which
give the Company a right of first refusal to purchase any shares of Common Stock
issued pursuant to the exercise of Options granted under the Plan which a
Participant proposes to sell and (d) may contain such other terms and conditions
as the Committee deems desirable and which are not inconsistent with the Plan.
Section 14. Rights as a Stockholder. No Participant (or any legal
-----------------------
representative, heir or legatee) shall have any rights as a stockholder with
respect to any shares covered by any Option until the date of the issuance of a
stock certificate to such person upon the due exercise of such Option. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 11 hereof.
Section 15. Termination of Options. Each Option granted under the
----------------------
Plan shall set forth a termination date thereof, in addition to any other
termination events set forth in the Plan and in each particular Option
Agreement, which, with respect to Nonqualified Stock Options, shall be no later
than ten years from the date such Option is granted and with respect to
Incentive Stock Options, if the Participant is a 10-percent stockholder of the
Company (as described in Section 422(b)(6) of the Code) at the time such Option
is granted, the Option shall terminate no later than five years from the date of
the grant thereof. An Incentive Stock Option shall contain any termination
events required by Section 422 of the Code.
Section 16. Acceleration of Options. Notwithstanding the provisions
-----------------------
of Section 7 or Section 15 hereof, or any provision to the contrary contained in
a particular Option Agreement, the Committee, in its sole discretion, at any
time, or from time to time, may elect to accelerate the vesting of all or any
portion of any Option then outstanding. The decision by the Committee to
accelerate an Option or to decline to accelerate an Option shall be final,
conclusive and binding. In the event of the acceleration of the exercisability
of Options as the result of a decision by the Committee pursuant to this Section
16, each outstanding Option so accelerated shall be exercisable for a period of
at least five days from and after the date of such acceleration and upon such
other terms and conditions as the Committee may determine in its sole
discretion; provided that such terms and conditions (other than terms and
--------
conditions relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such period
shall terminate automatically and become null and void.
5.
<PAGE>
Section 17. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
shares of Common Stock issued to the Participant upon the exercise of an Option,
as may be required from time to time under any federal or state tax laws and
regulations. This withholding of tax shall be made from the Company's (or such
Subsidiary's) concurrent or next payment of wages, salary, bonus or other income
to the Participant or by payment to the Company (or such Subsidiary) by the
Participant of the required withholding tax, as the Committee may determine;
provided, however, that, in the sole discretion of the Committee, the
Participant may pay such tax by reducing the number of shares of Common Stock
issued upon exercise of an Option (for which purpose such shares of Common Stock
shall be valued at fair market value as determined in good faith by the
Committee, which determination shall be final, conclusive and binding).
Section 18. Effectiveness and Termination of the Plan. The Plan shall
-----------------------------------------
be effective on the date on which it is adopted by the Board. The Plan shall
terminate, in addition to the other termination events set forth in the Plan, at
the earliest of the time when all shares of Common Stock which may be issued
hereunder have been so issued; provided, however, that the Board may in its sole
discretion terminate the Plan at any other time. Subject to Section 11 hereof,
no such termination shall in any way affect any Option then outstanding.
Section 19. Time of Granting Options. The date of grant of an Option
------------------------
shall, for all purposes, be the date on which the Committee makes the
determination granting such Option. Notice of the determination shall be given
to each Participant to whom an Option is so granted within a reasonable time
after the date of such grant.
Section 20. Amendment of Plan. The Board of Directors may make such
-----------------
amendments to the Plan and, with the consent of each Participant adversely
affected, the Committee may make such changes in the terms and conditions of
granted Options as it shall deem advisable. Such amendments and changes shall
include, but not be limited to, acceleration of the time at which an Option may
be exercised, but may not, without the approval of the stockholders (a) increase
the maximum number of shares subject to Options, except pursuant to Section 11
hereof, or (b) change the designation of the class of employees eligible to
receive Incentive Stock Options.
Section 21. Transfers and Leaves of Absence. For purposes of the
-------------------------------
Plan, (a) a transfer of a Participant's employment or consulting relationship,
without an intervening period, between the Company and a Subsidiary shall not be
deemed a termination of employment or a termination of a consulting relationship
and (b) a Participant who is granted in writing a leave of absence shall be
deemed to have remained in the employ of, or in a consulting relationship with,
the Company (or a Subsidiary, whichever is applicable) during such leave of
absence except that for purposes of exercising an Incentive Stock Option, the
Participant will be considered to have terminated employment on the 91st day of
the leave, unless his or her right to re-employment is guaranteed by statute or
contract.
Section 22. No Obligation to Exercise Option. The granting of an
--------------------------------
Option shall impose no obligation on the Participant to exercise such Option.
Section 23. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board, the members of the
Committee shall be indemnified by the Company to the fullest extent permitted by
law against the reasonable expenses, including reasonable attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding except in relation to matters as to which it shall
6.
<PAGE>
be adjudged in such action, suit or proceeding that such Committee member is not
entitled to indemnification under applicable law; provided that within 60 days
after institution of any such action, suit or proceeding such Committee member
shall in writing offer the Company the opportunity, at the Company's expense, to
handle and defend the same.
Section 24. Governing Law. The Plan and any Option granted pursuant
-------------
to the Plan shall be construed under and governed by the laws of the State of
Delaware without regard to conflict of law provisions thereof.
Section 25. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Option Agreement shall confer, intend to confer or imply
any rights of employment or any rights to a consulting or other relationship or
rights to continued employment by, or rights to a continued consulting or other
relationship with, the Company or any Subsidiary in favor of any Participant or
limit the ability of the Company, any Subsidiary or any other entity to
terminate, with or without cause, in its sole and absolute discretion, the
employment of, or consulting or other relationship with, any Participant,
subject to the terms of any written employment or consulting agreement to which
a Participant is a party.
7.
<PAGE>
EXHIBIT 10.56
April __, 1998
NAME
TITLE
Brylane Inc.
463 Seventh Avenue - 21st Floor
New York, NY 10018
Re: Amendment to Brylane Inc.
Nonqualified Stock Option Agreement
-----------------------------------
Dear _________:
This letter modifies and amends those certain Brylane Inc.
Nonqualified Stock Option Agreements (the "Option Agreements") dated as of
February 26, 1997 and July 24, 1997 by and between Brylane Inc., a Delaware
corporation (the "Company") and ___________ (the "Optionee") as follows:
Section 4 of the Option Agreements is amended and restated to read
---------
in its entirety as follows:
"Termination of Employment or Other Relationship. The
-----------------------------------------------
termination of Optionee's employment or other relationship with
the Company and the Subsidiaries by B.L. Management Services,
Inc., a Delaware corporation ("Employer"), for any reason other
than "cause" (as defined in Section 3(b) of that certain
Employment Agreement dated as of April 1, 1998 between Employer
and Optionee, or in the provisions of any successor employment
agreement (such Agreement, or successor thereto, the "Employment
Agreement")), or by Optionee for "good reason" (as defined in
Section 3(e) of the Employment Agreement), shall accelerate the
vesting and exercisability of any unvested portion of the Option
as of the date of such termination so that, on and after the
date of such termination, the Option shall be exercisable for
the full number of shares specified in Section 1 (less any
shares previously exercised). The termination of Optionee's
employment or other relationship with the Company and the
Subsidiaries by Employer for "cause" or by Optionee for any
reason other than "good reason" shall not accelerate the vesting
of the Option or affect the number of Shares with respect to
which the Option may be exercised so that in the circumstances
contemplated by this sentence the Option may only be exercised
with respect to that number of Shares which could have been
purchased under the Option had the Option been exercised by
Optionee on the date of such termination."
<PAGE>
NAME
April __, 1998
Page 2
This letter may be executed in counterparts, each of which when
executed and delivered shall be deemed to be an original, and all of which when
taken together shall constitute but one and the same instrument.
BRYLANE INC.
By: ________________________________
NAME
TITLE
AGREED AND ACCEPTED:
OPTIONEE
________________________________
Name
<PAGE>
EXHIBIT 10.57
April __, 1998
NAME
TITLE
Chadwick's of Boston, Ltd.
A Division of Brylane L.P.
35 United Drive
West Bridgewater, MA 02379
Re: Amendment to Brylane Inc.
Nonqualified Stock Option Agreement
-----------------------------------
Dear __________:
This letter modifies and amends those certain Brylane Inc.
Nonqualified Stock Option Agreements (the "Option Agreements") dated as of
February 26, 1997 and July 24, 1997 by and between Brylane Inc., a Delaware
corporation (the "Company") and __________ (the "Optionee") as follows:
Section 4 of the Option Agreements is amended and restated to
---------
read in its entirety as follows:
"Termination of Employment or Other Relationship. The
-----------------------------------------------
termination of Optionee's employment or other relationship with
the Company and the Subsidiaries by the Partnership for any
reason other than "cause" (as defined in Section 3(b) of that
certain Employment Agreement dated as of April 1, 1998 between
Partnership and Optionee, or in the provisions of any successor
employment agreement (such Agreement, or successor thereto, the
"Employment Agreement")), or by Optionee for "good reason" (as
defined in Section 3(e) of the Employment Agreement), shall
accelerate the vesting and exercisability of any unvested
portion of the Option as of the date of such termination so
that, on and after the date of such termination, the Option
shall be exercisable for the full number of shares specified in
Section 1 (less any shares previously exercised). The
termination of Optionee's employment or other relationship with
the Company and the Subsidiaries by Employer for "cause" or by
Optionee for any reason other than "good reason" shall not
accelerate the vesting of the Option or affect the number of
Shares with respect to which the Option may be exercised so that
in the circumstances contemplated by this sentence the Option
may only be exercised with respect to that number of Shares
which could have been purchased under the Option had the Option
been exercised by Optionee on the date of such termination."
<PAGE>
NAME
April __,1998
Page 2
This letter may be executed in counterparts, each of which when
executed and delivered shall be deemed to be an original, and all of which when
taken together shall constitute but one and the same instrument.
BRYLANE INC.
By: ________________________________
Name
Title
AGREED AND ACCEPTED:
OPTIONEE
________________________________
Name
<PAGE>
EXHIBIT 10.62
SECOND AMENDMENT TO LICENSE AGREEMENT
-------------------------------------
This SECOND AMENDMENT TO LICENSE AGREEMENT (hereinafter, the "Amendment") is
made and entered into effective March 1, 1998 by and between SEARS SHOP AT HOME
SERVICES, INC., a Delaware corporation (hereinafter "Licensor"), and BRYLANE,
INC., a Delaware corporation (hereinafter "Licensee").
WHEREAS, Licensor and Licensee entered into that certain License Agreement dated
March 1, 1994 as amended by the License Amendment dated July 23, 1996
(hereinafter, the "Agreement");
WHEREAS, Licensor and Licensee want to further amend the Agreement as set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants set
forth herein, the parties agree as follows:
1. Subsection b. of Section 24 of the Agreement (CUSTOMER LISTS AND
------------------
INFORMATION) is hereby amended by deleting the last sentence thereof,
-----------
which reads as follows:
Upon termination of this Agreement, including the performance of any
services pursuant to Section 29 hereof, the names of Program Customers
shall be jointly owned by Licensor and Licensee and may be used by them
in their respective marketing efforts.
2. The following shall be added as subparagraph f. of Section 24 of the
Agreement:
Upon any termination of this Agreement or any Schedule appended hereto
(whether pursuant to Section 3, 27, 28 or otherwise), Licensee shall
have no right to use in any way the names or identities of, or any other
information pertaining to, the Program Customers of such terminated
Program(s), and Licensee shall immediately return to Licensor upon any
such termination all copies of the applicable Customer List and all
materials containing information derived from such Customer List or
pertaining to such Program Customers.
3. The text of Section 31 of the Agreement (NON-COMPETE) is hereby deleted
-----------
and replaced with the following:
Notwithstanding anything to the contrary contained herein (including but
not limited to Section 4 above), upon termination (including non-
renewal) of any Program pursuant to the terms of this Agreement, Program
Customer names shall not be used by Licensor for any marketing purposes
(including but not limited to any promotional mailings) with respect to
the applicable Products/Categories designated as exclusive to Licensee
in the applicable Schedule for a period of ninety (90) days from the
drop date/mailing of the last Catalog for such terminated Program.
4. The text of Section 3 of the Agreement (TERM AND TERMINATION) is hereby
--------------------
deleted and replaced with the following:
The term (hereinafter "Initial Term") of this Agreement shall begin on
the Effective Date hereof and shall end at the close of business on July
31, 2001. This Agreement shall thereafter continue in force for
additional one-year periods (each an "Extended Term"), unless either
party notifies the other in writing that this Agreement or any Schedule
appended hereto will not be renewed for an additional Extended Term (a
"Notice of Termination") by (i) Licensee delivering a Notice of
Termination to Licensor at least twelve (12) months notice prior to the
<PAGE>
end of the Initial Term or the final Extended Term or (ii) Licensor
delivering a Notice of Termination to Licensee at least eighteen (18)
months notice prior to the end of the Initial Term or the final Extended
Term. The provisions of this Section shall be subject to the terms of
Sections 27 and 28 below.
5. Exhibit E to the Agreement is amended by adding a new Paragraph 3 under
(COMPUTATION OF ROYALTY PAYMENT) reading as follows:
------------------------------
3. In the event of any termination of the Agreement or any
Schedule by Licensor pursuant to Section 3 of the Agreement, Licensee
shall have no obligation to pay Licensor any royalty on sales of
Products from any Catalog issued pursuant to any terminated Schedule (or
pursuant to all Schedules, in the case where the Agreement is terminated
by Licensor) during the eighteen (18) months preceding the date when
such Schedule terminates.
6. The Agreement, as herein amended, shall continue in full force and
effect according to its terms and is hereby ratified by the parties. All
capitalized terms used in this Amendment shall have the meanings
ascribed to them in the Agreement.
BRYLANE, INC.
By: /s/ Peter J. Canzone
--------------------
Peter Canzone
President & CEO
SEARS SHOP AT HOME SERVICES, INC.
By: /s/ E. Vachel Pennebaker
------------------------
E. Vachel Pennebaker
President & CEO
2
<PAGE>
EXHIBIT 10.70
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1,
1998 and is entered into between B.L. Management Services, Inc., a Delaware
corporation (the "Corporation") and _______________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Corporation desires to employ the Executive, and the
Executive desires to be so employed by the Corporation, on the terms and subject
to the conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Corporation hereby employs the Executive, and the Executive agrees
to be employed by the Corporation, as _______________________________ for a term
commencing on April 1, 1998 and continuing until the earlier of March 31, 2001
or the date such employment shall have been terminated as provided in Section 3
hereof. Beginning April 1, 2001, this Agreement shall renew automatically for
an additional one year term until the Corporation gives Executive written notice
at least 14 calendar days prior to the end of a term, of its intention to
terminate this Agreement; provided, however, that this Agreement may terminate
earlier than the end of a term as provided in Section 3 hereof. In his capacity
as _________________________________, the Executive shall faithfully perform to
the best of his ability and in a satisfactory manner all services and acts
necessary or advisable as may be assigned to him by the Board of Representatives
(the "Partnership Board") of Brylane, L.P., a Delaware limited partnership and
the parent entity of the Corporation (the "Partnership"). Throughout the term
hereof the Executive shall, except as may from time to time be otherwise agreed
in writing by the Corporation, devote his full-time working hours to his duties
hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and
for all rights granted the Corporation hereunder, the Executive shall be paid by
the Corporation a base salary at the annual rate of $________ for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any adjustments annually by the Board of
Directors of the Corporation (the "Corporation Board") or, at the Corporation
Board's option, a compensation committee thereof (the "Committee"), provided
that any adjustments shall be in the sole discretion of the Corporation Board or
the Committee.
(b) The Executive shall be entitled to paid vacations, personal
and sick days consistent with the policies of the Corporation for management
employees. The Executive shall receive such other compensation as shall be
approved by the Corporation Board and shall participate in all fringe benefits
(including, without limitation, group medical, life, disability and accidental
death and dismemberment insurance), bonus and benefit plans which shall be
generally available from time to time to management employees of the
Corporation.
<PAGE>
(c) The Executive shall be reimbursed in accordance with the
policies of the Corporation as adopted by the Corporation Board from time to
time for his reasonable travel, entertainment, business, meeting and similar
expenditures, incurred for the benefit of the Corporation and subject to
approval of the Chief Executive Officer of the Corporation or the Corporation
Board. As an additional condition to the reimbursement of such expenses by the
Corporation to the Executive, the Executive shall provide the Corporation with
copies of all available invoices and receipts, and otherwise account to the
Corporation in sufficient detail and with adequate documentation to allow the
Corporation to confirm the business nature of the expenses and claim an income
tax deduction for such paid items, if such items are deductible.
(d) The Partnership agrees that the Partnership shall provide the
Executive with a benefits package substantially similar (which is not materially
less favorable to the Executive in the aggregate) to those coverages and
benefits provided or made available to the Executive (and his dependents)
immediately prior to the consummation of the transactions contemplated by those
certain Stock Purchase Agreements each dated as of February 19, 1998, among FS
Equity Partners II, L.P., a California limited partnership, FS Equity Partners
III, L.P., a Delaware limited partnership, FS Equity Partners International,
L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a
company organized under the laws of France ("PPR") and between M&P Distributing
Company, a Nevada corporation and PPR. In addition, the Partnership shall
provide a bonus or incentive compensation plan which provides the Executive with
the opportunity to earn the right to be paid additional compensation as set
forth on Exhibit A hereto. This subsection (d) shall not be implemented so as to
---------
limit any rights or benefits to which the Executive or his dependents may be
entitled under any employee benefit plan maintained by or contributed to by the
Corporation.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated
by the Corporation on at least 30 days' prior written notice if the Corporation
Board determines that the Executive has become permanently disabled (as
hereinafter defined). Such written notice shall provide reasonable detail
regarding the basis for such determination. The Executive shall be deemed to be
"permanently disabled," as used in this subsection, if the Executive has been
substantially unable to discharge his duties and obligations hereunder by reason
of illness, accident or disability for a period of 180 days in any twelve-month
period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Corporation for cause (as hereinafter defined) upon written
notice from the Corporation Board to the Executive. Such written notice shall
provide reasonable detail regarding the basis for such determination. The
Corporation shall have "cause" to terminate the Executive, as used in this
subsection, only if the Corporation Board shall determine that the Executive
has, (i) refused or failed within a reasonable period of time to carry out any
reasonable and material direction from the Chief Executive Officer of the
Corporation, the Corporation Board or the Partnership Board (other than a
failure resulting from the Executive's incapacity due to physical or mental
illness), (ii) been guilty of a material and willful breach of the terms of this
Agreement, (iii) demonstrated gross negligence or willful misconduct in the
execution of his assigned duties, (iv) been convicted of a felony or other
serious crime involving moral turpitude, (v) engaged in fraud, embezzlement or
other illegal conduct to the detriment of the Corporation, (vi) intentionally
imparted confidential information relating to the Corporation to a third party,
other than in the course of carrying out the Executive's duties, or (vii)
materially and willfully breached any of his obligations pursuant to the
Management Stock Subscription Agreement dated as of February 26, 1997 between
Brylane Inc., a Delaware corporation and the parent entity of the Partnership,
and the Executive if such breach has not been cured 5 days after receipt of
written notice to the Executive.
(c) The employment of the Executive hereunder shall be
automatically terminated on the date of the Executive's death.
2.
<PAGE>
(d) In addition to the circumstances set forth in subsections
(a), (b) and (c) of this Section 3, the Corporation may terminate the
Executive's employment for any reason or no reason and with or without cause
upon 30 days' prior written notice to the Executive.
(e) The Executive may terminate his employment hereunder
forthwith at any time for good reason (as hereinafter defined) upon written
notice to the Corporation. For purposes of this subsection, "good reason" shall
mean the occurrence of any of the following: (i) a reduction by the Corporation
in the Executive's base salary herein provided or as the same may be increased
from time to time; (ii) any relocation by the Corporation of Executive's
principal place of employment of more than 50 miles from the place where
Executive's principal residence was located on the date Executive gives notice
of such termination; or (iii) a material and willful breach by the Corporation
of any of its obligations to the Executive hereunder, including, without
limitation, the Corporation's failure to obtain the written assumption agreement
described in Section 10(a) if such agreement is not obtained within 5 days after
written notice that a written assumption agreement required under Section 10(a)
has not been obtained.
(f) In addition to the circumstances described in subsection
(e) of this Section 3, the Executive may terminate his employment hereunder for
any reason or no reason upon 30 days' prior written notice to the Corporation.
(g) If the Executive's employment is terminated pursuant to
this Section 3, the Executive shall be entitled to, and the Corporation's
obligation hereunder shall be limited to, (i) the payment of the compensation
accrued under Section 2 hereof to the effective date of such termination and
(for any termination other than pursuant to Section 3(b)) a pro rata portion of
any bonuses or incentive compensation payable with respect to any period
commencing prior to the termination date, and (ii) in the case of termination
under subsections (a), (c), (d) or (e) of this Section 3, the additional
compensation provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Corporation pursuant to subsection (a) of this Section 3 the Executive will get
the benefit of any Corporation disability plans; provided, however, that for a
period of 12 consecutive months after the effective date of the termination the
Corporation will pay the Executive the difference (if any) between the level of
annualized salary provided for in Section 2 hereof, less required withholdings,
and the amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically
terminated pursuant to subsection (c) of this Section 3, the Corporation shall
continue to pay to the Executive (or, if applicable, to his executor,
administrator or heirs) the Executive's salary in equal monthly installments at
the level of annualized salary provided for in Section 2 hereof being paid to
the Executive at the time of such termination, less required withholdings, for a
period of 12 consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Corporation pursuant to subsection (d) of this Section 3 or if the Executive
terminates his employment pursuant to subsection (e) of this Section 3, the
Corporation shall continue to pay to the Executive the Executive's salary in
equal monthly installments at the level of annualized salary provided for in
Section 2 hereof being paid to the Executive at the time of such termination,
less required withholdings, for the greater of (A) one year after the effective
date of the termination, and (B) the period after the effective date of the
termination, through and including the last day of the then effective term of
this Agreement.
(i) The Executive shall not be required to mitigate the amount
of any payment provided for in this Section 3 by seeking other employment or
otherwise; but the amount of any payment provided for in this Section 3, other
than amounts set forth in subsection (g)(i) of this Section 3, shall be reduced
by any
3.
<PAGE>
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Corporation.
(j) Nothing in this Agreement shall be deemed a release or
waiver of right to any medical or other employee benefits available to the
Executive on or after the effective date of termination of the executive's
employment by the Corporation under federal, state or local law which provides
for the continuation of any medical or other employee benefits after such
termination date.
4. Noncompetition. If the Executive is terminated by the Corporation
--------------
for cause in accordance with Subsection 3(b) hereof, or if the Executive
terminates his employment other than for "good reason" in accordance with
Subsection 3(e) hereof, then except as provided in the next sentence, for a
period of 12 months after such termination, the Executive will not carry on (as
an employee, agent, consultant, independent contractor, stockholder, partner,
owner or otherwise) any trade or business competing with the then trade or
business of the Corporation (or its affiliates) in any state in which the
Corporation (or its affiliates) is carrying on such trade or business as of the
effective date of such termination. The foregoing provisions of this Section 4
notwithstanding, the Executive may own not more than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all
-------------
times thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Corporation's (and its affiliates')
business and affairs that may come to his knowledge or have come to his
knowledge while employed by the Corporation or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Corporation and (iii) matters of a
technical nature. Except as required in the performance of his duties to the
Corporation under this Agreement, the Executive shall not use for his own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Corporation in advance.
6. Executive's Representation. The Executive shall be, and he
--------------------------
represents that he is, free to enter into this Agreement and not under any
contractual restraint which would prohibit his satisfactorily performing his
duties to the Corporation hereunder.
7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts of laws) of the State of New York.
8. Costs. If either party brings any legal action against the other
-----
to enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Executive by the
Corporation and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
4.
<PAGE>
10. Assignability.
-------------
(a) In the event that the Corporation shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Corporation's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Corporation pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Corporation hereunder and the Corporation shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the
--------
Executive of the terms of this Agreement, including specifically, but not
limited to, Sections 4 and 5, will result in immediate and irreparable injury
and harm to the Corporation, and will cause damage to the Corporation in amounts
difficult to ascertain. Accordingly, the Corporation shall be entitled to, and
Executive hereby consents to the entry of, the remedies or injunction and
specific performance, or either of such remedies, as well as all other remedies
to which the Corporation may be entitled, at law, in equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Corporation:
B.L. Management Services, Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President - Human Resources
5.
<PAGE>
If to the Executive:
_____________________________
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
that a restrictive covenant contained herein may, at any time, be more
restrictive than permitted under the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restrictive covenant shall be those allowed by law and the covenant shall be
deemed to have been revised accordingly. Each and every term of this Agreement
shall be enforced to the fullest extent permitted by law.
6.
<PAGE>
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
The "Corporation": B.L. MANAGEMENT SERVICES, INC.
By: _____________________________________
Name :
Title:
The "Executive":
___________________________________________
Signature
The undersigned hereby guarantees the performance of
this Agreement by B.L. Management Services, Inc., a
Delaware corporation
BRYLANE, L.P.
_____________________________________
Name:
Its:
7.
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Partnership Board
of management's operating budget for that season. Each participant in such
program may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Partnership Board, or the Committee, in its sole
discretion, operating profit for any given six-month season will also exclude
any and all operating profit that is attributable to transactions entered into
by Brylane or its affiliates during that six-month season. The Executive's
individual participant percentage under such plan will be ___%, subject to any
adjustments by the Partnership Board, or the Committee, as it may see fit in its
sole discretion.
8.
<PAGE>
EXHIBIT 10.71
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1, 1998
and is entered into between B.L. Management Services, Inc., a Delaware
corporation (the "Corporation") and __________________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Corporation desires to employ the Executive, and the Executive
desires to be so employed by the Corporation, on the terms and subject to the
conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Corporation hereby employs the Executive, and the Executive agrees
to be employed by the Corporation, as _______________, for a term commencing on
April 1, 1998 and continuing until the earlier of March 31, 2001 or the date
such employment shall have been terminated as provided in Section 3 hereof.
Beginning April 1, 2001, this Agreement shall renew automatically for an
additional one year term until the Corporation gives Executive written notice at
least 14 calendar days prior to the end of a term, of its intention to terminate
this Agreement; provided, however, that this Agreement may terminate earlier
than the end of a term as provided in Section 3 hereof. In her capacity as
__________________, the Executive shall faithfully perform to the best of her
ability and in a satisfactory manner all services and acts necessary or
advisable as may be assigned to her by the Chief Executive Officer. Throughout
the term hereof the Executive shall, except as may from time to time be
otherwise agreed in writing by the Corporation, devote her full-time working
hours to her duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Corporation hereunder, the Executive shall be paid by the
Corporation a base salary at the annual rate of $______ for each 12-month period
of the term hereof, prorated for any portion thereof, payable in substantially
equal bimonthly installments, less required withholdings. This base salary
shall be reviewed for any adjustments annually by the Board of Directors of the
Corporation (the "Corporation Board") or, at the Corporation Board's option, a
compensation committee thereof (the "Committee"), provided that any adjustments
shall be in the sole discretion of the Corporation Board or the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Corporation for management
employees. The Executive shall receive such other compensation as shall be
approved by the Corporation Board and shall participate in all fringe benefits
(including, without limitation, group medical, life, disability and accidental
death and dismemberment insurance), bonus and benefit plans which shall be
generally available from time to time to management employees of the
Corporation.
(c) The Executive shall be reimbursed in accordance with the policies
of the Corporation as adopted by the Corporation Board from time to time for her
reasonable travel, entertainment, business,
<PAGE>
meeting and similar expenditures, incurred for the benefit of the Corporation
and subject to approval of the Chief Executive Officer of the Corporation or the
Corporation Board. As an additional condition to the reimbursement of such
expenses by the Corporation to the Executive, the Executive shall provide the
Corporation with copies of all available invoices and receipts, and otherwise
account to the Corporation in sufficient detail and with adequate documentation
to allow the Corporation to confirm the business nature of the expenses and
claim an income tax deduction for such paid items, if such items are deductible.
(d) Brylane, L.P., a Delaware limited partnership and the parent
entity of the Corporation (the "Partnership"), agrees that the Partnership shall
provide the Executive with a benefits package substantially similar (which is
not materially less favorable to the Executive in the aggregate) to those
coverages and benefits provided or made available to the Executive (and her
dependents) immediately prior to the consummation of the transactions
contemplated by those certain Stock Purchase Agreements each dated as of
February 19, 1998, among FS Equity Partners II, L.P., a California limited
partnership, FS Equity Partners III, L.P., a Delaware limited partnership, FS
Equity Partners International, L.P., a Delaware limited partnership and Pinault
Printemps-Redoute, S.A., a company organized under the laws of France ("PPR")
and between M&P Distributing Company, a Nevada corporation and PPR. In
addition, the Partnership shall provide a bonus or incentive compensation plan
which provides the Executive with the opportunity to earn the right to be paid
additional compensation as set forth on Exhibit A hereto. This subsection (d)
---------
shall not be implemented so as to limit any rights or benefits to which the
Executive or her dependents may be entitled under any employee benefit plan
maintained by or contributed to by the Corporation.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by the
Corporation on at least 30 days' prior written notice if the Corporation Board
determines that the Executive has become permanently disabled (as hereinafter
defined). Such written notice shall provide reasonable detail regarding the
basis for such determination. The Executive shall be deemed to be "permanently
disabled," as used in this subsection, if the Executive has been substantially
unable to discharge her duties and obligations hereunder by reason of illness,
accident or disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Corporation for cause (as hereinafter defined) upon written
notice from the Corporation Board to the Executive. Such written notice shall
provide reasonable detail regarding the basis for such determination. The
Corporation shall have "cause" to terminate the Executive, as used in this
subsection, only if the Corporation Board shall determine that the Executive
has, (i) refused or failed within a reasonable period of time to carry out any
reasonable and material direction from the Chief Executive Officer of the
Corporation, the Corporation Board or the Board of Representatives of the
Partnership (the "Partnership Board") (other than a failure resulting from the
Executive's incapacity due to physical or mental illness), (ii) been guilty of a
material and willful breach of the terms of this Agreement, (iii) demonstrated
gross negligence or willful misconduct in the execution of her assigned duties,
(iv) been convicted of a felony or other serious crime involving moral
turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the
detriment of the Corporation, (vi) intentionally imparted confidential
information relating to the Corporation to a third party, other than in the
course of carrying out the Executive's duties, or (vii) materially and willfully
breached any of her obligations pursuant to the Management Stock Subscription
Agreement dated as of February 26, 1997 between Brylane Inc., a Delaware
corporation and the parent entity of the Partnership, and the Executive if such
breach has not been cured 5 days after receipt of written notice to the
Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
2
<PAGE>
(d) In addition to the circumstances set forth in subsections (a), (b)
and (c) of this Section 3, the Corporation may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate her employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Corporation. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Corporation in the
Executive's base salary herein provided or as the same may be increased from
time to time; (ii) any relocation by the Corporation of Executive's principal
place of employment of more than 50 miles from the place where Executive's
principal residence was located on the date Executive gives notice of such
termination; (iii) a material and willful breach by the Corporation of any of
its obligations to the Executive hereunder, including, without limitation, the
Corporation's failure to obtain the written assumption agreement described in
Section 10(a) if such agreement is not obtained within 5 days after written
notice that a written assumption agreement required under Section 10(a) has not
been obtained; or (iv) the involuntary termination (other than "for cause") of
Mr. Peter J. Canzone as an executive officer of the Partnership at any time.
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate her employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Corporation.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Corporation's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Corporation pursuant to subsection (a) of this Section 3 the Executive will get
the benefit of any Corporation disability plans; provided, however, that for a
period of 12 consecutive months after the effective date of the termination the
Corporation will pay the Executive the difference (if any) between the level of
annualized salary provided for in Section 2 hereof, less required withholdings,
and the amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically
terminated pursuant to subsection (c) of this Section 3, the Corporation shall
continue to pay to the Executive (or, if applicable, to her executor,
administrator or heirs) the Executive's salary in equal monthly installments at
the level of annualized salary provided for in Section 2 hereof being paid to
the Executive at the time of such termination, less required withholdings, for a
period of 12 consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Corporation pursuant to subsection (d) of this Section 3 or if the Executive
terminates her employment pursuant to subsection (e) of this Section 3, the
Corporation shall continue to pay to the Executive the Executive's salary in
equal monthly installments at the level of annualized salary provided for in
Section 2 hereof being paid to the Executive at the time of such termination,
less required withholdings, for the greater of (A) one year after the effective
date of the termination, and (B) the period after the effective date of the
termination, through and including the last day of the then effective term of
this Agreement.
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
3
<PAGE>
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Corporation.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the executive's employment by the
Corporation under federal, state or local law which provides for the
continuation of any medical or other employee benefits after such termination
date.
4. Noncompetition. If the Executive is terminated by the Corporation for
--------------
cause in accordance with Subsection 3(b) hereof, or if the Executive terminates
her employment other than for "good reason" in accordance with Subsection 3(e)
hereof, then except as provided in the next sentence, for a period of 12 months
after such termination, the Executive will not carry on (as an employee, agent,
consultant, independent contractor, stockholder, partner, owner or otherwise)
any trade or business competing with the then trade or business of the
Corporation (or its affiliates) in any state in which the Corporation (or its
affiliates) is carrying on such trade or business as of the effective date of
such termination. The foregoing provisions of this Section 4 notwithstanding,
the Executive may own not more than 5% of the issued and outstanding shares of
any class of securities of an issuer whose securities are listed on a national
securities exchange or registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Corporation's (and its affiliates')
business and affairs that may come to her knowledge or have come to her
knowledge while employed by the Corporation or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Corporation and (iii) matters of a
technical nature. Except as required in the performance of her duties to the
Corporation under this Agreement, the Executive shall not use for her own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Corporation in advance.
6. Executive's Representation. The Executive shall be, and she
--------------------------
represents that she is, free to enter into this Agreement and not under any
contractual restraint which would prohibit her satisfactorily performing her
duties to the Corporation hereunder.
7. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal substantive laws (and not the laws of
conflicts of laws) of the State of New York.
8. Costs. If either party brings any legal action against the other to
-----
enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Corporation and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Corporation shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Corporation's business or assets shall be
4
<PAGE>
transferred in any manner to any other corporation, partnership or business
entity, including (without limitation) any entity that succeeds to the business
of the Corporation pursuant to Article X of that certain Partnership Agreement
dated August 30, 1993, as amended, such successor shall thereupon succeed to,
and be subject to, all rights, interests, duties and obligations of, and shall
thereafter be deemed for all purposes hereof to be, the Corporation hereunder
and the Corporation shall obtain a written assumption agreement from such
successor prior to completion of any such merger, consolidation or sale of
assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the Executive
--------
of the terms of this Agreement, including specifically, but not limited to,
Sections 4 and 5, will result in immediate and irreparable injury and harm to
the Corporation, and will cause damage to the Corporation in amounts difficult
to ascertain. Accordingly, the Corporation shall be entitled to, and Executive
hereby consents to the entry of, the remedies or injunction and specific
performance, or either of such remedies, as well as all other remedies to which
the Corporation may be entitled, at law, in equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Corporation:
B.L. Management Services, Inc.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President - Human Resources
5
<PAGE>
If to the Executive:
_____________________________
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
6
<PAGE>
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The "Corporation": B.L. MANAGEMENT SERVICES, INC.
By: _____________________________________
Name:
Title:
The "Executive":
___________________________________________
Signature
The undersigned hereby guarantees the performance of
this Agreement by B.L. Management Services, Inc., a
Delaware corporation
BRYLANE, L.P.
_____________________________________
Name:
Its:
7
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Partnership Board
of management's operating budget for that season. Each participant in such
program may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Partnership Board, or the Committee, in its sole
discretion, operating profit for any given six-month season will also exclude
any and all operating profit that is attributable to transactions entered into
by Brylane or its affiliates during that six-month season. The Executive's
individual participant percentage under such plan will be ___%, subject to any
adjustments by the Partnership Board, or the Committee, as it may see fit in its
sole discretion.
8
<PAGE>
EXHIBIT 10.72
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1,
1998 and is entered into between Brylane, L.P., a Delaware limited partnership
(the "Partnership") and ____________________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Partnership desires to employ the Executive, and the
Executive desires to be so employed by the Partnership, on the terms and subject
to the conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Partnership hereby employs the Executive, and the Executive agrees
to be employed by the Partnership, as ___________________________________, for a
term commencing on April 1, 1998 and continuing until the earlier of March 31,
2001 or the date such employment shall have been terminated as provided in
Section 3 hereof. Beginning April 1, 2001, this Agreement shall renew
automatically for an additional one year term until the Partnership gives
Executive written notice at least 14 calendar days prior to the end of a term,
of its intention to terminate this Agreement; provided, however, that this
Agreement may terminate earlier than the end of a term as provided in Section 3
hereof. In his capacity as _________________________________, the Executive
shall faithfully perform to the best of his ability and in a satisfactory manner
all services and acts necessary or advisable as may be assigned to him by the
Chief Executive Officer. Throughout the term hereof the Executive shall, except
as may from time to time be otherwise agreed in writing by the Partnership,
devote his full-time working hours to his duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Partnership hereunder, the Executive shall be paid by the
Partnership a base salary at the annual rate of $_______ for each 12-month
period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any adjustments annually by the Board of
Representatives of the Partnership (the "Board") or, at the Board's option, a
compensation committee thereof (the "Committee"), provided that any adjustments
shall be in the sole discretion of the Board or the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Partnership for management
employees. The Executive shall receive such other compensation as shall be
approved by the Board and shall participate in all fringe benefits (including,
without limitation, group medical, life, disability and accidental death and
dismemberment insurance), bonus and benefit plans which shall be generally
available from time to time to management employees of the Partnership.
(c) The Executive shall be reimbursed in accordance with the policies
of the Partnership as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting
<PAGE>
and similar expenditures, incurred for the benefit of the Partnership and
subject to approval of the Chief Executive Officer of the Partnership or the
Board. As an additional condition to the reimbursement of such expenses by the
Partnership to the Executive, the Executive shall provide the Partnership with
copies of all available invoices and receipts, and otherwise account to the
Partnership in sufficient detail and with adequate documentation to allow the
Partnership to confirm the business nature of the expenses and claim an income
tax deduction for such paid items, if such items are deductible.
(d) The Partnership agrees that the Partnership shall provide the
Executive with a benefits package substantially similar (which is not materially
less favorable to the Executive in the aggregate) to those coverages and
benefits provided or made available to the Executive (and his dependents)
immediately prior to the consummation of the transactions contemplated by those
certain Stock Purchase Agreements each dated as of February 19, 1998, among FS
Equity Partners II, L.P., a California limited partnership, FS Equity Partners
III, L.P., a Delaware limited partnership, FS Equity Partners International,
L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a
company organized under the laws of France ("PPR") and between M&P Distributing
Company, a Nevada corporation and PPR. In addition, the Partnership shall
provide a bonus or incentive compensation plan which provides the Executive with
the opportunity to earn the right to be paid additional compensation as set
forth on Exhibit A hereto. This subsection (d) shall not be implemented so as
---------
to limit any rights or benefits to which the Executive or his dependents may be
entitled under any employee benefit plan maintained by or contributed to by the
Partnership.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by the
Partnership on at least 30 days' prior written notice if the Board determines
that the Executive has become permanently disabled (as hereinafter defined).
Such written notice shall provide reasonable detail regarding the basis for such
determination. The Executive shall be deemed to be "permanently disabled," as
used in this subsection, if the Executive has been substantially unable to
discharge his duties and obligations hereunder by reason of illness, accident or
disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Partnership for cause (as hereinafter defined) upon written
notice from the Board to the Executive. Such written notice shall provide
reasonable detail regarding the basis for such determination. The Partnership
shall have "cause" to terminate the Executive, as used in this subsection, only
if the Board shall determine that the Executive has, (i) refused or failed
within a reasonable period of time to carry out any reasonable and material
direction from the Chief Executive Officer of the Partnership or the Board
(other than a failure resulting from the Executive's incapacity due to physical
or mental illness), (ii) been guilty of a material and willful breach of the
terms of this Agreement, (iii) demonstrated gross negligence or willful
misconduct in the execution of his assigned duties, (iv) been convicted of a
felony or other serious crime involving moral turpitude, (v) engaged in fraud,
embezzlement or other illegal conduct to the detriment of the Partnership, (vi)
intentionally imparted confidential information relating to the Partnership to a
third party, other than in the course of carrying out the Executive's duties, or
(vii) materially and willfully breached any of his obligations pursuant to the
Management Stock Subscription Agreement dated as of February 26, 1997 between
Brylane Inc., a Delaware corporation and the parent entity of the Partnership,
and the Executive if such breach has not been cured 5 days after receipt of
written notice to the Executive.
(c) The employment of the Executive hereunder shall be
automatically terminated on the date of the Executive's death.
2
<PAGE>
(d) In addition to the circumstances set forth in subsections (a), (b)
and (c) of this Section 3, the Partnership may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
(e) The Executive may terminate his employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Partnership. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Partnership in the
Executive's base salary herein provided or as the same may be increased from
time to time; (ii) any relocation by the Partnership of Executive's principal
place of employment of more than 50 miles from the place where Executive's
principal residence was located on the date Executive gives notice of such
termination; or (iii) a material and willful breach by the Partnership of any of
its obligations to the Executive hereunder, including, without limitation, the
Partnership's failure to obtain the written assumption agreement described in
Section 10(a) if such agreement is not obtained within 5 days after written
notice that a written assumption agreement required under Section 10(a) has not
been obtained.
(f) In addition to the circumstances described in subsection (e) of
this Section 3, the Executive may terminate his employment hereunder for any
reason or no reason upon 30 days' prior written notice to the Partnership.
(g) If the Executive's employment is terminated pursuant to this
Section 3, the Executive shall be entitled to, and the Partnership's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the
Partnership pursuant to subsection (a) of this Section 3 the Executive will get
the benefit of any Partnership disability plans; provided, however, that for a
period of 12 consecutive months after the effective date of the termination the
Partnership will pay the Executive the difference (if any) between the level of
annualized salary provided for in Section 2 hereof, less required withholdings,
and the amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically
terminated pursuant to subsection (c) of this Section 3, the Partnership shall
continue to pay to the Executive (or, if applicable, to his executor,
administrator or heirs) the Executive's salary in equal monthly installments at
the level of annualized salary provided for in Section 2 hereof being paid to
the Executive at the time of such termination, less required withholdings, for a
period of 12 consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Partnership pursuant to subsection (d) of this Section 3 or if the Executive
terminates his employment pursuant to subsection (e) of this Section 3, the
Partnership shall continue to pay to the Executive the Executive's salary in
equal monthly installments at the level of annualized salary provided for in
Section 2 hereof being paid to the Executive at the time of such termination,
less required withholdings, for the greater of (A) one year after the effective
date of the termination, and (B) the period after the effective date of the
termination, through and including the last day of the then effective term of
this Agreement.
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
3
<PAGE>
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Partnership.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the executive's employment by the
Partnership under federal, state or local law which provides for the
continuation of any medical or other employee benefits after such termination
date.
4. Noncompetition. If the Executive is terminated by the
--------------
Partnership for cause in accordance with Subsection 3(b) hereof, or if the
Executive terminates his employment other than for "good reason" in accordance
with Subsection 3(e) hereof, then except as provided in the next sentence, for a
period of 12 months after such termination, the Executive will not carry on (as
an employee, agent, consultant, independent contractor, stockholder, partner,
owner or otherwise) any trade or business competing with the then trade or
business of the Partnership (or its affiliates) in any state in which the
Partnership (or its affiliates) is carrying on such trade or business as of the
effective date of such termination. The foregoing provisions of this Section 4
notwithstanding, the Executive may own not more than 5% of the issued and
outstanding shares of any class of securities of an issuer whose securities are
listed on a national securities exchange or registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all
-------------
times thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Partnership's (and its affiliates')
business and affairs that may come to his knowledge or have come to his
knowledge while employed by the Partnership or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Partnership and (iii) matters of a
technical nature. Except as required in the performance of his duties to the
Partnership under this Agreement, the Executive shall not use for his own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Partnership in advance.
6. Executive's Representation. The Executive shall be, and he
--------------------------
represents that he is, free to enter into this Agreement and not under any
contractual restraint which would prohibit his satisfactorily performing his
duties to the Partnership hereunder.
7. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts of laws) of the State of Indiana.
8. Costs. If either party brings any legal action against the other
-----
to enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Executive by the
Partnership and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
4
<PAGE>
10. Assignability.
-------------
(a) In the event that the Partnership shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Partnership's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Partnership pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Partnership hereunder and the Partnership shall
obtain a written assumption agreement from such successor prior to completion of
any such merger, consolidation or sale of assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the
--------
Executive of the terms of this Agreement, including specifically, but not
limited to, Sections 4 and 5, will result in immediate and irreparable injury
and harm to the Partnership, and will cause damage to the Partnership in amounts
difficult to ascertain. Accordingly, the Partnership shall be entitled to, and
Executive hereby consents to the entry of, the remedies or injunction and
specific performance, or either of such remedies, as well as all other remedies
to which the Partnership may be entitled, at law, in equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Partnership:
Brylane, L.P.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President-Human Resources
5
<PAGE>
If to the Executive:
_____________________________
_____________________________
_____________________________
14. Severability. Any provision of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating or affecting the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
that a restrictive covenant contained herein may, at any time, be more
restrictive than permitted under the laws of any jurisdiction where this
Agreement may be subject to review and interpretation, the terms of such
restrictive covenant shall be those allowed by law and the covenant shall be
deemed to have been revised accordingly. Each and every term of this Agreement
shall be enforced to the fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
The "Partnership": BRYLANE, L.P.
By: VGP Corporation
Its: General Partner
By: ______________________________________
Name:
Title:
The "Executive":
___________________________________________
Signature
6
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Board of
management's operating budget for that season. Each participant in such program
may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Board, or the Committee, in its sole discretion,
operating profit for any given six-month season will also exclude any and all
operating profit that is attributable to transactions entered into by Brylane or
its affiliates during that six-month season. The Executive's individual
participant percentage under such plan will be ___%, subject to any adjustments
by the Board, or the Committee, as it may see fit in its sole discretion.
1.
<PAGE>
EXHIBIT 10.79
EMPLOYMENT AGREEMENT
THIS AGREEMENT between Brylane, L.P., a Delaware limited partnership
("Brylane" or the "Company"), and _________________ ("Executive"), is dated as
of April 1, 1998.
Executive is a key executive of the Company or a Subsidiary and an integral
part of its management.
The Company desires to employ Executive, and Executive desires to be so
employed by the Company, on the terms and subject to the conditions hereinafter
set forth.
The Company recognizes that the possibility of a change of control of the
Company or Chadwick's (as hereinafter defined) may result in the departure or
distraction of management to the detriment of the Company.
The Company wishes to assure Executive of fair severance should his
employment terminate in specified circumstances following a change of control of
the Company or Chadwick's and to assure Executive of certain other benefits upon
a change of control.
The Company also wishes to assure Executive of fair severance should his
employment terminate in certain other circumstances.
In consideration of Executive's continued employment with the Company or a
Subsidiary and other good and valuable consideration, the parties agree as
follows:
1. Definitions. The following terms as used in this Agreement shall have the
-----------
following meanings:
a. "Base Salary" shall mean Executive's annual base salary, exclusive of
any bonus or other benefits he may receive.
b. "Cause" shall mean dishonesty, conviction of a felony or gross neglect
by Executive of his duties (other than as a result of Disability, Incapacity or
death), or conflict of interest, which gross neglect or conflict shall continue
for 30 days after the Company gives written notice to Executive requesting the
cessation of such gross neglect or conflict.
In respect of any termination during any Standstill Period, Executive
shall not be deemed to have been terminated for Cause until the later to occur
of (i) the 30th day after notice of termination is given and (ii) the delivery
to Executive of a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the Board of Representatives of the Company at a
meeting called and held for that purpose (after reasonable notice to Executive),
and at which Executive together with his counsel was given an opportunity to be
heard, finding that Executive was guilty of conduct described in the definition
of "Cause" above, and specifying the particulars thereof in detail; provided,
--------
however, that the Company may suspend Executive and withhold payment of his Base
- -------
Salary from the date that notice of termination is given until the earliest to
occur of (a) termination of Executive for Cause effected in accordance with the
foregoing procedures (in which case Executive shall not be entitled to his Base
Salary for such period), (b) a determination by a majority of the Board of
Representatives of the Company that Executive was not guilty of the conduct
described in the definition of "Cause" above (in which case Executive shall be
reinstated and paid any of his previously unpaid Base Salary for such period),
or (c) one year after notice of termination is given (in which case Executive
shall be reinstated and paid any of his previously unpaid Base Salary for such
period).
<PAGE>
c. "Chadwick's" shall mean The Chadwick's of Boston, Ltd. business
previously owned and operated by The TJX Companies, Inc. ("TJX").
d. "Change of Control" shall have the meaning set forth in Exhibit A.
---------
e. "Current Title" shall mean Executive's most senior title during the
period 180 days prior to the commencement of a Standstill Period.
f. "Date of Termination" shall mean the date on which Executive's
employment is terminated.
g. "Disability" shall have the meaning given it in the long-term
disability plan previously operated by Chadwick's (or any successor plan
operated by Brylane or any of its affiliates, so long as the definition of
"Disability" in any such successor plan is not more restrictive). Executive's
employment shall be deemed to be terminated for Disability on the date on which
Executive is entitled to receive long-term disability compensation pursuant to
such long-term disability plan.
h. "Employment Period" shall mean the period commencing as of the date
of this Agreement and ending on March 31, 2001.
i. "Executive" shall have the meaning set forth in the first paragraph
of this Agreement.
j. "Good Reason" shall mean, with respect to any voluntary termination
of employment by Executive other than during a Standstill Period, the following:
i. the assignment to Executive of any duties materially
inconsistent with his positions, duties, responsibilities, reporting
requirements, and status with the Company (or a Subsidiary) on the later of the
date of this Agreement and 120 days prior to the date of such termination, or a
substantive change in Executive's titles, reporting requirements or offices as
in effect on the later of the date of this Agreement and 120 days prior to the
date of such termination, or any removal of Executive from or any failure to
reelect him to such positions, except in connection with the termination of
Executive's employment by the Company (or a Subsidiary) for Cause or by
Executive other than for Good Reason; or any other action by the Company (or a
Subsidiary) which results in a diminishment in such position, authority, duties
or responsibilities, other than an insubstantial and inadvertent action which is
remedied by the Company or the Subsidiary promptly after receipt of notice
thereof given by Executive; or
ii. if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the Base Salary paid to Executive in the completed fiscal
year immediately preceding the fiscal year in which Executive voluntarily
terminates his employment, or if Executive's total cash compensation
opportunities, including salary and incentives, for any fiscal year are less
than 100 percent of the total cash compensation opportunities made available to
Executive in the completed fiscal year immediately preceding the fiscal year in
which Executive voluntarily terminates his employment; or
iii. any relocation by Company of Executive's principal place of
employment of more than 50 miles from the place where Executive's principal
residence was located on the date that Executive gives notice of such
termination.
iv. any breach by the Company of any term or provision of this
Agreement.
Notwithstanding the foregoing, a voluntary termination by Executive of his
Employment shall not be deemed to be for "Good Reason" unless such termination
occurs within 120 days after the occurrence of any event described in clauses
(i), (ii), (iii) or (iv) above without Executive's express written consent,
Executive
2
<PAGE>
gives notice to the Company at least 30 days in advance requesting that the
situation described in such clauses be remedied, and the situation remains
unremedied upon expiration of such 30-day period. In addition, in no event shall
a termination by Executive for "Good Reason" during the Employment Period be
seemed to be a breach by Executive of this Agreement.
k. "Incapacity" shall mean a disability (other than a disability within
the meaning of "Disability" in paragraph g. above) or other impairment of health
that renders Executive unable to perform his duties to the satisfaction of the
Compensation Committee of the Board of Representatives of the Company. If by
reason of Incapacity Executive is unable to perform his duties for at least six
months in any consecutive 12-month period, upon written notice by the Company
the employment of Executive shall be deemed to have terminated by reason of
Incapacity.
l. "Prohibited Period" means a period commencing on the Date of
Termination and ending on the later of the last day of the Employment Period and
the date one year from the Date of Termination.
m. "Qualified Termination" shall mean the termination of Executive's
employment during any Standstill Period (1) by the Company other than for Cause,
(2) by reason of death, Incapacity or Disability, or (3) by Executive
voluntarily in connection with the following events:
i. the assignment to him of any duties materially inconsistent with
his positions, duties, responsibilities, reporting requirements, and status with
the Company (or a Subsidiary) immediately prior to a Change of Control, or a
substantive change in Executive's titles, reporting requirements or offices as
in effect immediately prior to a Change of Control, or any removal of Executive
from or any failure to reelect him to such positions, except in connection with
the termination of Executive's employment by the Company (or a Subsidiary) for
Cause or by Executive other than in connection with an event described in this
clause (3); or any other action by the Company (or a Subsidiary) which results
in a diminishment in such position, authority, duties or responsibilities, other
than an insubstantial and inadvertent action which is remedied by the Company or
the Subsidiary promptly after receipt of notice thereof given by Executive; or
ii. if Executive's rate of Base Salary for any fiscal year is less
than 100 percent of the Base Salary paid to Executive in the completed fiscal
year immediately preceding the Change of Control, or if Executive's total cash
compensation opportunities, including salary and incentives, for any fiscal year
are less than 100 percent of the total cash compensation opportunities made
available to Executive in the completed fiscal year immediately preceding the
Change of Control; or
iii. the failure of the Company (or a Subsidiary) to continue in
effect any benefits or perquisites, or any pension, life insurance, medical
insurance or disability plan in which Executive was participating immediately
prior to a Change of Control unless the Company (or a Subsidiary) provides
Executive with a plan or plans that provide substantially similar benefits in
the aggregate, or the taking of any action by the Company (or a Subsidiary) that
would adversely affect Executive's participation in or materially reduce
Executive's benefits in the aggregate under such plans or deprive Executive of
any material fringe benefit enjoyed by Executive immediately prior to a Change
of Control, unless the elimination or reduction of any such benefit, perquisite
or plan affects all other executives in the same organizational level (it being
the Company's burden to establish this fact); or
iv. any purported termination of Executive's employment by the
Company (or a Subsidiary) for Cause during a Standstill Period which is not
effected in compliance with paragraph b. above; or
v. any relocation by Company of Executive's principal place of
employment of more than 50 miles from the place where Executive's principal
residence was located at the time of the Change of Control; or
3
<PAGE>
vi. any other breach by the Company of any term or provision of
this Agreement; or
vii. termination by Executive of his employment for Retirement.
Notwithstanding the foregoing, a voluntary termination by Executive of his
Employment shall not be deemed to fall within this clause (m) unless: (A) with
respect to any of the events described in clauses (i), (ii), (iii), (iv), (v) or
(vi) above, such termination occurs within 120 days after the occurrence of any
of such event without Executive's express written consent, Executive gives
notice to the Company at least 30 days in advance requesting that the situation
described in such clauses be remedied, and the situation remains unremedied upon
expiration of such 30-day period; (B) with respect to the event described in
clause (vii) above, such termination occurs within 120 days after the occurrence
of such event without Executive's express written consent and Executive gives
notice to the Company at least 30 days in advance; or (C) with respect to the
event described in clause (vii), Executive gives notice to the Company at least
30 days in advance. In addition, in no event shall a termination by Executive
during the Employment Period that qualifies as a "Qualified Termination" be
deemed to be a breach by Executive of this Agreement.
n. "Retirement" shall mean voluntary termination by Executive of his
employment in accordance with the Company's retirement plan or program generally
applicable to its salaried employees or in accordance with any retirement
arrangement established with Executive's consent with respect to him. Nothing
in this Agreement shall affect any agreement between Executive and the Company
with respect to his retirement.
o. "Standstill Period" shall be the period commencing on the date of a
Change of Control and continuing until the close of business on the last
business day of the 24th calendar month following such Change of Control.
p. "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, 50 percent or more of the total combined voting power of
all classes of stock.
2. Employment. Subject to the other terms and conditions set forth herein,
----------
the Company hereby employs Executive, and Executive agrees to be employed by the
Company, as ______________________________, for a term commencing as of April 1,
1998 and continuing until the earlier of March 31, 2001 or the date such
employment shall have been terminated in accordance with the terms of this
Agreement. Beginning April 1, 2001, this Agreement shall renew automatically
for an additional one year term until the Corporation gives Executive written
notice at least 14 calendar days prior to the end of a term, of its intention to
terminate this Agreement; provided, however, that this Agreement may terminate
earlier than the end of a term as provided in this Agreement. In his capacity as
_________________________, Executive shall faithfully perform to the best of his
ability all services and acts necessary or advisable as may be assigned to him
by the Board of Representatives of Brylane and consistent with his position as
___________________________. Throughout the term hereof, Executive shall,
except as may from time to time be otherwise agreed in writing by the Company,
devote his full-time working hours to his duties hereunder.
3. Compensation.
------------
a. For all services to be rendered by Executive hereunder, and for all
rights granted the Company hereunder, Executive shall be paid by the Company a
base salary at the annual rate of $_______ for each 12-month period of the term
hereof, prorated for any portion thereof, payable in substantially equal
bimonthly installments, less required withholdings. This base salary shall be
reviewed for any upward adjustments by the Board of Representatives of Brylane
or, at the Board's option, the Compensation Committee, in March 1999 and every
March thereafter; provided, that any adjustments to Executive's salary shall be
--------
in the sole discretion of the Board or the Compensation Committee.
4
<PAGE>
b. Executive shall be entitled to paid vacations, personal and sick days
consistent with the policies of the Company for management employees. Executive
shall receive such other compensation as shall be approved by the Board and
shall participate in all fringe benefits (including, without limitation, group
medical, life, disability and accidental death and dismemberment insurance),
bonus and benefit plans which shall be generally available from time to time to
management employees of the Company. Notwithstanding the foregoing provisions
of this subsection (b), the Company agrees that it shall provide Executive with
a benefits package which is not materially less favorable to Executive in the
aggregate when compared with those coverages and benefits provided or made
available by Chadwick's or its affiliates to Executive (and his dependents)
immediately prior to the consummation of the transactions contemplated by that
certain Asset Purchase Agreement dated as of October 18, 1996, by and among TJX,
Chadwick's and Brylane (including, but not limited to, LRMIP, SERP, car, life
and other insurance programs, financial planning and medical, in all cases with
appropriate vesting for service). To the extent that a benefit or program can
not be transferred, it will be matched with a replacement program or benefit or,
if it can not be matched with a similar program or benefit, a program or benefit
with equivalent value will be created. In addition, Brylane shall provide a
bonus or incentive compensation plan which provides Executive with the
opportunity to earn the right to be paid additional compensation as set forth on
Exhibit C hereto.
- ---------
c. Executive shall be reimbursed in accordance with the policies of the
Company as adopted by the Board from time to time for his reasonable travel,
entertainment, business, meeting and similar expenditures, incurred for the
benefit of the Company and subject to approval of the Chief Executive Officer of
Brylane or the Board. As an additional condition to the reimbursement of such
expenses by the Company to Executive, Executive shall provide the Company with
copies of all available invoices and receipts, and otherwise account to the
Company in sufficient detail and with adequate documentation to allow the
Company to confirm the business nature of the expenses and claim an income tax
deduction for such paid items, if such items are deductible.
4. Benefits Upon a Change of Control.
---------------------------------
a. Benefits Following Termination of Employment. Executive shall be
--------------------------------------------
entitled to the following benefits upon a Qualified Termination:
i. Within 30 days following the Date of Termination, the Company
shall pay to Executive the following in a lump sum:
(1) an amount equal to two times Executive's Base Salary for one
year at the rate in effect immediately prior to the Date of Termination or the
Change of Control (or if Executive's title was changed to a level below that of
Executive's Current Title, the rate in effect immediately prior to such change),
whichever is highest, plus the accrued and unpaid portion of Executive's Base
Salary through the Date of Termination. Any payments made to Executive under any
long term disability plan of the Company with respect to the two years following
termination of employment shall be offset against such two times Base Salary
payment. Executive shall promptly make reimbursement payments to the Company to
the extent any such disability payments are received after the Base Salary
payment.
(2) if Executive was a participant in the Supplemental Executive
Retirement Plan of TJX or any successor plan operated by Brylane or any of its
affiliates (in either event, "SERP"), immediately prior to the Change of Control
and the number of years Executive has been employed by the Company (or a
Subsidiary) is five or more, including service for TJX and its subsidiaries, an
amount equal to the present value of the payments that Executive would have been
entitled to receive under the TJX SERP as a Category B participant (regardless
of whether he was participating in any SERP on the Date of Termination). The
present value of such payments shall be calculated using the following rules and
assumptions:
5
<PAGE>
(a) a credit equal to the number of Years of Service (as
that term is defined in the TJX SERP, but which term shall in any event count
years of service with the Company) that Executive has been employed by the
Company and subsidiaries at the Date of Termination, including service for TJX
and its subsidiaries, shall be added to his Years of Service in determining
Executive's total Years of Service. However, the total Years of Service
determined hereunder shall not exceed the lesser of (x) 20 or (y) the Years of
Service that Executive would have had if he had retired at the age of 65;
(b) Executive's Average Compensation (as that term is
defined in the TJX SERP) shall be determined as of the Date of Termination;
(c) Executive's Primary Social Security Benefit (as that
term is defined in the TJX SERP) shall mean the annual primary insurance amount
to which Executive is entitled or would, upon application therefor, become
entitled at age 65 under the provisions of the Federal Social Security Act as in
effect on the Date of Termination assuming that Executive received annual income
at the rate of his Base Salary from the Date of Termination until his 65th birth
date which would be treated as wages for purposes of the Social Security Act;
(d) the monthly benefit under the TJX SERP determined using
the criteria set forth in (A), (B), and (C) above shall be multiplied by 12 to
determine an annual benefit; and
(e) the present value of such annual benefit shall be
determined by multiplying the result in (D) by the appropriate actuarial factor
from the most recently published table 4A (or its equivalent) as published by
the Pension Benefit Guaranty Corporation and which is effective for plan
terminations occurring on the Date of Termination, using Executive's age to the
nearest year determined as of that date. If, as of the Date of Termination,
Executive has previously satisfied the eligibility requirements for Early
Retirement under the TJX Retirement Plan (or any successor plan operated by
Brylane or any of its affiliates), then the appropriate factor shall be that
based on the most recently published "PBGC Actuarial Value of $1.00 Per Year
Deferred to Age 60 And Payable For Life Thereafter -- Healthy Lives," except
that if Executive's age to the nearest year is more than 60, then such higher
age shall be substituted for 60. If, as of the Date of Termination, Executive
has not satisfied the eligibility requirements for Early Retirement under the
TJX Retirement Plan (or any successor plan operated by Brylane or any of its
affiliates), then the appropriate factor shall be based on the most recently
published "PBGC Actuarial Value of $1.00 Per Year Deferred To Age 65 And Payable
For Life Thereafter -- Healthy Lives."
If Executive receives a payment under this subparagraph (2), he shall not
be entitled to any other payments under SERP.
ii. Until the second anniversary of the Date of Termination, the
Company shall maintain in full force and effect for the continued benefit of
Executive and his family all life insurance, medical insurance and disability
plans and programs in which Executive was entitled to participate immediately
prior to the Change of Control (or if Executive's title was changed to a level
below that of Executive's Current Title, all such plans and programs in which
Executive was entitled to participate immediately prior to such change, if the
benefits thereunder are greater), provided that Executive's continued
participation is possible under the general terms and provisions of such plans
and programs. In the event that Executive is ineligible to participate in such
plans or programs, the Company shall arrange upon comparable terms to provide
Executive with benefits substantially similar to those which he is entitled to
receive under such plans and programs. Notwithstanding the foregoing, the
Company's obligations hereunder with respect to life, medical or disability
coverage or benefits shall be deemed satisfied to the extent (but only to the
extent) of any such coverage or benefits provided by another employer.
iii. Until the second anniversary of the Date of Termination, the
Company shall make available to Executive the use of any automobile that was
made available to Executive prior to the Date of Termination, including ordinary
replacement thereof in accordance with the Company's automobile policy in
6
<PAGE>
effect immediately prior to the Change of Control, or if Executive's title was
changed to a level below that of Executive's Current Title, the Company shall
make available to Executive the use of an automobile of a type comparable to the
automobile that was made available to him immediately prior to such change (or,
in lieu of making such automobile available, the Company may at its option pay
to Executive the present value of its cost of providing such automobile). Within
30 days after the close of each calendar year ending within such two-year
period, the Company shall also pay to Executive an amount to gross up Executive
for the federal and state tax liability of Executive, if any, for the use of
such automobile during the calendar year. If immediately prior to the Date of
Termination, the Company provided Executive with an automobile allowance rather
than with the use of an automobile, the Company shall pay to Executive in a lump
sum within 30 days following the Date of Termination an amount equal to (i) two
times Executive's automobile allowance for one year at the rate in effect
immediately prior to the Date of Termination or the Change of Control (or if
Executive's title was changed to a level below that of Executive's Current
Title, the rate in effect immediately prior to such change), whichever is
highest, including any increase in such rate which would have become effective
during the two-year period following the Date of Termination (had a Qualified
Termination not occurred), in accordance with the Company's automobile policy in
effect immediately prior to the Change of Control, plus (ii) the accrued and
unpaid portion of Executive's automobile allowance through the Date of
Termination, plus (iii) an amount to gross up Executive for the federal and
state tax liability of Executive on such lump sum payment. In addition to either
providing the use of an automobile or paying the amount described in the
preceding sentence, the Company shall also reimburse Executive for reasonable
amounts of cellular telephone expenses incurred by Executive during the two-year
period following the Date of Termination.
Payments under this Section 4(a) and Section 4(b) below, shall be made
without regard to whether the deductibility of such payments (or any other
payments to or for the benefit of Executive) would be limited or precluded by
Internal Revenue Code Section 280G and without regard to whether such payments
(or any other payments) would subject Executive to the federal excise tax levied
on certain "excess parachute payments" under Internal Revenue Code Section 4999;
provided, that if the total of all payments to or for the benefit of Executive,
- --------
after reduction for all federal taxes (including the tax described in Internal
Revenue Code Section 4999, if applicable) with respect to such payments
("Executive's total after-tax payments"), would be increased by the limitation
or elimination of any payment under this Section 4(a) or Section 4(b), amounts
payable under this Section 4(a) and Section 4(b) shall be reduced to the extent,
and only to the extent, necessary to maximize Executive's total after-tax
payments. The determination as to whether and to what extent payments under
this Section 4(a) or Section 4(b) are required to be reduced in accordance with
the preceding sentence shall be made at the Company's expense by Coopers &
Lybrand or by such other certified public accounting firm as the Compensation
Committee of the Company's Board of Representatives may designate prior to a
Change of Control. In the event of any underpayment or overpayment under this
Section 4(a) or Section 4(b), as determined by Coopers & Lybrand (or such other
firm as may have been designated in accordance with the preceding sentence), the
amount of such underpayment or overpayment shall forthwith be paid to Executive
or refunded to the Company, as the case may be, with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Internal Revenue Code.
b. Other Benefits. Within 30 days following a Change of Control, whether
--------------
or not Executive's employment has been terminated, the Company shall pay to
Executive the following in a lump sum:
i. an amount equal to the "Target Bonus" under the plan referred to
in Exhibit C attached hereto or any successor plan operated by Brylane or any of
---------
its affiliates and which is applicable to Executive for the fiscal year in which
the Change of Control occurs (in either event, "MIP") (or if Executive's title
was changed to a level below that of Executive's Current Title within 180 days
before the commencement of a Standstill Period, the "Target Bonus" applicable to
Executive for the fiscal year in which such change occurred as if he continued
to hold Executive's Current Title, if higher); and
7
<PAGE>
ii. if Executive is a participant in the Long Range Management
Incentive Plan of TJX or any successor plan operated by Brylane of any of its
affiliates and in effect at the Change of Control (in either event, "LRMIP")
(but specifically excluding any long-range incentive plan which states that its
sole or primary purpose is retention), an amount with respect to each Award
Period (as that term is defined in LRMIP) for which Executive has been
designated as a participant equal to the product of (A) the maximum award
payable to Executive for such Award Period, as designated by the Company's
Compensation Committee under LRMIP (or, if Executive's title was changed to a
level below that of Executive's Current Title, in the case of an Award Period
which commences after such change, the maximum award payable to Executive for
such Award Period shall be deemed to be the maximum award payable to Executive
for the Award Period which commenced immediately prior to such change, if
higher), and (B) a fraction, the denominator of which is the total number of
fiscal years in the Award Period and the numerator of which is the number of
fiscal years which have elapsed in such Award Period prior to the Change of
Control (for purposes of this fraction, if the Change of Control occurs during
the first quarter of a fiscal year, then one-quarter of the fiscal year shall be
deemed to have elapsed prior to the Change of Control, and if the Change of
Control occurs after the first quarter of the fiscal year, then the full fiscal
year shall be deemed to have elapsed prior to the Change of Control).
5. Nonsolicitation and Noncompetition; Other Severance Payments; No Mitigation
---------------------------------------------------------------------------
of Damages; Notice of New Employment; Withholding.
--------------------------------------------------
a. Nonsolicitation and Noncompetition; Trade Secrets.
--------------------------------------------------
i. Upon the termination of Executive's employment for any reason,
Executive shall not during the Prohibited Period under any circumstances (1)
employ, solicit the employment of, or accept unsolicited the services of, any
"protected person" or (2) recommend the employment of any "protected person" to
any other business organization in which Executive has any direct or indirect
interest (other than a less-than-one percent equity interest in an entity), with
which Executive is affiliated or for which Executive renders services. A
"protected person" shall be a person known by Executive to be employed by the
Company or its subsidiaries at or within six months prior to the commencement of
conversations with such person with respect to employment.
As to (1) each "protected person" to whom the foregoing applies,
(2) each subcategory of "protected person" as defined above, (3) each limitation
on (A) employment of, (B) solicitation of, or (C) unsolicited acceptance of
services from, each "protected person" and (4) each month of the period during
which the provisions of this paragraph (i) apply to each of the foregoing, the
provisions set forth in this paragraph (i) are deemed to be separate and
independent agreements and in the event of unenforceability of any such
agreement, such unenforceable agreement shall be deemed automatically deleted
from the provisions hereof and such deletion shall not affect the enforceability
of any other provision of this paragraph (i) or any other term of this
agreement.
ii. During the course of his employment, Executive will have learned
many trade secrets of the Company and its subsidiaries and will have access to
confidential information and business plans of the Company. Therefore, subject
to paragraph (iii) of this Section 5(a), if Executive should terminate his
employment voluntarily at any time other than for Good Reason, but including by
reason of Retirement or Disability, or if the Company should terminate
Executive's employment at any time for Cause, then, during the Prohibited
Period, Executive will not carry on (as an employee, agent, consultant,
independent contractor, stockholder, partner, owner or otherwise, other than as
an investor in a less-than-one percent equity interest in an entity) any trade
or business competing with the then trade or business of Brylane (or its
affiliates) in any state in which Brylane (or its affiliates) is carrying on
such trade or business as of the effective date of such termination. For
purposes of this paragraph, TJX and its subsidiaries shall also be deemed
competitors. Executive agrees that if, at any time, pursuant to action of any
court, administrative or governmental body or other arbitral tribunal, the
operation of any part of this paragraph shall be determined to be unlawful or
otherwise unenforceable, then
8
<PAGE>
the coverage of this paragraph shall be deemed restricted as to duration,
geographical scope or otherwise, to the extent, and only to the extent,
necessary to make this paragraph lawful and enforceable in the particular
jurisdiction in which such determination is made.
iii. Paragraph (ii) of this Section 5(a) shall not apply if
Executive's employment is terminated either by the Company or by Executive
during a Standstill Period.
b. Other Severance Payments.
------------------------
i. If Executive's employment is terminated prior to the last day of
the Employment Period, and such termination is either by Executive for Good
Reason or by the Company for any reason other than for Cause, and such
termination is not a Qualified Termination, no compensation or other benefits
shall be payable to or accrue to Executive hereunder, except as follows:
(1) For the longer of (A) one year after the Date of Termination
or (B) the remainder of the Employment Period, the Company will continue to pay
to Executive his Base Salary at the rate in effect on the Date of Termination.
Base Salary shall be paid for the first twelve months of the period without
reduction for compensation earned from other employment or self-employment, and
shall thereafter be reduced by such compensation.
(2) Until the expiration of Base Salary payments described in (1)
immediately above or until Executive shall commence other employment or self-
employment, whichever shall first occur, the Company will provide medical and
hospital insurance and term life insurance (but not long-term disability
insurance) for Executive and his family, comparable to the insurance provided
for executives generally, as the Company shall determine, and upon the same
terms and conditions as shall be provided for Company executives generally,
provided that Executive's continued participation is possible under the general
terms and provisions of such plans and programs. In the event that Executive is
ineligible to participate in such plans or programs, the Company shall arrange
upon comparable terms to provide Executive with benefits substantially similar
to those which he is entitled to receive under such plans and programs.
(3) For purposes of the MIP, Executive shall be entitled to
payment, if any, pursuant to the terms of the MIP, or, if greater, such amount
as Executive would have earned under MIP if his employment had continued until
the end of the fiscal year (pro-rated for the period of active employment during
the year).
Executive shall also be entitled to payments or benefits under other
plans of the Company to the extent provided therein in the circumstances.
ii. If Executive's employment terminates by reason of death,
Disability or Incapacity, and such termination is not a Qualified Termination,
no compensation or benefits shall be payable to or accrue to Executive
hereunder, except that Executive shall be entitled to payment, if any, pursuant
to the terms of the MIP or, if greater, such amount as Executive would have
earned under the MIP until the end of the fiscal year (pro-rated for the period
of active employment during such year). Executive shall also be entitled to
payments or benefits under other Employer plans, including any long-term
disability plan, to the extent therein provided in the circumstances.
iii. In the event that Executive has any other agreement with the
Company (or a Subsidiary) which entitles Executive to severance payments upon
the termination of his employment with the Company, the amount of any such
severance payments shall be deducted from the payments to be made under this
Agreement. If Executive should violate any of the provisions of Section 5(a)
hereof, all compensation and benefits payable under Section 5(b) shall cease.
9
<PAGE>
c. No Duty to Mitigate Damages; Remedies Not Exclusive. Executive's
---------------------------------------------------
benefits under this Agreement shall be considered severance pay in consideration
of his past service (including service with TJX and its subsidiaries) and his
continued service from the date of this Agreement, and his entitlement thereto
shall not be governed by any duty to mitigate his damages by seeking further
employment, nor shall such benefits be offset by any compensation which he may
receive from future employment, except as provided in Section 5(b)(i). In
addition, notwithstanding anything contained in this Agreement to the contrary,
in the event that Executive's termination of employment with the Company, either
for "Good Reason" or in circumstances that constitute a "Qualified Termination",
are based on circumstances involving a breach of the terms and conditions of
this Agreement by a party other than the Executive, then the benefits to be
provided to Executive in connection with such a termination shall be in addition
to, and not in limitation of, any other legal or equitable remedies to which
Executive may otherwise be entitled.
d. Notice of New Employment. If Executive's employment terminates other
------------------------
than in a Qualified Termination, Executive agrees (i) to notify the Company
immediately upon his securing employment or becoming self-employed during any
period when Executive's compensation from the Company shall be subject to
reduction or his benefits provided by the Company shall be subject to
termination under Section 5(b) and (ii) to furnish to the Company written
evidence of his compensation earned from any such employment or self-employment
as the Company shall from time to time request. In addition, upon Executive's
termination of employment for any reason other than the death of Executive,
Executive shall immediately return all written trade secrets, confidential
information and business plans of the Company and its affiliates and shall
execute a certificate certifying that he has returned all such items in his
possession or under his control.
c. Withholding. Anything to the contrary notwithstanding, all payments
-----------
required to be made by the Company hereunder to Executive shall be subject to
the withholding of such amounts, if any, relating to tax and other payroll
deductions as the Company may reasonably determine it should withhold pursuant
to any applicable law or regulation.
6. Anticipatory Termination. Anything in this Agreement to the contrary
------------------------
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change of Control occurs, and it is reasonably
demonstrated by Executive that such termination (a) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (b) otherwise arose in connection with or in anticipation of a
specifically threatened Change of Control, then for all purposes of this
Agreement, a Change of Control shall be deemed to have occurred on the date
immediately prior to the date of such termination.
7. Miscellaneous. In the event the definition of Change of Control in this
-------------
Agreement differs from the definition of "change of control" contained in any
other executive compensation or employee benefit plan (other than a tax-
qualified plan) maintained by the Company in which Executive is a Participant,
the definition of Change of Control contained herein shall control for the
purposes of determining whether a "change of control" has occurred under such
other plan with respect to Executive.
8. Arbitration. Any controversy or claim arising out of or relating to this
-----------
Agreement, or the breach thereof, shall be settled exclusively by arbitration in
Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect, and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction
thereof. Arbitration shall be by a panel of three arbitrators, one each chosen
by Executive and the Company, and the third chosen by mutual agreement of the
arbitrators chosen by Executive and the Company.
9. Legal Fees and Expenses. The Company shall pay all legal fees and
-----------------------
expenses, including but not limited to counsel fees, stenographer fees, printing
costs, etc. reasonably incurred by Executive in obtaining any right or benefit
to which Executive is entitled under this Agreement in the event of a Change of
Control. Any amount
10
<PAGE>
payable under this Agreement that is not paid when due shall accrue interest at
the prime rate as from time to time in effect at the First National Bank of
Boston, until paid in full.
10. Notice of Termination. During a Standstill Period, Executive's employment
---------------------
may be terminated by the Company (or a Subsidiary) only upon 30 days' written
notice to Executive.
11. Notices. All notices shall be in writing and shall be deemed given five
-------
days after mailing in the continental United States by registered or certified
mail, or upon personal receipt after delivery, telex, telecopy or telegram, to
the party entitled thereto at the address stated below or to such changed
address as the addressee may have given by a similar notice:
To the Company: Brylane, L.P.
463 7th Avenue, 21st Floor
New York, New York 10018
Attention: Robert A. Pulciani
To Executive: At home address,
as last shown on the
records of the Company
The failure by Executive to set forth in any notice of termination of employment
any fact or circumstance which contributes to a showing of Good Reason or that
such termination is described in clause (3) of Section 1(m) shall not waive any
of Executive's rights hereunder or preclude him from asserting such fact or
circumstance in enforcing his rights hereunder.
12. Severability. In the event that any provision of this Agreement shall be
------------
determined to be invalid or unenforceable, such provision shall be enforceable
in any other jurisdiction in which valid and enforceable and in any event the
remaining provisions shall remain in full force and effect to the fullest extent
permitted by law.
13. General Provisions.
------------------
a. Binding Agreement. This Agreement shall be binding upon and inure to
-----------------
the benefit of the parties and be enforceable by Executive's personal or legal
representatives or successors. If Executive dies while any amounts would still
be payable to him hereunder, benefits would still be provided to his family
hereunder or rights would still be exercisable by him hereunder as if he had
continued to live, such amounts shall be paid to Executive's estate, such
benefits shall be provided to Executive's family and such rights shall remain
exercisable by Executive's estate in accordance with the terms of this
Agreement. This Agreement shall not otherwise be assignable by Executive.
b. Successors. This Agreement shall inure to and be binding upon the
----------
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale, merger
(where the Company is not the surviving corporation), lease or otherwise, by
agreement in form and substance satisfactory to Executive, to assume expressly
this Agreement. If the Company shall not obtain such agreement prior to the
effective date of any such succession, Executive shall have all rights resulting
under this Agreement from a termination by Executive described in clause (3) of
Section 1(m). This Agreement shall not otherwise be assignable by the Company,
and, in any event, the Company shall remain obligated to Executive for all
obligations and shall not rely on any suretyship defenses.
c. Amendment or Modification; Waiver. This Agreement may not be amended
---------------------------------
unless agreed to in writing by Executive and the Company. No waiver by either
party of any breach of this Agreement shall be deemed a waiver of a subsequent
breach.
11
<PAGE>
d. Titles. No provision of this Agreement is to be construed by
------
reference to the title of any section.
e. Continued Employment. This Agreement shall not give Executive any
--------------------
right of continued employment or any right to compensation or benefits from the
Company or any Subsidiary except the rights specifically stated herein.
f. Prior Agreement. This Agreement shall supersede and replace any prior
---------------
employment, change of control or severance agreement between the Company or any
of its subsidiaries, or any predecessor, and Executive.
g. Remedies. Any material breach or violation by Executive of the terms
--------
of Section 5 of this Agreement, will result in immediate and irreparable injury
and harm to the Company, and will cause damage to the Company in amounts
difficult to ascertain. Accordingly, the Company shall be entitled to, and
Executive hereby consents to the entry of, the remedies or injunction and
specific performance, or either of such remedies, as well as all other remedies
to which the Company may be entitled, at law, in equity or otherwise, with
respect to any such breach or violation.
h. Governing Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of The Commonwealth
of Massachusetts.
14. Counterparts. This Agreement may be executed in two counterparts, each of
------------
which shall be deemed an original and both of which together shall be deemed one
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRYLANE, L.P.
By:______________________________
Name:
Its:
EXECUTIVE:
_____________________________
12
<PAGE>
EXHIBIT A
Definition of "Change of Control"
---------------------------------
"Change of Control" shall mean the occurrence of any one of the following
events:
(a) any "person" or "group" (as such terms are used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other
than Permitted Holders (as defined below), is or becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have beneficial ownership of all shares that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total voting power of all classes of Voting Equity Interests (as defined
below) of VP Holding Corporation, a Delaware corporation (the "Corporation"),
Brylane Inc., a Delaware corporation (the "Company"), Brylane (the
"Partnership") or the Partnership's general partner; provided, that no Change of
--------
Control shall be deemed to occur so long as the Permitted Holders have the right
or ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Representatives or Directors; provided,
--------
further, that unless the Compensation Committee of the Partnership shall
- -------
otherwise determine prior to the acquisition of such majority ownership, such
acquisition of ownership shall not constitute a Change of Control if Executive
or an Executive Related Party is the person or a member of a group constituting
the person acquiring such ownership; or
(b) (i) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Representatives or
Directors (together with any new members of the Board of Representatives or
Directors whose election to such Board or whose nomination for election by the
holders of Equity Interests (as defined below) of the Partnership, the
Corporation or the Company was approved by (a) a Permitted Holder or (b) a vote
of at least 66 2/3% of the members of the Board of Representatives or Directors
then still in office who were either members of the Board of Representatives or
Directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of such Board of Representatives or Directors then in office;
(c) (i) the Partnership or its general partner, the Corporation or
the Company consolidates with or merges with or into any person or entity or
conveys, transfers or leases all or substantially all of its assets to any
person or entity, or any corporation or partnership consolidates with or merges
into or with the Partnership or its general partner, the Corporation or the
Company, in any such event pursuant to a transaction in which the outstanding
Voting Equity Interests of the Partnership or its general partner, the
Corporation or the Company are changed into or exchanged for cash, securities or
other property, other than any such transaction where the outstanding Voting
Equity Interests of the Partnership or its general partner, the Corporation or
the Company are not changed or exchanged at all (except to the extent necessary
to reflect a change in the jurisdiction of incorporation of the Partnership or
its general partner, the Corporation or the Company or where (A) the outstanding
Voting Equity Interests of the Partnership or its general partner or the
Corporation or the Company are changed into or exchanged for (x) Voting Equity
Interests of the surviving corporation or entity, or (y) cash, securities and
other property (other than Equity Interests of the surviving corporation or
entity) and (B) no "person" or "group" other than Permitted Holders owns
immediately after such transaction, directly or indirectly, more than the
greater of (i) 50% of the total outstanding Voting Equity Interests of the
surviving corporation or entity and (2) the percentage of the outstanding Voting
Equity Interests of the surviving corporation or partnership or entity owned,
directly or indirectly, by Permitted Holders immediately after such
transaction); or (ii) the sale or other disposition by the Partnership, in one
transaction or a series of related transactions (but not including a disposition
that is part of any sale-and-leaseback or similar financing transactions), of
assets aggregating more than thirty percent (30%) of the assets of the
Partnership's Chadwick's of Boston business (taken at the values as stated on
the books of the Partnership determined in accordance with generally accepted
accounting principles consistently applied), or responsible for generating more
than thirty
<PAGE>
percent (30%) of the net sales of the Partnership's Chadwick's of Boston
business; provided, that unless otherwise determined by the Compensation
--------
Committee of the Partnership, no transaction shall constitute a Change of
Control if, immediately after such transaction, Executive or any Executive
Related Party shall own Equity Interests of any surviving corporation
("Surviving Entity") having a fair value as a percentage of the fair value of
the Equity Interests of such Surviving Entity greater than 125% of the fair
value of the Equity Interests of the Partnership, the Corporation and/or the
Company owned by Executive and any Executive Related Party immediately prior to
such transaction, expressed as a percentage of the fair value of all Equity
Interests of the Partnership, the Corporation and/or the Company immediately
prior to such transaction; provided, further, that for purposes of this
-------- -------
paragraph (c), if such agreement requires as a condition precedent approval by
the equityholders of the Partnership, the Corporation and/or the Company of the
agreement or transaction, a Change of Control shall not be deemed to have taken
place unless such approval is secured and the transaction is consummated.
Notwithstanding anything in this definition to the contrary, a "Change of
Control" shall not be deemed to have occurred as a result of any sale of Equity
Interests in a public offering.
In addition, for purposes of this Exhibit A, the following terms have the
---------
meanings set forth below:
"Equity Interest" in any person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents or
interest in (however designated) corporate stock or other equity participations,
including partnership interests, whether general or limited, in such person.
An "Executive Related Party" shall mean any affiliate or associate of
Executive other than the Partnership, the Company or the Corporation, as the
case may be, or an affiliate of the Partnership, the Company or the Corporation,
as the case may be. The terms "affiliate" and "associate" shall have the
meanings ascribed thereto in Rule 12b-2 under the Exchange Act (the term
"registrant" in the definition of "associate" meaning, in this case, the
Partnership, the Company or the Corporation, as the case may be).
"Permitted Holders" means (i) Pinault Printemps-Redoute S.A., a company
organized under the laws of France and any of its affiliates and permitted
assignees, (ii) The TJX Companies, Inc., (iii) VP Holding Corporation (with
respect to the general partner of the partnership); provided, that Brylane, L.P.
--------
and its subsidiaries shall not be deemed affiliates of Pinault Printemps-Redoute
S.A. and Chadwick's Inc. for purposes of this definition.
"Person" shall have the meaning used in Section 13(d) of the Exchange Act,
as in effect on July 1, 1996.
"Voting Equity Interests" means Equity Interests of the class or classes
pursuant to which the holders thereof have (i) in respect of a corporation, the
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of a corporation (irrespective
of whether or not at the time Equity Interests of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency) or (ii) in respect of a limited liability company or other entity,
the general voting power under ordinary circumstances to elect the board of
directors or other governing board of such entity.
2
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of __________ __,
1998 and is entered into between Brylane, L.P., a Delaware limited partnership
(the "Partnership") and _____________________ (the "Executive").
R E C I T A L S
---------------
WHEREAS, the Partnership desires to employ the Executive, and the
Executive desires to be so employed by the Partnership, on the terms and subject
to the conditions hereinafter set forth.
A G R E E M E N T
-----------------
NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually
agree, as follows:
1. Employment. Subject to the other terms and conditions set forth
----------
herein, the Partnership hereby employs the Executive, and the Executive agrees
to be employed by the Partnership, as Senior Vice President - Human Resources,
for a term commencing on ___________ __, 1998 and continuing until the earlier
of _______________ __, 2001 or the date such employment shall have been
terminated as provided in Section 3 hereof. Beginning _____________ __, 2001,
this Agreement shall renew automatically for an additional one year term until
the Partnership gives Executive written notice at least 14 calendar days prior
to the end of a term, of its intention to terminate this Agreement; provided,
however, that this Agreement may terminate earlier than the end of a term as
provided in Section 3 hereof. In his capacity as Senior Vice President - Human
Resources, the Executive shall faithfully perform to the best of his ability and
in a satisfactory manner all services and acts necessary or advisable as may be
assigned to him by the Chief Executive Officer. Throughout the term hereof the
Executive shall, except as may from time to time be otherwise agreed in writing
by the Partnership, devote his full-time working hours to his duties hereunder.
2. Compensation.
------------
(a) For all services to be rendered by Executive hereunder, and for
all rights granted the Partnership hereunder, the Executive shall be paid by the
Partnership a base salary at the annual rate of $______________________ for each
12-month period of the term hereof, prorated for any portion thereof, payable in
substantially equal bimonthly installments, less required withholdings. This
base salary shall be reviewed for any adjustments annually by the Board of
Representatives of the Partnership (the "Board") or, at the Board's option, a
compensation committee thereof (the "Committee"), provided that any adjustments
shall be in the sole discretion of the Board or the Committee.
(b) The Executive shall be entitled to paid vacations, personal and
sick days consistent with the policies of the Partnership for management
employees. The Executive shall receive such other compensation as shall be
approved by the Board and shall participate in all fringe benefits (including,
without limitation, group medical, life, disability and accidental death and
dismemberment insurance), bonus and benefit plans which shall be generally
available from time to time to management employees of the Partnership.
(c) The Executive shall be reimbursed in accordance with the policies
of the Partnership as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting and similar expenditures, incurred for
the benefit of the Partnership and subject to approval of the Chief Executive
Officer of
<PAGE>
the Partnership or the Board. As an additional condition to the reimbursement of
such expenses by the Partnership to the Executive, the Executive shall provide
the Partnership with copies of all available invoices and receipts, and
otherwise account to the Partnership in sufficient detail and with adequate
documentation to allow the Partnership to confirm the business nature of the
expenses and claim an income tax deduction for such paid items, if such items
are deductible.
(d) The Partnership agrees that the Partnership shall provide the
Executive with a benefits package substantially similar (which is not materially
less favorable to the Executive in the aggregate) to those coverages and
benefits provided or made available to the Executive (and his dependents)
immediately prior to the consummation of the transactions contemplated by those
certain Stock Purchase Agreements each dated as of February 19, 1998, among FS
Equity Partners II, L.P., a California limited partnership, FS Equity Partners
III, L.P., a Delaware limited partnership, FS Equity Partners International,
L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a
company organized under the laws of France ("PPR") and between M&P Distributing
Company, a Nevada corporation and PPR. In addition, the Partnership shall
provide a bonus or incentive compensation plan which provides the Executive with
the opportunity to earn the right to be paid additional compensation as set
forth on Exhibit A hereto. This subsection (d) shall not be implemented so as
---------
to limit any rights or benefits to which the Executive or his dependents may be
entitled under any employee benefit plan maintained by or contributed to by the
Partnership.
3. Termination.
-----------
(a) The employment of the Executive hereunder may be terminated by
the Partnership on at least 30 days' prior written notice if the Board
determines that the Executive has become permanently disabled (as hereinafter
defined). Such written notice shall provide reasonable detail regarding the
basis for such determination. The Executive shall be deemed to be "permanently
disabled," as used in this subsection, if the Executive has been substantially
unable to discharge his duties and obligations hereunder by reason of illness,
accident or disability for a period of 180 days in any twelve-month period.
(b) The employment of the Executive hereunder may be terminated
forthwith by the Partnership for cause (as hereinafter defined) upon written
notice from the Board to the Executive. Such written notice shall provide
reasonable detail regarding the basis for such determination. The Partnership
shall have "cause" to terminate the Executive, as used in this subsection, only
if the Board shall determine that the Executive has, (i) refused or failed
within a reasonable period of time to carry out any reasonable and material
direction from the Chief Executive Officer of the Partnership or the Board
(other than a failure resulting from the Executive's incapacity due to physical
or mental illness), (ii) been guilty of a material and willful breach of the
terms of this Agreement, (iii) demonstrated gross negligence or willful
misconduct in the execution of his assigned duties, (iv) been convicted of a
felony or other serious crime involving moral turpitude, (v) engaged in fraud,
embezzlement or other illegal conduct to the detriment of the Partnership, (vi)
intentionally imparted confidential information relating to the Partnership to a
third party, other than in the course of carrying out the Executive's duties, or
(vii) materially and willfully breached any of his obligations pursuant to the
Management Stock Subscription Agreement dated as of February 26, 1997 between
Brylane Inc., a Delaware corporation and the parent entity of the Partnership,
and the Executive if such breach has not been cured 5 days after receipt of
written notice to the Executive.
(c) The employment of the Executive hereunder shall be automatically
terminated on the date of the Executive's death.
(d) In addition to the circumstances set forth in subsections (a),
(b) and (c) of this Section 3, the Partnership may terminate the Executive's
employment for any reason or no reason and with or without cause upon 30 days'
prior written notice to the Executive.
2
<PAGE>
(e) The Executive may terminate his employment hereunder forthwith at
any time for good reason (as hereinafter defined) upon written notice to the
Partnership. For purposes of this subsection, "good reason" shall mean the
occurrence of any of the following: (i) a reduction by the Partnership in the
Executive's base salary herein provided or as the same may be increased from
time to time; (ii) any relocation by the Partnership of Executive's principal
place of employment of more than 50 miles from the place where Executive's
principal residence was located on the date Executive gives notice of such
termination; or (iii) a material and willful breach by the Partnership of any of
its obligations to the Executive hereunder, including, without limitation, the
Partnership's failure to obtain the written assumption agreement described in
Section 10(a) if such agreement is not obtained within 5 days after written
notice that a written assumption agreement required under Section 10(a) has not
been obtained.
(f) In addition to the circumstances described in subsection (e) of this
Section 3, the Executive may terminate his employment hereunder for any reason
or no reason upon 30 days' prior written notice to the Partnership.
(g) If the Executive's employment is terminated pursuant to this Section
3, the Executive shall be entitled to, and the Partnership's obligation
hereunder shall be limited to, (i) the payment of the compensation accrued under
Section 2 hereof to the effective date of such termination and (for any
termination other than pursuant to Section 3(b)) a pro rata portion of any
bonuses or incentive compensation payable with respect to any period commencing
prior to the termination date, and (ii) in the case of termination under
subsections (a), (c), (d) or (e) of this Section 3, the additional compensation
provided in subsection (h) of this Section 3.
(h) (i) if the Executive's employment is terminated by the Partnership
pursuant to subsection (a) of this Section 3 the Executive will get the benefit
of any Partnership disability plans; provided, however, that for a period of 12
consecutive months after the effective date of the termination the Partnership
will pay the Executive the difference (if any) between the level of annualized
salary provided for in Section 2 hereof, less required withholdings, and the
amounts provided under such disability plans; or
(ii) if the Executive's employment is automatically terminated
pursuant to subsection (c) of this Section 3, the Partnership shall continue to
pay to the Executive (or, if applicable, to his executor, administrator or
heirs) the Executive's salary in equal monthly installments at the level of
annualized salary provided for in Section 2 hereof being paid to the Executive
at the time of such termination, less required withholdings, for a period of 12
consecutive months after the effective date of the termination; and
(iii) if the Executive's employment is terminated by the
Partnership pursuant to subsection (d) of this Section 3 or if the Executive
terminates his employment pursuant to subsection (e) of this Section 3, the
Partnership shall continue to pay to the Executive the Executive's salary in
equal monthly installments at the level of annualized salary provided for in
Section 2 hereof being paid to the Executive at the time of such termination,
less required withholdings, for the greater of (A) one year after the effective
date of the termination, and (B) the period after the effective date of the
termination, through and including the April 30th immediately following the
effective date of the termination.
(i) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise;
but the amount of any payment provided for in this Section 3, other than amounts
set forth in subsection (g)(i) of this Section 3, shall be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the effective date of termination of the Executive's employment
by the Partnership.
(j) Nothing in this Agreement shall be deemed a release or waiver of
right to any medical or other employee benefits available to the Executive on or
after the effective date of termination of the
3
<PAGE>
executive's employment by the Partnership under federal, state or local law
which provides for the continuation of any medical or other employee benefits
after such termination date.
4. Noncompetition. If the Executive is terminated by the Partnership for
--------------
cause in accordance with Subsection 3(b) hereof, or if the Executive terminates
his employment other than for "good reason" in accordance with Subsection 3(e)
hereof, then except as provided in the next sentence, for a period of 12 months
after such termination, the Executive will not carry on (as an employee, agent,
consultant, independent contractor, stockholder, partner, owner or otherwise)
any trade or business competing with the then trade or business of the
Partnership (or its affiliates) in any state in which the Partnership (or its
affiliates) is carrying on such trade or business as of the effective date of
such termination. The foregoing provisions of this Section 4 notwithstanding,
the Executive may own not more than 5% of the issued and outstanding shares of
any class of securities of an issuer whose securities are listed on a national
securities exchange or registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended.
5. Trade Secrets. During the term of this Agreement and at all times
-------------
thereafter, the Executive shall hold in secrecy all trade secrets and
confidential information relating to the Partnership's (and its affiliates')
business and affairs that may come to his knowledge or have come to his
knowledge while employed by the Partnership or its predecessors (excluding
information that is or becomes publicly known or available for use through no
fault of the Executive), including but not limited to (i) matters of a business
nature, such as information about costs, profits, markets, sales, lists of
customers and other information of a similar nature, (ii) plans or strategies
for development of the business of the Partnership and (iii) matters of a
technical nature. Except as required in the performance of his duties to the
Partnership under this Agreement, the Executive shall not use for his own
benefit or disclose to any person, directly or indirectly, such matters unless
such use or disclosure has been specifically authorized in writing by the
Partnership in advance.
6. Executive's Representation. The Executive shall be, and he represents
--------------------------
that he is, free to enter into this Agreement and not under any contractual
restraint which would prohibit his satisfactorily performing his duties to the
Partnership hereunder.
7. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal substantive laws (and not the laws of
conflicts of laws) of the State of Indiana.
8. Costs. If either party brings any legal action against the other to
-----
enforce its rights under this Agreement, the prevailing party in such dispute
shall be entitled to recover from the other party all reasonable fees, costs and
expenses actually incurred in enforcing its rights under this Agreement
including, without limitation, the reasonable fees and expenses of attorneys,
accountants and expert witnesses, which shall include, without limitation, all
fees, costs and expenses of appeals and of enforcement.
9. Entire Agreement. This Agreement constitutes the whole agreement of
----------------
the parties hereto in reference to any employment of the Executive by the
Partnership and in reference to the subject matter hereof, and all prior
agreements, promises, representations and understandings relative thereto are
merged herein.
10. Assignability.
-------------
(a) In the event that the Partnership shall merge or consolidate with
any other corporation, partnership or business entity or all or substantially
all the Partnership's business or assets shall be transferred in any manner to
any other corporation, partnership or business entity, including (without
limitation) any entity that succeeds to the business of the Partnership pursuant
to Article X of that certain Partnership Agreement dated August 30, 1993, as
amended, such successor shall thereupon succeed to, and be subject to, all
rights, interests, duties and obligations of, and shall thereafter be deemed for
all purposes hereof to be, the Partnership hereunder
4
<PAGE>
and the Partnership shall obtain a written assumption agreement from such
successor prior to completion of any such merger, consolidation or sale of
assets.
(b) This Agreement is personal in nature and neither of the parties
hereto shall, without the written consent of the other party hereto, assign or
transfer this Agreement or any rights or obligations hereunder, except by
operation of law or pursuant to the terms of Section 10(a).
(c) Nothing expressed or implied herein is intended or shall be
construed to confer upon or give to any person, other than the parties hereto,
any right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
11. Remedies. Any material breach, violation or evasion by the Executive
--------
of the terms of this Agreement, including specifically, but not limited to,
Sections 4 and 5, will result in immediate and irreparable injury and harm to
the Partnership, and will cause damage to the Partnership in amounts difficult
to ascertain. Accordingly, the Partnership shall be entitled to, and Executive
hereby consents to the entry of, the remedies or injunction and specific
performance, or either of such remedies, as well as all other remedies to which
the Partnership may be entitled, at law, in equity or otherwise.
12. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or provision contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or a
waiver of the breach of any other term or covenant contained in this Agreement.
13. Notice. All notices, requests and other communications hereunder
------
shall be in writing and, if given by facsimile, telegram, telecopy or telex,
shall be deemed to have been validly served, given or delivered when sent, if
given by personal delivery, shall be deemed to have been validly served, given
or delivered upon actual delivery and, if mailed or delivered by overnight
courier, shall be deemed to have been validly served, given or delivered when
deposited in the United States mail, as registered or certified mail, with
proper postage prepaid, or when deposited with the courier service, and
addressed to the party or parties to be notified, at the following addresses (or
such other address(es) as a party may designate for itself by like notice):
If to the Partnership:
Brylane, L.P.
463 Seventh Avenue, 21st Floor
New York, New York 10018
Attention: Senior Vice President-Human Resources
If to the Executive:
_____________________________
_____________________________
_____________________________
5
<PAGE>
14. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent that a
restrictive covenant contained herein may, at any time, be more restrictive than
permitted under the laws of any jurisdiction where this Agreement may be subject
to review and interpretation, the terms of such restrictive covenant shall be
those allowed by law and the covenant shall be deemed to have been revised
accordingly. Each and every term of this Agreement shall be enforced to the
fullest extent permitted by law.
15. Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
The "Partnership": BRYLANE, L.P.
By: VGP Corporation
Its: General Partner
By: _____________________________________
Name: Peter J. Canzone
Title: President
The "Executive":
___________________________________________
Signature
6
<PAGE>
EXHIBIT A
Brylane has a semi-annual performance bonus program based upon goals
relating to Brylane's operating profit. Such goals will be established at the
beginning of each six-month season based upon a review by the Board of
management's operating budget for that season. Each participant in such program
may receive a bonus for each semi-annual bonus period equal to a certain
percentage of his or her annual salary. The actual bonus amount will be based
upon the extent to which the operating profit goals for that season are met or
exceeded. Operating profit shall exclude any charge resulting from the
formation of the Partnership, such as the write-up of inventory to fair market
value on August 30, 1993 and the amortization of the cost of intangibles
resulting from the purchase accounting relating to the acquisition. Except as
otherwise determined by the Board, or the Committee, in its sole discretion,
operating profit for any given six-month season will also exclude any and all
operating profit that is attributable to transactions entered into by Brylane or
its affiliates during that six-month season. The Executive's individual
participant percentage under such plan will be _____%, subject to any
adjustments by the Board, or the Committee, as it may see fit in its sole
discretion.
<PAGE>
EXHIBIT C
Brylane shall provide Executive with management incentive compensation
("MIP") with a ___% target and using a methodology consistent with Chadwick's
past practices. The current year's (12-months ending January 30, 1999)
incentive compensation will be calculated as if Executive's new salary and
incentive compensation were in place for the full year.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF BRYLANE INC./BRYLANE, L.P.
VP Holding Corporation, a Delaware corporation/1/
VGP Corporation, a Delaware corporation/2/
VLP Corporation, a Delaware corporation/2/
Brylane, L.P., a Delaware limited partnership/3/
Brylane Capital Corp., a Delaware corporation/4/
B.L. Management Services, Inc., a Delaware corporation/4/
B.L. Catalog Distribution, Inc., a Delaware corporation/4/
B.N.Y. Service Corp., a Delaware corporation/4/
K.S. Management Services, Inc./4/
B.L. Management Services Partnership, a New York general partnership/5/
B.L. Catalog Distribution Partnership, an Indiana general partnership/6/
C.O.B. Management Services, Inc., a Delaware corporation/4/
Chadwick's Tradename Sub, Inc., a Delaware corporation/4/
- -----------------------
/1/ 100% of the issued and outstanding shares of common stock of VP
Holding Corporation are owned by Brylane Inc.
/2/ 100% of the issued and outstanding shares of common stock of each of
these entities is owned by VP Holding Corporation.
/3/ VGP Corporation owns the sole general partnership interest in Brylane,
L.P., with a 16.6% profit and loss interest therein; VLP Corporation owns the
sole limited partnership interest in Brylane, L.P., with a 83.4% profit and loss
interest therein.
/4/ 100% of the issued and outstanding shares of common stock of each of
these entities is owned by Brylane, L.P.
/5/ B.N.Y. Service Corp. owns a 99% general partnership interest in this
partnership; B.L. Management Services, Inc. owns the remaining 1% general
partnership interest.
/6/ Brylane, L.P. owns a 99% general partnership interest in this
partnership; B.L. Catalog Distribution, Inc. owns the remaining 1% general
partnership interest.
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the registration statement of
Brylane Inc. on Form S-8 (File No. 333-33899) of our report dated March 27, 1998
except for Note 16, as to which the date is April 3, 1998, on our audits of the
consolidated financial statements of Brylane Inc. as of February 1, 1997 and
January 31, 1998, and for the years ended February 3, 1996, February 1, 1997,
and January 31, 1998, which report is included in this Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Indianapolis, Indiana
April 28, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 5,083
<SECURITIES> 0
<RECEIVABLES> 17,519
<ALLOWANCES> 1,474
<INVENTORY> 219,553
<CURRENT-ASSETS> 299,089
<PP&E> 98,315
<DEPRECIATION> 21,220
<TOTAL-ASSETS> 720,200
<CURRENT-LIABILITIES> 225,029
<BONDS> 329,753
0
1,370
<COMMON> 199
<OTHER-SE> 154,839
<TOTAL-LIABILITY-AND-EQUITY> 720,200
<SALES> 1,314,839
<TOTAL-REVENUES> 1,314,839
<CGS> 677,639
<TOTAL-COSTS> 677,639
<OTHER-EXPENSES> 515,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,707
<INCOME-PRETAX> 82,657
<INCOME-TAX> 31,545
<INCOME-CONTINUING> 51,112
<DISCONTINUED> 0
<EXTRAORDINARY> 4,077
<CHANGES> 0
<NET-INCOME> 47,035
<EPS-PRIMARY> 2.53
<EPS-DILUTED> 2.46
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 34,978
<SECURITIES> 0
<RECEIVABLES> 52,276
<ALLOWANCES> 3,168
<INVENTORY> 159,264
<CURRENT-ASSETS> 284,071
<PP&E> 89,242
<DEPRECIATION> 13,384
<TOTAL-ASSETS> 722,372
<CURRENT-LIABILITIES> 198,737
<BONDS> 0
0
1,500
<COMMON> 195
<OTHER-SE> 214,020
<TOTAL-LIABILITY-AND-EQUITY> 722,372
<SALES> 328,801
<TOTAL-REVENUES> 328,801
<CGS> 169,047
<TOTAL-COSTS> 169,047
<OTHER-EXPENSES> 133,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,528
<INCOME-PRETAX> 16,075
<INCOME-TAX> 6,489
<INCOME-CONTINUING> 9,586
<DISCONTINUED> 0
<EXTRAORDINARY> 4,110
<CHANGES> 0
<NET-INCOME> 5,476
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.50
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-05-1997
<PERIOD-END> AUG-02-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,835
<ALLOWANCES> 1,931
<INVENTORY> 188,543
<CURRENT-ASSETS> 253,434
<PP&E> 92,338
<DEPRECIATION> 16,000
<TOTAL-ASSETS> 689,127
<CURRENT-LIABILITIES> 199,945
<BONDS> 255,251
0
1,500
<COMMON> 195
<OTHER-SE> 224,846
<TOTAL-LIABILITY-AND-EQUITY> 689,127
<SALES> 274,656
<TOTAL-REVENUES> 274,656
<CGS> 144,239
<TOTAL-COSTS> 144,239
<OTHER-EXPENSES> 104,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,157
<INCOME-PRETAX> 16,901
<INCOME-TAX> 6,253
<INCOME-CONTINUING> 10,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,648
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 21,852
<SECURITIES> 0
<RECEIVABLES> 42,871
<ALLOWANCES> 3,071
<INVENTORY> 208,301
<CURRENT-ASSETS> 337,090
<PP&E> 94,940
<DEPRECIATION> 18,462
<TOTAL-ASSETS> 767,486
<CURRENT-LIABILITIES> 277,338
<BONDS> 342,229
0
1,500
<COMMON> 199
<OTHER-SE> 137,884
<TOTAL-LIABILITY-AND-EQUITY> 767,486
<SALES> 365,454
<TOTAL-REVENUES> 365,454
<CGS> 185,536
<TOTAL-COSTS> 185,536
<OTHER-EXPENSES> 144,064
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,427
<INCOME-PRETAX> 26,743
<INCOME-TAX> 9,895
<INCOME-CONTINUING> 16,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,848
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.85
</TABLE>
