As filed with the Securities and Exchange Commission on December 16, 1997
Registration No. 333-
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
J. Crew Group, Inc.
(Exact name of registrant as specified in its charter)
New York 6719 22-2894486
(State or other jurisdiction (Primary standard (I.R.S. employer
incorporation or organization) industrial classification identification
code number) number)
770 Broadway
New York, New York 10003
(212) 209-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
________________________
Michael P. McHugh
Vice President
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
(212) 209-2500
________________________
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of correspondence to:
Paul J. Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
________________________
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the Registration Statement
becomes effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and
there is compliance with General Instruction G, check the
following box: |_|
________________________
CALCULATION OF REGISTRATION FEE
===============================================================================
Aggregate
principal Proposed Proposed
Title of each class amount at maximum maximum Amount of
of securities maturity to be offering price aggregate registration
to be registered registered per unit offering price(1) fee
- -------------------------------------------------------------------------------
Series B 13 1/8%
Senior Discount
Debentures
due 2008 $142,000,000 100% $142,000,000 $41,890
- -------------------------------------------------------------------------------
(1) Estimated solely for the purposes of calculating the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
===============================================================================
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
J. CREW GROUP, INC.
Registration Statement on Form S-4
(Cross Reference Sheet Furnished Pursuant to Item 501(b) of Regulation S-K )
Item Location in Prospectus
---- ----------------------
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus ............. Facing Page of the Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside
Back Cover Pages of
Prospectus ..................... Available Information; Incorporation
of Certain Documents by
Reference; Outside Back Cover
Page of Prospectus
3. Risk Factors, Ratio of
Earnings to Fixed
Charges and Other
Information .................... Prospectus Summary; Risk Factors;
Selected Financial Data
4. Terms of the Transaction ......... Prospectus Summary; Risk Factors;
The Exchange Offer; Description of
the New Debentures; Plan of
Distribution; Certain U.S. Federal
Considerations Tax
5. Pro Forma Financial
Information ..................... Pro Forma Capitalization; Unaudited
Pro Forma Consolidated Financial
Data
6. Material Contracts With
the Company Being Acquired ..... Not Applicable
7. Additional Information
Required for Reoffering by
Persons and Parties
Deemed to be Underwriters ...... Not Applicable
8. Interests of Named Experts
and Counsel .................... Not Applicable
9. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities .................... Not Applicable
10. Information with
Respect to S-3
Registrants .................... Not Applicable
11. Incorporation of Certain
Information by
Reference ...................... Not Applicable
12. Information with Respect
to S-2 or S-3
Registrants .................... Not Applicable
13. Incorporation of Certain
Information by
Reference ...................... Not Applicable
14. Information with
Respect to Registrants
Other Than S-3 or S-2
Registrants .................... Outside Front Cover of Prospectus;
Prospectus Summary; Selected
Consolidated Financial Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Consolidated
Financial Statements
15. Information with Respect
to S-3 Companies ............. Not Applicable
16. Information with Respect
to S-2 or S-3
Companies ...................... Not Applicable
17. Information with Respect
to Companies Other Than
S-3 or S-2 Companies ........... Not Applicable
18. Information if Proxies,
Consents or Authorizations
Are To Be Solicited ............ Not Applicable
19. Information if Proxies,
Consents or Authorizations
Are Not To Be
Solicited or in an
Exchange Offer ................. Prospectus Summary; Management;
Capital Stock of Holdings and
Operating Corp; Certain Relationships
and Related Transactions
X----------------------------------------------------------------- X
X Information contained herein is subject to completion or X
X amendment. A registration statement relating to these securities X
X has been filed with the Securities and Exchange Commission. These X
X securities may not be sold nor may offers to buy be accepted X
X prior to the time the registration statement becomes effective. X
X This prospectus shall not constitute an offer to sell or the X
X solicitation of an offer to buy nor shall there be any sale of X
X these securities in any State in which such offer, solicitation X
X or sale would be unlawful prior to registration or qualification X
X under the securities laws of any such State X
X----------------------------------------------------------------- X
SUBJECT TO COMPLETION-DATED DECEMBER 16, 1997
PROSPECTUS
J. Crew Group, Inc.
Offer to Exchange Series B 13 1/8% Senior Discount Debentures due
2008, which have been registered under the Securities Act of
1933, as amended,for any and all outstanding Series A 13 1/8%
Senior Discount Debentures due 2008
The Exchange Offer will expire at 5:00 p.m., New York
City time, on __________, 1997, unless extended. J. Crew Group,
Inc., a New York corporation (the "Issuer" or "Holdings"), hereby
offers, upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal" and such offer being the "Exchange
Offer"), to exchange Series B 13 1/8% Senior Discount Debentures
due 2008 of the Issuer (the "New Debentures"), which have been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which
this Prospectus is a part, for an equal principal amount of
outstanding Series A 13 1/8% Senior Discount Debentures due 2008
of the Issuer (the "Old Debentures"), of which $142,000,000
aggregate principal amount at maturity is outstanding as of the
date hereof. The New Debentures and the Old Debentures are
collectively referred to herein as the "Debentures."
Any and all Old Debentures that are validly tendered and
not withdrawn on or prior to 5:00 P.M., New York City time, on
the date the Exchange Offer expires, which will be _________,
1997 (30 calendar days following the commencement of the Exchange
Offer) unless the Exchange Offer is extended (such date,
including as extended, the "Expiration Date"), will be accepted
for exchange. Tenders of Old Debentures may be withdrawn at any
time prior to 5:00 P.M., New York City time on the Expiration
Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Debentures being tendered for exchange.
However, the Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuer, and to the terms
of the Registration Rights Agreement, dated as of October 17,
1997, by and among the Issuer and Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc. (the "Initial
Purchasers") (the "Registration Rights Agreement"). Old
Debentures may only be tendered in integral multiples of $1,000
of principal amount at maturity. See "The Exchange Offer."
The New Debentures will be entitled to the benefits of the
same Indenture (as defined herein) that governs the Old
Debentures and that will govern the New Debentures. The form and
terms of the New Debentures are the same in all material respects
as the form and terms of the Old Debentures, except that the New
Debentures have been registered under the Securities Act and
therefore will not bear legends restricting the transfer thereof.
See "The Exchange Offer" and "Description of the New Debentures."
The New Debentures will be represented by permanent global
debentures in fully registered form and will be deposited with,
or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of a nominee of DTC. Beneficial interests
in the permanent global debentures will be shown on, and
transfers thereof will be effected through, records maintained by
DTC and its participants.
Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), as set forth in no-action
letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988),
Morgan Stanley & Co. Incorporated, SEC No-Action Letter
(available June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993) (collectively, the "Exchange
Offer No-Action Letters"), the Issuer believes that the New
Debentures issued pursuant to the Exchange Offer may be offered
for resale, resold or otherwise transferred by each holder (other
than a broker-dealer who acquires such New Debentures directly
from the Issuer for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the
Securities Act and other than any holder that is an "affiliate"
(as defined in Rule 405 under the Securities Act) of the Issuer)
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New
Debentures are acquired in the ordinary course of such holder's
business and such holder is not engaged in, and does not intend
to engage in, a distribution of such New Debentures and has no
arrangement with any person to participate in a distribution of
such New Debentures. By tendering Old Debentures in exchange for
New Debentures, each holder, other than a broker-dealer, will
represent to the Issuer that: (i) it is not an affiliate (as
defined in Rule 405 under the Securities Act) of the Issuer; (ii)
it is not a broker-dealer tendering Old Debentures acquired for
its own account directly from the Issuer; (iii) any New
Debentures to be received by it will be acquired in the ordinary
course of its business; and (iv) it is not engaged in, and does
not intend to engage in, a distribution of such New Debentures
and has no arrangement or understanding to participate in a
distribution of New Debentures. If a holder of Old Debentures is
engaged in or intends to engage in a distribution of New
Debentures or has any arrangement or understanding with respect
to the distribution of New Debentures to be acquired pursuant to
the Exchange Offer, such holder may not rely on the applicable
interpretations of the staff of the Commission and must comply
with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale
transaction.
(continued on next page)
__________________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 16 OF THIS PROSPECTUS.
__________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
__________________________
[GRAPHIC OMITTED]The date of this Prospectus is _________, 1997
__________________________
(continued from cover page)
Each broker-dealer that receives New Debentures for its own
account pursuant to the Exchange Offer (a "Participating Broker-
Dealer") must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with
any resale of such New Debentures. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in
connection with resales of New Debentures received in exchange
for Old Debentures where such Old Debentures were acquired by
such Participating Broker-Dealer as a result of market-making
activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Issuer has agreed that it will
make this Prospectus available to any Participating Broker-Dealer
for a period of time not to exceed one year after the date on
which the Exchange Offer is consummated for use in connection
with any such resale. See "Plan of Distribution."
The Issuer will not receive any proceeds from this
offering. The Issuer has agreed to pay the expenses of the
Exchange Offer. No underwriter is being utilized in connection
with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
ISSUER ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD
DEBENTURES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE
ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES
AND BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Debentures have been designated as eligible for
trading in the Private Offerings, Resale and Trading through
Automated Linkages ("PORTAL") market. Prior to this Exchange
Offer, there has been no public market for the New Debentures. If
such a market were to develop, the New Debentures could trade at
prices that may be higher or lower than their principal amount.
The Issuer does not intend to apply for listing of the New
Debentures on any securities exchange or for quotation of the New
Debentures on The Nasdaq Stock Market's National Market or
otherwise. The Initial Purchasers have previously made a market
in the Old Debentures, and the Issuer has been advised that the
Initial Purchasers currently intend to make a market in the New
Debentures, as permitted by applicable laws and regulations,
after consummation of the Exchange Offer. The Initial Purchasers
are not obligated, however, to make a market in the Old
Debentures or the New Debentures and any such market making
activity may be discontinued at any time without notice at the
sole discretion of the Initial Purchasers. There can be no
assurance as to the liquidity of the public market for the New
Debentures or that any active public market for the New
Debentures will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of
the New Debentures may be adversely affected. See "Risk
Factors--Absence of a Public Market."
AVAILABLE INFORMATION
The Issuer is not currently subject to the periodic
reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Issuer
will become subject to such requirements upon the effectiveness
of the Registration Statement (as defined herein). Pursuant to
the indenture by and among the Issuer and State Street Bank and
Trust Company (as trustee), dated as of October 17, 1997 (the
"Indenture"), the Issuer has agreed to file with the Commission
and provide to the holders of the Old Debentures annual reports
and the information, documents and other reports which are
required to be delivered pursuant to Sections 13 and 15(d) of the
Exchange Act.
This Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits,
the "Registration Statement") filed by the Issuer with the
Commission, through the Electronic Data Gathering, Analysis and
Retrieval System ("EDGAR"), under the Securities Act, with
respect to the New Debentures offered hereby. This Prospectus
omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration
Statement for further information with respect to the Issuer and
the securities offered hereby. Although statements concerning and
summaries of certain documents are included herein, reference is
made to the copies of such documents filed as exhibits to the
Registration Statement or otherwise filed with the Commission.
These documents may be inspected without charge at the office of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained at fees and
charges prescribed by the Commission. Copies of such materials
may also be obtained from the Web site that the Commission
maintains at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and any definitive proxy or information
statements filed by the Issuer pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
New Debentures offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated herein by
reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
-----------------------------
i
PROSPECTUS SUMMARY
Prior to the Recapitalization (as defined herein), Holdings
owned all of the stock, directly or indirectly, of the various
subsidiaries that had carried on the businesses described herein.
In connection with the Recapitalization, Holdings organized J.
Crew Operating Corp., a Delaware corporation ("Operating Corp"),
and immediately prior to the consummation of the
Recapitalization, Holdings transferred substantially all of its
assets and liabilities to Operating Corp. Holdings' current
operations are, and future operations are expected to be, limited
to owning the stock of the Operating Corp. Holdings and its
subsidiaries are collectively referred to herein
as the "Company." The following summary is qualified in its
entirety by the more detailed information and financial
statements and the Unaudited Pro Forma Consolidated Financial
Data of the Issuer, including the notes thereto, appearing
elsewhere in this Prospectus. Except as otherwise set forth
herein, references herein to "pro forma" financial data of the
Issuer are to financial data of the Issuer which gives effect to
the Recapitalization, including the issuance of the Debentures,
the issuance of the Holdings Preferred Stock (as defined herein),
the Holdings Common Equity Contribution (as defined herein) and
the Operating Corp Distribution (as defined herein). References
herein to fiscal years are to the fiscal years of Holdings, which
end on the Friday closest to January 31 in the following calendar
year. Accordingly, fiscal years 1992, 1993, 1994, 1995 and 1996
ended on January 29, 1993, January 28, 1994, February 3, 1995,
February 2, 1996 and January 31, 1997. All fiscal years for which
financial information is included in this Prospectus had 52
weeks, except fiscal 1994 which had 53 weeks.
The Company
Overview
The Company is a leading mail order and store retailer of
women's and men's apparel, shoes and accessories operating
primarily under the J. Crew(R) brand name. Under the direction of
Emily Woods and Arthur Cinader (co-founders of the J. Crew brand
and father and daughter), the Company has built a strong and
widely recognized brand name known for its timeless styles at
price points that the Company believes represent exceptional
product value. The J. Crew image has been built and reinforced
over its 14-year history through the circulation of more than
one-half billion catalogs that use magazine-quality photography
to portray a classic American perspective and aspirational
lifestyle. Many of the original items introduced by the Company
in the early 1980s (such as the rollneck sweater, weathered
chino, barn jacket and pocket tee) were instrumental in
establishing the J. Crew brand and continue to be core product
offerings. The Company has capitalized on the strength of the J.
Crew brand to provide customers with clothing to meet more of
their lifestyle needs, including casual, career and sport. The
strength of the J. Crew brand is demonstrated by a compound
annual growth rate of 15.4% in J. Crew brand revenues between
fiscal 1992 and fiscal 1996.
The J. Crew merchandising strategy emphasizes timeless
styles and a broad assortment of high-quality products designed
to provide customers with one-stop shopping opportunities at
attractive prices. J. Crew catalogs and retail stores offer a
full line of men's and women's basic durables (casual weekend
wear), sport, swimwear, accessories and shoes, as well as the
more tailored men's sportswear and women's "Classics" lines.
Approximately 60% of the Company's J. Crew brand sales are
derived from its core offerings of durables and sport clothing,
the demand for which the Company believes is stable and resistant
to changing fashion trends. The Company believes that the J. Crew
image and merchandising strategy appeal to college-educated,
professional and affluent customers who, in the Company's
experience, have demonstrated strong brand loyalty and a tendency
to make repeat purchases.
J. Crew products are distributed exclusively through the
Company's catalog and store distribution channels. The Company
currently circulates over 76 million J. Crew catalogs per annum
and owns and operates 49 J. Crew retail stores and 42 J. Crew
factory outlets. In addition, J. Crew products are distributed
through 67 free-standing and shop-in-shop stores in Japan under a
licensing agreement with Itochu Corporation and Itochu Fashion
System Co., Ltd. (collectively "Itochu").
In addition to the Company's J. Crew operations, the Company
operates Clifford & Wills, Inc. ("C&W"), a mail order and factory
store women's apparel business that targets older, more
conservative customers, and Popular Club Plan, Inc. ("PCP"), a
direct selling catalog merchandiser of consumer branded goods
through a "club" concept that provides credit sales to
lower-income customers. During the twelve-month period ended
November 7, 1997, the Company generated total revenues of $836.7
million, of which $583.1 million or approximately 70% was
attributable to the J. Crew brand, and total Adjusted EBITDA of
$47.6 million. See "--Summary Unaudited Pro Forma Consolidated
Financial Data" for a description of Adjusted EBITDA.
Business Strengths
Since its inception, the Company has pursued a consistent
operating strategy which has resulted in the following key
strengths and distinguishing characteristics:
- Strong, Recognizable Brand. The Company has created a
recognizable, differentiated brand image reflecting an
American aspirational lifestyle. The J. Crew image is
consistently communicated through all aspects of the
Company's business including its merchandise design,
distinctive catalogs and retail store environment. The
Company's high-quality products, strong brand image and
customer loyalty have resulted in strong gross margins and
retail sales productivity.
- Premium Quality Products and Distinctive Designs at
Attractive Price Points. The Company offers premium quality
products reflecting a classic, clean aesthetic with a
consistent design philosophy. All J. Crew products are
designed by an in-house team of 15 designers led by Emily
Woods. The Company believes that its in-house design
capabilities ensure a coherent set of product offerings from
season to season and year to year that provides significant
value to its customers through attractive price points.
- Proven Retail Store Concept. J. Crew retail stores
historically have generated strong and stable operating
results. The Company believes that its sales per gross
square foot are among the highest in its industry
segment. J. Crew retail stores open during all of
fiscal 1996 generated the following key operating
statistics:
Fiscal 1996
-----------
Average
-------
Sales per gross square foot .................... $575
Store contribution margin ...................... 25.9%
Approximately 81% of the J. Crew retail stores that were
open during all of 1996 had store contribution margins above 20%.
All of the Company's J. Crew retail stores are profitable and
have generated positive store contribution within the first
twelve months of operation. In addition, J. Crew retail stores
opened since fiscal 1992 have averaged approximately $550 in
sales per gross square foot and 23.0% store contribution margin
during the first twelve months of operation.
- Broad and Stable Product Offering. The Company's J. Crew
product offering includes a broad array of items which appeal
to a diverse customer base, spanning gender and age segments.
A substantial portion of the J. Crew product line consists of
basic durables, such as chinos, jeans and sweaters, which are
not significantly modified from year to year and, in the
Company's opinion, are resistant to shifting fashion trends.
In 1996, sales of durables and sport clothing represented
approximately 60% of total J. Crew brand revenues, having
increased at a compound annual growth rate of approximately
15% since 1992.
- Synergistic Distribution Channels. The Company believes
that the concurrent operation of the J. Crew mail
order business and J. Crew retail stores provides a
distinct advantage in the development of the J. Crew
brand. Visibility and exposure of the brand are enhanced
by the broad circulation of catalogs, aiding the
expansion of the retail concept. In addition, the Company
believes that the retail operations help attract first-
2
time "walk-by" customers to the catalog and improve the
salability of fit-critical items through the catalog. The
Company further believes that diversified distribution
channels help insulate the Company against circumstances and
events uniquely affecting one distribution channel or the
other.
- Tightly Controlled Distribution. By selling products
exclusively through J. Crew catalogs, J. Crew retail stores
and J. Crew factory outlets, the Company is able to present
and maintain a consistent brand image, control the
presentation and pricing of its merchandise, provide a higher
level of customer service, and closely monitor retail
sell-through. The Company believes that tight control over
the distribution of its products provides competitive
advantages over other branded apparel retailers that
distribute their goods through department stores.
Opportunities
The Company believes that substantial opportunities exist
to enhance revenue and profitability by increasing efficiencies
in the J. Crew mail order business and by expanding the J. Crew
retail business.
- Implement Tactical Cost Savings Opportunities. While the
Company believes that gross margins in the J. Crew mail order
business have been strong, overall catalog profitability has
been depressed by unnecessarily high operating expenses. The
Company has identified a number of tactical cost savings that
could be realized without affecting the Company's franchise
or brand image. Included in Adjusted EBITDA are $7.5 million in
estimated annual savings resulting from actions implemented
prior to the Recapitalization, including the recent renegotiation
of its catalog vendor contract, selected headcount and net
payroll reductions and the insourcing of certain photography
functions. The Company has identified approximately $7
million of further potential annual savings that are not
reflected in Adjusted EBITDA, including process efficiencies
currently under review, reduction of the Base Book trim size,
installation of automatic sorting equipment and consolidation
of the J. Crew and C&W New York corporate offices. The
Company believes these additional cost savings could be
implemented by mid-1998.
- Realize Cash Flow Increases Through J. Crew Mail Order SKU
Rationalization. The Company's J. Crew mail order product
offerings have increased from 33,000 stock-keeping units
("SKUs") in 1992 to 66,000 SKUs in 1996, partly as a result
of a proliferation in colors and sizes offered. In recent
season-to-season testing on the Company's swimwear and chino
lines, the Company reduced SKUs by 33% and 45%, respectively,
while posting category revenue increases. By eliminating
slower-selling colors and sizes from its core offering, the
Company believes it will be better able to forecast demand,
increase fill rates and increase inventory turns, resulting
in enhanced operating cash flow.
- Increase J. Crew Catalog Productivity Through Increased
Segmentation. The Company believes that it circulates fewer
and less-targeted catalog editions than its competitors, and
that catalog productivity (as measured by initial demand per
page circulated) could be enhanced by more precise targeting
of catalog mailings through further customer segmentation.
For example, in 1996 the Company introduced a Women's catalog
which to date has achieved 20% higher initial demand per page
circulated than that of the Company's primary mailing, the
Base Book. To further enhance its segmentation efforts, the
Company has recently introduced a College catalog and plans
to introduce a Swimwear catalog in 1998. From 1997 to 1998,
the increased segmentation is expected to result in an
approximately 5% increase in the number of catalogs
circulated, but an approximately 8% decrease in total pages
circulated. Reductions in total pages circulated should
result in a decrease in paper and postage expenses.
- Expand J. Crew Retail Operations. The Company's J. Crew
retail store expansion strategy is to continue to increase
its market share in its existing markets and to penetrate
new markets. The Company expects to open a total of 12
stores in fiscal 1997, ten of which were open as of November
7, 1997. The Company currently intends to open 12 to 20
stores annually, funded primarily by cash flow generated
from operations, resulting
3
in approximately 100 stores in operation by the end of
fiscal 2000. Historically, new stores have cost the Company
an average of $1.5 million in building improvements and
working capital expenditures and have experienced a pay-back
period of approximately 20 months. The Company has
established an administrative infrastructure that it
believes is sufficient to accommodate the retail expansion
plan, providing the Company with additional margin
improvement through overhead leverage. In addition, the
Company believes, with a store base of only 49 stores, its
markets are underpenetrated relative to its competitors and
enough suitable locations exist nationwide to accommodate
its expansion plan.
Holdings was incorporated under the laws of the State of
New York in 1988 as a successor to Popular Services, Inc.
Holdings maintains its principal executive office at 770
Broadway, New York, New York, 10003, and its telephone number is
(212) 209-2500.
J. Crew (R) is a registered trademark of a wholly-owned
subsidiary of the Company.
The Recapitalization
Holdings, its shareholders (the "Shareholders") and TPG
Partners II, L.P. ("TPG Partners II") entered into a
Recapitalization Agreement dated as of July 22, 1997, as amended
as of October 17, 1997 (the "Recapitalization Agreement") which
provided for the recapitalization of Holdings (the
"Recapitalization"). Pursuant to the Recapitalization Agreement,
Holdings purchased from the Shareholders all outstanding shares
of Holdings' capital stock, other than shares having an implied
value of $11.1 million, almost all of which continues to be held
by Emily Woods, and which represented 14.8% of the outstanding
shares of common stock, par value $.01 per share, of Holdings
("Holdings Common Stock") immediately following the transaction.
In connection with the Recapitalization, Holdings organized
Operating Corp and immediately prior to the consummation of the
Recapitalization, Holdings transferred substantially all of its
assets and liabilities to Operating Corp. Holdings' current
operations are, and future operations are expected to continue to
be, limited to owning the stock of Operating Corp. Operating Corp
has repaid substantially all of the Company's funded debt
obligations existing immediately before the consummation of the
Recapitalization (the "Debt Retirement"). At October 17, 1997,
the aggregate principal amount of the Company's funded
indebtedness was $186.0 million, consisting of $85.0 million
aggregate principal amount of Senior Notes (the "Retired Senior
Notes"), $99.0 million outstanding under a seasonal revolving
credit facility (the "Retired Bank Credit Facility") and $2.0
million outstanding under an industrial revenue bond (the
"Industrial Revenue Bond").
Cash funding requirements for the Recapitalization (which
was consummated on October 17, 1997) totalled $559.7 million
(including $99.0 million in seasonal borrowings) and were
satisfied through the purchase by TPG Partners II and investors
of an aggregate $188.9 million in Holdings' equity securities
together with an aggregate $330.8 million in borrowings and $40.0
million in proceeds from the securitization of certain of the
Company's accounts receivable, as follows: (i) the purchase by
TPG Partners II, its affiliates and other investors of shares of
Holdings' Common Stock (representing 85.2% of the outstanding
shares) for $63.9 million (the "Holdings Common Equity
Contribution"); (ii) the purchase by TPG Partners II, its
affiliates and other investors of $125.0 million in liquidation
value of preferred stock issued by Holdings (the "Holdings
Preferred Stock"); (iii) gross proceeds of $75.3 million from the
issuance and sale by Holdings of the Old Debentures (the
"Offering"); (iv) $150.0 million from the gross proceeds of the
offering by Operating Corp of the 10 3/8% Senior Subordinated
Notes due 2007 (the "Operating Corp Senior Subordinated Notes")
in a separate offering in which the Initial Purchasers acted as
initial purchasers; (v) $40.0 million in proceeds from the
securitization of certain of the Company's accounts receivable
(the "Securitization"); (vi) $70.0 million of borrowings under a
senior secured term loan facility among Operating Corp, Holdings,
the several lenders from time to time parties thereto
(collectively, the "Banks"), The Chase Manhattan Bank, as
administrative and collateral agent ("Chase"), and Donaldson,
Lufkin & Jenrette Securities Corporation, as syndication agent
("DLJ"), (the "Term Loan Facility"); and (vii) $35.6 million of
borrowings under a senior secured revolving credit facility among
the Operating Corp, Holdings, the Banks, Chase
4
and DLJ (the "Revolving Credit Facility" and, together with the
Term Loan Facility, the "Bank Facilities"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of the
New Debentures," "Description of Operating Corp Indebtedness" and
"Capital Stock of Holdings and Operating Corp."
The Recapitalization was accounted for as a
recapitalization transaction for accounting purposes. The
repurchase of shares from the Shareholders, the Debt Retirement,
the Holdings Common Equity Contribution, the issuance and sale by
Holdings of the Holdings Preferred Stock and the Old Debentures,
the borrowing by Operating Corp of funds under the Bank
Facilities and the Securitization and the issuance and sale by
Operating Corp of the Operating Corp Senior Subordinated Notes
were effected in connection with the "Recapitalization."
The following table sets forth the sources and uses of
funds in connection with the Recapitalization as it occurred on
October 17, 1997:
(dollars in
thousands)
Sources:
Revolving Credit Facility (1)............. $ 35,559
Term Loan Facility........................ 70,000
Securitization (2)........................ 40,000
Operating Corp Senior Subordinated Notes.. 150,000
Debentures issued in the Offering......... 75,257
Holdings Preferred Stock.................. 125,000
Holdings Common Equity Contribution....... 63,891
- ------------------------------------------ ------
Total Sources........................... $ 559,707
=======
Uses:
Repurchase of Holdings' Capital Stock..... $ 316,688
Repayment of Retired Bank Credit
Facility (3) ............................. 99,212
Repayment of Retired Senior Notes (4)..... 93,104
Retirement of Industrial Revenue Bond..... 1,963
Transaction Fees and Expenses and
Other Transacayments(5) ................ 48,740
---------------------------------------- ------
Total Uses.............................. $ 559,707
=======
(1) Reflects borrowings to partially refinance seasonal
borrowings outstanding under the Retired Bank Credit Facility.
Giving effect to the Recapitalization, average outstanding
borrowings under the Revolving Credit Facility would have been
$12.2 million during the twelve months ended November 7, 1997.
Excludes letters of credit issued to facilitate international
merchandise purchases, which had an aggregate outstanding
balance of $37.4 million as of November 7, 1997. See the notes
to the "Unaudited Pro Forma Statements of Operations" included
herein.
(2) The Company securitized approximately $40 million of PCP
consumer loan installment receivables off-balance sheet
simultaneously with the consummation of the Recapitalization
pursuant to a facility arranged by affiliates of the Initial
Purchasers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Other Issuer
Indebtedness--Receivables Facility."
(3) Includes $0.2 million of accrued interest.
(4) Includes a $5.8 million make-whole premium in connection
with the prepayment of the Retired Senior Notes and $2.3
million of accrued interest.
(5) Includes Holdings' expenses, management bonuses,
financial advisory, consulting and other professional
fees and deferred financing costs. See "Certain Relationships
and Related Transactions."
5
Texas Pacific Group
Texas Pacific Group ("TPG") was founded by David
Bonderman, James G. Coulter and William S. Price, III in 1992 to
pursue public and private investment opportunities through a
variety of methods, including leveraged buyouts,
recapitalizations, joint ventures, restructurings and strategic
public securities investments. The principals of TPG operate TPG
Partners, L.P. and TPG Partners II, both Delaware limited
partnerships with aggregate committed capital of over $3.2
billion. Among TPG's investments are branded consumer products
companies Beringer Wine Estates, Del Monte Foods Company and
Ducati Motor. Other TPG portfolio companies include America West
Airlines, Belden & Blake Corporation, Favorite Brands
International, Paradyne, Virgin Entertainment and Vivra Specialty
Partners. In addition, the principals of TPG led the $9 billion
reorganization of Continental Airlines in 1993.
The Exchange Offer
Registration Rights The Old Debentures were issued
Agreement.................... on October 17, 1997 to the
Initial Purchasers. The Initial
Purchasers placed the Old
Debentures with institutional
investors. In connection therewith,
the Issuer and the Initial
Purchasers entered into the
Registration Rights Agreement,
providing, among other things, for
the Exchange Offer. See "The
Exchange Offer."
The Exchange Offer........... New Debentures are being offered in exchange
For an equal principal amount of Old
Debentures. As of the date hereof,
$142,000,000 aggregate principal amount
at maturity of Old Debentures is
outstanding. Old Debentures may be
tendered only in integral multiples
of $1,000 of principal amount at
maturity.
Resale of New Debentures..... Based on interpretations by the staff
of the Commission, as set forth in
no-action letters issued to third
parties, including the Exchange
Offer No-Action Letters, the Issuer
believes that the New Debentures
issued pursuant to the Exchange
Offer may be offered for resale,
resold or otherwise transferred by
each holder thereof (other than a
broker-dealer who acquires such New
Debentures directly from the Issuer
for resale pursuant to Rule 144A
under the Securities Act or any
other available exemption under the
Securities Act and other than any
holder that is an "affiliate" (as
defined under Rule 405 of the
Securities Act) of the Issuer)
without compliance with the
registration and prospectus
delivery provisions of the
Securities Act, provided that such
New Debentures are acquired in the
ordinary course of such holder's
business and such holder is not
engaged in, and does not intend to
engage in, a distribution of such
New Debentures and has no
arrangement with any person to
participate in a distribution of
such New Debentures. By tendering
the Old Debentures in exchange for
New Debentures, each holder, other
than a broker-dealer, will
represent to the Issuer that: (i)
it is not an affiliate (as defined
in Rule 405 under the Securities
Act) of the Issuer; (ii) it is not
a broker-dealer tendering Old
Debentures acquired for its own
account directly from the Issuer;
(iii) any New Debentures to be
received by it were acquired in the
ordinary course of its business;
and (iv) it is not engaged in, and
does not intend to engage in, a
distribution of such New Debentures
and has no
6
arrangement or understanding to
participate in a distribution of
the New Debentures. If a holder of
Old Debentures is engaged in or
intends to engage in a distribution
of the New Debentures or has any
arrangement or understanding with
respect to the distribution of the
New Debentures to be acquired
pursuant to the Exchange Offer,
such holder may not rely on the
applicable interpretations of the
staff of the Commission and must
comply with the registration and
prospectus delivery requirements of
the Securities Act in connection with
any secondary resale transaction. Each
Participating Broker-Dealer that
receives New Debentures for its own
account pursuant to the Exchange
Offer must acknowledge that it will
deliver a prospectus meeting the
requirements of the Securities Act
in connection with any resale of
such New Debentures. The Letter of
Transmittal states that by so
acknowledging and by delivering a
prospectus, a Participating
Broker-Dealer will not be deemed to
admit that it is an "underwriter"
within the meaning of the
Securities Act. This Prospectus, as
it may be amended or supplemented
from time to time, may be used by a
Participating Broker-Dealer in
connection with resales of New
Debentures received in exchange for
Old Debentures where such Old
Debentures were acquired by such
Participating Broker-Dealer as a
result of market-making activities
or other trading activities. The
Issuer has agreed that it will make
this Prospectus available to any
Participating Broker-Dealer for a
period of time not to exceed one
year after the date on which the
Exchange Offer is consummated for
use in connection with any such
resale. See "Plan of Distribution."
To comply with the securities laws
of certain jurisdictions, it may be
necessary to qualify for sale or
register the New Debentures prior
to offering or selling such New
Debentures. The Issuer has agreed,
pursuant to the Registration Rights
Agreement and subject to certain
specified limitations therein, to
register or qualify the New
Debentures for offer or sale under
the securities or "blue sky" laws
of such jurisdictions as may be
necessary to permit consummation of
the Exchange Offer.
Consequences of
Failure to Exchange Old
Debentures................... Upon consummation of the Exchange
Offer, subject to certain exceptions,
holders of Old Debentures who do not
exchange their Old Debentures for
New Debentures in the Exchange Offer will
no longer be entitled to registration
rights and will not be able to
offer or sell their Old Debentures,
unless such Old Debentures are
subsequently registered under the
Securities Act (which, subject to
certain limited exceptions, the Issuer
will have no obligation to do), except
pursuant to an exemption from,
or in a transaction not subject
to, the Securities Act and
applicable state securities laws.
See "Risk Factors--Risk Factors Relating
to the Debentures--Consequences of
Failure to Exchange" and "The Exchange
Offer--Terms of the Exchange Offer."
7
Expiration Date.............. 5:00 p.m., New York City time, on _________,
1997 (30 calendar
days following the commencement of the
Exchange Offer), unless the Exchange
Offer is extended, in which case
the term "Expiration Date"
means the latest date and
time to which the
Exchange Offer is extended.
Yield and Interest on
the New Debentures............13 1/8% (computed on a semi-annual
bond equivalent basis) calculated
from October 17, 1997. The New
Debentures will accrete at a rate
of 13 1/8%, compounded semi-
annually, to an aggregate
principal amount of $142.0 million
by October 15, 2002. Cash interest
will not accrue on the New
Debentures prior to October 15, 2002.
Commencing October 15, 2002, cash
interest on the New Debentures will
accrue and be payable, at a rate of
13 1/8% per annum, semi-annually in
arrears on each April 15 and October 15.
Conditions to the The Exchange Offer is not conditioned
Exchange Offer upon any minimum principal amount of
Old Debentures being tendered for
exchange. However, the Exchange
Offer is subject to certain
customary conditions, which may,
under certain circumstances, be
waived by the Issuer. See "The
Exchange Offer--Conditions." Except
for the requirements of applicable
federal and state securities laws,
there are no federal or state
regulatory requirements to be
complied with or obtained by the
Issuer connection in with the
Exchange Offer.
Procedures for Tendering
Old Debentures .............. Each holder of Old Debentures
wishing to accept the Exchange Offer
must complete, sign and date
the Letter of Transmittal,
in accordance with the
instructions contained herein and
therein, and mail or otherwise
deliver such Letter of Transmittal,
together with the Old Debentures to
be exchanged and any other required
documentation to the Exchange Agent
(as defined herein) at the address
set forth herein or effect a tender
of Old Debentures pursuant to the
procedures for book-entry transfer
as provided for herein. See "The
Exchange Offer--Procedures for
Tendering" and "--Book Entry
Transfer."
Guaranteed Delivery Holders of Old Debentures who wish to
Procedures....................tender their Old Debentures and whose
Old Debentures are not immediately
available or who cannot deliver
their Old Debentures and a properly
completed Letter of Transmittal or
any other documents required by the
Letter of Transmittal to the
Exchange Agent prior to the
Expiration Date may tender their
Old Debentures according to the
guaranteed delivery procedures set
forth in "The Exchange
Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............ Tenders of Old Debentures may be
withdrawn at any time prior to
5:00 p.m., New York City time, on
the Expiration Date. To withdraw a tender
of Old Debentures, a written notice of
withdrawal must be received by the
Exchange Agent at its address
set forth herein under "The Exchange
Offer--Exchange Agent" prior to 5:00 p.m.,
New York City time, on the Expiration Date.
8
Acceptance of Old
Debentures and
Delivery of
New Debentures .............. Subject to certain conditions, any and
all Old Debentures that are properly
tendered in the Exchange Offer
prior to 5:00 p.m., New York City
time, on the Expiration Date will
be accepted for exchange. The New
Debentures issued pursuant to the
Exchange Offer will be delivered
promptly following the Expiration
Date. See "The Exchange
Offer--Terms of the Exchange
Offer."
Certain Tax Considerations... The exchange of New Debentures for
Old Debentures should not
be considered a sale or exchange
or otherwise a taxable event for
Federal income tax purposes. See
"Certain U.S. Federal Tax
Considerations."
Exchange Agent............... State Street Bank and Trust Company
is serving as exchange agent (the "Exchange
Agent") in connection with the Exchange
Offer.
Fees and Expenses............ All expenses incident to consummation
of the Exchange Offer and compliance with the
Registration Rights Agreement will be borne
by the Issuer. See "The Exchange Offer--Fees
and Expenses."
Use of Proceeds.............. There will be no cash proceeds
payable to the Issuer from the
issuance of the New Debentures
pursuant to the Exchange Offer.
See "Use of Proceeds."
9
Summary of Terms of New Debentures
The Exchange Offer relates to the exchange of up to
$142,000,000 aggregate principal amount at maturity of Old
Debentures for up to an equal aggregate principal amount of New
Debentures. The New Debentures will be entitled to the benefits
of the same Indenture that governs the Old Debentures and that
will govern the New Debentures. The form and terms of the New
Debentures are the same in all material respects as the form and
terms of the Old Debentures, except that the New Debentures have
been registered under the Securities Act and therefore will not
bear legends restricting the transfer thereof. See "Description
of the New Debentures."
Maturity Date............. October 15, 2008.
Yield and Interest Rate and 13 1/8% (computed on a semi-annual
Payment Dates............. bond equivalent basis) calculated
from October 17, 1997. The New
Debentures will accrete at a rate
of 13 1/8%, compounded semi-annually,
to an aggregate principal amount of
$142.0 million by October 15, 2002.
Cash interest will not accrue on the
New Debentures prior to October 15,
2002. Commencing October 15, 2002,
cash interest on the New Debentures
will accrue and be payable, at a
rate of 13 1/8% per annum,
semi-annually in arrears on each
April 15 and October 15.
Optional Redemption....... The New Debentures will be
redeemable at the option of Holdings,
in whole or in part, at any time
on or after October 15, 2002, in
cash at the redemption prices set
forth herein, plus accrued and
unpaid interest and Liquidated Damages
(as defined herein), if any,
thereon to the redemption date.
In addition, at any time prior to
October 15, 2000, Holdings may,
at its option, on any one or more
occasions, redeem up to 35% of the
aggregate principal amount at
maturity of the New Debentures
originally issued at a redemption
price equal to 113.125% of the
Accreted Value (as defined herein)
thereof, plus Liquidated Damages,
if any, with the net cash
proceeds of one or more Equity
Offerings (as defined herein);
provided that at least 65% of
the original aggregate principal
amount at maturity of the New
Debentures will remain outstanding
immediately following each such
redemption. See "Description of
the New Debentures--Optional Redemption."
Repurchase at the Option
of Holders................ Upon the occurrence of a Change of
Control (as defined herein) each holder
of New Debentures will have the right
to require Holdings to repurchase
all or any part of such holder's
New Debentures at a price in cash
equal to 101% of the Accreted Value
thereof plus Liquidated Damages, if
any, thereon to the date of
repurchase in the case of any such
purchase on or after October 15,
2002. Holdings does not have, and
may not in the future have, any
assets other than common stock of
Operating Corp (which will be
pledged to secure Operating Corp's
obligations under the Bank
Facilities). As a result, Holdings'
ability to repurchase all or any
part of the New Debentures upon the
occurrence of a Change of Control
will be dependent upon the receipt
of dividends or other distributions
from its direct and indirect
subsidiaries. The Bank Facilities
and the Operating Corp Senior
Subordinated Notes restrict
Operating Corp from paying
dividends and making any
10
other distributions to Holdings. If
Holdings is unable to obtain
dividends from Operating Corp
sufficient to permit the repurchase
of the New Debentures or does not
refinance such indebtedness,
Holdings will likely not have the
financial resources to purchase New
Debentures upon the occurrence of a
Change of Control. In any event,
there can be no assurance that
Holdings' subsidiaries will have
the resources available to pay any
such dividend or make any such
distribution. Furthermore, the Bank
Facilities provide that certain
change of control events will
constitute a default thereunder and
the Operating Corp Senior
Subordinated Notes provide that, in
the event of a Change of Control,
Operating Corp will be required to
offer to repurchase the Operating
Corp Senior Subordinated Notes at
the price specified therefore.
Holdings' failure to make a Change
of Control Offer (as defined
herein) when required or to
purchase tendered New Debentures
when tendered would constitute an
Event of Default (as defined
herein) under the Indenture. See
"Description of the New
Debentures--Repurchase at the
Option of Holders."
Ranking...................... The New Debentures will be senior
obligations of Holdings. The
New Debentures will rank pari passu
in right of payment with all
future senior indebtedness of Holdings
and will rank senior in right
of payment to all future subordinated
indebtedness of Holdings.
The New Debentures will be effectively
subordinated to all liabilities of Holdings'
subsidiaries. See "Description of the New
Debentures."
Covenants................... The Indenture contains certain
covenants that, among other things,
will limit the ability of Holdings
and its Restricted Subsidiaries (as
defined herein) to: incur indebtedness
and issue preferred stock,
repurchase Capital Stock (as defined herein)
and certain indebtedness, engage in
transactions with affiliates, incur or suffer
to exist certain liens, pay dividends or
other distributions, make certain investments,
sell assets and engage in certain mergers and
consolidations. See "Description of
the New Debentures--Certain
Covenants."
Use of Proceeds
There will be no cash proceeds payable to the Issuer from
the issuance of the New Debentures pursuant to the Exchange
Offer. The proceeds from the sale of the Old Debentures were used
to fund the Recapitalization. See "Use of Proceeds" and "The
Recapitalization."
Risk Factors
See "Risk Factors" for a discussion of certain factors that
should be considered in evaluating an investment in the
Debentures.
11
Summary Unaudited Pro Forma Consolidated Financial Data
The following table sets forth summary unaudited pro forma
consolidated statement of operations data of the Issuer for the
fiscal year ended January 31, 1997, for the forty weeks ended
November 8, 1996 and November 7, 1997 and for the twelve months
ended November 7, 1997 and summary unaudited historical and pro
forma consolidated balance sheet data at July 18, 1997. The pro
forma consolidated statement of operations data for the fiscal
year ended January 31, 1997, for the forty weeks ended November
8, 1996 and November 7, 1997, and for the twelve months ended
November 7, 1997 give effect to the Recapitalization as if it had
occurred at February 3, 1996. The data presented below should be
read in conjunction with the Consolidated Financial Statements,
including the related Notes thereto, included herein, the other
financial information included herein, "Unaudited Pro Forma
Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Fiscal Year Ended Forty Weeks Ended Twelve Months
----------------- ----------------- -------------
November Ended
-------- -----
January 31, 1997 8, 1996 7, 1997 November 7, 1997
---------------- ------- ------- ----------------
(dollars in thousands)
Statement of
Operations Data:
Revenues (1) .......... $ 806,193 $ 536,743 $ 564,958 $ 834,408
Gross profit .......... 377,474 244,687 254,093 386,880
Selling, general and
administrative
expenses .............. 350,105 241,582 254,544 363,067
Income from
operations ............ 27,369 3,105 (451) 23,813
Net income (loss)(2)... (4,301) (13,691) (40,138) (30,748)
Other Data:
Depreciation and
amortization .......... $ 10,541 $ 7,625 $ 10,191 $ 13,107
Net capital
expenditures (3)
New store openings .. 10,894 6,903 15,253 19,244
Other ............... 11,587 8,044 13,012 16,555
---------- -------- --------- ---------
Total net capital
expenditures ........ $ 22,481 $ 14,947 $ 28,265 $ 35,799
Credit Ratios:
Total average
debt (6) .............. $ 307,494
Adjusted EBITDA (4) ... 47,590
Cash interest
expense (5) ........... 22,941
Total interest
expense (5) ........... 36,304
Adjusted EBITDA/cash
interest expense ...... 2.1
Adjusted EBITDA/total
interest expense ...... 1.3
Total average
debt/Adjusted
EBITDA (6) ............ 6.5
Cash flows from
operating activities... $ (1,837)
Cash flows from
investing activities... $(35,799)
Cash flows from
financing activities... $ 39,990
_________________
(1) Revenues include the pro forma effect of the Securitization
of accounts receivable. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and
"Description of Other Issuer Indebtedness-- Receivables
Facility."
(2) In the forty weeks ended November 7, 1997, the Company
recognized an extraordinary loss of $4.5 million, net
of income tax benefit, related to the early retirement of
debt. The Company also recognized expenses of $19.9 million
in connection with the Recapitalization.
(3) Capital expenditures are net of proceeds from construction
allowances.
(4) EBITDA represents income (loss) before extraordinary item
and cumulative effect of accounting changes, income taxes,
interest expense, depreciation and amortization and expenses
of $19.9 million incurred in connection with the
Recapitalization. The Issuer believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, holders tendering Old Debentures
in the Exchange Offer should consider the following factors
in evaluating such measures: EBITDA and related measures (i)
should not be considered in isolation, (ii) are not measures
of performance calculated in accordance with generally
accepted accounting principles ("GAAP"), (iii) should not be
construed as alternatives or substitutes for income from
operations, net income or cash flows from operating
activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Company's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
12
Adjusted EBITDA is defined as EBITDA, as defined above,
revised to reflect management's estimate of certain cost
savings and cost eliminations implemented prior to the
Recapitalization. Holders tendering Old Debentures in the
Exchange Offer should consider that Adjusted EBITDA (i)
should not be considered in isolation, (ii) is not a measure
of performance calculated in accordance with GAAP, (iii)
should not be construed as alternatives or substitutes for
income from operations, net income or cash flows from
operating activities in analyzing the Company's operating
performance, financial position or cash flows (in each case,
as determined in accordance with GAAP) and (iv) should not
be used as indicators of the Company's operating performance
or measures of its liquidity. See notes to "Unaudited Pro
Forma Statements of Operations" included herein. This
information should be read in conjunction with the Unaudited
Pro Forma Consolidated Financial Data and the related Notes
thereto included herein.
Twelve Months Ended
-------------------
November 7, 1997
----------------
(dollars in thousands)
Historical EBITDA ....................... $40,970
Recapitalization pro forma
adjustments:
Loss on Securitization of
accounts receivable ................... (2,250)
Cost savings and cost eliminations
implemented prior to the Recapitalization:
Renegotiation of catalog
vendor contract(a) .................... 2,100
Headcount and net payroll
reductions(b) ......................... 4,550
Insourcing of photography
shop(c) ............................... 820
Non-recurring
severance(d) ........................... 1,400
---------
Total adjustments .................... 6,620
---------
Adjusted EBITDA .......................... $47,590
========
(a) Reflects the recent renegotiation of the Company's catalog
vendor contract. The adjustment represents the difference
between the amounts previously expensed for such items and
the amounts which are expected to be expensed under the
terms of the new contract.
(b) Represents compensation savings as a result of the termination
of certain positions.
(c) Represents the estimated cost savings from bringing
in-house certain photography functions that were previously
performed by outside vendors.
(d) Reflects non-recurring severance associated with the termination
of certain managers.
(5) Cash interest expense excludes, and total interest expense
includes, non-cash interest in respect of the Debentures.
(6) For purposes of computing the ratio of total average debt to
Adjusted EBITDA, total average debt on a pro forma basis as of
November 7, 1997 reflects average outstanding balances under
the Revolving Credit Facility of $12.2 million during the
twelve months ended November 7, 1997 (giving effect to the
Recapitalization), $70.0 million in aggregate principal amount
of indebtedness under the Term Loan Facility and $150.0
million in aggregate principal amount of the Operating Corp
Senior Subordinated Notes and $75.3 million in initial
aggregate principal amount of the Debentures issued in the
Offering. See the notes to "Unaudited Pro Forma Statements of
Operations" included herein.
Summary Consolidated Financial And Operating Data
The following table sets forth summary consolidated
historical financial, operating and other data of Holdings. The
summary financial data for each of the five fiscal years ended
January 31, 1997 are derived from the Consolidated Financial
Statements of Holdings, which have been audited by Deloitte &
Touche LLP, independent auditors. The summary financial data for
the forty weeks ended November 8, 1996 and November 7, 1997 have
been derived from the Unaudited Condensed Consolidated Financial
Statements of the Company and include, in the opinion of
management, all adjustments necessary to present fairly the data
for such periods. The results for the forty weeks ended November
7, 1997 are not necessarily indicative of the results to be
expected for the fiscal year ending January 30, 1998 or for any
future period. The data presented below should be read in
conjunction with the Consolidated Financial Statements, including
the related Notes thereto included herein, the other financial
information included herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Fiscal Year Ended Forty Weeks Ended
-------------------------------------------------------------------- -----------------
January 29, January 28, February 3, February 2, January 31, Nov. 8, Nov. 7,
----------- ----------- ----------- ----------- ----------- ------- -------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per square foot data) (unaudited)
Financial Data:
Revenues ............... $ 571,047 $ 646,972 $ 737,725 $ 745,909 $ 808,843 $538,781 $566,596
Gross profit ........... 267,120 292,083 343,652 346,241 380,124 246,725 255,731
Selling, general
and administrative
expenses ............... 238,730 265,857 311,468 327,672 348,305 240,197 253,159
Income
from operations ........ 28,390 26,226 32,184 18,569 31,819 6,528 2,572
Net income (loss) (1) .. 14,019 12,019 14,919 6,450 12,549 (573) (28,598)
Operating Data:
Revenues:
J. Crew mail order ... $ 201,463 $ 199,954 $ 247,272 $ 274,653 $ 289,772 $165,936 $157,840
J. Crew retail ....... 72,906 108,650 135,726 134,959 167,957 110,399 140,574
J. Crew factory ...... 38,563 49,253 62,626 79,203 94,579 70,266 75,965
J. Crew licensing .... -- 1,900 3,269 3,975 3,817 3,729 2,968
------- ------- ------- -------- -------- -------- -------
Total J. Crew brand .. 312,932 359,757 448,893 492,790 556,125 350,330 377,347
Other divisions (2) .. 258,115 287,215 288,832 253,119 252,718 188,451 189,249
------- ------- -------- --------
Total ................ $ 571,047 $ 646,972 $ 737,725 $ 745,909 $ 808,843 $538,781 $566,596
========= ========== ========== ========== ========= ======= ========
EBITDA(3):
J. Crew mail order ... $ 12,840 $ 11,980 $ 24,345 $ 16,831 $ 17,524 $ (1,924) $ (8,225)
J. Crew retail ....... 6,720 5,055 13,333 15,194 16,847 8,800 8,177
J. Crew factory. ..... 3,660 1,797 1,653 (66) 2,876 3,395 3,244
J. Crew licensing .... (51) 1,239 2,422 2,820 2,467 2,797 2,285
Total J. Crew brand .. 23,169 20,071 41,753 34,779 39,714 13,068 5,481
Other divisions (2) .. 11,611 12,941 (1,459) (5,938) 2,646 1,085 7,282
-------- -------- -------- -------- ------ ------- --------
Total ............... $ 34,870 $ 33,012 $ 40,294 $ 28,841 $ 42,360 $ 14,153 $ 12,763
========= ======== ======== ======== ========= ======= ========
14
Other Data:
Cash flows from
operating activities ..... $22,400 $1,467 $1,774 $(7,849) $16,497 $(42,766) $(61,110)
Cash flows from
investing activities ..... $(14,965) $(11,086) $(13,467) $(14,640) $(22,481) $(14,947) $(28,265)
Cash flows from
financing activities ..... $638 $5,020 $6,763 $17,763 $(413) $54,822 $95,255
J. Crew Mail Order:
Number of catalogs
circulated
(in thousand$) ........ $ 56,983 62,547 $ 61,187 $ 67,519 $ 76,087 $ 53,942 $ 53,977
Number of pages
circulated
(in millions) ......... 6,576 6,965 8,277 10,198 9,827 6,341 6,293
J. Crew Retail:
Sales per gross
square foot (4) ...... $ 622 $ 559 $ 594 $ 533 $ 551 NM NM
Store contribution
margin (5) ........... 24.0% 18.7% 22.7% 25.5% 25.4% NM NM
Number of stores
open at end of
period ............. 18 28 29 31 39 39 49
Comparable store
sales change (6) 22.0% (8.0)% 6.9% (6.0)% 4.5% 4.0% (6.1)%
Depreciation and
amortization .......... $ 6,390 $ 6,786 $ 8,110 $ 10,272 $ 10,541 $ 7,625 $ 10,191
Net capital
expenditures (7)
New store openings .. 5,519 2,789 2,804 6,009 10,894 6,903 15,253
Other ............... 9,446 8,297 10,663 8,631 11,587 8,044 13,012
------- ------- -------- -------- ------- --------
Total net capital
expenditures ....... $14,965 $11,086 $ 13,467 $ 14,640 $ 22,481 $14,947 $ 28,265
======= ======= ======== ======== ======== ======= ========
(1) In fiscal 1995, Holdings changed its method of accounting for
catalog costs and for merchandise inventories and recognized
an increase in net income from the aggregate cumulative effect
of such accounting changes, net of income taxes, of $2.6
million. In the same year, Holdings recognized an
extraordinary loss of $1.7 million, net of income tax benefit,
related to the early retirement of debt. See Notes 11 and 12
of Notes to Consolidated Financial Statements.
During the forty weeks ended November 7, 1997, the Company
recognized an extraordinary loss of $4.5 million, net of
income tax benefit, related to the early retirement of debt
and incurred other expenses of $19.9 million in connection
with the Recapitalization.
(2) Includes the Company's PCP and C&W divisions and finance
charge income derived from PCP installment sales.
(3) EBITDA represents income (loss) before extraordinary items
and cumulative effect of accounting changes plus income
taxes, interest expense, depreciation and amortization and
expenses of $19.9 million incurred in connection with the
Recapitalization. The Company believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted
accounting principles and should not be considered as a
substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of
liquidity. Holders tendering Old Debentures in the Exchange Offer
should consider the following factors in evaluating such
measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should
not be construed as alternatives or substitutes for income
from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
(4) Sales per gross square foot is the result of dividing
annualized net retail sales for the period (reflecting
adjustments based on management estimates of the impact of
opening stores in different periods during the year) by gross
square footage at the end of each fiscal period.
(5) Store contribution margin is computed as gross profit less
in-store operating expenses divided by sales.
(6) Comparable store sales includes stores that have been open
for one full twelve-month period.
(7) Capital expenditures are net of proceeds from construction allowances.
15
RISK FACTORS
Prospective holders of the New Debentures should carefully
review the information contained and incorporated by reference in
this Prospectus and should particularly consider the following
matters:
Risk Factors Relating to the Company
Substantial Leverage; Liquidity; Stockholders' Deficit
In connection with the Recapitalization, the Company
incurred a significant amount of additional indebtedness. As of
November 7, 1997, the Company had total consolidated indebtedness
of $194.7 million and stockholders' deficit of $342.3 million. In
addition, subject to the restrictions in the Bank Facilities, the
Operating Corp Senior Subordinated Notes and the Debentures, the
Company may incur additional senior or other indebtedness from
time to time to finance acquisitions or capital expenditures or
for other general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."
The level of the Company's indebtedness could have
important consequences to the holders of the Debentures,
including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate
purposes or other purposes may be impaired; (ii) a significant
portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company
for its operations; (iii) significant amounts of the Company's
borrowings will bear interest at variable rates, which could
result in higher interest expense in the event of increases in
interest rates; (iv) the Indenture, the Senior Subordinated Note
Indenture (as defined herein) and the Bank Facilities contain
financial and restrictive covenants, the failure to comply with
which may result in an event of default which, if not cured or
waived, could have a material adverse effect on the Company; (v)
the indebtedness outstanding under the Bank Facilities is secured
and matures prior to the maturity of the Debentures; (vi) the
Company may be substantially more leveraged than certain of its
competitors, which may place the Company at a competitive
disadvantage; and (vii) the Company's substantial degree of
leverage may limit its flexibility to adjust to changing market
conditions, reduce its ability to withstand competitive pressures
and make it more vulnerable to a downturn in general economic
conditions or its business. See "Description of the New
Debentures" and "Description of Other Issuer Indebtedness."
The Company's ability to make scheduled payments or to
refinance its debt obligations will depend upon its future
financial and operating performance, which will be affected by
prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. There can be no
assurance that the Company's operating results, cash flow and
capital resources will be sufficient for payment of its
indebtedness in the future. In the absence of such operating
results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material
assets or operations to meet its debt service and other
obligations, and there can be no assurance as to the timing of
such sales or the proceeds that the Company could realize
therefrom. In addition, because significant amounts of the
Company's borrowings will bear interest at variable rates, an
increase in interest rates could adversely affect, among other
things, the Company's ability to meet its debt service
obligations. If the Company is unable to service its
indebtedness, it may take actions such as reducing or delaying
planned expansion and capital expenditures, selling assets,
restructuring or refinancing its indebtedness or seeking
additional equity capital. There can be no assurance that any of
these actions could be effected on satisfactory terms, if at all.
Dependence on Key Personnel
Emily Woods' leadership in the areas of design,
merchandising and operations has been a significant factor in the
Company's success. The loss of Ms. Woods' services could have a
material adverse affect on the Company. The Company also depends
on the services of key members of its design and merchandising
teams and other key officers and employees. While the Company
believes that it has developed depth and experience among its key
16
personnel, there can be no assurance that the Company's business
would not be affected if one or more of these individuals left
the Company.
The Company has entered into an employment agreement with
Ms. Woods and has employment agreements with certain other
employees. See "Management--Employment Agreements and Other
Compensation Arrangements." The Company maintains key person life
insurance on Ms. Woods.
Fashion and Apparel Industry Risks
The Company believes that its success depends in
substantial part on its ability to originate and define product
and fashion trends as well as to anticipate, gauge and react to
changing consumer demands in a timely manner. There can be no
assurance that the Company will continue to be successful in this
regard. The Company attempts to reduce the risks of changing
fashion trends and product acceptance by devoting a substantial
portion of its product line to basic durables which are not
significantly modified from year to year. Nevertheless, if the
Company misjudges the market for its products, it may be faced
with significant excess inventories for some products and missed
opportunities with others.
The industry in which the Company operates is cyclical.
Purchases of apparel and related merchandise tend to decline
during recessionary periods and also may decline at other times.
There can be no assurance that the Company will be able to
maintain its historical growth in revenues or earnings, or remain
profitable in the future. Further, a recession in the general
economy or uncertainties regarding future economic prospects
could affect consumer spending habits and have an adverse effect
on the Company's results of operations.
Increases in Costs of Mailing, Paper and Printing
Postal rate increases and paper and printing costs affect
the cost of the Company's catalog and promotional mailings. The
Company relies on discounts from the basic postal rate structure,
such as discounts for bulk mailings and sorting by zip code and
carrier routes. The Company is not a party to any long-term
contracts for the supply of paper. The Company's cost of paper
has fluctuated significantly during the past three fiscal years,
and its future paper costs are subject to supply and demand
forces external to its business. The Company's average cost per
hundred-pound weight of paper was $39, $58 and $52 during fiscal
1994, 1995 and 1996, respectively, and $52 and $41 during the
forty weeks ended November 8, 1996 and November 7, 1997,
respectively. Consequently, there can be no assurance that the
Company will not be subject to an increase in paper costs.
Although the Company has recently entered into a new four-year
contract for the printing of its catalogs, the contract offers no
assurance that the Company's printing costs will not increase
following expiration of the contract. Future increases in postal
rates or paper or printing costs would have a negative impact on
the Company's earnings to the extent that the Company is unable
to pass such increases on directly to customers or offset such
increases by raising selling prices or by implementing more
efficient mailings. See "Business--J. Crew Brand--J. Crew Mail
Order--Catalog Creation and Production."
Reliance on Foreign Sourcing
In 1996, approximately 50% of the J. Crew brand and
Clifford & Wills merchandise was sourced from independent foreign
factories located primarily in the Far East, and many of the
Company's domestic vendors import a substantial portion of their
merchandise from abroad. The Company has no long-term merchandise
supply contracts and many of its imports are subject to existing
or potential duties, tariffs or quotas that may limit the
quantity of certain types of goods which may be imported into the
United States from countries in those regions. The Company
competes with other companies for production facilities and
import quota capacity. The Company's business is also subject to
a variety of other risks generally associated with doing business
abroad, such as political instability (including issues
concerning the future of Hong Kong following the transfer of Hong
Kong to The People's Republic of China on July 1, 1997), currency
and exchange risks and potential local issues. The Company's
future performance will be subject to such factors, which are
beyond its control, and there can be no assurance that such
factors would not have a material adverse effect on the Company's
results of operations. See "Business--General--Sourcing,
Production and Quality."
17
The Company requires its licensing partners and independent
manufacturers to operate in compliance with applicable laws and
regulations. While the Company's internal and vendor operating
guidelines promote ethical business practices, the Company does
not control such manufacturers or their labor practices. The
violation of labor or other laws by an independent manufacturer
of the Company or by one of the Company's licensing partners, or
the divergence of an independent manufacturer's or licensing
partner's labor practices from those generally accepted as
ethical in the United States, could have a material adverse
effect on the Company's financial condition and results of
operations.
Uncertainty Relating to Ability to Implement J. Crew Retail
Growth Strategy
The Company intends to expand its base of J. Crew retail
stores as part of its growth strategy. There can be no assurance
that this strategy will be successful. The actual number and type
of such stores to be opened and their success will be dependent
upon a number of factors, including, among other things, the
ability of the Company to manage such expansion and hire and
train qualified associates, the availability of suitable store
locations and the negotiation of acceptable lease terms for new
locations and upon lease renewals for existing locations. There
is no assurance that the Company will be able to open and operate
new stores on a timely or profitable basis. In 1996, net of
construction allowances, the Company spent $10.9 million for new
stores and remodeling and anticipates spending approximately
$16.2 million in 1997 and $23.0 million in 1998 for such capital
expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--J.
Crew Brand--J. Crew Retail--New Store Expansion." The Company
believes that the opening of J. Crew retail stores has diverted
some customer revenues from the J. Crew mail order operations.
There can be no assurance that future store openings will not
continue to have such an effect.
Seasonality
The Company experiences seasonal fluctuations in its
revenues and operating income, with a disproportionate amount of
the Company's revenues and a majority of its income from
operations typically realized during the fourth quarter of its
fiscal year. Revenues and income from operations are generally
weakest during the first and second quarters of the Company's
fiscal year. The Company's quarterly results of operations may
also fluctuate significantly as a result of a variety of other
factors, including the timing of new store openings and of
catalog mailings, and the revenues contributed by new stores,
merchandise mix and the timing and level of markdowns. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Seasonality."
Competition
All aspects of the Company's businesses are highly
competitive. The Company competes primarily with other catalog
operations, specialty brand retailers, department stores, and
mass merchandisers engaged in the retail sale of men's and
women's apparel, accessories, footwear and general merchandise.
The Company believes that the principal bases upon which it
competes are quality, design, efficient service, selection and
price. However, certain of the Company's competitors are larger
and have greater financial, marketing and other resources than
the Company, and there can be no assurance that the Company will
be able to compete successfully with them in the future.
Cautionary Statement Concerning Ability to Achieve Anticipated
Cost Savings and Forward-Looking Statements
Management of the Company estimates that approximately $7
million of annualized net cost savings (in addition to the $7.5
million in estimated annual savings included in Adjusted EBITDA)
could be achieved by mid- 1998, including process efficiencies,
reduction of the Base Book trim size, installation of an
automated sortation system at the Company's Lynchburg, Virginia
distribution center and relocation of C&W to the J. Crew
corporate headquarters office. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Overview," "Business--Overview" and
"--Opportunities." The cost savings estimates were prepared
solely by members of the management of the Company. The estimates
necessarily reflect numerous assumptions as to future sales
levels and other operating results, the availability of funds for
capital expenditures as well as general industry and business
conditions and other matters, many of which are beyond the
control of the Company. Other
18
estimates were based on a management consensus as to what levels
of purchasing and similar efficiencies should be achievable by an
entity the size of the Company. All of these forward-looking
statements are based on estimates and assumptions made by
management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict.
There can be no assurance that the savings anticipated in these
forward-looking statements will be achieved. In addition, there
can be no assurance that unforeseen costs and expenses or other
factors will not offset the estimated cost savings or other
components or the Company's plan in whole or in part.
The information contained herein contains forward-looking
statements that involve a number of risks and uncertainties. A
number of factors could cause actual results, performance,
achievements of the Company, or industry results to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These
factors include, but are not limited to, the competitive
environment in the apparel industry in general and in the
Company's specific market areas; changes in prevailing interest
rates and the availability of and terms of financing to fund the
anticipated growth of the Company's business; inflation; changes
in costs of goods and services; economic conditions in general
and in the Company's specific market areas; demographic changes;
changes in or failure to comply with federal, state and/or local
government regulations; liability and other claims asserted
against the Company; changes in operating strategy or development
plans; the ability to attract and retain qualified personnel; the
ability to control inventory levels; the significant indebtedness
of the Company; labor disturbances; the ability to negotiate
agreements with suppliers on favorable terms; changes in the
Company's capital expenditure plan; and other factors referenced
herein. In addition, such forward-looking statements are
necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown
risks, uncertainties and other factors. Forward-looking
statements regarding revenues and EBITDA are particularly subject
to a variety of assumptions, some or all of which may not be
realized. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or
circumstances and may not be realized. Forward-looking statements
can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may,"
"will," "should," "seeks," "pro forma," "anticipates" or
"intends" or the negative of any thereof, or other variations
thereon or comparable terminology, or by discussions of strategy
or intentions. Given these uncertainties, prospective purchasers
of New Debentures are cautioned not to place undue reliance on
such forward-looking statements. The Company disclaims any
obligations to update any such factors or to publicly announce
the results of any revisions to any of the forward-looking
statements contained herein to reflect future events or
developments.
Risk Factors Relating to the Debentures
Limitation on Access to Cash Flow of Subsidiaries; Holding Company Structure
Holdings is a holding company, and its ability to pay
interest on the Debentures is dependent upon the receipt of
dividends from its direct and indirect subsidiaries. Holdings
does not have and may not in the future have, any assets other
than the common stock of Operating Corp. Operating Corp and its
subsidiaries are parties to the Bank Facilities and an indenture
relating to the Operating Corp Senior Subordinated Notes (the
"Senior Subordinated Note Indenture"), each of which imposes
substantial restrictions on Operating Corp's ability to pay
dividends to Holdings. Any payment of dividends will be subject
to the satisfaction of certain financial conditions set forth in
the Senior Subordinated Note Indenture and the Bank Facilities.
The ability of Operating Corp and its subsidiaries to comply with
such conditions in the Senior Subordinated Note Indenture may be
affected by events that are beyond the control of Holdings. The
breach of any such conditions could result in a default under the
Senior Subordinated Note Indenture, the Term Loan Facility and/or
the Revolving Credit Facility, and in the event of any such
default, the holders of the Operating Corp Senior Subordinated
Notes or the lenders under the Bank Facilities could elect to
accelerate the maturity of all the Operating Corp Senior
Subordinated Notes or the loans under such facilities. If the
maturity of the Operating Corp Senior Subordinated Notes or the
loans under the Bank Facilities were to be accelerated, all such
outstanding debt would be required to be paid in full before
Operating Corp or its subsidiaries would be permitted to
distribute any assets or cash to Holdings. There can be no
assurance that the assets of Holdings would be sufficient to
repay all of such outstanding debt and to meet its obligations
under the Indenture. Future borrowings by Operating Corp can be
expected to contain restrictions or prohibitions on the
19
payment of dividends by Operating Corp and its subsidiaries to
Holdings. In addition, under Delaware law, a subsidiary of a
company is permitted to pay dividends on its capital stock, only
out of its surplus or, in the event that it has no surplus, out
of its net profits for the year in which a dividend is declared
or for the immediately preceding fiscal year. Surplus is defined
as the excess of a company's total assets over the sum of its
total liabilities plus the par value of its outstanding capital
stock. In order to pay dividends in cash, Operating Corp must
have surplus or net profits equal to the full amount of the cash
dividend at the time such dividend is declared. In determining
Operating Corp's ability to pay dividends, Delaware law permits
the Board of Directors of Operating Corp to revalue its assets
and liabilities from time to time to their fair market values in
order to create surplus. Holdings cannot predict what the value
of its subsidiaries' assets or the amounts of their liabilities
will be in the future and, accordingly, there can be no assurance
that Holdings will be able to pay its debt service obligations on
the Debentures. In addition, indebtedness outstanding under the
Bank Facilities will be secured by substantially all of the
assets of the Company (including the common stock of Operating
Corp).
As a result of the holding company structure of Holdings,
the Holders of the Debentures will be structurally junior to all
creditors of the Holdings' subsidiaries, except to the extent
that Holdings is itself recognized as a creditor of any such
subsidiary, in which case the claims of Holdings would still be
subordinate to any security in the assets of such subsidiary and
any indebtedness of such subsidiary senior to that held by
Holdings. In the event of insolvency, liquidation,
reorganization, dissolution or other winding-up of the Holdings'
subsidiaries, Holdings will not receive any funds available to
pay to creditors of the subsidiaries. As of November 7, 1997, the
aggregate amount of indebtedness and other obligations of
Holdings' subsidiaries (including trade payables and other
accrued liabilities) was $508.3 million.
Restrictive Debt Covenants
The Indenture, the Senior Subordinated Note Indenture and
the Bank Facilities contain a number of significant covenants
that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, prepay other
indebtedness (including the Debentures) or amend certain debt
instruments pay dividends, create liens on assets, enter into
sale and leaseback transactions, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations,
change the business conducted by the Issuer or its subsidiaries,
make capital expenditures or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities.
In addition, under the Bank Facilities, Operating Corp is
required to comply with specified financial ratios and tests,
including minimum interest coverage ratios, leverage ratios below
a specified maximum, minimum net worth levels and minimum ratios
of inventory to senior debt. See "Description of the New
Debentures" and "Description of Operating Corp Indebtedness."
The Company's ability to comply with such agreements may be
affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any of
such covenants or restrictions could result in a default under
the Bank Facilities, the Senior Subordinated Note Indenture
and/or the Indenture, which would permit the senior lenders, or
the holders of the Operating Corp Senior Subordinated Notes
and/or the Debentures, or both, as the case may be, to declare
all amounts borrowed thereunder to be due and payable, together
with accrued and unpaid interest, and the commitments of the
senior lenders to make further extensions of credit under the
Bank Facilities could be terminated. If the Company were unable
to repay its indebtedness to its senior lenders, such lenders
could proceed against the collateral securing such indebtedness
as described under "Description of Operating Corp Indebtedness."
Fraudulent Transfer Statutes
Under federal or state fraudulent transfer laws, if a court
were to find that, at the time the Debentures were issued, the
Issuer (i) issued the Debentures with the intent of hindering,
delaying or defrauding current or future creditors or (ii) (A)
received less than fair consideration or reasonably equivalent
value for incurring the indebtedness represented by the
Debentures, and (B)(1) was insolvent or was rendered insolvent by
reason of the issuance of the Debentures, (2) was engaged, or
about to engage, in a business or transaction for which its
assets were unreasonably small or (3) intended to incur, or
believed (or should have believed) it would incur, debts beyond
20
its ability to pay as such debts mature (as all of the foregoing
terms are defined in or interpreted under such fraudulent
transfer statutes), such court could avoid all or a portion of
the Issuer's obligations to the holders of Debentures,
subordinate the Issuer's obligations to the holders of the
Debentures to other existing and future indebtedness of the
Issuer, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on
the Debentures, and take other action detrimental to the holders
of the Debentures, including in certain circumstances,
invalidating the Debentures. In that event, there would be no
assurance that any repayment on the Debentures would ever be
recovered by the holders of the Debentures.
The definition of insolvency for purposes of the foregoing
considerations varies among jurisdictions depending upon the
federal or state law that is being applied in any such
proceeding. However, the Issuer generally would be considered
insolvent at the time it incurs the indebtedness constituting the
Debentures if (i) the fair market value (or fair saleable value)
of its assets is less than the amount required to pay its total
existing debts and liabilities (including the probable liability
on contingent liabilities) as they become absolute or matured or
(ii) it is incurring debts beyond its ability to pay as such
debts mature. There can be no assurance as to what standard a
court would apply in order to determine whether the Issuer was
"insolvent" as of the date the Debentures were issued, or that,
regardless of the method of valuation, a court would not
determine that the Issuer was insolvent on that date. Nor can
there be any assurance that a court would not determine,
regardless of whether the Issuer was insolvent on the date the
Debentures were issued, that the payments constituted fraudulent
transfers on another ground. To the extent that proceeds from the
sale of the Debentures are used to make a distribution to a
stockholder on account of the ownership of capital stock, a court
may find that the Issuer did not receive fair consideration or
reasonably equivalent value for the incurrence of the
indebtedness represented by the Debentures.
Based upon financial and other information currently
available to it, management of the Issuer believes that the
Debentures are being incurred for proper purposes and in good
faith and that the Issuer (i) is solvent and will continue to be
solvent after issuing the Debentures, (ii) will have sufficient
capital for carrying on its business after such issuance, and
(iii) will be able to pay its debts as they mature. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Possible Inability to Repurchase Debentures upon Change of Control
In the event of a Change of Control, each holder of
Debentures will have the right to require Holdings to repurchase
all or any part of such holder's Debentures at the offer price
specified therefore in the Indenture. Holdings does not have, and
may not in the future have, any assets other than common stock of
Operating Corp (which is pledged to secure Operating Corp's
obligations under the Bank Facilities). As a result, Holdings'
ability to repurchase all or any part of the Debentures upon the
occurrence of a Change of Control will be dependent upon the
receipt of dividends or other distributions from its direct and
indirect subsidiaries. The Bank Facilities and the Operating Corp
Senior Subordinated Notes restrict Operating Corp from paying
dividends and making any other distributions to Holdings. If
Holdings does not obtain dividends from Operating Corp sufficient
to permit the repurchase of the Debentures or does not refinance
such indebtedness, Holdings will likely not have the financial
resources to purchase Debentures upon the occurrence of a Change
of Control. In any event, there can be no assurance that
Holdings' subsidiaries will have the resources available to pay
such dividend or make any such distribution. Furthermore, the
Bank Facilities provide that certain change of control events
will constitute a default thereunder, and the Operating Corp
Senior Subordinated Notes provide that, in the event of a Change
of Control, Operating Corp will be required to offer to
repurchase the Operating Corp Senior Subordinated Notes at the
price specified therefore. Holdings' failure to make a Change of
Control offer when required or to purchase tendered Debentures
when tendered would constitute an Event of Default under the
Indenture. See "Description of the New Debentures" and
"Description of Other Issuer Indebtedness."
Original Issue Discount; Limitations on Holders' Claims
Under the Indenture, in the event of an acceleration of the
maturity of the Debentures upon the occurrence of an Event of
Default, the holders of the Debentures, which have been (in the
case of Old Debentures) or will be (in the case of New
Debentures) issued at a substantial original issue discount from
their principal amount at maturity,
21
may be entitled to recover only the amount which may be declared
due and payable pursuant to the Indenture, which will be less
than the principal amount at maturity of such Debentures. See
"Description of the Debentures-- Events of Default and Remedies."
If a bankruptcy case is commenced by or against Holdings
under the Bankruptcy Code (as defined herein), the claim of a
holder of Debentures with respect to the principal amount thereof
may be limited to an amount equal to the sum of (i) the issue
price of the Debentures and (ii) that portion of the original
issue discount (as determined on the basis of such issue price)
which is not deemed to constitute "unmature interest" for
purposes of the Bankruptcy Code. Accordingly, holders of the
Debentures under such circumstances may, even if sufficient funds
are available, receive a lesser amount than they would be
entitled to under the express terms of the Indenture. In
addition, the same rules as those used for the calculation of
original issue discount under federal income tax law and,
accordingly, a holder might be required to recognize gain or loss
in the event of a distribution related to such a bankruptcy case.
Consequences of Failure to Exchange
Holders of Old Debentures who do not exchange their Old
Debentures for New Debentures pursuant to the Exchange Offer will
continue to be subject to the restrictions on transfer of such
Old Debentures as set forth in the legend thereon as a
consequence of the issuance of the Old Debentures pursuant to
exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Debentures may not be
offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities
laws. The Issuer does not currently anticipate that it will
register the Old Debentures under the Securities Act. To the
extent that Old Debentures are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered
but unaccepted Old Debentures could be adversely affected.
Absence of Public Market
The Old Debentures have been designated as eligible for
trading in the PORTAL market. Prior to this Exchange Offer, there
has been no public market for the New Debentures. If such a
market were to develop, the New Debentures could trade at prices
that may be higher or lower than their principal amount. The
Issuer does not intend to apply for listing of the New Debentures
on any securities exchange or for quotation of the New Debentures
on The Nasdaq Stock Market's National Market or otherwise. The
Initial Purchasers have previously made a market in the Old
Debentures, and the Issuer has been advised that the Initial
Purchasers currently intend to make a market in the New
Debentures, as permitted by applicable laws and regulations,
after consummation of the Exchange Offer. The Initial Purchasers
are not obligated, however, to make a market in the Old
Debentures or the New Debentures and any such market making
activity may be discontinued at any time without notice at the
sole discretion of the Initial Purchasers. There can be no
assurance as to the liquidity of the public market for the New
Debentures or that any active public market for the New
Debentures will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of
the New Debentures may be adversely affected.
THE RECAPITALIZATION
The Shareholders, Holdings and TPG Partners II are parties
to the Recapitalization Agreement which provided for the
recapitalization of Holdings. Pursuant to the Recapitalization
Agreement, Holdings purchased from the Shareholders all
outstanding shares of Holdings' capital stock, other than shares
having an implied value of $11.1 million, almost all of which
continues to be held by Emily Woods, and which represented 14.8%
of the outstanding shares of Holdings' Common Stock immediately
following the transaction.
In connection with the Recapitalization, Holdings organized
Operating Corp and immediately prior to the consummation of the
Recapitalization, Holdings transferred substantially all of its
assets and liabilities to Operating Corp. Holdings' current
operations are, and future operations are expected to be, limited
to owning the stock of Operating Corp. Operating Corp repaid
substantially all of the Company's funded debt obligations
existing immediately before the consummation of the
Recapitalization. At October 17, 1997, the aggregate principal
amount of the Company's funded indebtedness was $186.0 million,
consisting of the Retired Senior Notes, the Retired Bank Credit
Facility and the Industrial Revenue Bond.
Cash funding requirements for the Recapitalization (which
was consummated on October 17, 1997) totalled $559.7 million
(including $99.0 million in seasonal borrowings) and were
satisfied through the purchase by TPG Partners II and investors
of an aggregate $188.9 million in Holdings' equity securities
together with an aggregate $330.8 million in borrowings and $40.0
million in proceeds from the Securitization, as follows: (i) the
purchase by TPG Partners II, its affiliates and other investors
of shares of Holdings' Common Stock (representing 85.2% of the
outstanding shares) for $63.9 million; (ii) the purchase by TPG
Partners II, its affiliates and other investors of $125.0 million
in liquidation value of Holdings Preferred Stock; (iii) gross
proceeds of $75.3 million from the issuance and sale by Holdings
of Holdings Senior Discount Debentures; (iv) $150.0 million from
the gross proceeds of the Offering; (v) $40.0 million in proceeds
from the Securitization; (vi) $70.0 million of borrowings under
the Term Loan Facility; and (vii) $35.6 million of borrowings
under the Revolving Credit Facility. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of the
New Debentures," "Description of Operating Corp Indebtedness" and
"Capital Stock of Holdings and Operating Corp."
The Recapitalization was accounted for as a
recapitalization transaction for accounting purposes. The
repurchase of shares from the Shareholders, the Debt Retirement,
the Holdings Common Equity Contribution, the issuance and sale by
Holdings of the Holdings Preferred Stock and the Holdings Senior
Discount Debentures, the borrowing by Operating Corp of funds
under the Bank Facilities and the Securitization and the issuance
and sale by Operating Corp of the Operating Corp Senior
Subordinated Notes were effected in connection with the
Recapitalization.
The following table summarizes the sources and uses of funds in
the Recapitalization:
(dollars in
thousands)
Sources:
Revolving Credit Facility (1)............. $ 35,559
Term Loan Facility........................ 70,000
Securitization (2)........................ 40,000
Operating Corp Senior Subordinated Notes.. 150,000
Debentures issued in the Offering......... 75,257
Holdings Preferred Stock.................. 125,000
Holdings Common Equity Contribution....... 63,891
Total Sources........................... $559,707
========
Uses:
Repurchase of Holdings' Capital Stock..... $ 316,688
Repayment of Retired Bank
Credit Facility (99,212)
Repayment of Retired Senior Notes (4)..... 93,104
Retirement of Industrial Revenue Bond (5) 1,963
Transaction Fees and Expenses
and Other Transaction Payments (6)....... 48,740
Total Uses.............................. $559,707
========
(1) Reflects borrowings to partially refinance seasonal
borrowings outstanding under the Retired Bank Credit Facility.
Giving effect to the Recapitalization, average outstanding
borrowings under the Revolving Credit Facility would have been
$12.2 million during the twelve months ended November 7, 1997.
Excludes letters of credit issued to facilitate international
merchandise purchases, which had an aggregate outstanding
balance of $37.4 million as of November 7, 1997. See the notes
to the "Unaudited Pro Forma Statements of Operations" included
herein.
(2) The Company securitized approximately $40 million of PCP
consumer loan installment receivables off-balance sheet
simultaneously with the consummation of the Recapitalization
pursuant to a facility arranged by affiliates of the Initial
Purchasers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Other Issuer
Indebtedness--Receivables Facility."
(3) The Retired Bank Credit Facility was in an aggregate
principal amount of up to $200.0 million, of which up to
$120.0 million was available for direct borrowings. Borrowings
under the Retired Bank Credit Facility were prepaid in whole
without penalty or premium and included accrued interest of
$0.2 million.
(4) The Retired Senior Notes were prepaid in connection with the
Recapitalization. The prepayment required the Issuer to pay a
make-whole premium in the amount of $5.8 million. Also included
is $2.3 million of accrued interest.
(5) The industrial revenue bond was prepaid in whole without
penalty or premium.
(6) Includes Holdings' expenses, management bonuses, financial
advisory, consulting and other professional fees and deferred
financing costs. See "Certain Relationships and Related Transactions."
TEXAS PACIFIC GROUP
TPG was founded by David Bonderman, James G. Coulter and
William S. Price, III in 1992 to pursue public and private
investment opportunities through a variety of methods, including
leveraged buyouts, recapitalizations, joint ventures,
restructurings and strategic public securities investments. The
principals of TPG operate TPG Partners, L.P. and TPG Partners II,
both Delaware limited partnerships with aggregate committed
capital of over $3.2 billion. Among TPG's investments are branded
consumer products companies Beringer Wine Estates, Del Monte
Foods Company and Ducati Motor. Other TPG portfolio companies
include America West Airlines, Belden & Blake Corporation,
Favorite Brands International, Paradyne, Virgin Entertainment and
Vivra Specialty Partners. In addition, the principals of TPG led
the $9 billion reorganization of Continental Airlines in 1993.
24
The principal executive office of TPG is located at 201 Main
Street, Suite 2420, Fort Worth, Texas 76102 and its telephone
number is (817) 871-4000.
USE OF PROCEEDS
There will be no cash proceeds payable to the Issuer from
the issuance of the New Debentures pursuant to the Exchange
Offer. The proceeds from the sale of the Old Debentures were used
by Holdings to finance the Recapitalization.
CAPITALIZATION
The following table sets forth as of November 7, 1997 the
actual unaudited capitalization of the Company. See "The
Recapitalization," "Use of Proceeds," "Description of the New
Debentures," "Description of Operating Corp Indebtedness" and
"Capital Stock of Holdings and Operating Corp." This table should
be read in conjunction with the "Selected Consolidated Financial
Data" and "Unaudited Pro Forma Consolidated Financial Data"
included elsewhere in this Prospectus.
As of November 7, 1997
Actual
(dollars in thousands)
Cash and cash equivalents....... $12,992
=======
Debt:
Revolving Credit Facility(1) .................... $47,000
Term Loan Facility .............................. 70,000
10-3/8% Senior Subordinated Notes due 2007 ...... 150,000
13-1/8% Senior Discount Debentures .............. 75,257
Total debt ..................................... 342,257
14-1/2% Preferred Stock ........................... 125,000
Stockholders' deficit (194,712)
Total capitalization .......................... $272,545
=======
(1) Excludes letters of credit issued to facilitate international
merchandise purchases, which had an aggregate outstanding
balance of $37.4 million as of November 7, 1997.
25
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial
data with respect to the Company (the "Unaudited Pro Forma
Financial Data") is based on the historical Consolidated
Financial Statements of the Company included elsewhere in this
Prospectus adjusted to give effect to the Recapitalization. The
Unaudited Pro Forma Statements of Operations give effect to the
Recapitalization as if it had occurred on February 3, 1996. The
Recapitalization and the related adjustments are described in the
accompanying notes. The pro forma adjustments are based upon
preliminary estimates and certain assumptions that management of
the Company believes are reasonable in the circumstances. In the
opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data. Actual amounts
could differ from those set forth below.
The Unaudited Pro Forma Financial Data should be read in
conjunction with the notes included herewith, the Company's
Consolidated Financial Statements and notes thereto as of
February 2, 1996 and January 31, 1997 and for each of the fiscal
years in the three-year period ended January 31, 1997, the
Company's Unaudited Condensed Consolidated Financial Data as of
November 7, 1997 and for the forty week periods ended November 7,
1997 and November 8, 1996, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The Unaudited Pro Forma
Financial Data do not purport to represent what the Company's
results of operations would have been had the Recapitalization
occurred on the dates specified, or to project the Company's
results of operations for any future period or date.
The unaudited supplemental data reflect (i) certain pro
forma adjustments and (ii) management's estimates of certain cost
savings and cost eliminations which management believes will be
attained. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Twelve Months Ended November 7, 1997
Pro Forma Adjustments
---------------------
Historical Operating Holdings Pro Forma
---------- --------- -------- ---------
Corp
----
(dollars in thousands)
Revenues..................... $836,658 $ (2,250)(1) $ -- $834,408
Cost of sales................ 447,528 -- -- 447,528
------- ------------ ------ -------
Gross profit................. 389,130 (2,250)(1) -- 386,880
Selling, general and
administrative
expensess ................... 361,267 1,800(5) -- 363,067
------- ---------- ------ -------
Income (loss) from
operations .................. 27,863 (4,050) -- 23,813
Interest expense:
Non-cash
interest expense ......... 1,052 1,397(2) 10,914(7) 13,363
Cash interest expense..... 13,736 9,205(3) -- 22,941
Expenses incurred in
connection with the
Recapitalization ............ 19,851 -- -- (8) 19,851
Provision (benefit)
for income taxes ............ 4,200 (6,007)(4) (4,487)(4) (6,904)
Extraordinary loss (net of
income benefit) ............. 4,500 -- -- (8) 4,500
- --------------- ------ --------- ---------- --------
Net income (loss)............ $(15,476) $(8,645) $(6,627) $(30,748)
========= ========== ============ ==========
Pro Forma and
-------------
Supplemental
------------
Historical Adjustments Adjusted
---------- ----------- --------
(dollars in thousands)
Supplemental Data:
Depreciation and
amortization ................ $13,107 $ -- $13,107
EBITDA....................... 40,970 6,620(8) 47,590
Ratio of Adjusted
EBITDA/cash
interest expense (6) ........ 2.1x
Ratio of Adjusted
EBITDA/total
interest expense (6) ........ 1.3x
Ratio of total
average debt/Adjusted
EBITDA (9) .................. 6.5x
Cash flows from
operating activities........ $
Cash flows from
investing activities........ $
Cash flows from
financing activities........ $
Fiscal Year Ended January 31, 1997
Pro Forma Adjustments
---------------------
Historical Operating Corp Holdings ProForma
---------- -------------- -------- --------
(dollars in thousands)
Revenues.................... $808,843 (2,650)(1) -- $806,193
Cost of sales............... 428,719 -- -- 428,719
Gross profit................ 380,124 (2,650)(1) -- 377,474
Selling, general and
administrative expenses .... 348,305 1,800 (5) -- 350,105
Income (loss) from
operations ................. 31,819 (4,450) -- 27,369
Interest expense:
Non-cash
interest expense ........ 401 1,485 (2) 10,422 12,308
Cash interest expense.... 10,069 11,894 (3) -- 21,963
Provision (benefit) for
income taxes ............... 8,800 (7,310)(4) (4,091)(4) (2,601)
Net income (loss)........... $12,549 (10,519) $(6,331) (4,301)
See accompanying notes to the unaudited pro forma statements of
operations.
27
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Forty Weeks Ended November 7, 1997
Pro Forma Adjustments
---------------------
Historical Operating Holdings Pro Forma
---------- --------- -------- ---------
Corp
----
(dollars in thousands)
Revenues.................... $566,596 $(1,638)(1) $ -- $564,958
Cost of sales............... 310,865 -- -- 310,865
------- ------- ------- -------
Gross profit................ 255,731 (1,638)(1) -- 254,093
Selling, general
and administrative
expenses ................... 253,159 1,385 (5) -- 254,544
------- ------- ------- -------
Income (loss)
from operations ............ 2,572 (3,023) -- (451)
Interest expense:
Non-cash
interest expense ......... 962 1,052 (2) 8,274(7) 10,288
Cash interest expense.... 10,907 6,966 (3) -- 17,873
Expenses incurred in
connection with the
Recapitalization............ 19,851 -- -- 19,851
Provision (benefit)
for income taxes ........... (5,050) (4,527)(4) (3,248)(4) (12,825)
Extraordinary
loss (net of
income benefit) ..... 4,500 -- -- 4,500
------- ------- ------- -------
Net income (loss)........... $(28,598) (6,514) $(5,026) $(40,138)
======== ======= ======= ========
Forty Weeks Ended November 8, 1996
Pro Forma Adjustments
Historical Operating Corp Holdings Pro Forma
(dollars in thousands)
Revenues.................... $538,781 $(2,038)(1) $-- 536,743
Cost of sales............... 292,056 -- -- 292,056
------- ------- ------- -------
Gross profit................ 246,725 (2,038)(1) -- 244,687
Selling, general and
administrative expenses 240,197 1,385 (5) -- 241,582
------- ------- ------- -------
Income (loss) from
operations ................. 6,528 (3,423) -- 3,105
Interest expense:
Non-cash interest
expense ................. 311 1,140 (2) 7,782(7) 9,233
Cash interest expense.... 7,240 9,655 (3) -- 16,895
Provision (benefit) for
income taxes ............... (450) (5,829) (3,053)(4) (9,332)
------- ------- ------- -------
Net income (loss)........... $ (573) $(8,389)(5) $(4,729) (13,691)
See accompanying notes to the unaudited pro forma statements of
operations.
28
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(1) Represents the estimated loss on the Securitization of
accounts receivable. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and
"Description of Operating Corp Indebtedness--Receivables
Facility."
(2) Represents the net increase in non-cash interest expense
relating to the amortization of debt issuance costs of
Operating Corp of $13.0 million relating to debt issued in
connection with the Recapitalization.
(3) Gives effect to the increase in estimated cash interest
expense from the use of borrowings to finance the
Recapitalization and future working capital requirements of
Operating Corp:
Fiscal Year Forty Weeks Ended Twelve Months
Ended ------------------- Ended
January November November November
31, 8, 7, 7,
1997 1996 1997 1997
---- ---- ---- ----
(dollars in thousands)
Interest on the Operating
Corp Senior Subordinated
Notes(a) .................... $15,563 $11,972 $11,972 $15,563
Interest on the Bank
Facilities:
Term Loan Facility(b) ..... 5,600 4,308 4,308 5,600
Revolving Credit
Facility(b) ............... -- -- 978 978
Other ........................ 800 615 615 800
----- ----- ----- ------
Total ..................... 21,963 16,895 17,873 22,941
Less: amounts in historical
statement of operations ...... 10,069 7,240 10,907 13,736
------ ----- ------ ------
Adjustment to interest
expense ...................... $11,894 $9,655 $6,966 $ 9,205
====== ====== ====== =======
(a) Interest is calculated at an effective interest rate of
10.375% for the period indicated.
(b) Interest is calculated at an estimated weighted average
effective interest rate of 8.0%.
(c) Interest is based on the average of historical daily
outstanding borrowings under the revolving credit facility
during the period, reduced (without giving effect to any
negative average daily balances) by $63.5 million,
reflecting the application of the proceeds of the
Recapitalization. No interest income was assumed.
(4) Estimated income tax effects of the pro forma adjustments at
an effective tax rate of 41%.
(5) Reflects non-cash compensation expense in connection with a
grant of restricted stock.
(6) Cash interest expense excludes, and total interest expense
includes, non-cash interest in respect of the Debentures.
(7) Represents the increase in non-cash interest expense
relating to the amortization of original issue discount of
the Debentures at an annual rate of 13.125%, compounded
semi-annually, and amortization of debt issuance costs of
Holdings of $2.4 million.
(8) Historical EBITDA is defined as income before extraordinary
items and cumulative effect of accounting changes, interest
expense, income tax expense, depreciation and amortization
and expenses of $19.9 million incurred in connection with
the Recapitalization. The Issuer believes that EBITDA
provides useful information regarding the Company's ability
to service its debt; however holders tendering Old
Debentures in the Exchange Offer should consider the
following factors in evaluating such measures: EBITDA and
related measures (i) should not be considered in isolation,
(ii) are not measures of performance calculated in
accordance with GAAP, (iii) should not be construed as
alternatives or substitutes for income from operations, net
income or cash flows from operating activities in analyzing
the Company's operating performance, financial position or
cash flows (in each case, as determined in accordance with
GAAP) and (iv) should not be used as indicators of the
Company's operating performance or measures of its
liquidity. Additionally, because all companies do not
calculate EBITDA and
29
related measures in a uniform fashion, the calculations
presented in this Prospectus may not be comparable to other
similarly titled measures of other companies.
Adjusted EBITDA is defined as EBITDA, revised to reflect
management's estimate of certain cost savings and cost
eliminations implemented prior to the Recapitalization.
The Issuer believes that EBITDA provides useful information
regarding the Company's ability to service its debt;
however, Adjusted EBITDA (i) should not be considered in
isolation, (ii) is not a measure of performance calculated
in accordance with GAAP, (iii) should not be construed as
alternatives or substitutes for income from operations, net
income or cash flows from operating activities in analyzing
the Company's operating performance, financial position or
cash flows (in each case, as determined in accordance with
GAAP) and (iv) should not be used as indicators of the
Company's operating performance or measures of its
liquidity. The management estimates of cost savings and cost
eliminations which are anticipated on a going-forward basis
and which are reflected in Adjusted EBITDA are as set forth
below:
Twelve Months Ended
-------------------
November 7, 1997
----------------
(dollars in thousands)
Historical EBITDA ...................... $40,970
Recapitalization pro forma
adjustments:
Loss on Securitization of
accounts receivable .................. (2,250)
Cost savings and cost eliminations
implemented prior to the Recapitalization:
Renegotiation of catalog vendor
contract(a) .......................... 2,100
Headcount and net payroll
reductions(b) ........................ 4,550
Insourcing of photography shop(c) .... 820
Non-recurring severance(d) ........... 1,400
-------
Total adjustments ................... 6,620
-------
Adjusted EBITDA ........................ $47,590
=======
(a) Reflects the recent renegotiation of the Company's catalog
vendor contract. The adjustment represents the difference
between the amounts previously expensed for such items and
the amounts which are expected to be expensed under the
terms of the new contract.
(b) Represents compensation savings as a result of the termination
of certain positions.
(c) Represents the estimated cost savings from bringing
in-house certain photography functions that were previously
performed by outside vendors.
(d) Reflects non-recurring severance associated with the
termination of certain managers.
(9) For purposes of computing the ratio of total average debt to
Adjusted EBITDA, total average debt on a pro forma basis as
of November 7, 1997 reflects average outstanding balances
under the Revolving Credit Facility of $12.2 million during
the twelve months ended November 7, 1997 (giving effect to
the Recapitalization), $70.0 million in aggregate principal
amount of indebtedness under the Term Loan Facility, $150.0
million in aggregate principal amount of Operating Corp
Senior Subordinated Notes and $75.3 million in initial
aggregate principal amount of the Old Debentures. Actual
daily outstanding borrowings under the revolving credit
facility were reduced (without giving effect to any negative
average daily balances) by $63.5 million, reflecting the
application of the proceeds of the Recapitalization, in
computing average outstanding borrowings.
30
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated
historical financial, operating, other and balance sheet data of
Holdings. The selected financial and balance sheet data for each
of the five fiscal years ended January 31, 1997 are derived from
the Consolidated Financial Statements of Holdings, which have
been audited by Deloitte & Touche LLP, independent auditors. The
selected financial data for the forty weeks ended November 8,
1996 and November 7, 1997 have been derived from the Holdings'
Unaudited Condensed Consolidated Financial Statements and
include, in the opinion of management, all adjustments necessary
to present fairly the data for such periods. The results for the
forty weeks ended November 7, 1997 are not necessarily indicative
of the results to be expected for the fiscal year ending January
30, 1998 or for any future period. The data presented below
should be read in conjunction with the Consolidated Financial
Statements, including the related Notes thereto, included herein,
the other financial information included herein, and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Fiscal Year Ended Forty Weeks Ended
--------------------------------------------------------------- ---------------------------
January 29, January 28, February 3, February 2, January 31, November 8, November 7,
----------- ----------- ----------- ----------- ----------- ---------- -----------
1993 1994 1995 1996 1997 1996 1997
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per square foot data) (unaudited)
Financial Data:
Revenues.................. $ 571,047 $ 646,972 $ 737,725 $ 745,909 $ 808,843 $ 538,781 $ 566,596
Cost of goods sold(1)..... 303,927 354,889 394,073 399,668 428,719 292,056 310,865
------- ------- ------- ------- ------- ------- -------
Gross profit............ 267,120 292,083 343,652 346,241 380,124 246,725 255,731
Selling, general and
administrative expenses .. 238,730 265,857 311,468 327,672 348,305 240,197 253,159
------- ------- ------- ------- ------- ------- -------
Income
from operations ........ 28,390 26,226 32,184 18,569 31,819 6,528 2,572
Interest expense-net...... 5,241 6,107 6,965 9,350 10,470 7,551 11,869
Expenses incurred-
Recapitalization ......... -- -- -- -- -- -- 19,851
for income taxes ......... 9,130 8,100 10,300 3,700 8,800 (450) (5,050)
Extraordinary item
and cumulative effect of
accounting changes(2)..... -- -- -- 931 -- -- 4,500
------- ------- ------- ------- ------- ------- -------
Net income (loss)(2)...... $ 14,019 $ 12,019 $ 14,919 $ 6,450 $ 12,549 $ (573) $(28,598)
======= ======== ======= ======== ======== ======= ========
Operating Data:
Revenues:
J. Crew mail order...... $ 201,463 $ 199,954 $ 247,272 $ 274,653 $ 289,772 $ 165,936 $ 157,840
J. Crew retail.......... 72,906 108,650 135,726 134,959 167,957 110,399 140,574
J. Crew factory......... 38,563 49,253 62,626 79,203 94,579 70,266 75,965
J. Crew licensing....... -- 1,900 3,269 3,975 3,817 3,279 2,968
------- ------- ------- ------- ------- ------- -------
Total J. Crew brand....... 312,932 359,757 448,893 492,790 556,125 350,330 377,347
Other divisions(3)........ 258,115 287,215 288,832 253,119 252,718 188,451 189,249
------- ------- ------- ------- ------- ------- -------
Total................... $ 571,047 $ 646,972 $ 737,725 $ 745,909 $ 808,843 $ 538,781 $ 566,566
======= ======== ======= ======== ======= ======= =======
EBITDA(4):
J. Crew mail order...... $ 12,840 $ 11,980 $ 24,345 $ 16,831 $ 17,524 $ (1,924) $ (8,225)
J. Crew retail.......... 6,720 5,055 13,333 15,194 16,847 8,800 8,177
J. Crew factory......... 3,660 1,797 1,653 (66) 2,876 3,395 3,244
J. Crew licensing....... (51) 1,239 2,422 2,820 2,467 2,797 2,285
------- ------- ------- ------- ------- ------- -------
Total J. Crew brand..... 23,169 20,071 41,753 34,779 39,714 13,068 5,481
Other divisions(3)...... 11,611 12,941 (1,459) (5,938) 2,646 1,085 7,282
------- ------- ------- ------- ------- ------- -------
Total..................... $ 34,870 $ 33,012 $ 40,294 $ 28,841 $ 42,360 $ 14,153 $ 12,763
======= ======== ======= ======== ======== ======= ========
Other Data:
Cash flows from
operating activities $22,400 $1,467 $1,774 $(7,849) $16,497 $(42,766) $(61,100)
Cash flows from
investing activities $(14,965) $(11,086) $(13,467) $(14,640) $(22,481) $(14,947) $(28,265)
Cash flows from
financing activities $638 $5,020 $6,763 $17,763 $(413) $54,822 $ 95,225
J. Crew Mail Order:
Number of catalogs
circulated
(in thousands) ......... 56,983 62,547 61,187 67,519 76,087 53,942 53,977
Number of pages
circulated
(in millions) .......... 6,576 6,965 8,277 10,198 9,827 6,341 6,293
J. Crew Retail:
Sales per gross
square foot(5) ......... $ 622 $ 559 $ 594 $ 533 $ 551 NM NM
Store contribution
margin(6) .............. 24.0% 18.7% 22.7% 25.5% 25.4% NM NM
31
Number of stores
open at end of period ... 18 28 29 31 39 39 49
Comparable store
sales change(7) ......... 22.0% (8.0)% 6.9% (6.0)% 4.5% 4.0% (6.1)%
Depreciation and
amortization .............. $ 6,390 $ 6,786 $ 8,110 $ 10,272 $ 10,541 $ 7,625 $ 10,191
Net capital expenditures(8)
New store openings. ..... 5,519 2,789 2,804 6,009 10,894 6,903 15,253
Other ................... 9,446 8,297 10,663 8,631 11,587 8,044 13,012
------- ------- ------- ------- ------- ------- -------
Total net capital
expenditures ............ 14,965 11,086 13,467 14,640 22,481 14,947 28,265
Ratio of earnings
to fixed charges(9) ....... 3.1x 2.5x 2.6x 1.5x 2.0x 1.5x 1.1x
Balance Sheet Data
(at period end):
Cash and cash equivalents . $ 27,784 $ 23,185 $18,255 $ 13,529 $ 7,132 $ 10,638 $ 12,992
Working capital(10) ....... 56,864 75,391 96,437 118,964 125,327 167,908 173,341
Total assets .............. 232,582 287,233 324,795 355,249 410,821 454,177 439,391
Total debt ................ 56,783 61,803 69,566 87,329 87,092 142,151 342,257
Stockholders' equity
(deficit) ................. 53,584 66,221 82,041 89,633 102,006 89,060 (194,712)
(1) Includes buying and occupancy costs.
(2) In fiscal 1995, Holdings changed its method of accounting
for catalog costs and for merchandise inventories and
recognized an increase in net income from the aggregate
cumulative effect of such accounting changes, net of income
taxes, of $2.6 million. In the same year, Holdings
recognized extraordinary losses of $1.7 million, net of
income tax benefit, related to the early retirement of debt.
See Notes 11 and 12 of Notes to Consolidated Financial
Statements. In the forty weeks ended November 7, 1997,
Holdings recognized an extraordinary loss of $4.5 million
net of income tax benefit related to the early retirement of
debt.
(3) Includes the Company's PCP and C&W divisions and finance
charge income derived from PCP installment sales.
(4) EBITDA represents income (loss) before extraordinary items
and cumulative effect of accounting changes plus income
taxes, interest expense, depreciation and amortization and
expenses of $19.9 million incurred in connection with the
Recapitalization. The Company believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted
accounting principles and should not be considered as a
substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of
liquidity. Holders tendering Old Debentures in the Exchange
Offer should consider the following factors in evaluating
such measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should
not be construed as alternatives or substitutes for income
from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
(5) Sales per gross square foot is the result of dividing
annualized net retail sales for the period (reflecting
adjustments based on management estimates of the impact of
opening stores in different periods during the year) by
gross square footage at the end of each fiscal period.
(6) Store contribution margin is computed as gross profit less
in-store operating expenses divided by sales.
(7) Comparable store sales includes stores that have been open
for one full twelve-month period.
(8) Capital expenditures are net of proceeds from construction
allowances.
(9) For purposes of computing the ratio of earnings to fixed
charges, earnings include income before income taxes,
extraordinary items and cumulative effect of accounting
changes and expenses incurred in connection with the
Recapitalization of $19.9 million in the forty weeks ended
November 7, 1997, plus fixed charges. Fixed charges consist
of interest expense and one-third of rental expense (deemed
by management to be representative of the interest factor of
rental payments).
(10) Working capital is computed as current assets less current
liabilities, excluding cash and cash equivalents, current
portion of long-term debt and borrowings under the revolving
credit facility.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Selected Consolidated Financial Data and the
Consolidated Financial Statements of Holdings and the related
notes thereto which are included elsewhere in this Prospectus.
The Company's fiscal year ends on the Friday closest to January
31. Accordingly, fiscal years 1992, 1993, 1994, 1995 and 1996
ended on January 29, 1993, January 28, 1994, February 3, 1995,
February 2, 1996 and January 31, 1997. All fiscal years for which
financial information is included in this Prospectus had 52
weeks, except fiscal 1994 which had 53 weeks.
Overview
The Company's origins date back to the 1947 founding of
Popular Merchandising Co. which operated PCP, a direct selling
catalog merchandiser of consumer branded goods. In 1983, drawing
upon their family's 35- year experience in catalog retailing,
Arthur Cinader and Emily Woods, the son and granddaughter of
PCP's founder, founded the J. Crew brand with innovative durables
products (including the rollneck sweater, weathered chino, barn
jacket and pocket tee) that continue to be core J. Crew brand
product offerings today. In 1984, C&W was founded as a mail order
women's apparel business targeting an older, more conservative
customer than J. Crew. Capitalizing on the strength of its J.
Crew brand franchise, the Company began developing select retail
store locations in 1989. Today, the Company is a leading mail
order and store retailer of women's and men's apparel, shoes and
accessories operating primarily under the J. Crew brand name.
Since the introduction of the J. Crew brand in 1983, the Company
has mailed more than one-half billion J. Crew catalogs, opened 49
J. Crew retail stores and 42 J. Crew Factory Outlet stores. In
addition, J. Crew products are distributed through 67
free-standing and shop-in- shop stores in Japan under a licensing
agreement with Itochu. The Company's J. Crew brand revenues have
increased from $312.9 million in fiscal 1992 to $556.1 million in
fiscal 1996, representing a compound annual growth rate of 15.4%.
33
The following table sets forth, for the periods indicated,
revenues and EBITDA for the Company's major operating divisions:
Forty Twelve
Fiscal Year Weeks Ended Months
----------- ----------- ------
Ended
Nov. 8, Nov. 7, Nov. 7,
------- ------- -------
1992 1993 1994 1995 1996 1996 1997 1997
---- ---- ---- ---- ---- ---- ---- ----
(dollars in millions)
Revenues:
J. Crew
mail order .$201.5 $200.0 $247.3 $274.6 $289.8 $166.0 $157.8 $281.6
J. Crew
retail ..... 72.9 108.7 135.7 135.0 168.0 110.4 140.6 198.2
J. Crew
factory .... 38.5 49.2 62.6 79.2 94.5 70.2 76.0 100.3
J. Crew
licensing .. -- 1.9 3.3 4.0 3.8 3.7 2.9 3.0
-- --- --- --- --- --- --- ---
Total J.
Crew
brand .... 312.9 359.8 448.9 492.8 556.1 350.3 377.3 583.1
Other
divisions (1) 258.1 287.2 288.8 253.1 252.7 188.4 189.3 253.6
----- ----- ----- ----- ----- ----- ----- -----
Total
revenues . $571.0 $647.0 $737.7 $745.9 $808.8 $538.7 $566.6 $836.7
===== ===== ==== ===== ===== ===== ===== =====
EBITDA (2):
J. Crew
mail order . $ 12.8 $ 12.0 $ 24.4 $ 16.8 $ 17.5 $ (1.9) $ (8.2) $ 11.2
J. Crew
retail ..... 6.7 5.1 13.3 15.2 16.8 8.8 8.2 16.2
J. Crew
factory .... 3.7 1.8 1.7 -- 2.9 3.4 3.2 2.7
J. Crew
licensing .. -- 1.2 2.4 2.8 2.5 2.8 2.3 2.0
-- --- --- --- --- --- --- ---
Total J.
Crew
brand .... 23.2 20.1 41.8 34.8 39.7 13.1 5.5 32.1
Other
divisions (3) 11.6 12.9 (1.5) (5.9) 2.6 1.0 7.3 8.9
---- ---- ----- ----- --- --- --- ---
Total
EBITDA ... $34.8 $33.0 $40.3 $28.9 $42.3 $14.1 $12.8 $41.0
==== ==== ==== ==== ==== ==== ==== ====
Cash flow
from
operating
activities .. $22.4 $1.5 $1.8 $(7.8) $16.5 $(42.8) $(61.1) $(1.8)
Cash flow
from
investing
activities ..$(15.0) $(11.1) $(13.5) $(14.6 $(22.5) $(14.9) $(28.3) $(35.8)
Cash flow
from
financing
activities .. $0.6 $5.0 $6.8 $17.8 $(0.4) $54.8 $ 95.2 $(40.0)
(1) Includes net sales from the Company's PCP and C&W divisions
and finance charge income derived from PCP installment
sales.
(2) EBITDA represents income (loss) before extraordinary items
and cumulative effect of accounting changes plus income
taxes, interest expense, depreciation and amortization and
expenses of $19.9 million incurred in connection with the
Recapitalization. The Company believes that EBITDA provides
useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash
flow from operations as defined by generally accepted
accounting principles and should not be considered as a
substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of
liquidity. Holders tendering Old Debentures in the Exchange Offer
should consider the following factors in evaluating such
measures: EBITDA and related measures (i) should not be
considered in isolation, (ii) are not measures of
performance calculated in accordance with GAAP, (iii) should
not be construed as alternatives or substitutes for income
from operations, net income or cash flows from operating
activities in analyzing the Company's operating performance,
financial position or cash flows (in each case, as
determined in accordance with GAAP) and (iv) should not be
used as indicators of the Issuer's operating performance or
measures of its liquidity. Additionally, because all
companies do not calculate EBITDA and related measures in a
uniform fashion, the calculations presented in this
Prospectus may not be comparable to other similarly titled
measures of other companies.
(3) Includes EBITDA from the Company's PCP and C&W divisions.
The following sets forth, for the periods indicated, the
percentage relationship to revenues of certain items in the
Company's consolidated statements of operations for the fiscal
periods shown below:
Fiscal Year Forty Weeks Ended
1994 1995 1996 Nov. 8, 1996 Nov. 7, 1997
------ ------ ------- ------------ ------------
Revenues ........... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods
sold, including
buying and
occupancy
costs .............. 53.4 53.6 53.0 54.2 54.9
---- ---- ---- ---- ----
Gross
profit ........... 46.6 46.4 47.0 45.8 45.1
Selling, general
and administrative
expenses ........... 42.2 43.9 43.1 44.6 44.7
---- ---- ---- ---- ----
Income
from
operations ...... 4.4 2.5 3.9 1.2 0.4
Interest
expense, net ...... 1.0 1.3 1.3 1.4 2.1
Expenses incurred-
recapitalization .. -- -- -- -- 3.5
-- ----- ---- ---- ------
Income (loss)
before provision
for income taxes,
extraordinary
item and cumulative
effect of accounting
changes ......... 3.4 1.2 2.6 (0.2) (5.2)
Provision
(benefit)
for income taxes .. 1.4 0.5 1.0 (0.1) (0.9)
--- --- ---- ---- ----
Income (loss)
before extraordinary
item and
cumulative effect
of accounting
changes ......... 2.0% 0.7% 1.6% (0.1)% (4.3)%
==== ==== ==== ==== ====
The Company's revenues include sales of the Company's
merchandise offered through the J. Crew, C&W and PCP catalogs, as
well as through the C&W Factory stores, the retail stores
operated through Grace Holmes, Inc. ("J. Crew Retail") and the
factory outlet stores operated through H.F.D. No. 55, Inc. ("J.
Crew Factory Outlet"). Also included in revenues are J. Crew
brand licensing royalties and finance charge income derived from
PCP installment sales. Cost of goods sold includes the cost of
products purchased for sale, design, purchasing and
34
warehousing costs, as well as occupancy costs of the Company's
retail and factory stores. Selling, general and administrative
expenses include all other operating expenses, principally
catalog and other selling costs, payroll, depreciation and
corporate expenses.
In fiscal 1995, the Company operations were affected by:
(i) an increase in selling, general and administrative expenses
tied to a spike in paper prices to levels never before
experienced in the Company's history coupled with an increase in
catalog circulation; (ii) the unsuccessful repositioning of C&W
from targeting more mature, conservative customers to targeting
younger, more urban customers; and (iii) negative comparable
store sales in the J. Crew Retail and J. Crew Factory Outlet
operations, primarily as a result of severe weather conditions
during the holiday season and weak menswear performance. Since
1995, paper prices have declined in each period indicated and C&W
has been reoriented toward its traditional conservative,
career-oriented customer base and its operating results have
stabilized.
The Company has identified a number of tactical cost
savings that could be realized without affecting the Company's
franchise or brand image. The Company implemented actions prior to
the Recapitalization which management believes will result in
estimated annual savings of $7.5 million. These actions include the
recent renegotiation of its new catalog vendor contract, selected
headcount and net payroll reductions and insourcing of certain
photography functions. The Company has identified approximately
$7 million of further potential savings through process
efficiencies, reduction of the Base Book trim size, installation
of automatic sorting equipment and consolidation of J. Crew and
C&W New York corporate offices. The Company believes these
additional cost savings could be implemented by mid-1998. See
"Risk Factors--Cautionary Statement Concerning Ability to Achieve
Anticipated Cost Savings and Forward-Looking Statements."
In August 1997, United Parcel Service ("UPS"), which had
traditionally shipped approximately 60% of merchandise orders for
J. Crew Mail Order and C&W, experienced a two-week strike. In
anticipation of the strike, J. Crew Mail Order, C&W and PCP made
alternative arrangements with the United States Postal Service to
ensure uninterrupted delivery service for the same volume of
shipments as ordinarily made during the affected period. However,
under the perception that orders would not be filled in a timely
manner, many consumers hesitated to place orders for catalog
merchandise during the strike, adversely affecting operations of
J. Crew Mail Order, C&W and PCP. The Company also delayed, by
approximately three weeks of the "back-to-school" season mailing
of its J. Crew College catalog during the pendency of the strike.
Results of Operations
The Forty Weeks Ended November 7, 1997 Compared to the
Forty Weeks Ended November 8, 1996
Revenues
Revenues increased 5.2% to $566.6 million in the forty
weeks ended November 7, 1997 from $538.7 million in the forty
weeks ended November 8, 1996, as a result of increased sales of
J. Crew brand merchandise. J. Crew brand revenues increased by
7.7% to $377.3 million in the forty weeks ended November 7, 1997
from $350.3 million in the comparable 1996 period. Other
divisions contributed $189.3 million of revenues during the forty
weeks ended November 7, 1997 as compared to $188.4 million in the
same period in 1996.
J. Crew Mail Order revenues decreased 4.9% to $157.8 million
in the forty weeks ended November 7, 1997 from $166.0 million in
the forty weeks ended November 8, 1996. The percentage of the
Company's total revenues derived from J. Crew Mail Order
decreased to 27.9% in the forty weeks ended November 7, 1997 from
30.8% in the forty weeks ended November 8, 1996. The decrease in
J.Crew Mail Order revenues was primarily the result of the UPS
strike. Gross sales were down 19% from July 18, 1997 to the end
of the UPS strike on August 23, 1997
35
compared to the same period in 1996. Additionally, weak
performance in menswear sales and unseasonably warm weather on
the east coast in the first part of the fall season also
contributed to the decreased sales. The number of catalogs mailed
were at the same approximate level of 54 million as in the same
forty week period in the prior year.
J. Crew Retail revenues increased by 27.4% to $140.6
million in the forty weeks ended November 7, 1997 from $110.4
million in the forty weeks ended November 8 ,1996. The percentage
of the Company's total revenues derived from its J. Crew Retail
stores increased to 24.8% in the forty weeks ended November 7,
1997 from 20.5% in the forty weeks ended November 8, 1996. The
increase in J. Crew Retail revenues is the result of opening 10
new stores since the comparable period in 1996. Comparable store
sales decreased 6.1% as the result of the opening of new stores
in proximity to existing store locations and weak performance in
menswear sales. Unseasonably warm weather in the first part of
the fall season also contributed to a decreased sales of fall and
winter clothing.
J. Crew Factory Outlet revenues increased by 8.1% to $76.0
million in the forty weeks ended November 7, 1997 from $70.2
million in the forty weeks ended November 8, 1996. The percentage
of the Company's total revenue derived from J. Crew Factory
Outlet remained at approximately 13.0% in the forty weeks ended
November 7, 1997 as compared to the forty weeks ended November 8,
1996. J. Crew Factory stores comparable store sales increased 6%
in the forty weeks ending November 7, 1997. The comparable store
sales increase was principally due to the overall improvement in
store merchandising under the direction of a new factory outlet
merchandising Vice President. J. Crew Factory Outlet opened two
new stores and closed one store.
PCP revenues increased 2.0% to $136.7 million in the forty
weeks ended November 7, 1997 compared to $134.0 million in the
forty weeks ended November 8, 1996. The percentage of the
Company's total revenues derived from PCP decreased to 24.1% in
the forty weeks ended November 7, 1997 from 24.9% in the forty
weeks ended November 8, 1996. The number of catalogs mailed
remained at the same approximate level of 7 million and the
number of selling agents remained unchanged at approximately
106,000 during the forty weeks ended November 7, 1997 compared to
the same period in 1996. The increased sales in the forty week
period ended November 7, 1997 over the same period in the prior
year is attributable to better performance in ready-to-wear and
specifically in the new branded merchandise.
C&W revenues decreased 3.3% to $52.6 million in the forty
weeks ended November 7, 1997 from $54.4 million in the forty
weeks ended November 8, 1996. The percentage of the Company's
revenues derived from C&W decreased to 9.3% in the forty weeks
ended November 7, 1997 from 10.1% in the forty weeks ended
November 8, 1996. The number of catalogs mailed increased to
approximately 27.9 million in the forty weeks ended November 7,
1997 from approximately 24.8 million in the forty weeks ended
November 8, 1996. The decrease in sales is the result of
unseasonably warm weather on the east coast in the first part of
the fall season affecting the sales of fall and winter clothing.
Gross Profit
Gross profit as a percentage of revenues was 45.1% for the
forty weeks ended November 7, 1997 as compared to 45.8% in the
same period in 1996. The slight decrease in gross profit was
primarily due to an increase in J. Crew Retail buying and
occupancy costs, reflecting the higher cost associated with
opening new stores in urban areas such as New York City.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a
percentage of revenues increased to 44.7% in the forty weeks
ended November 7, 1997 from 44.6% in the forty weeks ended
November 8, 1996. The increase as a percentage of revenues is a
result of increased general and administration expenses of 2.2%
of revenues primarily in J. Crew Mail Order, which was partially
offset by decreases in selling expenses in J. Crew Mail Order,
C&W and PCP of 2.1% of revenues. The increase in general and
administrative expenses was primarily a result of increased
staffing and the decrease in selling expenses was principally a
result of decreased paper costs.
36
Interest Expense
Interest expense increased to $11.9 million or 2.1% of
revenues in the forty weeks ended November 7, 1997 from $7.6
million or 1.4% of revenues in the forty weeks ended November 8,
1996. This increase was due to an over 90% increase in average
borrowing to $66.7 million in the forty weeks ended November 7,
1997 compared to average borrowings of $34.5 million in the same
period last year. The borrowings were required to fund the
increased inventory levels and the increased capital
expenditures. Additionally, the issuance of the Old Notes in the
Offering in aggregate principal amount of $150 million
contributed approximately $0.9 million to the increased interest
and the issuance of Senior Discount Debentures of $75.3 million
contributed approximately $0.6 million to the increased interest.
Fiscal 1996 Compared to Fiscal 1995
Revenues
Revenues increased 8.4% to $808.8 million in fiscal 1996
from $745.9 million in fiscal 1995, as the result of increased
sales of J. Crew brand merchandise. J. Crew brand revenues
increased 12.8% to $556.1 million in fiscal 1996 from $492.8
million in fiscal 1995. Other divisions contributed $252.7
million in revenues in fiscal 1996 as compared to $253.1 million
in fiscal 1995.
J. Crew Mail Order revenues increased 5.5% to $289.8
million in fiscal 1996 from $274.6 million in fiscal 1995. The
percentage of the Company's total revenues derived from J. Crew
Mail Order decreased to 35.8% in fiscal 1996 from 36.8% in fiscal
1995. The increase in J. Crew Mail Order revenues principally
resulted from the introduction of the Women's Book and the
related increase in overall J. Crew catalog circulation to
approximately 76 million in 1996 from approximately 68 million in
1995.
J. Crew Retail revenues increased by 24.4% to $168.0
million in fiscal 1996 from $135.0 million in fiscal 1995. The
percentage of the Company's total revenues derived from its J.
Crew Retail stores increased to 20.8% in 1996 from 18.1% in 1995.
The increase in revenues was principally the result of the
opening of eight new stores and a 4.5% increase in comparable
store sales in fiscal 1996. The increase in comparable store
sales was principally due to strong performance in the J. Crew
womenswear lines, including Durables, Classics and Collection.
J. Crew Factory Outlet revenues increased by 19.3% to $94.5
million in fiscal 1996 from $79.2 million in fiscal 1995. The
percentage of the Company's total revenues derived from its J.
Crew Factory Outlet stores increased to 11.7% in fiscal 1996 from
10.6% in fiscal 1995. The increase in J. Crew Factory Outlet
revenues was principally the result of a 7.0% increase in
comparable store sales. During fiscal 1996, J. Crew Factory
Outlets opened three stores and closed four stores. Similar to J.
Crew Retail, the increase in comparable store sales for J. Crew
Factory Outlets was principally due to strong performance in the
J. Crew womenswear lines.
PCP revenues decreased by 2.4% to $177.7 million in fiscal
1996 from $182.1 million in fiscal 1995. The percentage of the
Company's total revenues derived from PCP decreased to 22.0% in
fiscal 1996 from 24.4% in fiscal 1995. The decrease in revenues
primarily resulted from competitive discounting in the
northeastern market which was partially offset by revenues from
the introduction of brand-name apparel. During fiscal 1996, the
number of catalogs mailed remained flat at approximately seven
million and the number of selling agents remained unchanged at
approximately 106,000.
C&W revenues increased by 5.6% to $75.0 million in fiscal
1996 from $71.0 million in fiscal 1995. The percentage of the
Company's revenues derived from C&W decreased slightly to 9.3% in
fiscal 1996 from 9.5% in fiscal 1995. The increase in C&W
revenues during fiscal 1996 reflected: (i) the return to its
original merchandising strategy of providing conservative
career-oriented clothing, see "--Overview;" and (ii) the
introduction of a value pricing strategy. In addition, the
Company reduced the catalog circulation of C&W in fiscal 1996 to
38 million from
37
40 million in fiscal 1995. The Company believes that C&W's return
to its original focus is in place and currently plans to increase
its C&W catalog mailings.
Gross Profit
Gross profit increased to 47.0% of revenues in 1996 as
compared to 46.4% of revenues in 1995. This increase primarily
resulted from an increase in merchandise margins in J. Crew Mail
Order.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased to
43.1% of revenues in fiscal 1996 from 43.9% of revenues in 1995.
The decline in selling, general and administrative expenses as a
percentage of revenues principally reflects a decrease in catalog
circulation costs (consisting primarily of paper, postage and
printing). These costs declined to 15.9% of revenues in fiscal
1996 from 16.9% of revenues in fiscal 1995, principally as a
result of a decrease in paper costs to 3.2% of revenues in fiscal
1996 from 3.9% of revenues in fiscal 1995, and a decrease in
number of pages circulated by J. Crew Mail Order from 10.2
billion in fiscal 1995 to 9.8 billion in fiscal 1996 as a result
of the J. Crew Mail Order customer segmentation strategy.
Circulation at C&W also decreased. This decrease was partially
offset by an increase in general and administrative expenses
related to payroll for new J. Crew retail stores opened during
the period. Absolute dollar amounts of selling, general and
administrative expenses increased to $348.3 million in fiscal
1996 from $327.7 million in fiscal 1995, primarily reflecting
volume related costs.
Interest Expense
Interest expense increased to $10.5 million or 1.3% of
revenues in fiscal 1996 from $9.4 million or 1.3% of revenues in
fiscal 1995. This increase was due primarily to higher average
borrowings under the revolving credit agreement.
Fiscal 1995 Compared to Fiscal 1994
Revenues. Revenues increased 1.1% to $745.9 million in
fiscal 1995 from $737.7 million in fiscal 1994, reflecting
increased sales of J. Crew brand merchandise, which more than
offset declines in other divisions. J. Crew brand revenues
increased by 9.8% to $492.8 million in fiscal 1995 from $448.9
million in fiscal 1994. Other divisions contributed $253.1
million in revenues in fiscal 1995 compared to $288.8 million in
fiscal 1994, a decrease of 12.4%.
J. Crew Mail Order revenues increased 11.0% to $274.6
million in fiscal 1995 from $247.3 million in fiscal 1994. The
percentage of the Company's total revenues derived from J. Crew
Mail Order increased to 36.8% in fiscal 1995 from 33.5% in fiscal
1994. The revenue improvement was primarily due to an increase in
the number of catalogs mailed to approximately 68 million in
fiscal 1995 from approximately 61 million in fiscal in 1994 as a
result of growth in the 12-month buyer file.
J. Crew Retail revenues were $135.0 million in fiscal 1995
compared to $135.7 million in fiscal 1994. The percentage of the
Company's total revenues derived from its J. Crew Retail stores
decreased to 18.1% in fiscal 1995 from 18.4% in fiscal 1994. The
sales performance was primarily the result of a 6.3% decrease in
comparable store sales which was partially offset by the opening
of two new stores in November, 1995. The decrease in comparable
store sales was principally a result of: (i) severe weather
conditions in the Northeast, which negatively affected sales
during the holiday season; and (ii) weak performance in menswear
as a result of competitive pressures from men's sport offerings
by the Company's principal competitors.
J. Crew Factory Outlet revenues increased by 26.5% to $79.2
million in fiscal 1995 from $62.6 million in fiscal 1994. The
percentage of the Company's total revenues derived from its J.
Crew Factory Outlet stores
38
increased to 10.6% in fiscal 1995 from 8.5% in fiscal 1994. J.
Crew Factory Outlet revenue improvement primarily reflected the
opening of 12 new stores (and the closing of two underperforming
stores) in fiscal 1995, partially offset by a 9.9% decrease in
comparable store sales. The decrease in comparable store sales
was principally due to the lack of key products in the
merchandise assortment in the stores and poor weather in the
Northeast which negatively affected the holiday retail season.
PCP revenues decreased by 4.0% to $182.1 million in fiscal
1995 from $189.7 million in fiscal 1994. The percentage of the
Company's total revenues derived from PCP decreased to 24.4% in
fiscal 1995 from 25.7% in fiscal 1994. The decrease in revenues
principally resulted from fulfillment disruptions during PCP's
relocation to its new distribution center in Edison, New Jersey.
During fiscal 1995, the number of catalogs mailed remained flat
at approximately seven million and the number of selling agents
remained unchanged at approximately 106,000.
C&W revenues decreased by 28.4% to $71.0 million in fiscal
1995 from $99.1 million in fiscal 1994. The percentage of the
Company's revenues derived from C&W decreased to 9.5% in fiscal
1995 from 13.4% in fiscal 1994. The decrease in revenues
reflected the unsuccessful attempt at repositioning C&W as a
retailer of urban- oriented clothing. See "--Overview." The
number of C&W catalogs circulated remained at 40 million during
fiscal 1995 compared to fiscal 1994.
Gross Profit
In 1995, gross profit was 46.4% of revenues as compared to
46.6% of revenues in 1994. The decrease was primarily
attributable to an increase in buying and occupancy costs, which
was offset by improved merchandise margins in J. Crew Mail Order.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 43.9% of
revenues in fiscal 1995 as compared to 42.2% of revenues in 1994.
The increase primarily reflects a substantial increase in catalog
circulation costs (consisting primarily of paper, postage and
printing) to 16.9% of revenues in fiscal 1995 from 14.5% of
revenues in fiscal 1994. Paper costs increased from 2.7% of
revenues in fiscal 1994 to 3.9% of revenues in fiscal 1995,
reflecting a spike in paper prices to levels not previously
experienced in the Company's history. Postage costs increased
sharply, as a result of an approximately 14% postal rate increase
that occurred in January, 1995. Increased catalog circulation
costs also reflected an approximately 10% increase in catalogs
circulated by J. Crew Mail Order, from 61 million in fiscal 1994
to 68 million in fiscal 1995 and an approximately 23% increase in
pages circulated from 8.3 billion in fiscal 1994 to 10.2 billion
in fiscal 1995. C&W circulation was unchanged. These factors more
than offset a decrease in general and administrative expenses and
a decrease in J. Crew Retail store operating expenses.
Interest Expense
Interest expense increased to $9.4 million or 1.3% of
revenues in fiscal 1995 from $7.0 million or 1.0% of revenues in
fiscal 1994. This increase was due primarily to higher average
borrowings under the revolving credit agreement and the issuance
of an additional $15.0 million of long-term debt.
Seasonality
The Company's retail and mail order businesses experience
two distinct selling seasons, spring and fall. The spring season
is comprised of the first and second quarters, consisting of
twelve and sixteen weeks, respectively, and the fall season is
comprised of the third and fourth quarters, each consisting of
twelve weeks. J. Crew Retail stores, J. Crew Factory Outlet
stores, C&W Factory stores and PCP are stronger in the third and
fourth quarters and the J. Crew and C&W Mail Order businesses are
strongest in the fourth quarter. In addition, the Company's
working capital requirements fluctuate throughout the year,
increasing substantially in September and
39
October in anticipation of the holiday season inventory
requirements. The Company funds its working capital requirements
primarily through a revolving credit facility, which historically
has been paid down in full at the end of the Company's fiscal
year.
The following table sets forth certain unaudited quarterly
information for fiscal 1995 and 1996:
Fiscal Year 1995 Fiscal Year 1996
---------------- ----------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- -- -- -- -- -- -- --
(dollars in millions)
Revenues:
J. Crew
mail order .. $ 45.5 $ 57.5 $ 61.8 $109.8 $ 46.1 $ 54.1 $ 65.6 $124.0
J. Crew
retail ...... 23.3 35.3 33.1 43.3 27.3 40.8 42.3 57.6
J. Crew
factory ..... 13.0 25.3 21.2 19.7 15.4 30.9 24.0 24.2
J. Crew
licensing ... 1.2 1.2 1.2 0.4 1.2 1.2 1.3 0.1
--- --- --- --- --- --- --- ---
Total J.
Crew
brand .... 83.0 119.3 117.3 173.2 90.0 127.0 133.2 205.9
Other
divisions ... 57.8 61.0 72.2 62.1 56.5 60.8 71.0 64.4
---- ---- ---- ---- ---- ---- ---- ----
Total
revenues . $140.8 $180.3 $189.5 $235.3 $146.5 $187.8 $204.2 $270.3
====== ====== ====== ====== ====== ====== ====== ======
% of
full
year ..... 18.9% 24.2% 25.4% 31.5% 18.1% 23.3% 25.2% 33.4%
Gross
profit ...... $ 66.5 $ 87.3 $ 82.9 $109.5 $ 68.9 $ 83.6 $ 94.2 $133.4
% of
full
year ..... 19.2% 25.2% 23.9% 31.7% 18.1% 22.0% 24.8% 35.1%
Operating
income
(loss) ...... $ (2.3) $ (3.1) $ 11.3 $ 12.7 $ (4.5) $ (9.6) $ 20.7 $ 25.2
% of
full
year ..... (12.4)% (16.7)% 60.8% 68.3% (14.2)% (30.2)% 65.1% 79.3%
Liquidity and Capital Resources
Historical
The Company's primary cash needs have been for opening new
stores, warehouse expansion and working capital. The Company's
sources of liquidity have been cash flow from operations,
proceeds from the private placement of long-term debt and
borrowings under a revolving credit facility.
In April 1997, the Company entered into the Retired Bank
Credit Facility with a group of twelve banks with Morgan Guaranty
Trust Company of New York as agent. The Retired Bank Credit
Facility provided for commitments in an aggregate amount of up to
$200.0 million of which up to $120.0 million was available for
direct borrowings. The Retired Bank Credit Facility replaced the
Company's previous revolving credit agreement which provided for
commitments in an aggregate amount of up to $125.0 million, of
which up to $75.0 million was available for direct borrowings.
Borrowings under the Retired Bank Credit Facility were unsecured
and bore interest, at the Company's option, at the base rate
(defined as the higher of the bank's prime rate or the Federal
Funds rate plus 0.5%) or the London Interbank Offering Rate
("LIBOR") plus 0.625%. The Retired Bank Credit Facility was to
expire on April 17, 2000. There were no borrowings outstanding
under the Company's revolving credit agreements at January 31,
1997 and February 2, 1996. Average borrowings under the Company's
revolving credit agreements were $25.5 million and $31.2 million
for the years ended on February 2, 1996 and January 31, 1997,
respectively. Outstanding letters of credit issued to facilitate
international merchandise purchases were $25.9 million and $37.8
million on February 2, 1996 and January 31, 1997, respectively.
Borrowings under the Retired Bank Credit Facility on October
17, 1997, prior to the Recapitalization, were $99.0 million and
letters of credit outstanding were $38.7 million. Average
borrowings under the credit agreement were $68.8 million for the
period ended on October 17, 1997.
In June 1995, the Company issued $85.0 million of the
Retired Senior Notes to institutional investors in a private
placement. At October 17, 1997 the Retired Senior Notes were
retired by the Company at a cost of $93.1 million that included
accrued interest on the Retired Senior Notes and a make-whole
premium.
In the first forty weeks of fiscal 1997, cash used in
operating activities was $61.1 million compared to $42.8 million
in the comparable period in 1996, an increase of $18.3 million.
This increase resulted primarily from an increase in the net loss
of $28.0 million and
40
is primarily attributable to $25.6 million of cash paid relating
to expenses incurred in connection with the Recapitalization and
an extraordinary item of $4.5 million relating to the early
retirement of debt.
Net cash provided by (used in) operating activities was
$16.5 million, ($7.8) million and $1.8 million for fiscal years
1996, 1995 and 1994, respectively. The improvement in cash flow
from operations in 1996 was primarily attributable to the
increase in net income and the timing of income tax
payments/refunds for fiscal years 1995 and 1996. In 1995, the
decrease in cash flow from operations was attributable to the
decrease in net income.
Net cash used in investing activities included capital
expenditures, primarily for the Company's J. Crew Retail
expansion strategy, net of construction allowances. Net capital
expenditures increased from $14.9 million in the forty weeks
ended November 8, 1996 to $28.3 million in the comparable period
in 1997. Capital expenditures in the 1996 period resulted from
the opening of eight J. Crew Retail stores and the $6.0 million
relocation of the retail warehouse to Asheville, North Carolina.
Capital expenditures in the 1997 period included the opening of
ten J. Crew Retail stores and the $6.0 million relocation of
the Company's headquarters office in New York City.
Net capital expenditures totaled $22.5 million, $14.6
million and $13.5 million in fiscal years 1996, 1995 and 1994.
Capital expenditures included the opening of eight J. Crew Retail
stores and three J. Crew Factory Outlet stores in 1996, two J.
Crew Retail stores and 12 J. Crew Factory Outlet stores in 1995
and one J. Crew Retail store and seven J. Crew Factory Outlet
stores in 1994. In fiscal 1994, $4.2 million was expended for the
PCP distribution facility in Edison, New Jersey and $2.2 million
was used to expand the Lynchburg, Virginia telemarketing and
distribution center.
Net cash provided by (used in) financing activities totaled
($0.4) million, $17.8 million and $6.8 million in fiscal years
1996, 1995 and 1994. In fiscal 1995, the Company borrowed $85.0
million in private placement debt of which $67.0 million was used
to repay then outstanding long-term debt. In fiscal 1994, $15.0
million of additional long-term debt was offset by required
payments of $7.0 million for outstanding long-term debt and a
$1.0 million dividend.
After the Recapitalization
Since consummating the Recapitalization, the Company's
primary sources of liquidity have been cash flow from operations
and borrowings under the Revolving Credit Facility. The Company's
primary uses of cash have been debt service requirements, capital
expenditures and working capital. The Company expects that
ongoing requirements for debt service, capital expenditures and
working capital will be funded from operating cash flow and
borrowings under the Revolving Credit Facility.
The Company has incurred substantial indebtedness in
connection with the Recapitalization. After giving effect to the
Recapitalization and application of the proceeds of the Old
Debentures, the Holdings Preferred Stock, the Holdings Common
Equity contribution and the distribution by Operating Corp to
Holdings of the net proceeds of the issuance of the Operating
Corp Senior Subordinated Notes, the Securitization and borrowings
under the Bank Facilities (less the repayment of the Retired Bank
Credit Facility, the Retired Senior Notes and other indebtedness
and transaction expenses), the Company had $342.3 million of
indebtedness outstanding and $194.7 million of stockholders'
deficit, in each case as of November 7, 1997. The Company's
significant debt service obligations following the
Recapitalization could, under certain circumstances, have
material consequences to security holders of the Company,
including holders of the New Debentures. See "Risk Factors."
Concurrent with the Recapitalization, Operating Corp issued
the Operating Corp Senior Subordinated Notes for $150.0 million
in gross proceeds, entered into the Term Loan Facility and the
Revolving Credit Facility and consummated the Securitization. The
Term Loan Facility is a single tranche term loan in the aggregate
principal amount of $70.0 million. The Revolving Credit Facility
provides revolving loans in an aggregate amount of up to $200.0
million. Upon closing of the Recapitalization, Operating Corp
borrowed the full amount available under the
41
Term Loan Facility and approximately $35.6 million under the
Revolving Credit Facility. Borrowings under the Revolving Credit
Facility were used to partially refinance seasonal borrowings
outstanding under the Retired Bank Credit Facility. The amount
remaining available under the Revolving Credit Facility is
available to fund the working capital requirements of Operating
Corp. The Securitization generated approximately $40 million in
proceeds. Proceeds to Operating Corp from the issuance of the
Operating Corp Senior Subordinated Notes, the Securitization and
from initial borrowings under the Bank Facilities, less the
repayment of the Retired Bank Credit Facility, the Retired Senior
Notes and other indebtedness and transaction expenses, were
distributed to Holdings to finance the Recapitalization and the
fees and expenses in connection therewith (the "Operating Corp
Distribution"). To provide additional financing to fund the
Recapitalization, Holdings raised $264.2 million through (i) the
sale to TPG Partners II, its affiliates and other investors of
approximately 46,853 shares of Holdings Common Stock
(representing 85.2% of the outstanding shares) for $63.9 million,
(ii) gross proceeds of $75.3 million from the issuance of the Old
Debentures and (iii) the issuance of $125.0 million in
liquidation value of Holdings Preferred Stock.
The proceeds of the Operating Corp Senior Subordinated
Notes, the Securitization, the Holdings Senior Discount
Debentures, the Holdings Preferred Stock, the purchase of
Holdings Common Stock by TPG Partners II, its affiliates and
other investors and the initial borrowings under the Bank
Facilities were used to finance the repurchase from the
Shareholders of all outstanding shares of Holdings' capital stock
(other than shares of Holdings Common Stock having an implied
value of $11.1 million, almost all of which continues to be held
by Emily Woods, and which represented 14.8% of the shares of
Holdings Common Stock immediately following the transaction) to
refinance outstanding indebtedness of Holdings and to pay fees
and expenses incurred in connection with the Recapitalization.
Borrowings under the Bank Facilities bear interest at a
rate per annum equal (at Operating Corp's option) to a margin
over either a base rate or LIBOR. The Bank Facilities will mature
six years after the closing date of the Recapitalization.
Operating Corp's obligations under the Bank Facilities are
guaranteed by each of Operating Corp's direct and indirect
subsidiaries. The Bank Facilities and the guarantees thereof are
secured by substantially all assets of Holdings and its direct
and indirect subsidiaries (other than any receivables subsidiary)
and a pledge of the capital stock of Operating Corp and all
direct and indirect subsidiaries of Holdings, subject to certain
limitations with respect to foreign subsidiaries. The Bank
Facilities contain customary covenants and events of default,
including substantial restrictions on Operating Corp's ability to
make dividends or distributions to Holdings. See "Description of
Operating Corp Indebtedness."
Simultaneously with the consummation of the
Recapitalization, the Company entered into an agreement with
affiliates of the Initial Purchasers establishing a revolving
securitization facility in which the initial transaction was the
securitization of approximately $40 million of PCP consumer loan
installment receivables. The Securitization involved the transfer
of receivables to a trust in exchange for cash and subordinated
interests in the pool of receivables, and the subsequent sale by
the trust of certificates of beneficial interest to third party
investors. Although the Company remains obligated to repurchase
receivables in the event of return of the related merchandise and
under certain other limited circumstances, the Company has no
obligation to reimburse the trust or the purchasers of beneficial
interests for credit losses. The trust is held by a
special-purpose, bankruptcy remote subsidiary ("SPV") established
by PCP. At November 7, 1997, the SPV had net assets of
approximately $17.5 million. The SPV is not a guarantor of the
Operating Corp Senior Subordinated Notes or the Bank Facilities.
See "Description of Operating Corp Indebtedness--Receivables
Facility." The Securitization was accounted for as a sale of
receivables, and resulted in a charge to earnings of
approximately $0.4 million million for the period ended November
7, 1997.
The Operating Corp Senior Subordinated Notes are guaranteed
by each subsidiary of Operating Corp, but are not guaranteed by
Holdings. The Operating Corp Senior Subordinated Notes mature in
2007. Interest on the Operating Corp Senior Subordinated Notes is
payable semi-annually in cash. The Operating Corp Senior
Subordinated Notes contain customary covenants and events of
default, including covenants that limit the ability of Operating
Corp and its subsidiaries to incur debt, pay dividends and make
certain investments.
42
The Holdings Preferred Stock bears cumulative dividends at
the rate of 14.50% per annum (payable quarterly) for all periods
ending on or prior to October 17, 2009 and 16.50% per annum
thereafter. Dividends compound to the extent not paid in cash.
Subject to restrictions imposed by the Operating Corp Senior
Subordinated Notes, the Bank Facilities, the Debentures and other
documents relating to the Company's indebtedness, Holdings may
redeem the Holdings Preferred Stock at any time, at the
then-applicable redemption price and, in certain circumstances
(including the occurrence of a change of control of Holdings),
may be required to repurchase shares of Holdings Preferred Stock
at liquidation value plus accumulated and unpaid dividends to the
date of repurchase. See "Capital Stock of Holdings and Operating
Corp."
The New Debentures will mature on October 15, 2008. Cash
interest will not accrue on the New Debentures prior to October
15, 2002. Thereafter, interest on the New Debentures will be
payable semiannually in cash. See "Description of the New
Debentures."
The Company expects that capital expenditures, net of
construction allowances, during fiscal 1997 will be approximately
$34 million, primarily to fund the opening of 12 retail stores,
the relocation of the Company's headquarters office in New York
City and the consolidation of J. Crew and C&W corporate offices.
Capital expenditures are expected to be funded from internally
generated cash flows and by borrowing from available financing
sources. See "Business--J. Crew Brand--J. Crew Retail--New Store
Expansion."
Borrowings outstanding under the Revolving Credit Facility
on November 7, 1997 were $47.0 million and letters of credit
outstanding as of November 7, 1997 were $37.4 million.
Management believes that cash flow from operations and
availability under the Revolving Credit Facility will provide
adequate funds for the Company's foreseeable working capital
needs, planned capital expenditures and debt service obligations.
The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to
refinance indebtedness and to remain in compliance with all of
the financial covenants under its debt agreements depends on its
future operating performance and cash flow, which in turn, are
subject to prevailing economic conditions and to financial,
business and other factors, some of which are beyond its control.
See "Risk Factors."
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related
Information, which will be effective for financial statements
beginning after December 15, 1997. SFAS No. 131 redefines how
operating segments are determined and requires expanded
quantitative and qualitative disclosures relating to a company's
operating segments. The Company has not yet completed its
analysis of how it will be affected.
Impact of Inflation
The Company's results of operations and financial condition
are presented based upon historical cost. While it is difficult
to accurately measure the impact of inflation due to the
imprecise nature of the estimates required, the Company believes
that the effects of inflation, if any, on its results of
operations and financial condition have been minor. However,
there can be no assurance that during a period of significant
inflation, the Company's results of operations would not be
adversely affected.
43
BUSINESS
Overview
The Company is a leading mail order and store retailer of
women's and men's apparel, shoes and accessories operating
primarily under the J. Crew(R) brand name. Under the direction of
Emily Woods and Arthur Cinader (co-founders of the J. Crew brand
and father and daughter), the Company has built a strong and
widely recognized brand name known for its timeless styles at
price points that the Company believes represent exceptional
product value. The J. Crew image has been built and reinforced
over its 14-year history through the circulation of more than
one-half billion catalogs that use magazine-quality photography
to portray a classic American perspective and aspirational
lifestyle. Many of the original items introduced by the Company
in the early 1980s (such as the rollneck sweater, weathered
chino, barn jacket and pocket tee) were instrumental in
establishing the J. Crew brand and continue to be core product
offerings. The Company has capitalized on the strength of the J.
Crew brand to provide customers with clothing to meet more of
their lifestyle needs, including casual, career and sport. The
strength of the J. Crew brand is demonstrated by a compound
annual growth rate of 15.4% in J. Crew brand revenues between
fiscal 1992 and fiscal 1996.
The J. Crew merchandising strategy emphasizes timeless
styles and a broad assortment of high-quality products designed
to provide customers with one-stop shopping opportunities at
attractive prices. J. Crew catalogs and retail stores offer a
full line of men's and women's basic durables (casual weekend
wear), sport, swimwear, accessories and shoes, as well as the
more tailored men's sportswear and women's "Classics" lines.
Approximately 60% of the Company's J. Crew brand sales are
derived from its core offerings of durables and sport clothing,
the demand for which the Company believes is stable and resistant
to changing fashion trends. The Company believes that the J. Crew
image and merchandising strategy appeal to college-educated,
professional and affluent customers who, in the Company's
experience, have demonstrated strong brand loyalty and a tendency
to make repeat purchases.
J. Crew products are distributed exclusively through the
Company's catalog and store distribution channels. The Company
currently circulates over 76 million J. Crew catalogs per annum
and owns and operates 49 J. Crew retail stores and 42 J. Crew
factory outlets. In addition, J. Crew products are distributed
through 67 free-standing and shop-in-shop stores in Japan under a
licensing agreement with Itochu.
In addition to the Company's J. Crew operations, the
Company operates C&W, a mail order and factory store women's
apparel business that targets older, more conservative customers,
and PCP, a direct selling catalog merchandiser of consumer
branded goods through a "club" concept that provides credit sales
to lower-income customers. During the twelve-month period ended
November 7, 1997, the Company generated total revenues of $836.7
million, of which $583.1 million or approximately 70% was
attributable to the J. Crew brand, and total Adjusted EBITDA of
$47.6 million. See "Summary--Summary Unaudited Pro Forma
Consolidated Financial Data" for a description of Adjusted
EBITDA.
Business Strengths
Since its inception, the Company has pursued a consistent
operating strategy which has resulted in the following key
strengths and distinguishing characteristics:
- Strong, Recognizable Brand. The Company has created a
recognizable, differentiated brand image reflecting an
American aspirational lifestyle. The J. Crew image is
consistently communicated through all aspects of the
Company's business including its merchandise design,
distinctive catalogs and retail store environment. The
Company's high-quality products, strong brand image and
customer loyalty have resulted in strong gross margins and
retail sales productivity.
44
- Premium Quality Products and Distinctive Designs at
Attractive Price Points. The Company offers premium quality
products reflecting a classic, clean aesthetic with a
consistent design philosophy. All J. Crew products are
designed by an in-house team of 15 designers led by Emily
Woods. The Company believes that its in-house design
capabilities ensure a coherent set of product offerings from
season to season and year to year that provides significant
value to its customers through attractive price points.
- Proven Retail Store Concept. J. Crew Retail stores
historically have generated strong and stable operating
results. The Company believes that its sales per gross
square foot are among the highest in its industry segment.
J. Crew Retail stores open during all of fiscal 1996
generated the following key operating statistics:
Fiscal 1996
Average
Sales per gross square foot ....... $575
Store contribution margin ......... 25.9
Approximately 81% of the J. Crew Retail stores that were
open during all of 1996 had store contribution margins above
20%. All of the Company's J. Crew Retail stores are
profitable and have generated positive store contribution
within the first twelve months of operation. In addition, J.
Crew Retail stores opened since fiscal 1992 have averaged
approximately $550 in sales per gross square foot and 23.0%
store contribution margin during the first twelve months of
operation.
- Broad and Stable Product Offering. The Company's J. Crew
product offering includes a broad array of items which appeal
to a diverse customer base, spanning gender and age segments.
A substantial portion of the J. Crew product line consists of
basic durables, such as chinos, jeans and sweaters, which are
not significantly modified from year to year and, in the
Company's opinion, are resistant to shifting fashion trends.
In 1996, sales of durables and sport clothing represented
approximately 60% of total J. Crew brand revenues, having
increased at a compound annual growth rate of approximately
15% since 1992.
- Synergistic Distribution Channels. The Company believes that
the concurrent operation of the J. Crew Mail Order business
and J. Crew Retail stores provides a distinct advantage in
the development of the J. Crew brand. Visibility and exposure
of the brand are enhanced by the broad circulation of
catalogs, aiding the expansion of the retail concept. In
addition, the Company believes that the retail operations
help attract first-time "walk-by" customers to the catalog
and improve the salability of fit-critical items through the
catalog. The Company further believes that diversified
distribution channels help insulate the Company against
circumstances and events uniquely affecting one distribution
channel or the other.
- Tightly Controlled Distribution. By selling products
exclusively through J. Crew catalogs, J. Crew Retail stores
and J. Crew Factory Outlets, the Company is able to present
and maintain a consistent brand image, control the
presentation and pricing of its merchandise, provide a higher
level of customer service, and closely monitor retail
sell-through. The Company believes that tight control over
the distribution of its products provides competitive
advantages over other branded apparel retailers that
distribute their goods through department stores.
Opportunities
The Company believes that substantial opportunities exist
to enhance revenue and profitability by increasing efficiencies
in the J. Crew Mail Order business and by expanding the J. Crew
Retail business.
- Implement Tactical Cost Savings Opportunities--While the
Company believes that gross margins in the J. Crew Mail Order
business have been strong, overall catalog profitability has
been depressed by unnecessarily high operating expenses. The
Company has identified a number of tactical cost savings that
could be realized
45
without affecting the Company's franchise or brand image.
Included in Adjusted EBITDA are $7.5 million in estimated
annual savings resulting from actions implemented prior to the
Recapitalization, including negotiation of a new catalog vendor
contract, selected headcount and net payroll reductions and
the insourcing of certain photography functions. The Company
has identified approximately $7 million of further potential
annual savings that are not reflected in Adjusted EBITDA,
including process efficiencies currently under review,
reduction of the Base Book trim size, installation of
automatic sorting equipment and consolidation of the J. Crew
and C&W New York corporate offices. The Company believes
these additional cost savings could be implemented by
mid-1998.
- Realize Cash Flow Increases Through J. Crew Mail Order SKU
Rationalization--The Company's J. Crew Mail Order product
offerings have increased from 33,000 SKUs in 1992 to 66,000
SKUs in 1996, partly as a result of a proliferation in colors
and sizes offered. In recent season-to-season testing on the
Company's swimwear and chino lines, the Company reduced SKUs
by 33% and 45%, respectively, while posting category revenue
increases. By eliminating slower-selling colors and sizes
from its core offering, the Company believes it will be
better able to forecast demand, increase fill rates and
increase inventory turns, resulting in enhanced operating
cash flow.
- Increase J. Crew Catalog Productivity Through Increased
Segmentation--The Company believes that it circulates fewer
and less-targeted catalog editions than its competitors, and
that catalog productivity (as measured by initial demand per
page circulated) could be enhanced by more precise targeting
of catalog mailings through further customer segmentation.
For example, in 1996 the Company introduced a Women's catalog
which to date has achieved 20% higher initial demand per page
circulated than that of the Company's primary mailing, the
Base Book. To further enhance its segmentation efforts, the
Company has recently introduced a College catalog and plans
to introduce a Swimwear catalog in 1998. From 1997 to 1998,
the increased segmentation is expected to result in an
approximately 5% increase in the number of catalogs
circulated, but an approximately 8% decrease in total pages
circulated. Reductions in total pages circulated should
result in a decrease in paper and postage expenses.
- Expand J. Crew Retail Operations--The Company's J. Crew
Retail store expansion strategy is to continue to increase
its market share in its existing markets and to penetrate new
markets. The Company expects to open a total of 12 stores in
fiscal 1997, ten of which were open as of November 7, 1997.
The Company currently intends to open 12 to 20 stores
annually, funded primarily by cash flow generated from
operations, resulting in approximately 100 stores in
operation by the end of fiscal 2000. Historically, new stores
have cost the Company an average of $1.5 million in building
improvements and working capital expenditures and have
experienced a pay-back period of approximately 20 months. The
Company has established an administrative infrastructure that
it believes is sufficient to accommodate the retail expansion
plan, providing the Company with additional margin
improvement through overhead leverage. In addition, the
Company believes, with a store base of only 49 stores, its
markets are underpenetrated relative to its competitors and
enough suitable locations exist nationwide to accommodate its
expansion plan.
The Company has five major operating divisions: J. Crew Mail
Order, J. Crew Retail, J. Crew Factory Outlets, PCP and C&W. J.
Crew Mail Order, J. Crew Retail and J. Crew Factory Outlets each
operate under the J. Crew brand name. In 1996, products sold
under the J. Crew brand contributed $556.1 million in revenues
(including licensing revenues) or 68.8% of the Company's total
revenues. J. Crew brand revenues in 1996 were comprised of $289.8
million (52.1%) from J. Crew Mail Order, $168.0 million (30.2%)
from J. Crew Retail and $94.5 million (17.0%) from J. Crew
Factory Outlets. In fiscal 1996, PCP and C&W contributed revenues
of $177.7 million and $75.0 million, respectively, representing
approximately 22.0% and 9.3%, respectively, of the Company's
total revenues.
46
J. Crew Brand
Merchandising and Design Strategy
The J. Crew merchandising strategy focuses on creating and
delivering a broad assortment of high-quality products in
timeless styles intended to provide customers with one-stop
shopping opportunities at attractive prices. Many of the original
items introduced by the Company in the early 1980s (such as the
rollneck sweater, weathered chino, barn jacket and pocket tee)
were instrumental in establishing the J. Crew brand, and continue
to be core product offerings. The Company has capitalized on the
strength of the J. Crew brand image to provide its customers with
clothing to meet more of their lifestyle needs, including casual,
career and sport.
Over time, the J. Crew merchandising strategy has evolved
from providing unisex products to creating full lines of men's
and women's clothing, shoes and accessories. This has had the
effect of increasing overall J. Crew brand sales volume, and
significantly increasing revenues from sales of women's apparel
as a percentage of total J. Crew brand sales. J. Crew Mail Order
sales in 1996 were approximately 55% women's and 45% men's, while
sales in the J. Crew Retail stores were approximately 60% women's
and 40% men's. The following table sets forth the J. Crew
merchandise mix as a percentage of total J. Crew Mail Order and
Retail revenues for the years 1992 through 1996. (J. Crew brand
sales statistics throughout this section exclude sales in J. Crew
Factory Outlets.)
FY 1992 FY 1993 FY 1994 FY 1995 FY 1996
Women's ...... 38% 42% 47% 53% 56%
Men's ........ 62 58 53 47 44
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
J. Crew Womenswear
The ready-to-wear women's apparel market is divided by
price point into five segments ranging from lowest to highest as
follows: Budget, Moderate, Better, Bridge and Designer. J. Crew
womenswear competes primarily in the Better and Bridge segments
of the market. J. Crew womenswear comprises the Durables, Sport,
Classics, Collection, Swim, Shoes, Accessories and Intimates
lines. The Durables and Sport lines consist of casual apparel and
comprised 52.5% of J. Crew womenswear sales in 1996. The Durables
line includes core items such as jeans, knits and sweaters that
retail between $20 to $100, while the Sport line includes basic
outerwear and knits that retail between $40 to $200. Revenues
from the Durables and Sport lines have increased from $44.2
million in 1992 to $135.6 million in 1996, representing a
compound annual growth rate of 32.3%. The Company has capitalized
on the strength of these lines with the successful extension of
its womenswear offering through its Classics and Collection
lines. The Classics line features women's suits, dresses, jackets
and trousers that retail between $50 to $300. Women's Collection
is positioned as a designer line at substantially lower price
points than other designer lines, and features suits, dresses,
jackets and trousers made of fine Italian fabrics that retail
between $250 to $1,800. Women's Accessories includes sunglasses,
hats, scarves, gloves, belts, bags, hosiery, hair products and
small leather goods.
J. Crew catalogs provide a broader selection of the
Durables and Sport lines than the retail stores, while the retail
stores provide a broader selection of the Classics line than the
catalogs. The Collection line is featured exclusively in select
retail stores, and Classics are sold primarily through retail
stores, to reinforce a high-end brand image and to accommodate
customer fit, fabric and price considerations before purchase.
J. Crew Menswear
J. Crew menswear comprises the Durables, Sport, Sportswear,
Swim, Shoes, Accessories and Underwear/Loungewear lines. The
Durables and Sport lines consist of casual apparel and comprised
78.2% of J. Crew menswear sales in 1996. The Durables line
includes casual jeans and chinos, sweaters and outerwear that
retail between $40 and $400. The Company recently introduced the
Sport line to meet growing consumer demand for sport and outdoor
apparel that combines designer styling with technical
authenticity. Revenues from the Durables
47
and Sport lines have increased from $121.8 million in 1992 to
$155.8 million in 1996, representing a compound annual growth
rate of 6.3%. The Sportswear line includes men's sportscoats,
shirts and trousers that retail between $50 and $500.
J. Crew catalogs feature a broader selection of men's
casual Durables and Sport merchandise than in the retail stores.
Men's Sportswear is featured exclusively in the retail stores to
reinforce a high-end brand image and to accommodate customer fit,
fabric and price considerations before purchase.
Design
Every J. Crew product is designed by Emily Woods and her
in-house design staff of 15 designers to reflect a classic, clean
aesthetic that is consistent with the brand's American lifestyle
image. Design teams are formed around J. Crew product lines and
categories to develop concepts, themes and products for each of
the Company's J. Crew businesses. Members of the J. Crew
technical design team develop construction and fit specifications
for every product to ensure quality workmanship and consistency
across product lines. These teams work in close collaboration
with the merchandising and production staff in order to gain
market and other input. Product merchandisers provide designers
with market trend and other information at initial stages of the
design process. J. Crew designers and merchants source globally
for fabrics, yarns and finishing products to ensure quality and
value, while manufacturing teams research and develop key vendors
worldwide to identify and maintain the essential characteristics
for every style.
J. Crew Mail Order
Since its inception in 1983, J. Crew Mail Order has
distinguished itself from other catalog retailers by its
award-winning catalog, which utilizes magazine-quality "real
moment" pictures to depict an aspirational lifestyle image.
During fiscal 1996, J. Crew Mail Order distributed 30 catalog
editions with a combined circulation of more than 76 million,
generating $289.8 million in revenues or 52.1% of the Company's
total J. Crew brand revenues.
Circulation Strategy
J. Crew Mail Order's circulation strategy focuses on
continually improving the segmentation of customer files and the
acquisition of additional customer names. In 1996, approximately
60% of J. Crew Mail Order revenues were from customers in the
12-month buyer file (buyers who have made a purchase from any J.
Crew catalog in the prior 12 months). Between 1992 and 1996 the
J. Crew Mail Order 12-month buyer file grew at a compound annual
growth rate of 10.0%.
Customer Segmentation. In 1996, the Company began
segmenting its customer file and tailoring its catalog offerings
to address the different product needs of its customer segments.
To increase core catalog productivity and improve the
effectiveness of marginal and prospecting circulation, each
customer segment is offered different catalog editions. The
Company currently circulates Base, Women's, Prospect and Sale
catalogs to targeted customer segments, has recently introduced a
College catalog and intends to introduce a Swimwear catalog in
1998.
Descriptions of the Company's current catalogs follow:
- Base Books. These catalogs contain the entire mail order
product offering and are sent primarily to 12-month buyers.
- Women's Books. Introduced in the spring of 1996, the Women's
books feature women's merchandise and are sent to buyers who
purchase primarily women's merchandise. These books represent
an additional customer contact potentially generating
incremental revenue from women customers.
48
- Prospect Books. Introduced in late 1995, these editions are
abridged versions of the Base Books and are sent to less
active and prospective customers in order to cost-effectively
reactivate old customers and acquire new customers.
- Sale Books. These catalogs contain overstock merchandise to
be sold at reduced prices without adversely affecting the J.
Crew brand image.
The following are descriptions of the recently introduced
College book and the Swimwear book planned for 1998:
- College Books. College books present a merchandise mix
(primarily men's and women's Durables, Sport and Swimwear)
that is most often purchased by and for students. These
catalogs consist of a new creative presentation involving a
lifestyle setting appealing to the youth market. The Company
believes that these new catalogs will also be effective as
prospecting vehicles: the page counts are relatively low (68
pages) and the product lines offered are of above average
productivity.
- Swimwear Books. The Company plans to offer its full swimwear
line together with selected casual weekend clothing in a
special catalog edition to be mailed to its most productive
women customers as well as to prospective customers. The
Company's analysis of buyer performance indicates that
swimwear is the most productive category for existing buyers
and the product classification most frequently purchased by
first-time buyers.
The Company believes that it circulates fewer and
less-targeted catalog editions than its competitors, and that
segmentation will improve the productivity (as measured by
initial demand per page circulated) of its circulation by: (i)
increasing its offers to its most productive customers and
decreasing its offers to its less productive customers, and (ii)
reducing both the page count and number of mailings of its Base
Books. For example, in 1996, the Company introduced the Women's
catalog which to date has achieved 20% higher initial demand per
page circulated than that of the Base Book. The overall effect of
increased segmentation is expected to be an increase in books
circulated (and customer contacts made) and a decrease in pages
circulated. In 1996, total circulation increased to approximately
76 million from approximately 68 million in 1995, primarily as a
result of the introduction of Prospect and Women's catalogs,
while pages circulated during this period decreased to 9.8
billion from 10.2 billion. From 1997 to 1998, the increased
segmentation is expected to result in an approximately 5%
increase in the number of catalogs circulated, but an
approximately 8% decrease in total pages circulated. Reductions
in total pages circulated should result in a decrease in paper
and postage expenses.
Customer Acquisition and List Management. J. Crew Mail
Order's name acquisition programs are designed to attract new
customers in a cost-effective manner. The Company acquires new
names from various sources, including list rentals, exchanges
with other catalog and credit card companies, "friends' name"
card inserts and, recently, through J. Crew Retail stores which
represent an increasingly significant resource in prospecting for
new names. Names and addresses of 25% to 30% of the customers
making credit card purchases at J. Crew Retail stores are
automatically captured at the point of sale. Customers are also
asked to fill out cards at the cash register when they make
purchases. In addition, the Company is exploring the feasibility
of placing telephones in its J. Crew Retail stores with direct
access to the J. Crew Mail Order telemarketing center to allow
customers in the stores to order catalog-specific or out-of-stock
items.
The Company believes that circulation planning based on
more sophisticated statistical circulation models will increase
the effectiveness of catalog mailings and maximize the
productivity of its buyer file. As a result, the Company is
testing increasingly sophisticated statistical circulation
planning models to improve its ability to predict customer
purchase behavior based on a wide range of variables. The Company
plans to use these analyses to enhance its circulation
efficiencies.
49
Catalog Creation and Production
The Company is distinguished from other catalog retailers
by its award-winning catalog, which utilizes magazine-quality
"real moment" pictures to depict an aspirational lifestyle image.
All creative work on the catalogs is coordinated by J. Crew
personnel to maintain and reinforce the J. Crew brand image.
Photography is executed both on location and in studios, and
creative design and copy writing are executed on a desk-top
publishing system. Digital images are transmitted directly to
outside printers, thereby reducing lead times and improving
reproduction quality. The Company believes that appropriate page
presentation of its merchandise stimulates demand and therefore
places great emphasis on page layout.
J. Crew Mail Order does not have long-term contracts with
paper mills and, instead, purchases paper from paper mills at a
two and one-half month specified rate. Projected paper
requirements are communicated on an annual basis to paper mills
to ensure the availability of an adequate supply. Management
believes that the Company's long-standing relationships with a
number of the largest coated paper mills in the United States
allow it to purchase paper at favorable prices commensurate with
the Company's size and payment terms. See "Risk
Factors--Increases in Costs of Mailing, Paper and Printing."
Telemarketing and Customer Service
J. Crew Mail Order's primary telemarketing and fulfillment
facilities are located in Lynchburg, Virginia. Telemarketing
operations are open 24 hours a day, seven days a week and handled
over 7.5 million calls in fiscal 1996. Orders for merchandise may
be received by telephone, facsimile, mail and the Company's
website, although orders through the toll-free telephone service
accounted for 90% of orders in fiscal 1996. The telemarketing
center is staffed by a total of 900 full-time telemarketing
associates, and up to 2,500 associates during peak periods, who
are trained to assist customers in determining the customer's
correct size and to describe merchandise fabric, texture and
function. Each telemarketing associate utilizes a terminal with
access to an IBM mainframe computer which houses complete and
up-to-date product and order information. The fulfillment
operations are designed to process and ship customer orders in a
quick and cost-effective manner. Orders placed before 9:00 p.m.
are shipped the following day. Same-day shipping is available for
orders placed before noon. During non-peak periods, approximately
11,000 packages are shipped daily, and during peak periods,
25,000 daily.
J. Crew Retail
An important aspect of the Company's business strategy is
an expansion program designed to reach new and existing customers
through the opening of J. Crew Retail stores. In addition to
generating sales of J. Crew products, J. Crew Retail stores help
set and reinforce the J. Crew brand image. The stores are
designed in-house and fixtured to create a distinctive J. Crew
environment and store associates are trained to maintain high
standards of visual presentation and customer service. The result
is a complete statement of J. Crew's timeless American style,
classic design and attractive product value. During fiscal 1996,
J. Crew Retail generated revenues of $168.0 million, representing
30.2% of the Company's total J. Crew brand revenues.
The Company believes that J. Crew Retail derives
significant benefits from the concurrent operation of J. Crew
Mail Order. The broad circulation of J. Crew catalogs performs an
advertising function, enhancing the visibility and exposure of
the brand, aiding the expansion of the retail concept and
increasing the profitability of the stores.
J. Crew Retail maintains a uniform appearance throughout
its store base, in terms of merchandise display and location on
the selling floor. Store managers receive detailed store plans
that dictate fixture and merchandise placement to ensure uniform
execution of the merchandising strategy at the store level.
Standardization of store design and merchandise presentation also
maximizes usage and productivity of selling space and lowers the
cost of store furnishings allowing J. Crew Retail to
cost-effectively open new stores and refurbish existing ones.
50
Store Economics
The Company believes that its J. Crew Retail stores are
among the most productive in its industry segment. All of the
Company's J. Crew Retail stores are profitable and have generated
positive store contribution within the first 12 months of
opening. J. Crew Retail stores that were open during all of
fiscal 1996 averaged $4.8 million per store in sales, produced
sales per gross square foot of approximately $575 and generated
store contribution margins of approximately 25.9%. The Company
believes that these results compare favorably to the average
among retailers that the Company believes to be its primary
competitors. J. Crew Retail stores have an average size of 8,300
gross square feet. The Company's historical average cost for
leasehold improvements, furniture and fixtures for new stores was
approximately $950,000 per store, after giving effect to
construction allowances. The Company anticipates that the cost of
these improvements will increase as it targets more urban,
high-traffic areas for its stores. Average pre-opening costs per
store, which are expensed as incurred, were $87,000. In addition,
working capital requirements, consisting almost entirely of
inventory purchases, averaged approximately $550,000 per store.
Current Stores
As of November 7, 1997 J. Crew Retail operated 49 retail
stores nationwide, having expanded from 18 stores in 1993. The
Company intends to open 12 stores in fiscal 1997, ten of which
were open as of November 7, 1997. The stores are located in
upscale shopping malls and in retail areas within major
metropolitan markets that have an established higher-end retail
business.
The table below highlights certain information regarding J.
Crew Retail stores opened through fiscal 1996.
Average
Store
Stores Total
Open at Stores Stores Stores Square
Beginning Opened Closed at Total Footage
of During During End of Square at
Fiscal Fiscal Fiscal Fiscal Footage End of
Year Year Year Year (000's) Year
--------- ------ ------- ------ ------- -------
1992 ... 9 9 -- 18 140 7,778
1993 ... 18 10 -- 28 226 8,071
1994 ... 28 1 -- 29 235 8,103
1995 ... 29 2 -- 31 266 8,581
1996 ... 31 8 -- 39 338 8,667
New Store Expansion
J. Crew Retail plans to expand its store base to 51 in 1997
and currently intends to increase the number of stores in
operation by 12 to 20 stores annually, resulting in approximately
100 stores in operation by the end of fiscal 2000. The retail
expansion plan will initially focus on markets in which J. Crew
Mail Order has been successful and, more generally, in areas
within major metropolitan markets with affluent and well educated
populations. The Company will continue to cluster stores in
markets which provide the greatest sales potential, such as New
York, New Jersey, Massachusetts, California and Florida.
Historically, new stores have cost the Company an average of $1.5
million in building and working capital expenditures and have
experienced a pay-back period of approximately 20 months. The
Company believes, with a base of 49 stores, its markets are
underpenetrated relative to its competitors and enough suitable
locations exist nationwide to accommodate its expansion plan.
51
The following is a summary of the stores opened as of
November 7, 1997 and those expected to be opened in 1997 after
November 7, 1997:
Total
Opening Square
Location Date Footage
-------- ---- -------
Opened: 91 Fifth Avenue, New York, NY 3/4 5,875
Boca Town Center, Boca Raton, FL 4/16 7,099
Copley Place, Boston, MA 5/9 6,792
Short Hills Mall, Short Hills, NJ 6/4 10,000
South Park, Charlotte, NC 6/18 8,402
Danbury Fair (Durables), Danbury, CT 7/16 5,398
Century City, Los Angeles, CA 7/30 6,497
Westfarms, West Hartford, CT 8/1 8,000
Beachwood, Cleveland, OH 9/19 7,900
Fashion Valley, San Diego, CA 10/8 8,312
Expected: South Shore Mall, Braintree, MA 11/12 7,600
Aventura Mall, Miami, FL 11/30 7,749
J. Crew Factory Outlets
The Company extends its reach to additional consumer groups
through its 42 J. Crew Factory Outlets. Offering J. Crew products
at an average of 30% below full retail prices, J. Crew Factory
Outlets target value-oriented consumers. The factory outlet
stores also serve to liquidate excess, irregular or out-of-season
J. Crew products outside of the Company's two primary
distribution channels. During fiscal 1996, J. Crew Factory
Outlets generated revenues of $94.5 million, representing 17.0%
of the Company's total J. Crew brand revenues.
J. Crew Factory Outlets offer selections of J. Crew
menswear and womenswear. Ranging in size from 3,800 to 10,000
square feet with an average of 6,500 square feet, the stores are
generally located in major outlet centers in 25 states across the
United States. The Company believes that the outlet stores, which
are designed in-house, maintain fixturing, visual presentation
and service standards superior to those typically associated with
outlet stores.
Popular Club Plan
PCP is a direct selling catalog business offering a broad
range of department store merchandise on proprietary, in-house
credit plans to the lower and lower-middle income market. PCP
markets its catalog products primarily in eleven states in the
northeastern United States. PCP offers two distinct product
categories: Home Store (53% of 1996 sales) and Ready-to-Wear (47%
of 1996 sales). Home Store products include textiles, home
furnishings, housewares and electronics. Ready-to-Wear includes
men's and women's sportswear, coats, lingerie, juniors,
accessories, jewelry, shoes, children's wear, infants, special
size and swimwear. During fiscal 1996, Popular Club Plan's annual
circulation of 7.3 million catalogs generated revenues of $177.7
million, representing 22.0% of total Company revenues.
PCP markets products through an extensive network of over
100,000 local independent sales representatives ("Secretaries"),
using a unique combination of mail order and direct selling
methods. In contrast to a retail store sales associate, a
Secretary is a lead shopper who solicits his or her own circle of
friends, relatives, and co-workers to shop from the catalog.
Secretaries are compensated through commission reward credits
which can be redeemed for free merchandise. This provides them
with both a sales and collection incentive. All Secretary
applicants are screened and scored with proprietary behavior
models in conjunction with national credit bureau information.
Only 60% of applicants are set up as new accounts.
52
PCP offers customers a 22-week payment plan and a 44-week
payment plan for payment of merchandise ordered from PCP. Sales
through these proprietary credit products accounted for 96.3% of
PCP revenues in 1996. PCP performs ongoing credit analysis on
each Secretary and his or her club. Although Secretaries do not
guarantee payment of members they recruit, reward credits of club
Secretaries may be withheld to offset poor credit performance.
PCP monitors collections through its approximately 70-person
credit and collection department. While the primary dunning
process is done through club Secretaries, if an individual is
delinquent more than ten weeks, credit collectors will also take
on the responsibility of contacting the customer directly. Over
the last five years, PCP's annual credit losses have averaged
approximately 4% of net credit sales.
Clifford & Wills
C&W is a direct mail order and factory store business which
offers a broad range of women's updated apparel covering career
to casual as well as accessories and shoes. The typical customer
is a 36 to 55 year old upper-moderate to better-priced women's
apparel customer, parallel to that of a full-price department
store.
The brand is positioned to offer bridge level clothing at
prices which are 20% to 30% below the prices offered in better
departments of department stores, thereby satisfying the target
customer's desire for updated apparel at a compelling price
advantage. The Company also operates nine C&W outlet stores in
Pennsylvania, Florida, Wisconsin, Indiana, Texas, Georgia and
Connecticut. During 1996, C&W had revenues of $75.0 million
representing 9.3% of total Company revenues.
General
Sourcing, Production and Quality
The Company maintains separate merchandising, design,
manufacturing and quality assurance teams for the production of
J. Crew and C&W merchandise. The Company's products are designed
exclusively by in-house design and product development teams
which support each line and class of product. These teams provide
individual attention and expertise to every style, ensuring that
these styles fit the respective J. Crew and C&W brand images. PCP
primarily purchases merchandise from manufacturers and
distributors.
The Company's merchandise is produced for the Company by a
variety of manufacturers, both domestically and outside the
United States. The Company does not own or operate any
manufacturing facilities, instead contracting with third party
vendors for the production of its products. Manufacturing teams
research and develop products and source from vendors across 38
countries to identify and maintain essential quality and value
for every product. In 1996, approximately 60% of the Company's J.
Crew brand products were sourced in the Far East, 20% were
sourced domestically and 20% were from Europe and other regions.
PCP and C&W source the majority of their products through
domestic vendors. Rarely does the Company represent the majority
of any one vendor's business and no one vendor supplies more than
10% of the Company's merchandise.
The Company employs independent buying agents to conduct
in-line and final quality inspections at each manufacturing site.
Random inspections of all incoming J. Crew and C&W merchandise at
the Lynchburg and Asheville distribution facilities further
assure that the Company's products are of a consistently high
quality. PCP primarily sells consumer goods which have been
subjected to the manufacturer's own quality control processes
prior to receipt by PCP.
Due to the high concentration of foreign suppliers of J.
Crew brand merchandise, the Company estimates 10-month lead times
for its products. Currently, the Company must make commitments on
its piece goods eight to nine months prior to the issuance of the
respective catalog and must decide on SKU color buys within six
months of issuance. The Company is working to establish, either
through the use of more domestic vendors or through strategic
partnerships, a core group of long-term suppliers that provide
quicker response times. The Company
53
believes that the implementation of shorter lead times will
improve fill rates, reduce the overall complexity in inventory
management and improve its ability to more accurately forecast
demand, all of which should provide substantial savings to the
Company.
Distribution
The Company operates three main telemarketing and
distribution facilities for its operations. Order fulfillment for
J. Crew Mail Order and C&W takes place at the 406,500 square foot
telemarketing and distribution center located in Lynchburg,
Virginia. The Lynchburg facility processes approximately 3.8
million orders per year and employs approximately 1,800 full- and
part-time employees during its peak season.
The 192,500 square foot telemarketing and distribution
facility in Asheville, North Carolina was recently converted into
the main distribution center to service the retail and outlet
store operations and also houses a J. Crew Mail Order
telemarketing center. This facility employs approximately 700
full- and part-time employees during its non-peak season and an
additional 1,100 employees during the peak holiday season. PCP
conducts its fulfillment operations from a 369,000 square foot
distribution facility located in Edison, New Jersey. The Edison
facility employs approximately 300 and 600 full- and part-time
employees during the non-peak and peak seasons, respectively.
Each fulfillment center is designed to process and ship
customer orders in a quick and cost-efficient manner. Same-day
shipping is available for orders placed before noon; and orders
placed before 9:00 p.m. are shipped the following day. The
Company ships merchandise via the UPS, the United States Postal
Service and FedEx. To enhance efficiency, each facility is fully
equipped with a highly advanced telephone system, an automated
warehouse locator system and an inventory bar coding system. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Developments."
Management Information Systems
The Company's management information systems are designed
to provide, among other things, comprehensive order processing,
production, accounting and management information for the
marketing, manufacturing, importing and distribution functions of
the Company's business. The Company has installed sophisticated
point-of-sale registers in its J. Crew Retail and Factory Outlet
stores that enable it to track inventory from store receipt to
final sale on a real-time basis. The Company believes its
merchandising and financial system, coupled with its
point-of-sale registers and software programs, allow for rapid
stock replenishment, concise merchandise planning and real-time
inventory accounting practices. J. Crew Mail Order and C&W share
the same management information system and each of the Company's
business units has its own information system that is customized
to the needs of that particular business.
The Company's telephone and telemarketing systems,
warehouse package sorting systems, automated warehouse locators
and inventory bar coding systems utilize advanced technology.
These systems have provided the Company with a number of benefits
in the form of enhanced customer service, improved operational
efficiency and increased management control and reporting. The
Company's IBM 3990 system stores data, such as customer list
segmentation and analysis of market trends, and rapidly transfers
the information throughout the Company. In addition, the
Company's real-time inventory computer systems provide inventory
management on a per SKU basis and allow for a more efficient
fulfillment process. J. Crew's management information systems
also produce daily and weekly sales and performance reports.
Trademarks and International Licensing
J. Crew International, Inc., an indirect subsidiary of
Holdings, currently owns all of the trademarks for the J. Crew
name that the Company holds in the United States and
internationally, as well as its international licensing
54
contracts with third parties. Trademarks related to the J. Crew
name are registered in the United States Patent and Trademark
Office.
The Company derives revenues from the international
licensing of its trademarks in the J. Crew name and the know-how
it has developed. The Company has entered into a licensing
agreement with Itochu in Japan which gives the Company the right
to receive payments of percentage royalty fees in exchange for
the exclusive right to use the Company's trademarks in Japan. In
1996, licensee sales at retail stores in Japan were approximately
$100 million through 67 free-standing and shop-in-shop stores.
Under the license agreement the Company retains a high degree of
control over the manufacture, design, marketing and sale of
merchandise under the J. Crew trademarks. The Company is
currently negotiating a five-year renewal of this agreement which
otherwise expires in January, 1998.
The Company believes there is significant growth potential
in international markets as the Company can leverage off its base
in Japan into other key Asian markets. The Company is in the
process of exploring licensing agreements covering Hong Kong,
China, Singapore, Thailand and Malaysia. In 1996, licensing
revenues totaled $3.8 million.
Employees
The Company focuses significant resources on the selection
and training of sales associates in both its mail order, retail
and factory operations. Sales associates are required to be
familiar with the full range of merchandise of the business in
which they are working and have the ability to assist customers
with merchandise selection. Both retail and factory store
management are compensated in a combination of annual salary plus
performance-based bonuses. Retail, telemarketing and factory
associates are compensated on an hourly basis and may earn
team-based performance incentives.
At November 7, 1997, the Company had approximately 6,300
associates, of whom approximately 4,300 were full-time associates
and 2,000 were part-time associates. In addition, approximately
3,000 associates are hired on a seasonal basis to meet demand
during the peak holiday buying season. None of the associates
employed by J. Crew Mail Order, J. Crew Retail, J. Crew Factory
Outlets or C&W are represented by a union. Approximately 240
warehouse employees at PCP are represented by the Teamsters under
a collective bargaining agreement which expires in June 1999. The
Company believes that its relationship with its associates is
good.
Properties
The Company is headquartered in New York City, although PCP
maintains a separate main office in Garfield, New Jersey. Both
the New York City headquarters offices and PCP's Garfield office
are leased from third parties. The Company owns two telemarketing
and distribution facilities: a 406,500-square-foot telemarketing
and distribution center for J. Crew and C&W mail order in
Lynchburg, Virginia and a 192,500-square-foot distribution center
in Asheville, North Carolina servicing the J. Crew Retail and J.
Crew and C&W outlet store operations. The Company also leases
from a third party a 369,000-square-foot distribution facility
located in Edison, New Jersey dedicated to PCP's fulfillment
operations.
As of November 7, 1997, the Company operated 100 retail and
factory outlet stores. All of the retail and factory outlet
stores are leased from third parties, and the leases in most
cases have terms of 10 to 12 years, not including renewal
options. As a general matter, the leases contain standard
provisions concerning the payment of rent, events of default and
the rights and obligations of each party. Rent due under the
leases is comprised of annual base rent plus a contingent rent
payment based on the store's sales in excess of a specified
threshold. Substantially all the leases are guaranteed by
Holdings.
55
The table below sets forth the number of stores by state
operated by the Company in the United States as of November 7,
1997:
Total
Retail Outlet Number
Stores Stores(1) of Stores
------ ------ ---------
Alabama ............... -- 1 1
Arizona ............... 1 -- 1
California ............ 8 3 11
Colorado .............. 1 2 3
Connecticut ........... 3 2 5
Delaware .............. -- 1 1
Florida ............... 2 5 7
Georgia ............... 1 3 4
Illinois .............. 4 -- 4
Indiana ............... 1 3 4
Kansas ................ -- 1 1
Maine ................. -- 2 2
Maryland .............. 1 -- 1
Massachusetts ......... 4 1 5
Michigan .............. 1 1 2
Minnesota ............. 1 -- 1
Missouri .............. 1 1 2
New Hampshire ......... -- 2 2
New Jersey ............ 2 1 3
New Mexico ............ 1 -- 1
New York .............. 4 4 8
North Carolina ........ 2 -- 2
Ohio .................. 2 -- 2
Oregon ................ 1 -- 1
Pennsylvania .......... 2 5 7
South Carolina ........ -- 1 1
Tennessee ............. -- 1 1
Texas ................. 3 5 8
Utah .................. -- 1 1
Vermont ............... -- 1 1
Virginia .............. 1 1 2
Washington ............ 1 1 2
Wisconsin ............. -- 2 2
District of Columbia .. 1 -- 1
--- --- ---
Total ............ 49 51 100
=== === ===
(1) Includes nine C&W outlet stores.
Competition
All aspects of the Company's businesses are highly
competitive. The Company competes primarily with other catalog
operations, specialty brand retailers, department stores, and
mass merchandisers engaged in the retail sale of men's and
women's apparel, accessories, footwear and general merchandise.
The Company believes that the principal bases upon which it
competes are quality, design, efficient service, selection and
price.
56
The Company believes that it has significant competitive
strength because of its strong brand name, distinctive designs,
premium quality products, controlled distribution and strong
catalog and retail market positions. However, certain of the
Company's competitors are larger and have greater financial,
marketing and other resources than the Company, and there can be
no assurance that the Company will be able to compete
successfully with them in the future.
Legal and Regulatory Matters
The Company is a defendant in several lawsuits arising in
the ordinary course of business. Although the amount of any
liability that could arise with respect to any such lawsuit
cannot be accurately predicted, in the opinion of management, the
resolution of these matters is not expected to have a material
adverse effect on the financial position or results of operations
of the Company.
A 1992 Supreme Court decision confirmed that the Commerce
Clause of the United States Constitution prevents a state from
requiring the collection of its use tax by a mail order company
unless the company has a physical presence in the state. However,
there continues to be some uncertainty in this area due to
inconsistent application of the Supreme Court decision by state
and federal courts. The Company attempts to conduct its
operations in compliance with its interpretation of the
applicable legal standard, but there can be no assurance that
this compliance will not be challenged. From time to time,
various states have sought to require companies to begin
collection of use taxes and/or pay taxes from previous sales. The
Company has not received assessments from any state in which it
is not currently collecting sales taxes since the 1992 Supreme
Court decision.
The Supreme Court decision also established that Congress
has the power to enact legislation that would permit states to
require collection of use taxes by mail order companies. Congress
has from time to time considered proposals for such legislation.
The Company anticipates that any legislative change, if adopted,
would be applied only on a prospective basis.
57
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position
of individuals who are serving as directors of Holdings and
executive officers of the Company. TPG Partners II anticipates
that it will cause to be elected additional individuals,
including individuals unaffiliated with either TPG Partners II or
the Company, to serve as directors of Holdings. Each director of
Holdings will hold office until the next annual meeting of
shareholders or until his or her successor has been elected and
qualified. Officers of the Company are elected by their
respective Boards of Directors and serve at the discretion of
such Board.
Name Age Position
- ---- --- --------
Emily Woods ....... 35 Director--J. Crew Group, Inc.
Chairman and Chief Executive Officer--
J. Crew Group, Inc.
Chief Executive Officer--J. Crew Operating
Corp.
President--J. Crew, Inc.
David Bonderman ... 54 Director--J. Crew Group, Inc.
James G. Coulter .. 37 Director--J. Crew Group, Inc.
Richard W. Boyce .. 43 Director--J. Crew Group, Inc.
Michael P. McHugh . 58 Vice President--Finance - CFO--J. Crew
Group, Inc.
Vice President--Finance - CFO--J. Crew
Operating Corp.
President--J. Crew International, Inc. and J.
Crew Services, Inc.
Matthew E. Rubel .. 39 President--Popular Club Plan, Inc.
David M. DeMattei . 41 President--Grace Holmes, Inc.; H.F.D. No. 55,
Inc.
Nicholas Lamberti . 55 Vice President--J. Crew Operating Corp.
Emily Woods
Chairman and Chief Executive Officer--J. Crew Group, Inc.; Chief
Executive Officer and President--J. Crew Operating Corp.;
President--J. Crew, Inc.
Ms. Woods became Chairman of the Board of Directors and
Chief Executive Officer of Holdings upon consummation of the
Recapitalization. Ms. Woods is also currently the Chief Executive
Officer and a director of Operating Corp and the President of J.
Crew, Inc., a wholly owned subsidiary of Operating Corp. Ms.
Woods co-founded the J. Crew brand in 1983 and is currently its
designer. Ms. Woods has also served as Vice-Chairman of J. Crew
Group, Inc.
David Bonderman
Director--J. Crew Group, Inc.
Mr. Bonderman became a director of Holdings upon
consummation of the Recapitalization. Mr. Bonderman is also
currently serving as a director of Operating Corp. Mr. Bonderman
is a principal and founding partner of TPG. Prior to forming TPG,
Mr. Bonderman was Chief Operating Officer and Chief Investment
Officer of Keystone Inc. ("Keystone"), the private investment
firm, from 1983 to August 1992. Mr. Bonderman serves on the
Boards of Directors of Continental Airlines, Inc., Bell & Howell
Company, Virgin Entertainment, Beringer Wine Estates, Inc.,
Denbury Resources, Inc., Ducati Motor Holdings, S.p.A.,
Washington Mutual, Inc., Ryanair, Ltd., and Credicom Asia, N.V.
Mr. Bonderman also serves in general partner advisory board roles
for Acadia Partners, L.P., Newbridge Investment Partners, L.P.,
Newbridge Latin America, L.P. and Aqua International, L.P.
58
James G. Coulter
Director--J. Crew Group, Inc.
Mr. Coulter became a director of Holdings upon consummation
of the Recapitalization. Mr. Coulter is also currently serving as
a director of Operating Corp. Mr. Coulter is a principal and
founding partner of TPG. Prior to forming TPG, Mr. Coulter was a
Vice President of Keystone from 1986 to 1992. Mr. Coulter serves
on the Boards of Directors of America West Airlines, Inc., Virgin
Entertainment, Beringer Wine Estates, Inc. and Paradyne Partners,
L.P. and was formerly on the Board of Directors of Allied Waste
Industries Inc. and Continental Airlines, Inc.
Richard W. Boyce
Director--J. Crew Group, Inc.
Mr. Boyce became a director of Holdings upon consummation of
the Recapitalization. Mr. Boyce is also currently serving as a
director of Operating Corp and J. Crew Operating Corp., C&W
Outlet, Inc., Clifford & Wills, Inc., J. Crew Retail, J. Crew
Factory Outlet, J. Crew, Inc, J. Crew International, Inc., J.
Crew Services, Inc. and Popular Club Plan, Inc., each of which is
a wholly owned subsidiary of Operating Corp. Mr. Boyce is the
President of CAF, Inc., a management consulting firm which
advises various companies controlled by TPG. Prior to founding
CAF, Inc. in 1997, Mr. Boyce served as Senior Vice President of
Operations for Pepsi-Cola North America ("PCNA") from 1996 to
1997, and Chief Financial Officer of PCNA from 1994 to 1996. From
1992 to 1994, Mr. Boyce served as Senior Vice President-Strategic
Planning for PepsiCo. Prior to joining PepsiCo., Mr. Boyce was a
Director at the management consulting firm of Bain & Company
where he was employed from 1980 to 1992.
Michael P. McHugh
Vice President Finance - CFO--J. Crew Group, Inc.; Vice President
Finance - CFO--J. Crew Operating Corp.; President--J. Crew
International, Inc. and J. Crew Services, Inc.
Mr. McHugh is the Vice President Finance and Chief Financial
Officer of Holdings. Mr. McHugh has been with the Company since
September 1986 and is also currently the Vice President Finance
and Chief Financial Officer of Operating Corp and the President
of J. Crew International, Inc. and J. Crew Services, Inc. Prior
to joining the Company, Mr. McHugh was the Vice President of
Finance and Director of the Regina Company from 1983 to 1986,
served as the Controller of Operations for Revlon, Inc. from 1977
to 1983, was the U.S. Controller for Canada Dry Corp. from 1975
to 1977 and was a Division Controller and Division Vice President
of Finance and Administration at Borden, Inc. from 1968 to 1975.
David M. DeMattei
President--Grace Holmes, Inc.; H.F.D. No. 55, Inc.
Mr. DeMattei became President of J. Crew Factory Outlet
upon consummation of the Recapitalization. Mr. DeMattei joined
the Company in 1995 and has served as President of J. Crew Retail
since June 1995. From 1993 to 1994, Mr. DeMattei served as
President of Banana Republic, a division of The Gap, Inc., and
from 1983 to 1993, Mr. DeMattei worked in various other executive
level positions at The Gap, Inc., including Executive Vice
President-Chief Financial Officer from April 1992 to May 1995 and
Senior Vice President-Chief Financial Officer from February 1991
to March 1992.
Matthew E. Rubel
President--Popular Club Plan, Inc.
Mr. Rubel joined the Company in September 1994 as the
President of PCP. Prior to joining the Company, Mr. Rubel served
as the President, CEO, and a member of the Board of Directors at
Pepe Jeans USA in 1994, and from 1987 to 1993, he was the
President of Specialty Division at Revlon, Inc. From 1984 to
1987, Mr. Rubel served as an Executive Vice President of Murjani
International and from 1980 to 1984, he was employed by Bonwit
Teller.
Nicholas Lamberti
Vice President--J. Crew Operating Corp.
Mr. Lamberti joined the Company in January 1991 as Vice
President - Corporate Controller. Prior to joining the Company,
Mr. Lamerti was with Deloitte & Touche from 1966 to 1991.
59
Employment Agreements and Other Compensation Arrangements
Holdings and Operating Corp (the "Employers") and Ms. Woods
entered into an employment agreement, which provides that, for a
period of five years commencing on the closing of the
Recapitalization, she will serve as Chairman of the Board of
Directors and Chief Executive Officer of Holdings and as Chief
Executive Officer of Operating Corp. The employment agreement
provides for an annual base salary of $1.0 million, and provides
an annual target bonus of up to $1.0 million based on achievement
of earnings objectives to be determined each year. The employment
agreement also provides for the grant of 3,308 shares of Holdings
Common Stock (the "Restricted Shares") on January 1, 1998. The
Restricted Shares will vest as follows: (i) 393 shares
immediately upon grant; (ii) 972 shares on each of the third and
fourth anniversaries of the Recapitalization and (iii) 971 shares
on the fifth anniversary of the Recapitalization. In connection
with the grant of the Restricted Shares, the Employers will pay
Ms. Woods an amount equal to the federal, state and local income
and payroll taxes incurred by Ms. Woods in 1998 as a result of
the grant of the Restricted Shares and any federal, state and
local income and payroll taxes incurred as a result of such
payment. Ms. Woods is also entitled to various executive benefits
and perquisites under the employment agreement.
In connection with the Recapitalization, Ms. Woods retained
shares of Holdings Common Stock representing approximately 14.8%
of the total outstanding shares of Holdings Common Stock
determined immediately after the closing of the Recapitalization,
such retention effected using an implied purchase price for the
retained shares equal to the price that TPG Partners II paid for
shares of Holdings Common Stock in connection with the
Recapitalization (the "TPG Partners II Price"). Ms. Woods also
purchased approximately $3.0 million of Preferred Stock issued in
connection with the Recapitalization.
Under the Option Plan (as defined herein), Holdings has
granted Ms. Woods an option to purchase 1,641 shares of Holdings
Common Stock at an exercise price equal to the TPG Partners II
Price, 20% of which shall become exercisable following the end of
each of fiscal years 1998 through 2002, provided that the Company
attains certain earnings targets; however, all unvested options
shall become exercisable (i) if Ms. Woods' employment is
terminated by Holdings without cause, by Ms. Woods for good
reason or by reason of death or disability, (ii) in the event of
a change in control of Holdings, or (iii) if Ms. Woods is still
employed by Holdings, on the seventh anniversary of the closing
of the Recapitalization.
Also under the Option Plan, Holdings has granted Ms. Woods
the option to purchase 820 shares of Holdings Common Stock. Under
this option, Ms. Woods has the right to exercise 20% of the
option after each of the first through the fifth anniversaries of
the grant date at an exercise price equal to 125%, 156.25%,
195.31%, 244.14% and 305.18% of the TPG Partners II Price,
respectively. The exercise of this option may require Ms. Woods
to purchase a proportional amount of Preferred Stock issued in
connection with the Recapitalization. In addition, all options
shall become exercisable (i) if Ms. Woods' employment is
terminated by Holdings without cause, by Ms. Woods for good
reason or by reason of her death or disability or (ii) in the
event of a change in control of Holdings.
All options granted to Ms. Woods are generally governed by
and subject to the J. Crew Group, Inc. Stock Option Plan
described below.
The shares of Holdings Common Stock acquired by Ms. Woods
pursuant to the foregoing are subject to a shareholders'
agreement providing for certain transfer restrictions,
registration rights and customary tag-along and drag-along
rights.
Operating Corp and Mr. DeMattei are parties to an employment
agreement which provides that Mr. DeMattei will be employed as
president of J. Crew Retail Division with an annual salary of
$525,000, which increases by $25,000 on each of June 1, 1998 and
June 1, 1999. In addition, the agreement provides that Mr.
DeMattei is eligible for an annual bonus for fiscal year 1997 of
up to approximately $350,000 and a long-term incentive bonus if
certain performance objectives are satisfied. Annual bonuses for
subsequent years will be
60
determined on a year to year basis. Mr. DeMattei is also entitled
to various executive benefits and perquisites under the
agreement. The agreement expires on January 28, 2000.
Operating Corp and Mr. Rubel are parties to an employment
agreement which provides that Mr. Rubel will be employed as
president of PCP with an annual salary of $475,000. The agreement
provides that Mr. Rubel is eligible for annual bonus and
long-term incentive bonus based on the performance of PCP. The
agreement expires on January 31, 1999.
Holdings has adopted, subject to the receipt of applicable
stockholder approval, the J. Crew Group Inc. Stock Option Plan
(the "Option Plan") in order to promote the interests of the
Company and its shareholders by providing the Company's key
employees and consultants with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company. Under the
Option Plan, the Board of Directors of Holdings will appoint a
committee to administer the Option Plan and to grant options to
purchase shares of Holdings Common Stock to certain key employees
and consultants of the Company. Currently, there is an aggregate
of 7,388 shares of Holdings Common Stock available for grants to
key employees and consultants under the Option Plan (including
the 2,461 shares underlying the options granted to Ms. Woods as
described above). The options granted under the Option Plan may
be subject to various vesting conditions, including, under some
circumstances, the achievement of certain performance objectives.
All shares of Holdings Common Stock acquired by key employees or
consultants pursuant to the foregoing shall be subject to a
shareholders' agreement providing for certain transfer
restrictions, registration rights and customary tag-along and
drag-along rights.
61
Executive Compensation
The following table sets forth compensation paid by the
Company for fiscal years 1994, 1995 and 1996 to each individual
serving as its chief executive officer during fiscal 1996 and to
each of the four other most highly compensated executive officers
of the Company as of the end of fiscal 1996.
Long Term
Compensation
------------
Other Annual LTIP All Other
Name and Principal Fiscal Salary Bonus Comp. Payouts Comp.
Positions Year ($) ($) ($) ($) ($)
- ------------------ ------ ------- ----- ----------- ------------ ---------
Arthur Cinader (1) 1996 307,692 -- -- -- --
Chief Executive Officer 1995 700,000 109,000 -- -- --
1994 700,000 83,000 -- -- --
Emily Woods (2) 1996 700,000 -- -- -- --
President 1995 700,000 1,327,700(3) 1,079,713(4) -- --
1994 700,000 1,970,040(5) 1,816,811(6) -- --
David DeMattei (7) 1996 475,771 100,000 -- -- --
President, J. Crew 1995 352,661 100,000 -- -- --
Retail
Matthew Rubel 1996 422,418 150,000 -- -- --
President, Popular 1995 391,346 50,000 -- -- --
Club Plan 1994 112,500 -- -- -- --
Paul Raffin (8) (9) 1996 426,663 75,000 -- -- --
President, J. Crew 1995 304,200 50,000 -- -- --
Catalogue
Robert Bernard (10) 1996 650,000 136,500 752,500(11) -- --
1995 650,000 350,000 -- -- --
1994 581,930 -- -- -- --
- ----------------------
(1) Mr. Cinader was replaced as Chief Executive Officer on
October 17, 1997.
(2) Ms. Woods became Chief Executive Officer on October 17,
1997.
(3) Of this amount, $1,139,000 represents the value of a grant
to the executive of Holdings Common Stock.
(4) This amount was paid as reimbursement for income taxes
incurred as a result of the grant of Holdings Common Stock.
(5) Of this amount, $1,884,240 represents the value of a grant
to the executive of Holdings Common Stock.
(6) This amount was paid as reimbursement for income taxes
incurred as a result of the grant of Holdings Common Stock.
(7) Mr. DeMattei was not employed by the Company in 1994.
(8) Mr. Raffin resigned from the Company as of November 13,
1997.
(9) Mr. Raffin was not employed by the Company in 1994.
(10) Mr. Bernard resigned from the Company as of October 28,
1996.
(11) This amount represents severance payment to the executive.
62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As part of arrangements made prior to the negotiation and
execution of the Recapitalization Agreement, Holdings agreed to
make bonus payments to certain of its executive officers upon
consummation of any merger, acquisition, recapitalization or
other transaction resulting in a change of control of Holdings.
Thus, Holdings made bonus payments in the amount of (i) $10.0
million to Emily Woods, (ii) $0.3 million to Matthew Rubel, (iii)
$0.3 million to Michael McHugh and (iv) $1.2 million to other
employees.
In addition, effective on the closing of the
Recapitalization, the Company and Arthur Cinader entered into an
Employment/Consulting and Non-Compete Agreement, under which Mr.
Cinader agreed to serve as an employee and/or consultant for
twelve months following the closing of the Recapitalization.
Under the agreement, Mr. Cinader agreed, for a period of five
years from the closing of the Recapitalization, not to compete,
directly or indirectly, in association with or as a stockholder,
director, officer, consultant, employee, partner, joint venturer,
member or otherwise through any person or entity work for, act as
a consultant to, or own any interest in, any competitor of the
Company or its affiliates. In consideration of Mr. Cinader's
non-compete, employment and consulting undertakings, the Company
paid Mr. Cinader a total of $4.2 million. In addition, during
this five-year period, Mr. Cinader is entitled to coverage under
the Company's health and welfare plans.
In connection with the Recapitalization, the Company paid
TPG a financial advisory fee in the amount of $5.5 million.
Holdings and its subsidiaries also entered into a tax
sharing agreement providing (among other things) that each of the
subsidiaries will reimburse Holdings for its share of income
taxes determined as if such subsidiary had filed its tax returns
separately from Holdings.
CAPITAL STOCK OF HOLDINGS AND OPERATING CORP
General
Operating Corp is authorized by the terms of its
certificate of incorporation to issue 1,000 shares of common
stock and 1,000 shares of preferred stock. Operating Corp has
issued and outstanding 100 shares of common stock, each share of
which is entitled to one vote. Holdings owns all of the issued
and outstanding stock of Operating Corp. Holdings does not have
any material assets other than the common stock of Operating
Corp.
Holdings' restated certificate of incorporation authorizes
Holdings to issue capital stock consisting of 100,000,000 shares
of common stock, par value $.01 per share, 1,000,000 shares of
Series A cumulative preferred stock, par value $.01 per share
("Series A Preferred Stock"), and 1,000,000 shares of Series B
cumulative preferred stock, par value $.01 per share ("Series B
Preferred Stock"). Holdings currently has outstanding 55,000
shares of common stock, 92,500 shares of Series A Preferred Stock
and 32,500 shares of Series B Preferred Stock.
The Series A Preferred Stock and Series B Preferred Stock
(collectively, the "Holdings Preferred Stock") will accumulate
dividends at the rate of 14.50% per annum (payable quarterly) for
periods ending on or prior to October 17, 2009. Thereafter, the
Series A Preferred Stock will accumulate dividends at the rate of
16.50% per annum. Dividends on the Holdings Preferred Stock will
compound to the extent not paid. The Holdings Preferred Stock had
an initial liquidation preference of $1,000 per share. Holdings
will be required on October 17, 2009 to redeem shares of Series B
Preferred Stock and to pay all accumulated dividends that have
been applied, if any, to increase liquidation value of the Series
A Preferred Stock (the "clean-down"). Shares of Holdings
Preferred Stock may be redeemed at the option of Holdings, in
whole or in part, at the redemption prices set forth below
(expressed as percentages of liquidation preference), together
with all accumulated and unpaid dividends to the redemption date,
if redeemed during the six month period beginning on the dates
indicated below:
63
October 17, 1997 ........... 103.0%
April 17, 1998 ............. 102.5%
October 17, 1998 ........... 102.0%
April 17, 1999 ............. 101.5%
October 17, 1999 ........... 101.0%
April 17, 2000 ............. 100.5%
October 17, 2000 and
thereafter ................. 100.0%
Optional redemption of the Holdings Preferred Stock is
subject to, and expressly conditioned upon, certain limitations
under the Senior Subordinated Note Indenture, the Bank
Facilities, the Debentures and other documents relating to the
Company's indebtedness. Holdings may also be required to redeem
shares of Holdings Preferred Stock in certain other
circumstances, including the occurrence of a change of control of
Holdings, in each case subject to the terms of the Senior
Subordinated Note Indenture, the Bank Facilities, the Debentures
and other documents relating to the Company's indebtedness.
Holders of Holdings Preferred Stock do not have any voting rights
with respect thereto, except for such rights as are provided
under applicable law, the right to elect, as a class, two
directors of Holdings in the event that Holdings fails to comply
with its redemption and clean-down obligations and class voting
rights with respect to transactions adversely affecting the
rights, preferences or powers of the Holdings Preferred Stock.
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Beneficial Owners of More Than 5%
of the Issuer's Voting Securities
(1) (2) (3) (4)
Title of Class Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
- --------------------------------------------------------------------------
Holdings Common TPG Partners II, L.P. 31,566.779 shares 57.39%
Stock 201 Main Street,
Suite 2420
Fort Worth, TX 76102
Holdings Common Emily Woods 8,017.883 shares 14.58%
Stock Chairman and Chief
Executive Officer
J. Crew Group, Inc.
770 Broadway
New York, NY 10003
Security Ownership of Management
(1) (2) (3) (4)
Title of Class Name of Beneficial Amount and Nature of Percent of
Owner Beneficial Ownership Class
- --------------------------------------------------------------------------
Holdings Common Emily Woods 8,017.883 14.58%
Stock
Holdings Series A Emily Woods 2,978.505 3.22%
Preferred Stock
64
DESCRIPTION OF OPERATING CORP INDEBTEDNESS
Bank Facilities
On the closing date of the Recapitalization, Operating Corp
entered into the Bank Facilities among Operating Corp, Holdings,
the several lenders from time to time parties thereto
(collectively, the "Banks"), Chase, as administrative and
collateral agent (the "Administrative Agent") and DLJ as
syndication agent (collectively, the "Agents"). The following is
a summary description of the principal terms of the Bank
Facilities and the other loan documents. The description set
forth below does not purport to be complete and is qualified in
its entirety by reference to certain agreements setting forth the
principal terms and conditions of the Bank Facilities, which are
available upon request from the Issuer.
Structure. The Bank Facilities provide Operating Corp with:
(i) a senior secured term loan facility of up to $70.0 million;
and (ii) a senior secured revolving credit facility of up to
$200.0 million.
The full amount of the Term Loan Facility and approximately
$35.6 million of Revolving Credit Facility were borrowed on the
closing date under the Bank Facilities (i) to partially finance
the Recapitalization, (ii) to repay certain existing outstanding
indebtedness of Operating Corp and (iii) to pay certain fees and
expenses related to the Recapitalization. See "The
Recapitalization." The Bank Facilities may be utilized to fund
Operating Corp's working capital requirements, including issuance
of stand-by and trade letters of credit, bankers' acceptances and
for other general corporate purposes.
The Term Loan Facility is a single tranche term facility of
$70.0 million which has a maturity of six years. Loans, letters
of credit and bankers' acceptances under the Revolving Credit
Facility will be available at any time during its six-year term
subject to the fulfillment of customary conditions precedent
including the absence of a default under the Bank Facilities;
provided, that at least once during each fiscal year, for a
period of 30 consecutive days, Operating Corp must repay all
loans outstanding under the Revolving Credit Facility in excess
of the amounts set forth below:
Amount
Fiscal Year (in millions)
----------- -------------
1998 ........................ $ 25.0
1999 ........................ $ 20.0
2000 ........................ $ 15.0
2001 ........................ $ 10.0
2002 and thereafter ......... $ 0.0
Security; Guaranty. Operating Corp's obligations under the
Bank Facilities are guaranteed by each of its direct and indirect
domestic and, to the extent no adverse tax consequences would
result, foreign subsidiaries, other than any receivables
subsidiary. The Bank Facilities and the guarantees thereof are
secured by a perfected first priority security interest in
substantially all assets of Operating Corp and its direct and
indirect domestic and, to the extent no adverse tax consequences
would result, foreign subsidiaries including: (i) all real
property; (ii) all accounts receivable (but excluding the
accounts receivable of PCP), inventory and intangibles; and (iii)
all of the capital stock of Operating Corp and its direct and
indirect domestic and, to the extent no adverse tax consequences
would result, foreign subsidiaries.
Interest; Maturity. Borrowings under the Bank Facilities
bear interest at a rate per annum equal (at Operating Corp's
option) to: (i) the Administrative Agent's Eurodollar rate plus
an applicable margin or (ii) an alternate base rate equal to the
highest of the Administrative Agent's prime rate, a certificate
of deposit rate plus 1%, or the Federal Funds effective rate plus
1/2 of 1% plus, in each case, an applicable margin. Initially, the
65
applicable margin is 2.25% per annum for Eurodollar rate loans
and 1.25% per annum for alternate base rate loans. The Bank
Facilities will mature October 17, 2003.
Fees. Operating Corp is required to pay the Banks, on a
quarterly basis, a commitment fee on the undrawn portion of the
Bank Facilities at a rate equal to 1/2 of 1% per annum. Operating
Corp is also obligated to pay (i) a per annum letter of credit
fee on the aggregate amount of outstanding letters of credit;
(ii) a fronting bank fee for the letter of credit issuing bank;
(iii) certain fees in connection with the issuance of bankers'
acceptances; and (iv) customary agent, arrangement and other
similar fees.
Covenants. The Bank Facilities contain a number of
covenants that, among other things, restrict the ability of
Operating Corp and its subsidiaries to dispose of assets, incur
additional indebtedness, prepay other indebtedness or amend
certain debt instruments, pay dividends, create liens on assets,
enter into sale and leaseback transactions, make investments,
loans or advances, make acquisitions, engage in mergers or
consolidations, change the business conducted by Operating Corp
or its subsidiaries, or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities.
In addition, under the Bank Facilities, Operating Corp is
required to maintain specified financial ratios and tests,
including minimum interest coverage ratios, leverage ratios below
a specified maximum, minimum net worth levels and minimum ratios
of inventory to senior debt.
Events of Default. The Bank Facilities contain customary
events of default, including nonpayment of principal, interest or
fees, material inaccuracy of representations and warranties,
violation of covenants, cross- default and cross-acceleration to
certain other indebtedness, certain events of bankruptcy and
insolvency, material judgments against Operating Corp, invalidity
of any guarantee or security interest and a change of control of
Operating Corp in certain circumstances as set forth therein.
Receivables Facility
In connection with the Recapitalization, affiliates of the
Initial Purchasers (the "Receivables Lenders") arranged a
facility to securitize certain PCP consumer loan installment
receivables (the "Receivables") on a revolving basis under a
receivables program (the "Receivables Facility"). The
Securitization involved the transfer of the Receivables with
limited recourse through a special purpose, bankruptcy-remote
subsidiary to a trust in exchange for cash and subordinated
certificates representing undivided interests in the pool of
Receivables, and the subsequent sale by the trust of certificates
of beneficial interests, also representing undivided interests in
the Receivables, to third party investors. The Securitization
provided approximately $40 million of proceeds. The Company is
obligated to repurchase Receivables related to customer credits
such as merchandise returns and other Receivables defects. The
Company has no obligation to reimburse the trust or the
purchasers of beneficial interests for credit losses.
The Receivables Facility is contemplated to be an interim
agreement pending the consummation of a private placement of
Receivables-based securities or such other refinancing as the
parties may agree to, proceeds of which will be used to prepay
the Receivables Facility. If the Receivables Facility is not
refinanced within two months of the date of closing, the interest
rates thereunder will increase.
THE EXCHANGE OFFER
The summary herein of certain provisions of the
Registration Rights Agreement does not purport to be complete and
reference is made to the provisions of the Registration Rights
Agreement, which has been filed as an exhibit to the Registration
Statement and a copy of which is available as set forth under the
heading "Available Information."
66
Terms of the Exchange Offer
In connection with the issuance of the Old Debentures
pursuant to a Purchase Agreement dated as of October 14, 1997, by
and among the Issuer and the Initial Purchasers, the Initial
Purchasers and their respective assignees became entitled to the
benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Issuer is
required to file within 60 days after October 17, 1997 (the date
the Registration Rights Agreement was entered into (the "Closing
Date")) a registration statement (the "Exchange Offer
Registration Statement") for a registered exchange offer with
respect to an issue of new debentures identical in all material
respects to the Old Debentures except that the new debentures
shall contain no restrictive legend thereon. Under the
Registration Rights Agreement, the Issuer is required to (i)
cause the Exchange Offer Registration Statement to be filed with
the Commission no later than 60 days after the Closing Date, (ii)
use its best efforts to cause such Exchange Offer Registration
Statement to become effective within 135 days after the Closing
Date, (iii) use its best efforts to keep the Exchange Offer open
for at least 20 Business Days (or longer if required by
applicable law), (iv) use its best efforts to consummate the
Exchange Offer on or prior to the 30th Business Day following the
date on which the Exchange Offer Registration Statement is
declared effective by the Commission and (v) cause the Exchange
Offer to comply with all applicable federal and state securities
laws. The Exchange Offer being made hereby, if commenced and
consummated within the time periods described in this paragraph,
will satisfy those requirements under the Registration Rights
Agreement.
Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letter of Transmittal, all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date will be accepted for
exchange. New Debentures of the same class will be issued in
exchange for an equal principal amount of outstanding Old
Debentures accepted in the Exchange Offer. Old Debentures may be
tendered only in integral multiples of $1,000 of principal amount
at maturity. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of
_______ __, 1997. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Debentures being tendered in
exchange. However, the obligation to accept Old Debentures for
exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth herein under "--Conditions."
Old Debentures shall be deemed to have been accepted as
validly tendered when, as and if the Trustee has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering holders of Old Debentures for
the purposes of receiving the New Debentures and delivering New
Debentures to such holders.
Based on interpretations by the staff of the Commission, as
set forth in no-action letters issued to third parties, including
the Exchange Offer No-Action Letters, the Issuer believes that
the New Debentures issued pursuant to the Exchange Offer may be
offered for resale, resold or otherwise transferred by each
holder thereof (other than a broker-dealer who acquires such New
Debentures directly from the Issuer for resale pursuant to Rule
144A under the Securities Act or any other available exemption
under the Securities Act and other than any holder that is an
"affiliate" (as defined in Rule 405 under the Securities Act) of
the Issuer without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such New Debentures are acquired in the ordinary course of
such holder's business and such holder is not engaged in, and
does not intend to engage in, a distribution of such New
Debentures and has no arrangement with any person to participate
in a distribution of such New Debentures. By tendering the Old
Debentures in exchange for New Debentures, each holder, other
than a broker-dealer, will represent to the Issuer that: (i) it
is not an affiliate (as defined in Rule 405 under the Securities
Act) of the Issuer; (ii) it is not a broker-dealer tendering Old
Debentures acquired for its own account directly from the Issuer;
(iii) any New Debentures to be received by it will be acquired in
the ordinary course of its business; and (iv) it is not engaged
in, and does not intend to engage in, a distribution of such New
Debentures and has no arrangement or understanding to participate
in a distribution of the New Debentures. If a holder of Old
Debentures is engaged in or intends to engage in a distribution
of the New Debentures or has any arrangement or understanding
with respect to the distribution of the New Debentures to be
acquired pursuant to the
67
Exchange Offer, such holder may not rely on the applicable
interpretations of the staff of the Commission and must comply
with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale
transaction. Each Participating Broker-Dealer that receives New
Debentures for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection
with any resale of such New Debentures. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer in
connection with resales of New Debentures received in exchange
for Old Debentures where such Old Debentures were acquired by
such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Issuer has agreed
that it will make this Prospectus available to any Participating
Broker-Dealer for a period of time not to exceed one year after
the date on which the Exchange Offer is consummated for use in
connection with any such resale. See "Plan of Distribution."
In the event that (i) any changes in law or the applicable
interpretations of the staff of the Commission do not permit the
Issuer to effect the Exchange Offer, or (ii) if any holder of Old
Debentures shall notify the Issuer within 20 business days
following the consummation of the Exchange Offer that (A) such
holder was prohibited by law or Commission policy from
participating in the Exchange Offer or (B) such holder may not
resell the New Debentures acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (C)
such holder is a broker-dealer and holds Old Debentures acquired
directly from the Issuer or one of its affiliates, then the
Issuer shall (x) cause to be filed a shelf registration statement
pursuant to Rule 415 under the Act (the "Shelf Registration
Statement") on or prior to 30 days after the date on which the
Issuer determines that it is not required to file the Exchange
Offer Registration Statement pursuant to clause (i) above or 60
days after the date on which the Issuer receives the notice
specified in clause (ii) above and shall (y) use its best efforts
to cause such Shelf Registration Statement to become effective
within 135 days after the date on which the Issuer becomes
obligated to file such Shelf Registration Statement. If, after
the Issuer has filed an Exchange Offer Registration Statement,
the Issuer is required to file and make effective a Shelf
Registration Statement solely because the Exchange Offer shall
not be permitted under applicable federal law, then the filing of
the Exchange Offer Registration Statement shall be deemed to
satisfy the requirements of clause (x) above. Such an event shall
have no effect on the requirements of clause (y) above. The
Issuer shall use its best efforts to keep the Shelf Registration
Statement continuously effective, supplemented and amended to the
extent necessary to ensure that it is available for sales of
Transfer Restricted Securities (as defined below) by the holders
thereof for a period of at least two years following the date on
which such Shelf Registration Statement first becomes effective
under the Securities Act. The term "Transfer Restricted
Securities" means each Debenture, until the earliest to occur of
(a) the date on which such Debenture is exchanged in the Exchange
Offer and entitled to be resold to the public by the holder
thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Debenture has
been disposed of in accordance with a Shelf Registration
Statement, (c) the date on which such Debenture is disposed of by
a broker-dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement
(including delivery of the prospectus contained therein) or (d)
the date on which such Debenture is distributed to the public
pursuant to Rule 144 under the Act.
If (i) the Exchange Offer Registration Statement or the
Shelf Registration Statement is not filed with the Commission on
or prior to the date specified in the Registration Rights
Agreement, (ii) any such Registration Statement has not been
declared effective by the Commission on or prior to the date
specified for such effectiveness in the Registration Rights
Agreement, (iii) the Exchange Offer has not been consummated
within 180 days after the Closing Date or (iv) any Registration
Statement required by the Registration Rights Agreement is filed
and declared effective but shall thereafter cease to be effective
or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself
declared effective immediately (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the
Issuer has agreed to pay liquidated damages to each holder of
Transfer Restricted Securities. With respect to the first 90-day
period immediately following the occurrence of such Registration
Default the liquidated damages shall equal $.05 per week per
$1,000 principal amount of Transfer Restricted Securities held by
68
such holder for each week or portion thereof that the
Registration Default continues. The amount of the liquidated
damages shall increase by an additional $.05 per week per $1,000
in principal amount of Transfer Restricted Securities with
respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of liquidated
damages of $.25 per week per $1,000 principal amount of Transfer
Restricted Securities. Notwithstanding anything to the contrary
set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement), in the
case of (ii) above, (3) upon consummation of the Exchange Offer,
in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf
Registration Statement) to again be declared effective or made
usable in the case of (iv) above, the liquidated damages payable
with respect to the Transfer Restricted Securities a result of
such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the holder
of the global debenture representing the Old Debentures by wire
transfer of immediately available funds or by federal funds check
and to holders of certificated securities by mailing checks to
their registered addresses on each April 15 and October 15. All
obligations of the Issuer set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer
Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been
satisfied in full.
Upon consummation of the Exchange Offer, subject to certain
exceptions, holders of Old Debentures who do not exchange their
Old Debentures for New Debentures in the Exchange Offer will no
longer be entitled to registration rights and will not be able to
offer or sell their Old Debentures, unless such Old Debentures
are subsequently registered under the Securities Act (which,
subject to certain limited exceptions, the Issuer will have no
obligation to do), except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. See "Risk Factors--Risk Factors Relating
to the Debentures--Consequences of Failure to Exchange."
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean _________, 1997 (30
calendar days following the commencement of the Exchange Offer),
unless the Exchange Offer is extended, if and as required by
applicable law, in which case the term "Expiration Date" shall
mean the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Issuer will
notify the Exchange Agent of any extension by oral or written
notice and will notify the holders of the Old Debentures by means
of a press release or other public announcement prior to 9:00
A.M., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Issuer reserves the right (i) to delay acceptance of
any Old Debentures, to extend the Exchange Offer or to terminate
the Exchange Offer and not permit acceptance of Old Debentures
not previously accepted if any of the conditions set forth herein
under "--Conditions" shall have occurred and shall not have been
waived by the Issuer, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner deemed by it
to be advantageous to the holders of the Old Debentures. Any such
delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner determined by the Issuer to constitute a material
change, the Issuer will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Old
Debentures of such amendment.
69
Yield Interest on the New Debentures
The New Debentures will accrete at a rate of 13 1/8%,
compounded semi-annually, to an aggregate principal amount of
$142.0 million by October 15, 2002. Cash interest will not accrue
on the New Debentures prior to October 15, 2002. Commencing
October 15, 2002, cash interest on the New Debentures will accrue
and be payable, at a rate of 13 1/8% per annum, semi-annually in
arrears on each April 15 and October 15.
Procedures for Tendering
To tender in the Exchange Offer, a holder must complete,
sign and date the Letter of Transmittal, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal, together
with any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) certificates for such Old Debentures must be
received by the Exchange Agent along with the Letter of
Transmittal, (ii) a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of such Old Debentures, if such
procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder
must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD DEBENTURES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION
AND RISK OF THE HOLDERS OF THE DEBENTURES. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD DEBENTURES SHOULD BE SENT TO THE ISSUER.
Delivery of all documents must be made to the Exchange Agent at
its address set forth below. Holders of Debentures may also
request their respective brokers, dealers, commercial banks,
trust companies or nominees to effect such tender for such
holders.
The tender by a holder of Old Debentures will constitute an
agreement between such holder and the Issuer in accordance with
the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
Only a holder of Old Debentures may tender such Old
Debentures in the Exchange Offer. The term "holder" with respect
to the Exchange Offer means any person in whose name Old
Debentures are registered on the books of the Issuer or any other
person who has obtained a properly completed bond power from the
registered holder.
Any beneficial owner whose Old Debentures are registered in
the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact such
registered holder promptly and instruct such registered holder to
tender on his behalf. If such beneficial owner wishes to tender
on his own behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal and delivering
his Old Debentures, either make appropriate arrangements to
register ownership of the Old Debentures in such owner's name or
obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by any member
firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution") unless the Old Debentures tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the
box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If the Letter of Transmittal is signed by a person other
than the registered holder of any Old Debentures listed therein,
such Old Debentures must be endorsed or accompanied by bond
powers and a proxy which authorizes
70
such person to tender the Old Debentures on behalf of the
registered holder, in each case as the name of the registered
holder or holders appears on the Old Debentures.
If the Letter of Transmittal or any Old Debentures or bond
powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility
(including time of receipt) and withdrawal of the tendered Old
Debentures will be determined by the Issuer in its sole
discretion, which determination will be final and binding. The
Issuer reserves the absolute right to reject any and all Old
Debentures not properly tendered or any Old Debentures which, if
accepted, would, in the opinion of counsel for the Issuer, be
unlawful. The Issuer also reserves the absolute right to waive
any irregularities or conditions of tender as to particular Old
Debentures. The Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in
the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in
connection with tenders of Old Debentures must be cured within
such time as the Issuer shall determine. Neither the Issuer, the
Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to
tenders of Old Debentures, nor shall any of them incur any
liability for failure to give such notification. Tenders of Old
Debentures will not be deemed to have been made until such
irregularities have been cured or waived. Any Old Debentures
received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the
Exchange Agent to the tendering holders of Old Debentures, unless
otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Issuer reserves the right in its sole
discretion, subject to the provisions of the Indenture, to (i)
purchase or make offers for any Old Debentures that remain
outstanding subsequent to the Expiration Date or, as set forth
under "--Conditions", (ii) to terminate the Exchange Offer in
accordance with the terms of the Registration Rights Agreement
and (iii) to the extent permitted by applicable law, purchase Old
Debentures in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
Acceptance of Old Debentures for Exchange; Delivery of New Debentures
Upon satisfaction or waiver of all of the conditions to the
Exchange Offer, all Old Debentures properly tendered will be
accepted, promptly after the Expiration Date, and the New
Debentures will be issued promptly after acceptance of the Old
Debentures. See "-- Conditions" below. For purposes of the
Exchange Offer, Old Debentures shall be deemed to have been
accepted as validly tendered for exchange when, as and if the
Issuer has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuance of New Debentures for Old Debentures
that are accepted for exchange pursuant to the Exchange Offer
will be made only after timely receipt by the Exchange Agent of
certificates for such Old Debentures or a timely Book-Entry
Confirmation of such Old Debentures into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed
and duly executed Letter of Transmittal and all other required
documents. If any tendered Old Debentures are not accepted for
any reason set forth in the terms and conditions of the Exchange
Offer or if Old Debentures are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or
nonexchanged Old Debentures will be returned without expense to
the tendering holder thereof (or, in the case of Old Debentures
tendered by book-entry transfer procedures described below, such
nonexchanged Old Debentures will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange
Offer.
71
Book-Entry Transfer
The Exchange Agent will make a request to establish an
account with respect to the Old Debentures at the Book-Entry
Transfer Facility for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Debentures
by causing the Book-Entry Transfer Facility to transfer such Old
Debentures into the Exchange Agent's account at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of
Old Debentures may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal with any
required signature guarantees and any other required documents
must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "--Exchange
Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
Guaranteed Delivery Procedures
If a registered holder of the Old Debentures desires to
tender such Old Debentures, and the Old Debentures are not
immediately available, or time will not permit such holder's Old
Debentures or other required documents to reach the Exchange
Agent before the Expiration Date, or the procedures for
book-entry transfer cannot be completed on a timely basis, a
tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Letter of Transmittal and Notice of
Guaranteed Delivery, substantially in the form provided by the
Issuer (by mail or hand delivery), setting forth the name and
address of the holder of Old Debentures and the amount of Old
Debentures tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock
Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Debentures, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Debentures, in
proper form for transfer, or a Book-Entry Confirmation, as the
case may be, and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three NYSE
trading days after the date of execution of the Notice of
Guaranteed Delivery.
Withdrawal of Tenders
Tenders of Old Debentures may be withdrawn at any time
prior to 5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent prior to 5:00
p.m., New York City time on the Expiration Date at one of the
addresses set forth below under "--Exchange Agent." Any such
notice of withdrawal must specify the name of the person having
tendered the Old Debentures to be withdrawn, identify the Old
Debentures to be withdrawn (including the principal amount of
such Old Debentures) and (where certificates for Old Debentures
have been transmitted) specify the name in which such Old
Debentures are registered, if different from that of the
withdrawing holder. If certificates for Old Debentures have been
delivered or otherwise identified to the Exchange Agent, then,
prior to the release of such certificates, the withdrawing holder
must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Old Debentures have been
tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name
and number of the account at the Book-Entry Transfer Facility to
be credited with the withdrawn Old Debentures and otherwise
comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of
such notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any Old
Debentures so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old
Debentures which have been tendered for exchange but which are
not exchanged for any reason will be
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returned to the holder thereof without cost to such holder (or,
in the case of Old Debentures tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described
above, such Old Debentures will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old
Debentures) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn
Old Debentures may be retendered by following one of the
procedures described under "--Procedures for Tendering" and
"--Book-Entry Transfer" above at any time on or prior to the
Expiration Date.
Conditions
Notwithstanding any other term of the Exchange Offer, Old
Debentures will not be required to be accepted for exchange, nor
will New Debentures be issued in exchange for any Old Debentures,
and the Issuer may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Old Debentures, if
because of any change in law, or applicable interpretations
thereof by the Commission, the Issuer determines that they are
not permitted to effect the Exchange Offer. The Issuer has no
obligation to, and will not knowingly, permit acceptance of
tenders of Old Debentures from affiliates (within the meaning of
Rule 405 under the Securities Act) of the Issuer or from any
other holder or holders who are not eligible to participate in
the Exchange Offer under applicable law or interpretations
thereof by the Commission, or if the New Debentures to be
received by such holder or holders of Old Debentures in the
Exchange Offer, upon receipt, will not be tradable by such holder
without restriction under the Securities Act and the Exchange Act
and without material restrictions under the "blue sky" or
securities laws of substantially all of the states of the United
States.
Exchange Agent
State Street Bank & Trust Company has been appointed as
Exchange Agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this Prospectus
or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02102
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.:
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporation Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, New York 10006
For information call:
(617) 664-5587
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange
Offer will be borne by the Issuer. The principal solicitation for
tenders pursuant to the Exchange Offer is being made by mail;
however, additional solicitations may be made by telegraph,
telephone, telecopy or in person by officers and regular
employees of the Company.
The Issuer will not make any payments to brokers, dealers
or other persons soliciting acceptances of the Exchange Offer.
The Issuer, however, will pay the Exchange Agent reasonable and
customary fees for its services
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and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Issuer may
also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding copies of the Prospectus and related documents
to the beneficial owners of the Old Debentures, and in handling
or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer, including fees and expenses of
the Exchange Agent and Trustee and accounting, legal, printing
and related fees and expenses.
The Issuer will pay all transfer taxes, if any, applicable
to the exchange of Old Debentures pursuant to the Exchange Offer.
If, however, certificates representing New Debentures or Old
Debentures for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered
holder of the Old Debentures tendered, or if tendered Old
Debentures are registered in the name of any person other than
the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Old
Debentures pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or
any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such
tendering holder.
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DESCRIPTION OF THE NEW DEBENTURES
General
The Old Debentures were issued, and the New Debentures will
be, issued pursuant to the Indenture which is dated as of October
17, 1997 and is between the Company and State Street Bank and
Trust Company, as trustee (the "Trustee"). The terms of the New
Debentures will include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture
Act of 1939 (the "Trust Indenture Act"). The New Debentures will
be subject to all such terms, and prospective holders of New
Debentures are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of the
material provisions of the Indenture does not purport to be
complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms
used below. Copies of the proposed form of Indenture and
Registration Rights Agreement are available as set forth below
under "--Additional Information." The definitions of certain
terms used in the following summary are set forth below under
"--Certain Definitions."
The New Debentures will be general unsecured obligations of
the Issuer and will be pari passu in right of payment to all
current and future unsubordinated Indebtedness of the Issuer and
senior in right of payment to all subordinated Indebtedness of
the Issuer. The operations of the Issuer are conducted entirely
through its Subsidiaries and, therefore, the Issuer is dependent
in part upon the cash flow of its Subsidiaries to meet its
obligations, including its obligations under the New Debentures.
See "Risk Factors--Limitation on Access to Cash Flow of
Subsidiaries; Holding Company Structure." The New Credit Facility
and the Operating Corp Senior Subordinated Notes restrict
Operating Corp. from paying any dividends or making any other
distributions to the Issuer. The ability of Operating Corp to
comply with the conditions in the Operating Corp Senior
Subordinated Notes may be affected by certain events that are
beyond the Issuer's control. The New Debentures will be
effectively subordinated to all Indebtedness and other
liabilities (including, without limitation, to Operating Corp's
obligations under the New Credit Facility and the Operating Corp
Senior Subordinated Notes). Any right of the Issuer to receive
assets of any of its Subsidiaries upon such Subsidiary's
liquidation or reorganization (and the consequent right of
holders of the Operating Corp Senior Subordinated Notes to
participate in those assets) will be effectively subordinated to
the claims of that Subsidiary's creditors except to the extent
that the Issuer itself is recognized as a creditor of such
Subsidiary, in which case the claims of the Issuer would still be
subordinate to the claims of such creditors who hold security in
the assets of such Subsidiary and to the claims of such creditors
who hold Indebtedness of such Subsidiary senior to that held by
the Issuer. As of November 7, 1997, the Issuer had Indebtedness
of $75.3 million (all of which was attributable to the Old
Debentures) and the Issuer's Subsidiaries had $508.3 million of
outstanding liabilities, including Indebtedness under the
Operating Corp Senior Subordinated Notes and the Bank Facilities
and including trade payables and other accrued liabilities. The
Indenture will permit the incurrence of certain additional
Indebtedness of the Issuer and the Issuer's Subsidiaries in the
future. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
As of the Issue Date, all of the Issuer's subsidiaries
other than any Receivables Subsidiary were Restricted
Subsidiaries. However, under certain circumstances, the Issuer
will be able to designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to many of the restrictive covenants set forth in the
Indenture.
Principal, Maturity and Interest
New Debentures in an aggregate principal amount at maturity
of up to $142.0 million will be issued in the Exchange Offer. The
New Debentures will mature on October 15, 2008. The New
Debentures will be issued at a substantial discount from their
principal amount at maturity. Until October 15, 2002, no interest
will accrue on the New Debentures, but the Accreted Value will
increase (representing amortization of original issue discount)
between the date of original issuance and October 15, 2002, on a
semi-annual bond equivalent basis using a 360-day year comprised
of twelve 30-day months, such that the Accreted Value shall be
equal to the full principal amount at
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maturity of the New Debentures on October 15, 2002. Beginning on
October 15, 2002, interest on the New Debentures will accrue at
the rate of 13-1/8% per annum and will be payable semi-annually
in arrears on April 15 and October 15, commencing on April 15,
2003, to holders of record on the immediately preceding April 1
and October 1, respectively. Interest on the New Debentures will
accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from October 15, 2002. Interest
will be computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest
and Liquidated Damages on the New Debentures will be payable at
the office or agency (the "Paying Agent") of the Issuer
maintained for such purpose within the City and State of New York
or, at the option of the Issuer, payment of principal, premium,
interest, and Liquidated Damages may be made by check mailed to
the holders of the New Debentures at their respective addresses
set forth in the register of holders of Debentures; provided that
all payments of principal, premium, interest and Liquidated
Damages with respect to New Debentures represented by one or more
permanent global debentures ("Global Debentures") will be
required to be made by wire transfer of immediately available
funds to the accounts of DTC or any successor thereto. Until
otherwise designated by the Issuer, the Issuer's office or agency
in New York will be the office of the Trustee maintained for such
purpose. The New Debentures will be issued in denominations of
$1,000 and integral multiples thereof.
Optional Redemption
Except as described below, the New Debentures will not be
redeemable at the Issuer's option prior to October 15, 2002.
Thereafter, the New Debentures will be subject to redemption at
any time at the option of the Issuer, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the years
indicated below:
Year Percentage
---- ----------
2002 ........ 106.563
2003 ........ 104.375
2004 ........ 102.188
2005 and
thereafter ... 100.000
Notwithstanding the foregoing, at any time on or prior to
October 15 , 2000, the Issuer may (but shall not have the
obligation to) redeem, on one or more occasions, up to an
aggregate of 35% of the principal amount of New Debentures
originally issued at a redemption price equal to 113.125% of the
Accreted Value thereof, plus Liquidated Damages thereon, if any,
to the redemption date, with the net cash proceeds of one or more
Equity Offerings; provided that at least 65% of the aggregate
principal amount at maturity of the New Debentures originally
issued remain outstanding immediately after the occurrence of
such redemption; and provided further, that such redemption shall
occur within 90 days of the date of the closing of such Equity
Offering.
Mandatory Redemption
Except as set forth under "--Repurchase at the Option of
Holders," the Issuer is not required to make mandatory redemption
or sinking fund payments with respect to the New Debentures.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each holder of
New Debentures will have the right to require the Issuer to
repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of such holder's New Debentures pursuant to the
offer described below (the "Change of Control Offer") at an offer
price in cash equal to
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101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase or, in the case of repurchases of New Debentures
prior to October 15, 2002 at a purchase price equal to 101% of
the Accreted Value thereof as of the date of repurchase (the
"Change of Control Payment"). Within 65 days following any Change
of Control, the Issuer will mail a notice to each holder
describing the transaction or transactions that constitute the
Change of Control and offering to repurchase New Debentures on
the date specified in such notice, which date shall be no earlier
than 30 days (or such shorter time period as may be permitted
under applicable law, rules and regulations) and no later than 60
days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Issuer will comply
with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection
with the repurchase of the New Debentures as a result of a Change
of Control. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of the Indenture
relating to such Change of Control Offer, the Issuer will comply
with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations described in the
Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuer will, to
the extent lawful, (1) accept for payment all New Debentures or
portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all New Debentures
or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the New Debentures so accepted together
with an officers' certificate stating the aggregate principal
amount of New Debentures or portions thereof being purchased by
the Issuer. The Paying Agent will promptly mail to each holder of
New Debentures so tendered the Change of Control Payment for such
New Debentures, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a
new New Debenture equal in principal amount to any unpurchased
portion of the New Debentures surrendered, if any; provided that
each such new New Debenture will be in a principal amount of
$1,000 or an integral multiple thereof. The Issuer will publicly
announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be
applicable whether or not any other provisions of the Indenture
are applicable. Except as described above with respect to a
Change of Control, the Indenture does not contain provisions that
permit the holders of the New Debentures to require that the
Issuer repurchase or redeem the New Debentures in the event of a
takeover, recapitalization or similar transaction.
The New Credit Facility and the Operating Corp Senior
Subordinated Notes restrict Operating Corp from paying any
dividends or making any other distributions to the Issuer. If the
Issuer is unable to obtain dividends from Operating Corp
sufficient to permit the repurchase of the New Debentures or does
not refinance such Indebtedness, the Issuer will likely not have
the financial resources to purchase New Debentures. In any event,
there can be no assurance that the Issuer's Subsidiaries will
have the resources available to pay any such dividend or make any
such distribution. Prior to complying with the provisions of the
preceding paragraphs, but in any event within 90 days following a
Change of Control, the Issuer will either repay all outstanding
Indebtedness of its Subsidiaries or obtain the requisite
consents, if any, under the New Credit Facility and the Operating
Corp Senior Subordinated Notes to permit the repurchase of the
New Debentures required by this covenant. The Issuer will not be
required to purchase any New Debentures until it has complied
with the preceding sentence, but the Issuer's failure to make a
Change of Control Offer when required or to purchase tendered New
Debentures when tendered would constitute an Event of Default
under the Indenture. See "Risk Factors--Substantial Leverage;
Liquidity; Stockholders' Deficit" and "--Limitation on Access to
Cash Flow of Subsidiaries; Holding Company Structure."
The Issuer will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the Indenture
applicable to a Change of Control Offer made by the Issuer and
purchases all New Debentures validly tendered and not withdrawn
under such Change of Control Offer.
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The definition of Change of Control includes a phrase
relating to the sale, lease, transfer, conveyance or other
disposition of "all or substantially all" of the assets of the
Issuer and its Subsidiaries taken as a whole. Although there is a
developing body of case law interpreting the phrase
'substantially all," there is no precise established definition
of the phrase under applicable law. Accordingly, the ability of a
holder of New Debentures to require the Issuer to repurchase such
New Debentures as a result of a sale, lease, transfer, conveyance
or other disposition of less than all of the assets of the Issuer
and its Subsidiaries taken as a whole to another Person or group
may be uncertain.
Asset Sales
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, consummate an
Asset Sale unless (i) the Issuer (or the Restricted Subsidiary,
as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (evidenced by
a resolution of the Board of Directors set forth in an officers'
certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Issuer or
such Restricted Subsidiary is in the form of (A) cash or Cash
Equivalents or (B) Qualified Proceeds; provided that the
aggregate fair market value of Qualified Proceeds (other than
cash or Cash Equivalents), which may be received in consideration
for asset sales pursuant to this clause (ii) (B) shall not exceed
$7.5 million since the Issue Date; provided further that the
amount of (x) any liabilities (as shown on the Issuer's or such
Restricted Subsidiary's most recent balance sheet), of the Issuer
or any Restricted Subsidiary (other than contingent liabilities
and liabilities that are by their terms subordinated to the New
Debentures) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the
Issuer or such Restricted Subsidiary from further liability and
(y) any securities, notes or other obligations received by the
Issuer or any such Restricted Subsidiary from such transferee
that are converted by the Issuer or such Restricted Subsidiary
into cash (to extent of the cash received) within 180 days
following the closing of such Asset Sale, shall be deemed to be
cash for purposes of this provision.
Within 395 days after the receipt of any Net Proceeds from
an Asset Sale, the Issuer or its Restricted Subsidiaries may
apply such Net Proceeds, at its option, (a) to repay Indebtedness
of a Restricted Subsidiary of the Issuer, or (b) to the
investment in, or the making of a capital expenditure or the
acquisition of other property or assets in each case used or
useable in a Permitted Business, or Capital Stock of any Person
primarily engaged in a Permitted Business if, as a result of the
acquisition by the Issuer or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary, or (c) as
combination of the uses described in clauses (a) and (b). Pending
the final application of any such Net Proceeds, the Issuer or its
Restricted Subsidiaries may temporarily reduce Indebtedness of a
Restricted Subsidiary of the Issuer or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales, other than 20% of the net
proceeds from any sale of all or substantially all of the Capital
Stock or assets of the Company's Popular Club Plan business or
Clifford & Wills business (as each such business is constituted
on the Issue Date) which have been utilized to repay, redeem,
repurchase or otherwise retire outstanding New Debentures, that
are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0
million, the Issuer will be required to make an offer to all
holders of New Debentures and, to the extent required by the
terms of any Pari Passu Indebtedness to all holders of such Pari
Passu Indebtedness (an "Asset Sale Offer"), to purchase the
maximum principal amount of New Debentures and any such Pari
Passu Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (or,
in the case of repurchases of New Debentures prior to October 15,
2002, at a purchase price equal to 100% of the Accreted Value
thereof plus Liquidated Damages, as of the date of repurchase),
in accordance with the procedures set forth in the Indenture or
such Pari Passu Indebtedness, as applicable. To the extent that
the aggregate principal amount at maturity of New Debentures (or
Accreted Value, as the case may be) and any such Pari Passu
Indebtedness tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Issuer or its Restricted
Subsidiaries may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount at maturity
(or Accreted Value, as the case may be) of New Debentures and any
such
78
Pari Passu Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the New
Debentures to be purchased on a pro rata basis. Upon completion
of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The New Credit Facility and the Senior Subordinated Notes
restrict J. Crew Corp. from paying any dividends or making any
other distributions to the Issuer. If the Issuer is unable to
obtain dividends from J. Crew Corp. sufficient to permit the
repurchase of the New Debentures or does not refinance such
Indebtedness, the Issuer will likely not have the financial
resources to purchase New Debentures. In any event, there can be
no assurance that the Issuer's Subsidiaries will have the
resources available to pay any such dividend or make any such
distribution. The Issuer's failure to make an Asset Sale Offer
when required or to purchase tendered New Debentures when
tendered would constitute an Event of Default under the New
Debenture Indenture. See "Risk Factors--Substantial Leverage;
Liquidity; Stockholders' Deficit" and "--Limitation on Access to
Cash Flow of Subsidiaries; Holding Company Structure."
Selection and Notice
If less than all of the New Debentures are to be redeemed
or repurchased in an offer to purchase at any time, selection of
New Debentures for redemption or repurchase will be made by the
Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the New Debentures
are listed, or, if the New Debentures are not so listed, on a pro
rata basis, by lot or by such other method as the Trustee deems
fair and appropriate; provided that Notes to be redeemed with the
proceeds of an Equity Offering shall be selected on a pro rata
basis; provided further that no Notes of $1,000 or less shall be
redeemed or repurchased in part. Notices of redemption may not be
conditional. Notices of redemption or repurchase shall be mailed
by first class mail at least 30 but not more than 60 days before
the redemption date or repurchase date to each holder of New
Debentures to be redeemed or repurchased at its registered
address. If any New Debenture is to be redeemed or repurchased in
part only, the notice of redemption or repurchase that relates to
such New Debenture shall state the portion of the principal
amount thereof to be redeemed or repurchased. A new New Debenture
in principal amount equal to the unredeemed or unrepurchased
portion thereof will be issued in the name of the holder thereof
upon cancellation of the original New Debenture. On and after the
redemption or repurchase date, interest and Liquidated Damages
will cease to accrue on New Debentures or portions of them called
for redemption or repurchase.
Certain Covenants
Restricted Payments
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Issuer's or any of its
Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made
as a payment in connection with any merger or consolidation
involving the Issuer), other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of
the Issuer or dividends or distributions payable to the Issuer or
any Wholly Owned Subsidiary of the Issuer; (ii) purchase, redeem
or otherwise acquire or retire for value (including, without
limitation, any such purchase, redemption or other acquisition or
retirement for value made as a payment in connection with any
merger or consolidation involving the Issuer) any Equity
Interests of the Issuer or any Restricted Subsidiary (other than
any such Equity Interests owned by the Issuer or any Restricted
Subsidiary of the Issuer); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to the New
Debentures, except a payment of interest or a payment of
principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and immediately
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing; and
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(b) the Issuer would, at the time of such Restricted
Payment and after giving pro forma effect thereto, have
been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant
described below under caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by
the Issuer and its Restricted Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv), and (vi) of the next
succeeding paragraph), is less than the sum (without
duplication) of (i) 50% of the Consolidated Net Income of
the Issuer for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing
after the date of the Indenture to the end of the Issuer's
most recently ended fiscal quarter for which internal
financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate Qualified Proceeds received by
the Issuer from contributions to the Issuer's capital or
the issue or sale subsequent to the date of the Indenture
of Equity Interests of the Issuer (other than Disqualified
Stock) or of Disqualified Stock or debt securities of the
Issuer that have been converted into such Equity Interests
(other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the
Issuer and other than Disqualified Stock or convertible
debt securities that have been converted into Disqualified
Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is
sold for Qualified Proceeds or otherwise liquidated or
repaid (including, without limitation, by way of a dividend
or other distribution, a repayment of a loan or advance or
other transfer of assets) for in whole or in part, the
lesser of (A) the Qualified Proceeds with respect to such
Restricted Investment, (less the cost of disposition, if
any) and (B) the initial amount of such Restricted
Investment, plus (iv) upon the redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the
lesser of (x) the fair market value of such Subsidiary or
(y) the aggregate amount of all Investments made in such
Subsidiary subsequent to the Issue Date by the Issuer and
its Restricted Subsidiaries, plus (v) $15.0 million.
The foregoing provisions will not prohibit (i) the payment
of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests
of the Issuer in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Restricted
Subsidiary of the Issuer) of, other Equity Interests of the
Issuer (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (c) (ii) of the
preceding paragraph; (iii) the defeasance, redemption,
repurchase, retirement or other acquisition of subordinated
Indebtedness in exchange for, or with the net cash proceeds from,
an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend (or the making of a similar distribution
or redemption) by a Restricted Subsidiary of the Issuer to the
holders of its common Equity Interests on a pro rata basis; (v)
so long as no Default or Event of Default shall have occurred and
is continuing, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Issuer, or
any Restricted Subsidiary of the Issuer, held by any member of
the Issuer's (or any of its Restricted Subsidiaries') management,
employees or consultants pursuant to any management, employee or
consultant equity subscription agreement or stock option
agreement in effect as of the date of the Indenture; provided
that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed the sum of
(A) $10.0 million and (B) the aggregate cash proceeds received by
the Issuer from any reissuance of Equity Interests by the Issuer
to members of management of the Issuer and its Restricted
Subsidiaries (provided that the cash proceeds referred to in this
clause (B) shall be excluded from clause (c)(ii) of the preceding
paragraph); (vi) distributions made by the Issuer on the date of
the Indenture, the proceeds of which are utilized solely to
consummate the Recapitalization; and (vii) so long as no Default
or Event of Default has occurred and is continuing, the
declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Issuer issued after the date
of the Indenture in accordance with the covenant described below
under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock."
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The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default or an Event of Default. For purposes of
making such determination, all outstanding Investments by the
Issuer and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will
reduce the amount available for Restricted Payments under the
first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such
Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of (i) all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred
or issued by the Issuer or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market
value on the date of receipt thereof by the Issuer of such
Qualified Proceeds. The fair market value of any non-cash
Restricted Payment and Qualified Proceeds shall be determined by
the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based
upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of national standing if such fair
market value exceeds $10.0 million. Not later than the date of
making any Restricted Payment, the Issuer shall deliver to the
Trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were
computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt) and that the Issuer will not issue any
Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided,
however, that the Issuer or any of its Restricted Subsidiaries
may incur Indebtedness (including Acquired Debt) or issue shares
of Disqualified Stock if the Fixed Charge Coverage Ratio for the
Issuer's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or
such Disqualified Stock is issued would have been at least 1.75
to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such
four-quarter period.
The Indenture also provides that the Issuer will not incur
any Indebtedness that is contractually subordinated in right of
payment to any other Indebtedness of the Issuer unless such
Indebtedness is also contractually subordinated in right of
payment to the New Debentures on substantially identical terms;
provided, however, that no Indebtedness of the Issuer shall be
deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Issuer solely by virtue of being
unsecured.
The provisions of the first paragraph of this covenant will
not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Debt"):
(i) Indebtedness of the Issuer and its Restricted
Subsidiaries under Credit Facilities; provided that the
aggregate principal amount of all Indebtedness (with
letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Issuer and
its Restricted Subsidiaries thereunder) outstanding under
all Credit Facilities after giving effect to such
incurrence, including all Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to
this clause (i), does not exceed an amount equal to $270.0
million less the aggregate principal of all principal
payments thereunder
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constituting permanent reductions of such Indebtedness
pursuant to and in accordance with the covenant described
under "--Repurchase at the Option of Holders--Asset Sales;"
(ii) the incurrence by the Issuer of Indebtedness
represented by the New Debentures and the incurrence by J.
Crew Corp. and its Subsidiaries of Indebtedness represented
by the Senior Subordinated Notes and any guarantee thereof;
(iii) the incurrence by the Issuer or any of its
Restricted Subsidiaries of Indebtedness represented by
Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of
construction or improvements of property used in the
business of the Issuer or such Restricted Subsidiary, in an
aggregate principal amount not to exceed $25.0 million at
any time outstanding;
(iv) other Indebtedness of the Issuer and its
Restricted Subsidiaries outstanding on the Issue Date;
(v) the incurrence by the Issuer or any of its
Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which
are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted
by the Indenture to exist or be incurred;
(vi) the incurrence of intercompany Indebtedness (A)
between or among the Issuer and any Wholly Owned Restricted
Subsidiaries of the Issuer or (B) by a Restricted
Subsidiary that is not a Wholly Owned Restricted Subsidiary
of the Issuer or a Wholly Owned Subsidiary; provided,
however, that (i) if the Issuer is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations
with respect to the New Debentures and (ii)(A) any
subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person
other than the Issuer or a Wholly Owned Restricted
Subsidiary of the Issuer and (B) any sale or other transfer
of any such Indebtedness to a Person that is not either the
Issuer or a Wholly Owned Restricted Subsidiary of the
Issuer shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Issuer or such
Subsidiary, as the case may be;
(vii) the incurrence by the Issuer or any of the
Guarantors of Hedging Obligations that are incurred for the
purpose of fixing or hedging (i) interest rate risk with
respect to any floating rate Indebtedness that is permitted
by the terms of this Indenture to be outstanding or (ii)
the value of foreign currencies purchased or received by
the Issuer in the ordinary course of business;
(viii) Indebtedness incurred in respect of workers'
compensation claims, self-insurance obligations,
performance, surety and similar bonds and completion
guarantees provided by the Issuer or a Restricted
Subsidiary in the ordinary course of business;
(ix) Indebtedness arising from guarantees of
Indebtedness of the Issuer or any Subsidiary or the
agreements of the Issuer or a Restricted Subsidiary
providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets
or Capital Stock of a Restricted Subsidiary, or other
guarantees of Indebtedness incurred by any person acquiring
all or any portion of such business, assets or Capital
Stock of a Restricted Subsidiary for the purpose of
financing such acquisition, provided that the maximum
aggregate liability in respect of all such Indebtedness
shall at no time exceed the gross proceeds actually
received by the Issuer and its Restricted Subsidiaries in
connection with such disposition;
(x) Indebtedness of a Receivables Subsidiary that is
not recourse to the Issuer or any other Restricted
Subsidiary of the Issuer (other than Standard
Securitization Undertakings) incurred in connection with a
Qualified Receivables Transaction;
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(xi) the guarantee by any Restricted Subsidiary of the
Issuer of Indebtedness of any Restricted Subsidiary of the
Issuer that was permitted to be incurred by another
provision of this covenant;
(xii) the incurrence by the Issuer or any of its
Restricted Subsidiaries of Acquired Debt in an aggregate
principal amount at any time outstanding not to exceed
$20.0 million;
(xiii) Indebtedness arising from the honoring by a
bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that
such Indebtedness is extinguished within five business days
of incurrence; and
(xiv) the incurrence by the Issuer or any Restricted
Subsidiary of additional Indebtedness in an aggregate
principal amount (or accreted value, as applicable) at any
time outstanding, including all indebtedness incurred to
refund, refinance or replace any Indebtedness incurred
pursuant to this clause (xiv), not to exceed $30.0 million.
For purposes of determining compliance with this covenant,
in the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Debt described in
clauses (i) through (xiv) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Issuer
shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness
will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
Liens
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign
or convey any right to receive income therefrom for purposes of
security, except Permitted Liens, unless (i) in the case of Liens
securing Indebtedness that is expressly subordinate or junior in
right of payment to the New Debentures, the New Debentures are
secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens, (with the same relative
priority as such subordinate or junior Indebtedness shall have
with respect to the New Debentures) and (ii) in all other cases,
the New Debentures are secured by such Lien on an equal and
ratable basis.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of
any Restricted Subsidiary to (i)(A) pay dividends or make any
other distributions to the Issuer or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits,
or (B) pay any Indebtedness owed to the Issuer or any of its
Restricted Subsidiaries, (ii) make loans or advances to the
Issuer or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Issuer or any of its
Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (A) the New Credit
Facility and the Senior Subordinated Notes, as in effect as of
the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings are no more
restrictive with respect to such dividend and other payment
restrictions than those contained in the New Credit Facility or
the Senior Subordinated Notes, as the case may be, as in effect
on the date of the Indenture, (B) the Indenture and the Notes,
(C) applicable law or any applicable rule, regulation or order,
(D) any agreement or instrument governing Indebtedness or Capital
Stock of a Person acquired by the Issuer or any of its Restricted
Subsidiaries as in effect at the time of such
83
acquisition (except to the extent such agreement or instrument
was created or entered into in connection with or in
contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or
assets of the Person, so acquired, (E) by reason of customary
non-assignment provisions in leases, licenses, encumbrances,
contracts or similar assets entered into or acquired in the
ordinary course of business and consistent with past practices,
(F) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so
acquired, (G) any Purchase Money Note, or other Indebtedness or
contractual requirements incurred with respect to a Qualified
Receivables Transaction relating to a Receivables Subsidiary, (H)
Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being
refinanced and (I) contracts for the sale of assets containing
customary restrictions with respect to a Subsidiary pursuant to
an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Issuer may not consolidate
or merge with or into (whether or not the Issuer is the surviving
corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another Person
unless (i) the Issuer is the surviving corporation or the Person
formed by or surviving any such consolidation or merger (if other
than the Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a
corporation or limited liability company organized or existing
under the laws of the United States, any state thereof or the
District of Columbia; (ii) the Person formed by or surviving any
such consolidation or merger (if other than the Issuer) or the
Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all
the obligations of the Issuer under the New Debentures and the
Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after
such transaction no Default or Event of Default exists; and (iv)
except in the case of a merger of the Issuer with or into a
Wholly Owned Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary), the Issuer or the entity or Person
formed by or surviving any such consolidation or merger (if other
than the Issuer), or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made at
the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock." For purposes of
this covenant, the sale, lease, conveyance, assignment, transfer,
or other disposition of all or substantially all of the
properties and assets of one or more Subsidiaries of the Issuer,
which properties and assets, if held by the Issuer instead of
such Subsidiaries, would constitute all or substantially all of
the properties and assets of the Issuer on a consolidated basis,
shall be deemed to be the transfer of all or substantially all of
the properties and assets of the Issuer. The foregoing clause
(iv) will not prohibit (a) a merger between the Issuer and a
Wholly Owned Subsidiary of the Issuer created for the purpose of
holding the Capital Stock of the Issuer, (b) a merger between the
Issuer and a Wholly Owned Restricted Subsidiary of the Issuer or
(c) a merger between the Issuer and an Affiliate incorporated
solely for the purpose of reincorporating the Issuer in another
State of the United States so long as, in the case of each of
clause (a), (b) and (c), the amount of Indebtedness of the Issuer
and its Restricted Subsidiaries is not increased thereby.
Transactions with Affiliates
The Indenture provides that the Issuer will not, and will
not permit any of its Restricted Subsidiaries to, make any
payment to or Investment in, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate
(each of the foregoing, an "Affiliate Transaction"), unless (i)
such Affiliate Transaction is on terms that are no less favorable
to the Issuer or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the
84
Issuer or such Restricted Subsidiary with an unrelated Person and
(ii) the Issuer delivers to the Trustee (A) with respect to any
Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a
resolution of the Board of Directors set forth in an officers'
certificate certifying that such Affiliate Transaction complies
with clause (i) above and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the
Board of Directors and (B) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as
to the fairness to the holders of such Affiliate Transaction from
a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v)
transactions with suppliers or other purchasers or sales of goods
or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture
agreements) and otherwise in accordance with the terms of the
Indenture which are fair to the Issuer, in the good faith
determination of the Board of Directors of the Issuer or the
senior management of the Issuer and are on terms at least as
favorable as might reasonably have been obtained at such time
from an unaffiliated party, (w) any employment agreements, stock
option or other compensation agreements or plans (and the payment
of amounts or the issuance of securities thereunder) and other
reasonable fees, compensation, benefits and indemnities paid or
entered into by the Issuer or any of its Restricted Subsidiaries
in the ordinary course of business of the Issuer or such
Restricted Subsidiary to or with the officers, directors or
employees of the Issuer or its Restricted Subsidiaries, (x)
transactions between or among the Issuer and/or its Restricted
Subsidiaries, (y) sales or other transfers or dispositions of
accounts receivable and other related assets customarily
transferred in an asset securitization transaction involving
accounts receivable to a Receivables Subsidiary in a Qualified
Receivables Transaction, and acquisitions of Permitted
Investments in connection with a Qualified Receivables
Transaction and (z) Restricted Payments (other than Restricted
Investments) that are permitted by the provisions of the
Indenture described above under the caption "--Restricted
Payments," in each case, shall not be deemed Affiliate
Transactions.
Business Activities
The Issuer will not, and will not permit any Restricted
Subsidiary to, engage in any business other than Permitted
Businesses.
Reports
The Indenture provides that, whether or not required by the
rules and regulations of the Commission, so long as any New
Debentures are outstanding, the Issuer will furnish to the
holders of New Debentures (i) all quarterly and annual financial
information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Issuer were
required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations
of the Issuer and its consolidated Subsidiaries and, with respect
to the annual information only, a report thereon by the Issuer's
certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form
8-K if the Issuer were required to file such reports, in each
case within the time periods set forth in the Commission's rules
and regulations. In addition, whether or not required by the
rules and regulations of the Commission, at any time after the
consummation of the Exchange Offer contemplated by the
Registration Rights Agreement, the Issuer will file a copy of all
such information and reports with the Commission for public
availability within the time periods set forth in the
Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In
addition, at all times that the Commission does not accept the
filings provided for in the preceding sentence, the Issuer has
agreed that, for so long as any New Debentures remain
outstanding, they will furnish to the holders and to securities
analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
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Events of Default and Remedies
The Indenture provides that each of the following
constitutes an Event of Default (each an "Event of Default"): (i)
default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Debentures; (ii)
default in payment when due of the principal of or premium, if
any, on the New Debentures; (iii) failure by the Issuer or any of
its Restricted Subsidiaries for 30 days after notice by the
Trustee or by the holders of at least 25% in principal amount of
New Debentures then outstanding to comply with the provisions
described under the captions "--Repurchase at the Option of
Holders--Change of Control" or "--Asset Sales" or "--Certain
Covenants--Restricted Payments" or "--Incurrence of Indebtedness
and Issuance of Preferred Stock;" (iv) failure by the Issuer or
any of its Restricted Subsidiaries for 60 days after notice by
the Trustee or by the holders of at least 25% in principal amount
of New Debentures then outstanding to comply with any of its
other agreements in the Indenture or the New Debentures; (v)
default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Issuer or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Issuer or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (a) is caused by a failure
to pay principal of such Indebtedness after giving effect to any
grace period provided in such Indebtedness (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to
its stated maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment
Default or the maturity of which has been so accelerated,
aggregates $20 million or more; (vi) failure by the Issuer or any
of its Restricted Subsidiaries to pay final judgments aggregating
in excess of $20 million (net of any amounts with respect to
which a reputable and creditworthy insurance company has
acknowledged liability in writing), which judgments are not paid,
discharged or stayed for a period of 60 days; and (vii) certain
events of bankruptcy or insolvency with respect to the Issuer or
any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the
Trustee or the holders of at least 25% in principal amount of the
then outstanding New Debentures may declare all the New
Debentures to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the
Issuer, all outstanding New Debentures will become due and
payable without further action or notice. Upon any acceleration
of maturity of the New Debentures, all principal of and accrued
interest and Liquidated Damages, if any, on (if on or after
October 15, 2002) or Accreted Value of and Liquidated Damages, if
any, on (if prior to October 15, 2002) the New Debentures shall
be due and payable immediately. Holders of the New Debentures may
not enforce the Indenture or the New Debentures except as
provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding
New Debentures may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from holders of the New
Debentures notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice
is in their interest. In the event of a declaration of
acceleration of the New Debentures because an Event of Default
has occurred and is continuing as a result of the acceleration of
any Indebtedness described in clause (v) of the preceding
paragraph, the declaration of acceleration of the New Debentures
shall be automatically annulled if the holders of any
Indebtedness described in clause (v) of the preceding paragraph
have rescinded the declaration of acceleration in respect of such
Indebtedness within 30 days of the date of such declaration and
if (a) the annulment of the acceleration of New Debentures would
not conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except
nonpayment of principal or interest on the New Debentures that
became due solely because of the acceleration of the New
Debentures, have been cured or waived.
The holders of a majority in aggregate principal amount of
the New Debentures then outstanding by notice to the Trustee may
on behalf of the holders of all of the New Debentures waive any
existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in
the payment of interest on, or the principal of, the New
Debentures.
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The Issuer is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the Issuer
is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder
of the Issuer, as such, shall have any liability for any
obligations of the Issuer under the New Debentures or the
Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of New
Debentures by accepting a New Debenture waives and releases all
such liability. The waiver and release are part of the
consideration for issuance of the New Debentures. Such waiver may
not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a
waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Issuer may, at its option and at any time, elect to
have all of its obligations discharged with respect to the
outstanding New Debentures ("Legal Defeasance") except for (i)
the rights of holders of outstanding New Debentures to receive
payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages on such New Debentures when such
payments are due from the trust referred to below, (ii) the
Issuer's obligations with respect to the New Debentures
concerning issuing temporary New Debentures, registration of New
Debentures, mutilated, destroyed, lost or stolen New Debentures
and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Issuer's
obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Issuer may, at its
option and at any time, elect to have the obligations of the
Issuer released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter
any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the New Debentures.
In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with
respect to the New Debentures.
In order to exercise either Legal Defeasance or Covenant
Defeasance, (i) the Issuer must irrevocably deposit with the
Trustee, in trust, for the benefit of the holders of the New
Debentures, cash in U.S. dollars, non-callable government
securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal amount at
maturity of or Accreted Value (as applicable) of, premium, if
any, and interest and Liquidated Damages on the outstanding New
Debentures on the stated maturity or on the applicable redemption
date, as the case may be, and the Issuer must specify whether the
New Debentures are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Issuer
shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming
that (A) the Issuer has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm
that, subject to customary assumptions and exclusions, the
holders of the outstanding New Debentures will not recognize
income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Issuer
shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming
that, subject to customary assumptions and exclusions, the
holders of the outstanding New Debentures will not recognize
income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the financing of
amounts to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are
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concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or
constitute a default under any material agreement or instrument
(other than the Indenture) to which the Issuer or any of its
Subsidiaries is a party or by which the Issuer or any of its
Subsidiaries is bound; (vi) the Issuer must have delivered to the
Trustee an opinion of counsel to the effect that, subject to
customary assumptions and exclusions (which assumptions and
exclusions shall not relate to the operation of Section 547 of
the United States Bankruptcy Code or any analogous New York State
law provision), after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Issuer must deliver to the
Trustee an officers' certificate stating that the deposit was not
made by the Issuer with the intent of preferring the holders of
New Debentures over the other creditors of the Issuer with the
intent of defeating, hindering, delaying or defrauding creditors
of the Issuer or others; and (viii) the Issuer must deliver to
the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating
to the Legal Defeasance or the Covenant Defeasance have been
complied with.
Transfer and Exchange
A holder may transfer or exchange New Debentures in
accordance with the Indenture. The Registrar and the Trustee may
require a holder, among other things, to furnish appropriate
endorsements and transfer documents and the Issuer may require a
holder to pay any taxes and fees required by law or permitted by
the Indenture. The Issuer is not required to transfer or exchange
any New Debentures selected for redemption. Also, the Issuer is
not required to transfer or exchange any New Debentures for a
period of 15 days before a selection of New Debentures to be
redeemed.
The registered holder of a New Debentures will be treated
as the owner of it for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs,
the Indenture or the New Debentures may be amended or
supplemented with the consent of the holders of at least a
majority in principal amount at maturity of the New Debentures
then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or
exchange offer for, New Debentures), and any existing default or
compliance with any provision of the Indenture or the New
Debentures may be waived with the consent of the holders of a
majority in principal amount of the then outstanding New
Debentures (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, New
Debentures).
Without the consent of each holder affected, an amendment
or waiver may not (with respect to any New Debentures held by a
non-consenting holder): (i) reduce the principal amount of New
Debentures whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed
maturity of any New Debentures or alter the provisions with
respect to the redemption of the New Debentures (other than
provisions relating to the covenants described above under the
caption "--Repurchase at the Option of Holders") or amend or
modify the calculation of the Accreted Value so as to reduce the
amount of the Accreted Value of the New Debentures, (iii) reduce
the rate of or change the time for payment of interest on any New
Debenture, (iv) waive a Default or Event of Default in the
payment of principal of or premium, if any, or interest on the
New Debentures (except a rescission of acceleration of the New
Debentures by the holders of at least a majority in aggregate
principal amount at maturity of the New Debentures and a waiver
of the payment default that resulted from such acceleration), (v)
make any New Debenture payable in money other than that stated in
the New Debentures, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of
holders of New Debentures to receive payments of principal of or
premium, if any, or interest on the New Debentures, (vii) waive a
redemption payment with respect to any New Debenture (other than
a payment required by one of the covenants described above under
the caption "--Repurchase at the Option of Holders"), or (viii)
make any change in the foregoing amendment and waiver provisions.
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Notwithstanding the foregoing, without the consent of any
holder of New Debentures, the Issuer and the Trustee may amend or
supplement the Indenture or the New Debentures to cure any
ambiguity, defect or inconsistency, to provide for uncertificated
New Debentures in addition to or in place of certificated New
Debentures, to provide for the assumption of the Issuer's
obligations to holders of New Debentures in the case of a merger
or consolidation, to make any change that would provide any
additional rights or benefits to the holders of New Debentures or
that does not adversely affect the legal rights under the
Indenture of any such holder, to comply with requirements of the
Commission in order to effect or maintain the qualification of
the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of
the Trustee, should it become a creditor of the Issuer, to obtain
payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
The holders of a majority in principal amount at maturity
of the then outstanding New Debentures will have the right to
direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event
of Default shall occur (which shall not be cured), the Trustee
will be required, in the exercise of its power, to use the degree
of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of New Debentures, unless
such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry, Delivery and Form
The Old Debentures were offered and sold to qualified
institutional buyers in reliance on Rule 144A ("Rule 144A New
Debentures"). New Debentures will be issued in registered, global
form in minimum denominations of $1,000 and integral multiples of
$1,000 in excess thereof. The Global Debentures will be deposited
upon issuance with the Trustee as custodian for DTC in New York,
New York, and registered in the name of DTC or its nominee, in
each case for credit to an account of a direct or indirect
participant in DTC as described below.
Except as set forth below, the Global Debentures may be
transferred, in whole and not in part, only to another nominee of
DTC or to a successor of DTC or its nominee. Beneficial interests
in the Global Debentures may not be exchanged for New Debentures
in certificated form except in the limited circumstances
described below. See "--Exchange of Book-Entry Debentures for
Certificated Debentures." In addition, transfer of beneficial
interests in the Global Debentures will be subject to the
applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and
CEDEL), which may change from time to time.
Initially, the Trustee will act as Paying Agent and
Registrar with respect to the New Debentures. The New Debentures
may be presented for registration of transfer and exchange at the
offices of the Registrar.
Depository Procedures
DTC has advised the Issuer that DTC is a limited-purpose
trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those
securities between Participants through electronic book-entry
changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and
certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship
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with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only
through the Participants or the Indirect Participants. The
ownership interests and transfer of ownership interests of each
actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect
Participants.
DTC has also advised the Issuer that, pursuant to
procedures established by it, (i) upon deposit of the Global
Debentures, DTC will credit the accounts of Participants
tendering Old Debentures with portions of the applicable Global
Debentures and (ii) ownership of such interests in the Global
Debentures will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC
(with respect to the Participants) or by the Participants and the
Indirect Participants (with respect to other owners of beneficial
interest in the Global Debentures).
Investors in the Global Debentures may hold their interests
therein directly through DTC, if they are participants in such
system, or indirectly through organizations (including Euroclear
and CEDEL) which are participants in such system. Euroclear or
CEDEL will hold interests in the Global Debentures on behalf of
their participants through customers' securities accounts in
their respective names on the books of their respective
depositaries, which are Morgan Guaranty Trust Company of New
York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of CEDEL. The depositaries, in turn, will hold
such interests in the Global Debentures in customers' securities
accounts in the depositaries' names on the books of DTC. All
interests in a Global Debenture, including those held through
Euroclear or CEDEL, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or
CEDEL may also be subject to the procedures and requirements of
such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial
interests in a Global Debenture to such persons will be limited
to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect
Participants and certain banks, the ability of a person having
beneficial interests in a Global Debenture to pledge such
interests to persons or entities that do not participate in the
DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate
evidencing such interests. For certain other restrictions on the
transferability of the New Debentures, see "--Exchange of Book-
Entry Debentures for Certificated Debentures" and "--Exchange of
Certificated Debentures for Book-Entry Debentures."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE
GLOBAL DEBENTURES WILL NOT HAVE NEW DEBENTURES REGISTERED IN
THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF NEW DEBENTURES
IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, premium, if any,
interest and Liquidated Damages, if any, on a Global Debenture
registered in the name of DTC or its nominee will be payable by
the Trustee to DTC in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Issuer and
the Trustee will treat the persons in whose names the New
Debentures, including the Global Debentures, are registered as
the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither
the Issuer nor the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interest in the
Global Debentures, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership
interests in the Global Debentures or (ii) any other matter
relating to the actions and practices of DTC or any of its
Participants or Indirect Participants. DTC has advised the Issuer
that its current practice, upon receipt of any payment in respect
of securities such as the New Debentures (including principal and
interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to
their respective holdings in the principal amount of beneficial
interest in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Debentures will be
governed by standing instructions and customary
90
practices and will be the responsibility of the Participants or
the Indirect Participants and will not be the responsibility of
DTC, the Trustee or the Issuer. Neither the Issuer nor the
Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the New
Debentures, and the Issuer and the Trustee may conclusively rely
on and will be protected in relying on instructions from DTC or
its nominee for all purposes.
Except for trades involving only Euroclear and CEDEL
participants, interests in the Global Debentures are expected to
be eligible to trade in DTC's Same-Day Funds Settlement System
and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its participants.
See "--Same-Day Settlement and Payment."
Transfers between Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day
funds, and transfers between participants in Euroclear and CEDEL
will be effected in the ordinary way in accordance with their
respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on
the one hand, and Euroclear or CEDEL participants, on the other
hand, will be effected through DTC in accordance with DTC's rules
on behalf of Euroclear or CEDEL, as the case may be, by its
respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or CEDEL, as
the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or CEDEL, as
the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary
to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global
Debentures in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable
to DTC. Euroclear participants and CEDEL participants may not
deliver instructions directly to the depositaries for Euroclear
or CEDEL.
Because of time zone differences, the securities account of
a Euroclear or CEDEL participant purchasing an interest in Global
Debentures from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
CEDEL participant, during the securities settlement processing
day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. DTC has advised
the Issuer that cash received in Euroclear or CEDEL as a result
of sales of interests in a Global Debenture by or through a
Euroclear or CEDEL participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be
available in the relevant Euroclear or CEDEL cash account only as
of the business day for Euroclear or CEDEL following DTC's
settlement date.
DTC has advised the Issuer that it will take any action
permitted to be taken by a holder of New Debentures only at the
direction of one or more Participants to whose account with DTC
interests in the Global Debentures are credited and only in
respect of such portion of the aggregate principal amount of the
New Debentures as to which such Participant or Participants has
or have given such direction. However, if there is an Event of
Default under the New Debentures, DTC reserves the right to
exchange the Global Debentures for legended New Debentures in
certificated form, and to distribute such New Debentures to its
Participants.
The information in this section concerning DTC, Euroclear
and CEDEL and their book-entry systems has been obtained from
sources that the Issuer believes to be reliable, but the Issuer
takes no responsibility for the accuracy thereof.
Although DTC, Euroclear and CEDEL have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Debentures among Participants in DTC, Euroclear and CEDEL,
they are under no obligation to perform or to continue to perform
such procedures, and such procedures may be discontinued at any
time. Neither the Issuer nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or CEDEL or
their respective participants or indirect participants of their
respective obligations under the rules and procedures governing
their operations.
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Exchange of Book-Entry Debentures for Certificated Debentures
A Global Debenture is exchangeable for definitive New
Debentures in registered certificated form if (i) DTC (x)
notifies the Issuer that it is unwilling or unable to continue as
depositary for the Global Debentures and the Issuer thereupon
fails to appoint a successor depositary or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the
Issuer, at its option, notifies the Trustee, in writing that it
elects to cause the issuance of the New Debentures in
certificated form or (iii) there shall have occurred and be
continuing an Event of Default or any event which after notice or
lapse of time or both would be an Event of Default with respect
to the New Debentures. In addition, beneficial interests in a
Global Debenture may be exchanged for certificated New Debentures
upon request but only upon at least 20 days prior written notice
given to the Trustee by or on behalf of DTC in accordance with
its customary procedures. In all cases, certificated New
Debentures delivered in exchange for any Global Debenture or
beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf
of the depositary (in accordance with its customary procedures)
and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless the Issuer determines otherwise in
compliance with applicable law.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the New
Debentures represented by the Global Debentures (including
principal, premium, if any, and interest and Liquidated Damages,
if any) be made by wire transfer of immediately available funds
to the accounts specified by the Global Debentures holder. With
respect to New Debentures in certificated form, the Issuer will
make all payments of principal, premium, if any, interest and
Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each
such holder's registered address. The New Debentures represented
by the Global Debentures are expected to be eligible to trade in
the PORTAL market and to trade in the Depositary's Same-Day Funds
Settlement System, and any permitted secondary market trading
activity in such New Debentures will, therefore, be required by
the Depositary to be settled in immediately available funds. The
Issuer expects that secondary trading in any certificated New
Debentures will also be settled in immediately available funds.
Because of time zone differences, the securities account of
a Euroclear or CEDEL participant purchasing an interest in a
Global Debenture from a Participant in DTC will be credited, and
any such crediting will be reported to the relevant Euroclear or
CEDEL participant, during the securities settlement processing
day (which must be a business day for Euroclear and CEDEL)
immediately following the settlement date of DTC. DTC has advised
the Issuer that cash received in Euroclear or CEDEL as a result
of sales of interests in a Global Debenture by or through a
Euroclear or CEDEL participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be
available in the relevant Euroclear or CEDEL cash account only as
of the business day for Euroclear or CEDEL following DTC's
settlement date.
Registration Rights; Liquidated Damages
Pursuant to the Registration Rights Agreement, the Issuer
agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the
Securities Act with respect to the New Debentures. Upon the
effectiveness of the Exchange Offer Registration Statement, the
Issuer will offer to the holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make
certain representations the opportunity to exchange their
Transfer Restricted Securities for New Debentures. If (i) the
Issuer is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or
Commission policy or (ii) any holder of Transfer Restricted
Securities notifies the Issuer within the specified time period
that (A) it is prohibited by law or Commission policy from
participating in the Exchange Offer (other than due solely to the
status of such holder as an affiliate of the Issuer within the
meaning of the Securities Act) or (B) that it may not resell the
New Debentures acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in
the Exchange Offer
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Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Debentures
acquired directly from the Issuer or an affiliate of the Issuer,
the Issuer will file with the Commission a Shelf Registration
Statement to cover resales of the Debentures by the holders
thereof who satisfy certain conditions relating to the provision
of information in connection with the Shelf Registration
Statement. The Issuer will use its best efforts to cause the
applicable registration statement to be declared effective as
promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Debenture
until (i) the date on which such Debenture has been exchanged by
a person other than a broker-dealer for a New Debenture in the
Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of a Debenture for a New Debenture, the date
on which such New Debenture is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Debenture
has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement
or (iv) the date on which such Debenture is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement will provide that (i) the
Issuer will file an Exchange Offer Registration Statement with
the Commission on or prior to 60 days after the Closing Date,
(ii) the Issuer will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission
on or prior to 135 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or
Commission policy, the Issuer will commence the Exchange Offer
and use its best efforts to issue within 180 days after the Issue
Date New Debentures in exchange for all Debentures tendered prior
thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Issuer will use its best
efforts to file the Shelf Registration Statement with the
Commission on or prior to 60 days after such filing obligation
arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 135 days after such
obligation arises. If (a) the Issuer fails to file any of the
Registration Statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b)
any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the
Issuer fails to consummate the Exchange Offer within 180 days
after the Issue Date, or (d) the Shelf Registration Statement or
the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration
Default"), then the Issuer will pay liquidated damages
("Liquidated Damages") determined as follows: to each holder of
Debentures, with respect to such 90-day period immediately
following the occurrence of the first Registration Default in an
amount equal to $0.05 per week per $1,000 principal amount of
Debentures held by such holder. The amount of the Liquidated
Damages will increase by an additional $0.05 per week per $1,000
principal amount of Debentures with respect to each subsequent
90-day period until all Registration Defaults have been cured, up
to a maximum amount of Liquidated Damages of $0.25 per week per
$1,000 principal amount of Debentures. All accrued Liquidated
Damages will be paid by the Issuer to the Global Debenture holder
by wire transfer of immediately available funds or by federal
funds check and to holders of Certificated Debentures by wire
transfer to the accounts specified by them or by mailing checks
to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages will cease.
Holders of Debentures will be required to make certain
representations to the Issuer (as described in the Registration
Rights Agreement) in order to participate in the Exchange Offer
and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order
to have their Debentures included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated
Damages set forth above.
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Certain Definitions
Set forth below are certain defined terms used in the
Indenture. Reference is made to the Indenture for a full
disclosure of all such terms, as well as any other capitalized
terms used herein for which no definition is provided.
"Accreted Value" means, as of any date of determination
prior to October 15, 2002, with respect to any Debenture, the sum
of (a) the initial offering price (which shall be calculated by
discounting the aggregate principal amount at maturity of such
Debenture at a rate of 13-1/8% per annum, compounded semi-annually
on each April 15 and October 15 from October 15, 2002 to the date
of issuance) of such Debenture and (b) the portion of the excess
of the principal amount of such Debenture over such initial
offering price which shall have been accreted thereon through
such date, such amount to be so accreted on a daily basis at a
rate of 13-1/8% per annum of the initial offering price of such
Debenture, compounded semi-annually on each April 15 and October
15 from the date of issuance of the Debentures through the date
of determination, computed on the basis of a 360-day year of
twelve 30-day months.
"Acquired Debt" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary
of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or
assumed in connection with the acquisition of any asset used or
useful in a Permitted Business acquired by such specified Person;
provided that such Indebtedness was not incurred in connection
with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, or such
acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means (i) the sale, lease (other than an
operating lease), conveyance or other disposition of any assets
or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business
consistent with past practices (provided that the sale, lease
(other than an operating lease), conveyance or other disposition
of all or substantially all of the assets of the Issuer and its
Restricted Subsidiaries taken as a whole will be governed by the
provisions of the Indenture described above under the caption
"--Repurchase at the Option of Holders--Change of Control" and/or
the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the sale by
the Issuer and the issue or sale by any of the Restricted
Subsidiaries of the Issuer of Equity Interests of any of the
Issuer's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related
transactions that have a fair market value (as determined in good
faith by the Board of Directors) in excess of $1.0 million or for
net cash proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Issuer to a Wholly
Owned Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary) or by a Wholly Owned Restricted
Subsidiary of the Issuer (other than a Receivables Subsidiary) to
the Issuer or to a Wholly Owned Restricted Subsidiary of the
Issuer (other than a Receivables Subsidiary), (ii) an issuance of
Equity Interests by a Restricted Subsidiary of the Issuer to the
Issuer or to a Wholly Owned Restricted Subsidiary of the Issuer
(other than a Receivables Subsidiary), (iii) a Restricted Payment
that is permitted by the covenant described above under the
caption "--Restricted Payments," (iv) the sale and leaseback of
any assets within 90 days of the acquisition of such assets, (v)
foreclosures on assets, (vi) the clearance of inventory and (vii)
the sale, conveyance or other disposition of accounts receivables
and related assets customarily transferred in an asset
securitization transaction involving accounts receivable to a
Receivables Subsidiary or by a Receivables Subsidiary, in
connection with a Qualified Receivables Transaction, in each
case, will not be deemed to be Asset Sales.
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"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of
a capital lease that would at such time be required to be
capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participation, rights or
other equivalents (however designated) of corporate stock, (iii)
in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited)
and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) securities issued or
unconditionally and fully guaranteed or insured by the full faith
and credit of the United States government or any agency or
instrumentality thereof having maturities of not more than one
year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or
any political subdivision of any such state or any public
instrumentality thereof
maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having
one of the two highest ratings obtainable from either Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time
deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any
lender party to the New Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $250.0
million, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (i) and (iii), above entered into with any financial
institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having one of the two of the highest
ratings obtainable from either Moody's or S&P and in each case
maturing within one year after the date of acquisition and (vi)
investments in funds investing exclusively in investments of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the assets of the Issuer and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), other than the Principals and their Related
Parties (ii) the adoption of a plan relating to the liquidation
or dissolution of the Issuer, (iii) the consummation of any
transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as
defined above), other than the Principal and their Related
Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of 40% or more of the Voting Stock of the Issuer
(measured by voting power rather than number of shares) and (B)
the Principals and their Related Parties beneficially own,
directly or indirectly, in the aggregate a lesser percentage of
the Voting Stock of the Issuer than such other "person", (iv) the
first day on which a majority of the members of the Board of
Directors of the Issuer are not Continuing Directors or (v) the
Issuer consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the Issuer,
in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of the Issuer is converted into or
exchanged for cash, securities or other property, other than any
such transaction where (A) the Voting Stock of the Issuer
outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person and (B) the
"beneficial owners" (as defined above) of the Voting Stock of the
Issuer immediately prior to such transaction own, directly or
indirectly through one or more subsidiaries, not less than a
majority of the total Voting Stock of the surviving or transferee
corporation immediately after such transaction.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for
such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to
the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted
Subsidiaries), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included
in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted
95
Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization
of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income,
plus (iv) depreciation and amortization (including amortization
of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other
non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash
charges in any future period or amortization of a prepaid cash
charge that was paid in a prior period) of such Person and its
Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) any
interest expense on Indebtedness of another Person that is
Guaranteed by such Person or any of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or any of its
Restricted Subsidiaries, in each case, to the extent that such
interest expense is deducted in computing such Consolidated Net
Income, minus (vi) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes based on the income or profits
of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of a Person shall be added to
Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person
and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP, provided that (i) the Net
Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or
a Restricted Subsidiary thereof, (ii) the Net Income of any
Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded,
and (iii) the cumulative effect of a change in accounting
principles shall be excluded.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Issuer
or any Holding Company of the Issuer who (i) was a member of such
Board of Directors on the date of the Indenture immediately after
consummation of the Recapitalization or (ii) was nominated for
election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were either members
of such Board at the time of such nomination or election or are
successor Continuing Directors appointed by such Continuing
Directors (or their successors).
"Credit Facilities" means, with respect to the Issuer, one
or more debt facilities (including, without limitation, the New
Credit Facility) or commercial paper facilities with banks or
other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to
time. Indebtedness under Credit Facilities outstanding on the
Issue Date shall be deemed to have been incurred on such date in
reliance on the exceptions provided by clauses (i) and (ii) of
the definition of Permitted Debt.
"Default" means any event that is or with the passage of
time or the giving of notice or both would be an Event of
Default.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date on which the
Debentures mature;
96
provided, however, that a class of Capital Stock shall not be
Disqualified Stock hereunder solely as the result of any maturity
or redemption that is conditioned upon, and subject to,
compliance with the covenant described above under the caption
"--Certain Covenants--Restricted Payments;" and provided further,
that Capital Stock issued to any plan for the benefit of
employees of the Issuer or its subsidiaries or by any such plan
to such employees shall not constitute Disqualified Stock solely
because it may be required to be repurchased by the Issuer in
order to satisfy applicable statutory or regulatory obligations.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding
any debt security that is convertible into, or exchangeable for,
Capital Stock).
"Equity Offering" means an offering of common stock (other
than Disqualified Stock) of the Issuer, pursuant to an effective
registration statement filed with the Commission in accordance
with the Securities Act, other than an offering pursuant to Form
S-8 (or any successor thereto).
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated
interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging
Obligations; provided, however, that in no event shall any
amortization of deferred financing costs incurred in connection
with the Recapitalization be included in Fixed Charges) and (ii)
the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or
Lien is called upon) and (iv) the product of (a) (without
duplication) (1) all dividends paid or accrued in respect of
Disqualified Stock which are not included in the interest expense
of such Person for tax purposes for such period and (2) all cash
dividend payments on any series of preferred stock of such Person
or any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests
(other than Disqualified Stock) of the Issuer, times (b) a
fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of
such Person and its Restricted Subsidiaries for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Issuer or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays or
redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, repayment or redemption
of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i)
acquisitions that have been made by the Issuer or any of its
Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be
deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow and Fixed Charges for
such reference period shall be calculated without giving effect
to clause (ii) of the proviso set forth in the definition of
Consolidated Net Income and shall reflect any pro forma expense
and cost reductions attributable to such acquisitions (to the
extent such expense and cost reduction would be permitted by the
Commission to be reflected in pro forma financial statements
included in a registration statement filed with the Commission),
and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to discontinued operations, as determined in
accordance
97
with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and Consolidated Cash Flow
shall reflect any pro forma expense or cost reductions relating
to such discontinuance or disposition (to the extent such expense
or cost reductions would be permitted by the Commission to be
reflected in pro forma financial statements included in a
registration statement filed with the Commission), and (iii) the
Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of
its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which are in effect on the date of the
Indenture provided, however, that all reports and other financial
information provided by the Issuer to the holders, the Trustee
and/or the Commission shall be prepared in accordance with GAAP,
as in effect on the date of such report or other financial
information.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person,
the obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or the
value of foreign currencies.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the
balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters
of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of
any date shall be (i) the accreted value thereof, in the case of
any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including
Affiliates) in the forms of direct or indirect loans (including
guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with
all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. If the Issuer or
any Restricted Subsidiary of the Issuer sells or otherwise
disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Issuer such that, after giving
effect to any such sale or disposition, such Person is no longer
a Restricted Subsidiary of the Issuer, the Issuer shall be deemed
to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Issue Date" means the date on which notes are first issued
and authenticated under the Indenture.
98
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or
give a security interest therein).
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with
any related provision for taxes on such gain (but not loss),
realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Proceeds" means the aggregate cash proceeds received
by the Issuer or any of its Restricted Subsidiaries in respect of
any Asset Sale (including, without limitation, any cash received
upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of
Indebtedness (other than Indebtedness under the Credit
Facilities) secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in
accordance with GAAP.
"New Credit Facility" means that certain credit facility,
dated as of October 17, 1997, by and among the J. Crew Corp.,
Holdings, Chase, DLJ and DLJ Capital Funding, as agents and
lenders, providing for up to $70.0 million of term borrowings and
$200.0 million of revolving credit borrowings, including any
related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as
amended, extended, modified, renewed, refunded, replaced or
refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Issuer nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), or
(b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or
assets of the Issuer or any of its Restricted Subsidiaries,
including the stock of such Unrestricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, any
principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Permitted Business" means the design, manufacture,
importing, exporting, distribution, marketing, licensing and
wholesale and retail sale of apparel, housewares, home
furnishings and related items, and businesses reasonably related
thereto.
"Permitted Investments" means (a) any Investment in the
Issuer or in a Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary) (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Issuer or any Restricted
Subsidiary in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Issuer (other
than a Receivables Subsidiary) or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Issuer or a Restricted Subsidiary of the Issuer (other than a
Receivables Subsidiary); (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset
Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales" or any transaction not
constituting an Asset Sale by reason of the $1.0 million
threshhold contained in the definition
99
thereof; (e) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
the Issuer; (f) Hedging Obligations entered into in the ordinary
course of the Issuer's or its Restricted Subsidiaries' Businesses
and otherwise in compliance with the Indenture; (g) loans and
advances to employees and officers of the Issuer and its
Restricted Subsidiaries in the ordinary course of business for
bona fide business purposes not in excess of $5 million at any
one time outstanding; (h) additional Investments not to exceed
$25 million at any one time outstanding; (i) Investments in
securities of trade creditors or customers received in settlement
of obligations or pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; and (j) Investments by the Issuer
or a Restricted Subsidiary in a Receivables Subsidiary or any
Investment by a Receivables Subsidiary in any other Person, in
each case, in connection with a Qualified Receivables
Transaction, provided, that any Investment in any such Person is
in the form of a Purchase Money Note, any equity interest or
interests in accounts receivable and related assets generated by
the Issuer or a Restricted Subsidiary and transferred to any
Person in connection with a Qualified Receivables Transaction or
any such Person owning such accounts receivable.
"Permitted Liens" means (i) Liens existing as of the Issue
Date to the extent and in the manner such Liens are in effect on
the Issue Date; (ii) Liens on assets of Restricted Subsidiaries
securing Indebtedness of Restricted Subsidiaries permitted to be
incurred under the Indenture; (iii) Liens securing the
Debentures; (iv) Liens securing the Issuer's obligations under
the New Credit Facility; (v) Liens of the Issuer or a Wholly
Owned Restricted Subsidiary on assets of any Restricted
Subsidiary of the Issuer; (vi) Liens securing Permitted
Refinancing Indebtedness which is incurred to refinance any
Indebtedness which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the
provisions of the Indenture, provided, however, that such Liens
(A) are not materially less favorable to the holders and are not
materially more favorable to the lienholders with respect to such
Liens than the Liens in respect of the Indebtedness being
refinanced and (B) do not extend to or cover any property or
assets of the Issuer or any of its Restricted Subsidiaries not
securing the Indebtedness so refinanced; (vii) Liens for taxes,
assessments or governmental charges or claims either (A) not
delinquent or (B) contested in good faith by appropriate
proceedings and as to which the Issuer or its Restricted
Subsidiaries shall have set aside on its books such reserves as
may be required pursuant to GAAP; (viii) statutory Liens of
landlords and Liens of carriers, warehousemen, mechanics,
supplies, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet
delinquent for a period of more than 60 days or being contested
in good faith, if such reserve or other appropriate provision, if
any, as shall be required by GAAP shall have been made in respect
thereof; (ix) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance an other types of social security or
similar obligations, including any Lien securing letters of
credit issued in the ordinary course of business consistent with
past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money); (x) judgment
Liens not giving rise to an Event of Default so long as such Lien
is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgement
shall not have been finally terminated or the period
within which such proceedings may be initiated shall not have
expired; (xi) easements, rights-of-way, zoning restrictions and
other similar charges or encumbrances in respect of real property
not interfering in any material respect with the ordinary conduct
of the business of the Issuer or any of its Restricted
Subsidiaries; (xii) any interest or title of a lessor under any
lease, whether or not characterized as capital or operating;
provided that such Liens do not extend to any property or assets
which is not leased property subject to such lease; (xiii) Liens
securing Capital Lease Obligations and purchase money
Indebtedness incurred in accordance with the covenant described
under "-- Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock;" provided, however, that (A) the
Indebtedness shall not exceed the cost of such property or assets
being acquired or constructed and shall not be secured by any
property or assets of the Issuer or any Restricted Subsidiary of
the Issuer other than the property or assets of the Issuer or any
Restricted Subsidiary of the Issuer other than the property and
assets being acquired or constructed and (B) the Lien securing
such Indebtedness shall be created within 90 days of such
acquisition or construction; (xiv) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such
Person's obligations in respect of bankers' acceptances issued or
created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(xv) Liens securing reimbursement obligations
100
with respect to letters of credit which encumber documents and
other property relating to such letters of credit and products
and proceeds thereof; (xvi) Liens encumbering deposits made to
secure obligations arising from statutory, regulatory,
contractual, or warranty requirements of the Issuer or any of its
Restricted Subsidiaries, including rights of offset an set-off;
(xvii) Liens securing Hedging Obligations which Hedging
Obligations relate to Indebtedness that is otherwise permitted
under the Indenture; (xviii) Liens securing Acquired Debt
incurred in accordance with the covenant described under
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock;" provided that (A) such Liens secured such
Acquired Debt at the time of and prior to the incurrence of such
Acquired Debt by the Issuer or a Restricted Subsidiary of the
Issuer and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Debt by the
Issuer or a Restricted Subsidiary of the Issuer and (B) such
Liens do not extend to or cover any property or assets of the
Issuer or any of its Restricted Subsidiaries other than the
property or assets that secured the Acquired Debt prior to the
time such Indebtedness became Acquired Debt of the Issuer or a
Restricted Subsidiary of the Issuer and are not more favorable to
the lienholders than those securing the Acquired Debt prior to
the incurrence of such Acquired Debt by the Issuer or a
Restricted Subsidiary of the Issuer; (xix) leases or subleases
granted to others not interfering in any material respect with
the business of the Issuer or its Restricted Subsidiaries; (xx)
Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Issuer or any Restricted
Subsidiary in the ordinary course of business; and (xxi) Liens or
assets of a Receivables Subsidiary arising in connection with a
Qualified Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Issuer or any of its Subsidiaries issued in exchange for,
or the net proceeds of which are used to extend, refinance,
prepay, retire, renew, replace, defease or refund Indebtedness of
the Issuer or any of its Subsidiaries (other than such
Indebtedness described in clauses (i), (vi), (vii), (viii), (ix),
(x), (xi), (xiii) and (xiv) of the covenant described above under
the caption "-- Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock"); provided that: (i) the principal
amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, prepaid, retired,
replaced, defeased or refunded (plus the amount of reasonable
expenses incurred in connection therewith including premiums
paid, if any, to the holders thereof); (ii) such Permitted
Refinancing Indebtedness has a final maturity date at or later
than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced,
renewed, prepaid, retired, replaced, defeased or refunded; (iii)
if the Indebtedness being extended, refinanced, renewed, prepaid,
retired, replaced, defeased or refunded is subordinated in right
of payment to the Debentures, such Permitted Refinancing
Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the
Notes on terms at least as favorable to the holders of Debentures
as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred
either by the Issuer or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
"Principals" means TPG Partners II, L.P., a Delaware
limited partnership.
"Purchase Money Note" means a promissory note evidencing a
line of credit, or evidencing other Indebtedness owed to the
Issuer or any Restricted Subsidiary in connection with a
Qualified Receivables Transaction, which note shall be repaid
from cash available to the maker of such note, other than amounts
required to be established as reserves pursuant to agreement,
amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"Qualified Proceeds" means any of the following or any
combination of the following: (i) cash, (ii) Cash Equivalents,
(iii) long-term assets that are used or useful in a Permitted
Business and (iv) the Capital Stock of any Person engaged
primarily in a Permitted Business if, in connection with the
receipt by the Issuer or any Restricted
101
Subsidiary of the Issuer of such Capital Stock, (a) such Person
becomes a Wholly-Owned Restricted Subsidiary and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to,
or is liquidated into, the Issuer or any Wholly-Owned Restricted
Subsidiary of the Issuer that is a Guarantor.
"Qualified Receivables Transaction" means any transaction
or series of transactions that may be entered into by the Issuer
or any Restricted Subsidiary pursuant to which the Issuer or any
Restricted Subsidiary may sell, convey or otherwise transfer to
(a) a Receivables Subsidiary (in the case of a transfer by the
Issuer or any Restricted Subsidiary) and (b) any other Person (in
the case of a transfer by a Receivables Subsidiary), or may grant
a security interest in, any accounts receivable (whether now
existing or arising in the future) of the Issuer or any
Restricted Subsidiary and any asset related thereto including,
without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred, or
in respect of which security interests are customarily granted,
in connection with asset securitization transactions involving
accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted
Subsidiary which engages in no activities other than in
connection with the financing of accounts receivables and which
is designated by the Board of Directors of the Issuer (as
provided below) as a Receivables Subsidiary (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Issuer or any other Restricted
Subsidiary (excluding guarantees of obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (ii) is recourse to or obligates
the Issuer or any other Restricted Subsidiary in any way other
than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Issuer or any other
Restricted Subsidiary, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings, (b) with which neither the
Issuer nor any other Restricted Subsidiary has any material
contract, agreement, arrangement or understanding (except in
connection with a Purchase Money Note or Qualified Receivables
Transaction) other than on terms no less favorable to the Issuer
or such other Restricted Subsidiary than those that might be
obtained at the time from persons that are not Affiliates of the
Issuer, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable, and
(c) to which neither the Issuer nor any other Restricted
Subsidiary has any obligation to maintain or preserve such
entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the
Board of Directors of the Issuer shall be evidenced by the
Trustee by filing with the Trustee a certified copy of the
resolution of the Board of Directors of the Issuer giving effect
to such designation and an officers' certificate certifying, to
the best of such officer's knowledge and belief after consulting
with counsel, that such designation complied with the foregoing
conditions.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or a majority of (or more) owned
Subsidiary of such Principal or, in the case of an individual,
any spouse or immediate family member of such Principal, or (B)
any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding a majority (or more) controlling interest of
which consist of such Principal and/or such other Persons
referred to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Issuer
other than an Unrestricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such
Regulation is in effect on the date hereof of the Indenture.
"Standard Securitization Undertakings" means
representations, warranties, covenants and indemnities entered
into by the Issuer or any Restricted Subsidiary which are
reasonably customary in an accounts receivable transaction.
102
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on
which such payment of interest or principal was scheduled to be
paid in the original documentation governing such Indebtedness,
and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total Voting Stock thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary of the
Issuer that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Subsidiary: (a) is not party to any
agreement, contract, arrangement or understanding with the Issuer
or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to the Issuer or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not
Affiliates of the Issuer; (b) is a Person with respect to which
neither the Issuer nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional
Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any
specified levels of operating results; and (c) has not guaranteed
or otherwise directly or indirectly provided credit support for
any Indebtedness of the Issuer or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with a Trustee a
certified copy of the Board Resolution giving effect to such
designation and an officers' certificate certifying that such
designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed
to be incurred by a Restricted Subsidiary of the Issuer as of
such date. The Board of Directors of the Issuer may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness and issuance of preferred stock by
a Restricted Subsidiary of the Issuer of any outstanding
Indebtedness or outstanding issue of preferred stock of such
Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness and preferred stock is
permitted under the covenant described under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," and (ii) no Default or Event of Default would
exist following such designation.
"Voting Stock" of any Person as of any date means the
Capital Stock of such Person that is at the time entitled to vote
in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a)
the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person.
103
CERTAIN U.S. FEDERAL TAX CONSIDERATIONS
Exchange of Old Debentures for New Debentures
The following summary describes the principal U.S. federal
income tax consequences of the exchange of the Old Debentures for
New Debentures (the "Exchange") that may be relevant to a
beneficial owner of Debentures that will hold the New Debentures
as capital assets and that is a citizen or resident of the United
States, or that is a corporation, partnership or other entity
created or organized in or under the laws of the United States or
any political subdivision thereof, an estate the income of which
is subject to U.S. federal income taxation regardless of its
source or a trust if (i) a U.S. court is able to exercise primary
supervision over the trust's administration and (ii) one or more
U.S. fiduciaries have the authority to control all of the trust's
substantial decisions.
The Exchange pursuant to the Exchange Offer will not be a
taxable event for U.S. federal income tax purposes. As a result,
a holder of an Old Debenture whose Old Debenture is accepted in
an Exchange Offer will not recognize gain on the Exchange. A
tendering holder's tax basis in the New Debentures will be the
same as such holder's tax basis in its Old Debentures. A
tendering holder's holding period for the New Debentures received
pursuant to the Exchange Offer will include its holding period
for the Old Debentures surrendered therefor.
ALL HOLDERS OF OLD DEBENTURES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF THE EXCHANGE OF OLD DEBENTURES FOR NEW DEBENTURES
AND OF THE OWNERSHIP AND DISPOSITION OF NEW DEBENTURES RECEIVED
IN THE EXCHANGE OFFER IN VIEW OF THEIR OWN PARTICULAR
CIRCUMSTANCES.
Tax Considerations for Non-United States Holders
The following is a general discussion of certain United
States federal income and estate tax consequences of the
acquisition, ownership and disposition of Debentures by an
initial beneficial owner of Debentures that, for United States
federal income tax purposes, is not a "United States person" (a
"Non-United States Holder"), but does not purport to be a
comprehensive description of all the tax considerations that may
be relevant to a decision to purchase the Debentures. This
discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively, which
could affect the continued validity of this summary. For purposes
of this discussion, a "United States person" means a holder of a
Debenture who is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
the United States or under the laws of the United States or of
any political subdivision thereof, an estate whose income is
includable in gross income for United States federal income tax
purposes regardless of its source or a trust, if a U.S. court is
able to exercise primary supervision over the administration of
the trust and one or more U.S. persons have the authority to
control all substantial decisions of the trust. The tax treatment
of the holders of the Debentures may vary depending upon their
particular situations. U.S. persons acquiring the Debentures are
subject to different rules than those discussed below. In
addition, certain other holders (including insurance companies,
tax exempt organizations, financial institutions, subsequent
purchasers of Debentures and broker-dealers) may be subject to
special rules not discussed below. In addition, this summary does
not describe any tax consequences arising under the laws of any
state, locality or taxing jurisdiction other than the United
States federal government. In general, the summary assumes that a
Non-U.S. Holder acquires a Debenture at original issuance and
holds such Debenture as a capital asset and not as part of a
"hedge," "straddle," "conversion transaction," "synthetic
security" or other integrated investment. Prospective investors
are urged to consult their tax advisors regarding the United
States federal tax consequences of acquiring, holding and
disposing of Debentures, as well as any tax consequences that may
arise under the laws of any foreign, state, local or other taxing
jurisdiction.
104
Interest
Interest paid by the Issuer to a Non-United States Holder
will not be subject to United States federal income or
withholding tax if such interest is not effectively connected
with the conduct of a trade or business within the United States
by such Non-United States Holder and Non-United States Holder (i)
does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Issuer; (ii)
is not a controlled foreign corporation with respect to which the
Issuer is a "related person" within the meaning of the United
States Internal Revenue Code of 1986 (the "Code") and (iii)
certifies, under penalties of perjury, that such holder is not a
United States person and provides such holder's name and address.
Gain on Disposition
A Non-United States Holder will generally not be subject to
United States federal income tax on gain recognized on a sale,
redemption or other disposition of a Debenture unless (i) the
gain is effectively connected with the conduct of a trade or
business within the United States by the Non-United States Holder
or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Debenture as a capital
asset, such holder is present in the United States for 183 or
more days in the taxable year and certain other requirements are
met.
Federal Estate Taxes
If interest on the Debentures is exempt from withholding of
United States federal income tax under the rules described above,
the Debentures will not be included in the estate of a deceased
Non-United States Holder for United States federal estate tax
purposes.
Information Reporting and Backup Withholding
The Issuer will, where required, report to the holders of
Debentures and the Internal Revenue Service the amount of any
interest paid on the Debentures in each calendar year and the
amounts of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Non-United States
Holders, temporary Treasury regulations provide that the 31%
backup withholding tax and certain information reporting will not
apply to such payments with respect to which either the requisite
certification, as described above, has been received or an
exemption has otherwise been established; provided that neither
the Issuer nor its payment agent has actual knowledge that the
holder is a United States person or that the conditions of any
other exemption are not in fact satisfied. Under temporary
Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross
proceeds paid to a Non-United States Holder on the disposition of
the Debentures by or through a United States office of a United
States or foreign broker, unless the holder certifies to the
broker under penalties of perjury as to its name, address and
status as a foreign person or the holder otherwise establishes an
exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a
disposition of the Debentures by or through a foreign office of a
United States broker or foreign brokers with certain types of
relationships to the United States unless such broker has
documentary evidence in its file that the holder of the
Debentures is not a United States person, and such broker has no
actual knowledge to the contrary, or the holder establishes an
exception. Neither information reporting nor backup withholding
generally will apply to payment of the proceeds of a disposition
of the Debentures by or through a foreign office of a foreign
broker not subject to the preceding sentence.
On October 14, 1997, the Treasury Department published
final regulations regarding the withholding and information
reporting rules discussed above. In general, the final
regulations do not alter the substantive withholding and
information reporting requirements but unify current
certification procedures and forms and clarify reliance
standards. The final regulations will generally be effective for
payments made after December 31, 1998 subject to certain
transition rules.
105
Backup withholding is not an additional tax. Any amounts
withheld under the backup withholding rules may be refunded or
credited against the Non-United States Holder's United States
federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
106
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Debentures for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New
Debentures. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of New Debentures received in exchange for Old
Debentures where such Old Debentures were acquired as a result of
market-making activities or other trading activities. The Issuer
and the Guarantors have agreed that they will make this
Prospectus available to any Participating Broker- Dealer for a
period of time not to exceed one year after the date on which the
Exchange Offer is consummated for use in connection with any such
resale. In addition, until such date, all broker-dealers
effecting transactions in the New Debentures may be required to
deliver a prospectus.
Neither the Issuer nor the Guarantors will receive any
proceeds from any sale of New Debentures by broker-dealers. New
Debentures received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the
New Debentures or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related
to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Debentures. Any broker-dealer that
resells New Debentures that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Debentures may be
deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New
Debentures and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
Starting on the Expiration Date, the Issuer and the
Guarantors will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to
any broker-dealer that requests such documents in the Letter of
Transmittal. The Issuer has agreed to pay all expenses incident
to the Exchange Offer (including the expenses of one counsel for
the holders of the Old Debentures) other than commissions or
concessions of any brokers or dealers and will indemnify the
holders of the Old Debentures (including any broker-dealers)
against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Debentures have been passed upon
for the Issuer by Cleary, Gottlieb, Steen & Hamilton, New York,
New York. Certain legal matters relating to the New Debentures
have been passed upon for the Initial Purchasers by Latham &
Watkins, New York, New York.
EXPERTS
The consolidated financial statements of J. Crew Group, Inc.
and subsidiaries, as of January 31, 1997 and February 2, 1996,
and for the fiscal years ended February 3, 1995, February 2, 1996
and January 31, 1997, appearing in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors as stated
in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
107
CHANGE IN ACCOUNTANTS
At a meeting held on October 9, 1997, the Board of
Directors of the Company approved the engagement of KPMG Peat
Marwick LLP as its independent auditors for the fiscal year
ending January 1998 to replace the firm of Deloitte & Touche LLP,
effective October 9, 1997.
The reports of Deloitte & Touche LLP on the financial of J.
Crew Group, Inc. statements for the past two fiscal years did not
contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the financial statements of
J. Crew Group, Inc. for each of the two fiscal years ended
January 31, 1997 and in the subsequent interim period, there were
no disagreements with Deloitte & Touche LLP on any matters of
accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not
resolved to the satisfaction of Deloitte & Touche LLP would have
caused Deloitte & Touche LLP to make reference to the matter in
their report.
The Issuer has requested Deloitte & Touche LLP to furnish it
a letter addressed to the Commission stating whether it agrees
with the above statements. A copy of that letter, dated December
15, 1997 is filed as Exhibit 16.1 to this Registration Statement.
108
J. CREW GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT ................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS AS OF FEBRUARY 2, 1996 AND
JANUARY 31, 1997 AND FOR EACH OF THE THREE FISCAL YEARS IN THE
PERIOD ENDED JANUARY 31, 1997:
Consolidated Balance Sheets as of February 2, 1996
and Januar 31, 1997 .......................................... F-3
Consolidated Statements of Income for the Fiscal Years
Ended February 3, 1995, February 2, 1996 and
January 31, 1997 ............................................. F-4
Consolidated Statements of Cash Flows for the Fiscal
Years Ended February 3, 1995, February 2, 1996
and January 31, 1997 ......................................... F-5
Consolidated Statements of Stockholders' Equity for
the Fiscal Years Ended February 3, 1995,
February 2, 1996 and January 31, 1997 ........................ F-6
Notes to Consolidated Financial Statements ................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF
NOVEMBER 7, 1997 AND FOR THE FORTY WEEK PERIODS ENDED
NOVEMBER 8, 1996 AND NOVEMBER 7, 1997:
Condensed Consolidated Balance Sheets as of
January 31, 1997 and November 7, 1997 ........................ F-14
Condensed Consolidated Statements of Operations for
the Forty Week Periods Ended November 8, 1996
and November 7, 1997 ......................................... F-15
Condensed Consolidated Statements of Cash Flows for
the Forty Week Periods Ended November 8,
1996 and November 7, 1997 .................................... F-16
Notes to Unaudited Condensed Consolidated Financial
Statements ................................................... F-17
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
J. Crew Group, Inc.
We have audited the accompanying consolidated balance
sheets of J. Crew Group, Inc. and subsidiaries as of February 2,
1996 and January 31, 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for
each of the three fiscal years in the period ended January 31,
1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of J. Crew Group, Inc. and subsidiaries as of February 2, 1996
and January 31, 1997, and the results of their operations and
their cash flows for each of the three fiscal years in the period
ended January 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note 12 to the consolidated financial
statements, in 1995, the Company changed its method of accounting
for catalog costs to conform with the provisions of Statement of
Position 93-7, "Reporting on Advertising Costs," and changed its
method of accounting for merchandise inventories.
Deloitte & Touche LLP
New York, New York
March 31, 1997
F-2
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 2, January 31,
1996 1997
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 13,529 $ 7,132
Accounts receivable (net of allowance for
doubtful accounts of $4,824 and $4,357,
respectively)................................... 58,280 58,079
Merchandise inventories........................... 148,055 197,657
Prepaid expenses and other current assets.......... 54,311 58,318
Refundable income taxes............................ 4,900 --
------- -------
Total current assets.............................. 279,075 321,186
------- -------
PROPERTY AND EQUIPMENT--at cost:
Land 1,405 1,405
Buildings and improvements......................... 11,360 11,167
Furniture, fixtures and equipment.................. 38,703 43,537
Leasehold improvements............................. 60,218 75,378
Construction in progress........................... 2,128 4,063
------- -------
113,814 135,550
Less accumulated depreciation and amortization.... 41,005 49,121
------- -------
72,809 86,429
------- -------
OTHER ASSETS......................................... 3,365 3,206
------- -------
TOTAL ASSETS......................................... $355,249 $410,821
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 71,415 $103,279
Other current liabilities.......................... 59,243 62,938
Deferred income taxes.............................. 13,739 12,555
Federal and state income taxes payable............. 2,185 9,955
Current portion of long-term debt.................. 237 237
------- -------
Total current liabilities......................... 146,819 188,964
------- -------
LONG-TERM DEBT....................................... 87,092 86,855
------- -------
DEFERRED CREDITS AND OTHER LONG-TERM LIABILITIES..... 31,705 32,996
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
6% noncumulative preferred stock................... 1,579 1,579
8% cumulative preferred stock...................... 500 500
Common stock....................................... 263 263
Additional paid-in capital......................... 3,710 3,710
Retained earnings.................................. 89,477 101,850
Treasury stock, at cost............................ (5,896) (5,896)
------- -------
Total stockholders' equity........................ 89,633 102,006
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $355,249 $410,821
======== ========
See notes to consolidated financial statements.
F-3
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended
---------------------------------------
February 3, February 2, January 31,
1995 1996 1997
---- ----- ----
(In thousands)
Net sales....................... $724,756 $732,580 $795,931
Other revenues.................. 12,969 13,329 12,912
------- ------- -------
Revenues.................... 737,725 745,909 808,843
Cost of goods sold,
including buying and
occupancy costs................. 394,073 399,668 428,719
------- ------- -------
Gross profit................ 343,652 346,241 380,124
Selling, general and
administrative expenses......... 311,468 327,672 348,305
------- ------- -------
Income from operations...... 32,184 18,569 31,819
Interest expense--net........... 6,965 9,350 10,470
------- ------- -------
Income before
provision for
income taxes,
extraordinary item
and cumulative
effect of accounting
changes.................... 25,219 9,219 21,349
Provision for
income taxes.................... 10,300 3,700 8,800
------- ------- -------
Income before
extraordinary item
and cumulative
effect of
accounting changes.......... 14,919 5,519 12,549
Extraordinary item--loss
on early retirement
of debt (net of income
tax benefit of $1,200).......... -- (1,679) --
Cumulative effect
of accounting changes
(net of income
taxes of $1,800)................ -- 2,610 --
------- ------- -------
Net income.................. $14,919 $6,450 $12,549
======= ======= =======
See notes to consolidated financial statements.
F-4
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended
---------------------------------------
February 3, February 2, January 31,
1995 1996 1997
---- ----- ----
(In thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.................. $14,919 $6,450 $12,549
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Depreciation and
amortization............. 8,110 10,272 10,541
Amortization of
deferred financing
costs.................... 249 1,186 401
Deferred incomes
taxes.................... (987) 10,131 (1,184)
Provision for losses
on accounts receivable... 7,956 7,277 6,945
Noncash compensation
expense.................. 1,901 1,142 --
Changes in operating assets
and liabilities:
Accounts receivable...... (7,041) (7,708) (6,744)
Merchandise
inventories.............. (35,409) (10,417) (49,602)
Prepaid expenses
and other current
assets................... (4,349) (12,444) (4,007)
Other assets............. (1,244) (2,031) (375)
Accounts payable......... 7,876 6,318 31,864
Other liabilities........ 2,504 (5,351) 3,439
Federal and state
income taxes payable..... 7,289 (12,674) 12,670
------- ------- -------
Net cash provided
by (used in)
operating activities... 1,774 (7,849) 16,497
------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capital expenditures........ (14,595) (18,466) (27,462)
Proceeds from
construction allowances..... 1,128 3,826 4,981
------- ------- -------
Net cash used in
investing activities... (13,467) (14,640) (22,481)
------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of
long-term debt.............. 15,000 85,000 --
Repayment of
long-term debt.............. (7,237) (67,237) (237)
Dividends paid.............. (1,000) -- (176)
------- ------- -------
Net cash provided
by (used in)
financing
activities............ 6,763 17,763 (413)
------- ------- -------
DECREASE IN CASH
AND CASH EQUIVALENTS............ (4,930) (4,726) (6,397)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF YEAR..................... 23,185 18,255 13,529
------- ------- -------
CASH AND CASH
EQUIVALENTS, END
OF YEAR..................... $18,255 $13,529 $7,132
======= ======= =======
SUPPLEMENTARY CASH
FLOW INFORMATION:
Income taxes paid
(refunded).................. $4,063 $7,000 $(3,600)
======= ======= =======
Interest paid............... $6,520 $9,601 $9,880
======= ======= =======
See notes to consolidated financial statements.
F-5
J. CREW GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
6% 8% Total
Noncumulative Cumulative Additional Stock-
Preferred Stock Preferred Stock Common Stock Paid-in Retained Treasury holders'
Issued Issued Issued Capital Earnings Stock Equity
Shares Amount Shares Amount Shares Amount
(In thousands, except shares)
BALANCE,
JANUARY 28, 1994..........15,794 $1,579 5,000 $500 262,912 $263 $1,827 $69,108 $(7,056) $66,221
Net income.............. -- -- -- -- -- -- -- 14,919 -- 14,919
Issuance of 5,033
shares of common
stock from treasury
under stock bonus
agreement............... -- -- -- -- -- -- 1,166 -- 735 1,901
Dividends............... -- -- -- -- -- -- -- (1,000) -- (1,000)
------- ------ ----- ---- ------- ---- ------ -------- ------- --------
BALANCE,
FEBRUARY 3, 1995..........15,794 1,579 5,000 500 262,912 263 2,993 83,027 (6,321) 82,041
Net income.............. -- -- -- -- -- -- -- 6,450 -- 6,450
Issuance of 2,898
shares of common
stock from treasury
under stock bonus
agreement............... -- -- -- -- -- -- 717 -- 425 1,142
------- ------ ----- ---- ------- ---- ------ -------- ------- --------
BALANCE,
FEBRUARY 2, 1996..........15,794 1,579 5,000 500 262,912 263 3,710 89,477 (5,896) 89,633
Net income.............. -- -- -- -- -- -- -- 12,549 -- 12,549
Dividends............... -- -- -- -- -- -- -- (176) -- (176)
------- ------ ----- ---- ------- ---- ------ -------- ------- --------
BALANCE,
JANUARY 31, 1997..........15,794 $1,579 5,000 $500 262,912 $263 $3,710 $101,850 $(5,896) $102,006
======= ====== ===== ==== ======= ==== ====== ======== ======= ========
See notes to consolidated financial statements.
F-6
J. CREW GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED FEBRUARY 3, 1995, FEBRUARY 2, 1996 AND JANUARY 31, 1997
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation--The accompanying
consolidated financial statements include the accounts of J. Crew
Group, Inc. and its wholly-owned subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation.
b. Business--The Company, which operates in one business
segment, designs, contracts for the manufacture of, markets and
distributes men's, women's and children's apparel, accessories
and home furnishings. The Company's products are marketed through
catalogs and retail stores primarily in the United States. The
Company is also party to a licensing agreement which grant the
licensees exclusive rights to use the Company's trademarks in
connection with the manufacture and sale of products in Japan.
The license agreement provides for payments based on specified
percentages of net sales.
The Company is subject to seasonal fluctuations in its
merchandise sales and results of operations. The Company expects
its sales and operating results generally to be lower in the
first, and second quarters than in the third and fourth quarters
(which include the back-to-school and holiday season) of each
fiscal year.
A significant amount of the Company's products are produced
in the Far East through arrangements with independent
contractors. As a result, the Company's operations could be
adversely affected by political instability resulting in the
disruption of trade from the countries in which these contractors
are located or by the imposition of additional duties or
regulations relating to imports or by the contractor's inability
to meet the Company's production requirements.
c. Fiscal Year--The Company's fiscal year ends on the
Friday closest to January 31. The fiscal years 1994, 1995 and
1996 ended on February 3, 1995 (53 weeks), February 2, 1996 (52
weeks) and January 31, 1997 (52 weeks).
d. Cash Equivalents--For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid
debt instruments, with maturities of 90 days or less when
purchased, to be cash equivalents. Cash equivalents, which were
$9,700,000 and $1,968,000 at February 2, 1996 and January 31,
1997, are stated at cost, which approximates market value.
e. Accounts Receivable--Accounts receivable consists of
installment receivables resulting from the sale of merchandise of
Popular Club Plan, Inc. Concentrations of credit risk with
respect to trade accounts receivable are limited due to the large
number of customers comprising the accounts receivable base.
Finance charge income, which is included in other revenues, for
the fiscal years 1994, 1995 and 1996 was $9,700,000, $9,354,000
and $9,095,000.
f. Merchandise Inventories--Merchandise inventories are
stated at the lower of cost (determined on a first-in, first-out
basis) or market. The Company capitalizes certain design,
purchasing and warehousing costs into inventory. (See Note 12.)
g. Catalog Costs--Catalog costs, which primarily consist of
catalog production and mailing costs, are capitalized and
amortized over the expected future revenue stream, which is
principally from three to five months from the date catalogs are
mailed. The Company accounts for catalog costs in accordance with
the AICPA
F-7
Statement of Position ("SOP") 93-7, "Reporting on Advertising
Costs." SOP 93-7 requires that the amortization of capitalized
advertising costs should be the amount computed using the ratio
that current period revenues for the catalog cost pool bear to
the total of current and estimated future period revenues for
that catalog cost pool. Deferred catalog costs, included in
prepaid expenses and other current assets, as of February 2, 1996
and January 31, 1997 were $40,743,000 and $41,191,000. Catalog
costs, which are reflected in selling and administrative
expenses, for the fiscal years 1994, 1995 and 1996 were
$112,979,000, $132,566,000, and $135,633,000. (See Note 12).
h. Property and Equipment--Property and equipment are
stated at cost. Buildings and improvements are depreciated by the
straight-line method over the estimated useful lives of the
respective assets of twenty years. Furniture, fixtures and
equipment are depreciated by the straight-line method over the
estimated useful lives of the respective assets, ranging from
three to ten years. Leasehold improvements are amortized over the
shorter of their useful lives or related lease terms.
The Company receives construction allowances upon entering
into certain store leases. These construction allowances are
recorded as deferred credits and are amortized over the term of
the related lease.
i. Other Assets--Other assets consist primarily of debt
issuance costs which are amortized over the term of the related
debt agreements.
j. Income Taxes--The provision for income taxes includes
taxes currently payable and deferred taxes resulting from the tax
effects of temporary differences between the financial statement
and tax bases of assets and liabilities, in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
k. Revenue Recognition--Revenue is recognized when
merchandise is shipped to customers. The Company accrues a sales
return allowance in accordance with its return policy for
estimated returns of merchandise subsequent to the balance sheet
date that relate to sales prior to the balance sheet date.
l. Store Preopening Costs--Costs associated with the opening
of new retail and outlet stores are expensed as incurred.
m. Financial Instruments--The following disclosure about
the fair value of financial instruments is made in accordance
with the requirements of SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." The fair value of the Company's
long-term debt, including current portion, is estimated to be
approximately $93,500,000 and $89,100,000 at February 2, 1996 and
January 31, 1997, and is based on management's estimate of the
present value of future cash flows discounted at the current
market rate for financial instruments with similar
characteristics and maturity. The carrying amounts of long-term
debt are $87,329,000 and $87,092,000 at February 2, 1996 and
January 31, 1997. The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value
because of the short-term maturity of those financial
instruments. The estimates presented herein are not necessarily
indicative of amounts the Company could realize in a current
market exchange.
The Company from time to time enters into forward foreign
exchange contracts as hedges relating to identifiable currency
positions to reduce the risk from exchange rate fluctuations.
Gains and losses on these contracts are deferred and recognized
as adjustments to the bases of those assets. Such gains and
losses were not material.
At February 2, 1996, the Company had a forward foreign
exchange contract outstanding with J. P. Morgan to deliver 230
million yen on March 29, 1996. At January 31, 1997, the Company
had a forward foreign exchange contract outstanding with J. P.
Morgan to deliver 235 million yen on March 31, 1997. These
contracts are hedges
F-8
relating to foreign licensing revenues. The fair value of these
contracts approximated carrying value due to their short-term
maturities.
The Company is exposed to credit losses in the event of
nonperformance by the counterparties to the forward foreign
exchange contract, but it does not expect any counterparties to
fail to meet their obligation given their high-credit rating.
n. Use of Estimates in the Preparation of Financial
Statements--The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
o. Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of--In March 1995, the Financial Accounting
Standards Board (the "FASB") issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of." SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable, and is effective for fiscal years beginning
after December 15, 1995. The adoption of SFAS No. 121 did not
have an effect on the Company's financial position or results of
operations.
p. Reclassifications--Certain items in prior years in
specific captions of the consolidated financial statements and
notes to financial statements have been reclassed for comparative
purposes.
2. OTHER CURRENT LIABILITIES
Other current liabilities consist of:
February 2, January 31,
1996 1997
Customer liabilities....... $18,827,000 $22,968,000
Accrued catalog and
marketing costs............ 9,191,000 10,734,000
Taxes, other than
income taxes............... 7,235,000 9,093,000
Other...................... 23,990,000 20,143,000
---------- ----------
Total................... $59,243,000 $62,938,000
=========== ===========
3. LONG-TERM DEBT
February 2, January 31,
1996 1997
Senior Notes(a).............................. $85,000,000 $85,000,000
Industrial Development Revenue Bond,
bearing interest at 73.33% of
prime rate (8.25% at January 31,
1997); due in monthly principal
payments of $19,737 from January 1,
1987 through December 1, 2005(b)........ 2,329,000 2,092,000
----------- -----------
............................................. 87,329,000 87,092,000
----------- -----------
Less payments due within one year............ (237,000) (237,000)
Total.................................. $87,092,000 $86,855,000
=========== ===========
F-9
(a) In June 1995, the Company issued privately to institutional
investors $85,000,000 of 8.1% Senior Notes (the "Senior
Notes") due December 15, 2004. Interest on the Senior Notes
is payable semiannually on June 15 and December 15. The
Senior Notes are payable in annual installments of
$4,000,000 in December 1998 and $13,500,000 from December
1999 through December 2004. The proceeds of this private
placement were used to prepay $58,000,000 principal amount
of senior notes then outstanding and for general corporate
purposes.
The provisions of the note agreement and the credit
agreement (see Note 4) include (i) requirements that the
Company maintain minimum levels of tangible net worth, fixed
charges coverage, current ratio and funded debt as a
percentage of tangible net worth; and (ii) limitations on
liens, sale and leaseback transactions, funded debt, payment
of dividends and repurchases of capital stock, acquisitions,
investments and sales of assets, among others.
(b) Property with a net carrying value of approximately
$3,400,000 is encumbered as collateral under the Industrial
Development Revenue Bond as of January 31, 1997 and February
2, 1996.
The maturities of long-term debt required during the next five
fiscal years are:
Fiscal Year Amount
1997................ $ 237,000
1998................ 4,237,000
1999................ 13,737,000
2000................ 13,737,000
2001................ 13,737,000
4. LINES OF CREDIT
In March 1995, the Company entered into a $125 million
syndicated revolving credit agreement (the "Credit Agreement")
with a group of seven banks with J. P. Morgan as agent. The
Credit Agreement provides for commitments for direct borrowings
of up to $75 million and letters of credit of up to $125 million.
Borrowings under the Credit Agreement are unsecured and bear
interest, at the Company's option, at the base rate (defined as
the higher of the bank's prime rate or the Federal funds rate
plus .5%) or the London Interbank Offering Rate plus .5%. The
Credit Agreement expires on March 31, 1998.
During fiscal 1994, 1995 and 1996, maximum borrowings under
revolving credit agreements were $25,900,000, $49,000,000 and
$55,000,000, and average borrowings were $6,600,000, $25,500,000
and $31,200,000. There were no borrowings outstanding under the
Credit Agreement at February 2, 1996 or January 31, 1997.
Outstanding letters of credit issued to facilitate
international merchandise purchases at February 2, 1996 and
January 31, 1997 amounted to $25,850,000 and $37,800,000.
5. STOCKHOLDERS' EQUITY
The Company has authorized 1,000,000 shares of common
stock, $1 par value; 20,000 shares of 6% noncumulative preferred
stock, $100 par value; and 10,000 shares of 8% cumulative
preferred stock, $100 par value. The common and preferred stock
have the right to vote, with each share entitled to one vote.
The holders of the 8% cumulative preferred stock shall be
entitled to receive cash dividends when, as and if declared by
the Board of Directors, at the rate of 8% per annum on its par
value in priority to the payment of any
F-10
dividends for other classes of stock during any year. Such
dividends shall be cumulative from the date of issue, so that if
applicable dividends for any past dividend period shall not have
been paid thereon or declared and a sum sufficient for payment
not set apart, the deficiency shall be fully paid or set apart,
without interest, before any dividend shall be paid or set apart
for any other class of stock.
The Company has agreements with its stockholders requiring
the stockholders to offer preferred or common shares to the
Company at prices computed in accordance with the agreements
before disposing of these shares to others. The Company may, at
its option, redeem shares of preferred stock at a price equal to
the par value of the preferred stock.
At January 31, 1997, the Company had 34,925 shares of
common stock, 6,455 shares of 6% noncumulative preferred stock
and 2,495 shares of 8% cumulative preferred stock held in
treasury.
6. COMMITMENTS AND CONTINGENCIES
a. Operating Leases--As of January 31, 1997, the Company
was obligated under various long-term operating leases for retail
and outlet stores, warehouses and office space and equipment
requiring minimum annual rentals. These operating leases expire
on varying dates to 2012. At January 31, 1997 aggregate minimum
rentals in future periods are as follows:
Fiscal Year Amount
----------- -------
1997.............. $27,949,000
1998.............. 28,766,000
1999.............. 26,591,000
2000.............. 24,000,000
2001.............. 22,003,000
Thereafter........ 116,438,000
Certain of these leases include renewal options and provide
for contingent rentals based upon sales and require the lessee to
pay taxes, insurance and other occupancy costs.
Rent expense for fiscal 1994, 1995 and 1996 was
$25,902,000, $27,366,000 and $29,852,000, including percentage
rent of $2,470,000, $2,197,000 and $2,850,000.
b. Employment Agreements--The Company is party to
employment agreements with certain executives which provide for
compensation and certain other benefits. The agreements also
provide for severance payments under certain circumstances.
In connection with an employment agreement, the Company was
obligated to pay to an employee a bonus based upon a
predetermined formula, payable in shares of common stock at fair
value and cash. In connection with the agreement, the Company
issued 5,033 and 2,898 treasury shares during fiscal 1994 and
1995.
c. Litigation--The Company is involved in various legal
proceedings, both as plaintiff and as defendant, which are
routine litigations incidental to the conduct of its business.
The Company believes that the ultimate resolution of these
matters will not have a material effect on its financial position
or results of operations.
7. EMPLOYEE BENEFIT PLAN
The Company has a thrift/savings plan pursuant to Section
401 of the Internal Revenue Code whereby all eligible employees
may contribute up to 15% of their annual base salaries subject to
certain limitations. The
F-11
Company's contribution is based on a percentage formula set forth
in the plan agreement. Company contributions to the
thrift/savings plan for fiscal 1994, 1995 and 1996 were
$1,325,000, $1,478,000 and $1,680,000.
8. LICENSE AGREEMENTS
The Company has a licensing agreement through January 1998
with Itochu, a Japanese trading company. The agreement permits
Itochu to distribute J. Crew merchandise in Japan. The Company
earns royalty payments under the agreement based on the sales of
its merchandise. Royalty income, which is included in other
revenues, for fiscal 1994, 1995 and 1996 was $3,269,000,
$3,975,000 and $3,817,000.
9. INTEREST EXPENSE--NET
Interest expense, net consists of the following:
Fiscal Fiscal Fiscal
1994 1995 1996
------- ------- ----
Interest expense........ $7,145,000 $9,548,000 $10,613,000
Interest income......... (180,000) (198,000) (143,000)
---------- ---------- -----------
Interest expense--net... $6,965,000 $9,350,000 $10,470,000
========== ========== ===========
10. INCOME TAXES
The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes". This statement
requires the use of the liability method of accounting for income
taxes. Under the liability method, deferred taxes are determined
based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse.
Deferred tax expense represents the change in the deferred tax
asset/liability balance.
The provision for income taxes consists of:
Fiscal Fiscal Fiscal
1994 1995 1996
------- ------- ----
Current:
Federal ................... $9,100,000 $(5,131,0000) $9,384,000
State and local ........... 2,187,000 500,000 600,000
----------- ---------- ----------
11,287,000 (4,631,000) 9,984,000
Deferred ..................... (987,000) 8,331,000 (1,184,000)
----------- ---------- ----------
Income taxes before tax
effect of extraordinary
item and cumulative effect
of accounting changes ..... 10,300,000 3,700,000 8,800,000
Extraordinary item--current -- (1,200,000) --
Cumulative effect of
accounting changes--deferred . -- 1,800,000 --
----------- ---------- ----------
Total provision for income
taxes ........................ $10,300,000 $4,300,000 $8,800,000
=========== ========== ==========
F-12
The difference between the provision for income taxes based
on the U.S. Federal statutory rate and the Company's effective
rate is due primarily to state income taxes.
Fiscal Fiscal Fiscal
1994 1995 1996
------ ------ ----
Federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of Federal benefit 5.8 5.1 6.2
---- ---- ----
Effective tax rate 40.8% 40.1% 41.2%
==== ==== ====
The tax effect of temporary differences which give rise to
deferred tax assets and liabilities are:
February 2 January 31,
1996 1997
Deferred tax assets:
Allowance for doubtful accounts... $1,979,000 $1,769,000
State net operating loss
carryforwards .................... 1,100,000 1,300,000
Other 1,177,000 3,155,000
--------- ---------
4,256,000 6,224,000
Deferred tax liabilities:
Prepaid catalog costs
and other prepaid costs (17,995,000) (18,779,000)
----------- -----------
Net deferred income taxes $(13,739,000) $(12,555,000)
============ ============
11. EXTRAORDINARY ITEM
In June 1995, the Company prepaid $58 million principal
amount of senior notes and recorded an extraordinary loss of
$1,679,000 (net of an income tax benefit of $1,200,000),
consisting of the write-off of deferred financing costs and
redemption premiums related to the early retirement of debt.
12. ACCOUNTING CHANGES
Effective February 4, 1995, the Company changed its method
of accounting for catalog costs to conform with the provisions of
the SOP 93-7. SOP 93-7 requires that the amortization of
capitalized advertising costs should be the amount computed using
the ratio that current period revenues for the catalog cost pool
bear to the total of current and estimated future period revenues
for that catalog cost pool. Prior to fiscal 1995, such costs were
amortized on a straight-line basis over the estimated productive
life of the catalog. The cumulative effect of applying this
change in accounting on prior periods was a decrease in net
income of $1,600,000 (net of an income tax benefit of
$1,000,000).
Effective February 4, 1995, the Company modified its
inventory accounting practices to include the capitalization of
certain design, purchasing and warehousing costs. Prior to this
change, these costs were charged to expense in the period
incurred rather than in the period in which the inventories were
sold. The Company believes this change is preferable because it
provides a better matching of revenues and costs and improves the
comparability of operating results and financial position with
those of other companies. The cumulative effect of applying this
change in accounting on prior periods was an increase in net
income of $4,210,000 (net of income taxes of $2,800,000).
The effect of these changes on fiscal 1995's results,
excluding the cumulative effect, was to increase net income by
$1,000,000. The pro forma effect of these changes on net income
in fiscal 1994 would not have been material.
F-13
J. CREW OPERATING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
January 31, November 7, 1997
1997 (unaudited)
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents............. $7,132 $12,992
Accounts receivable (net of allowance
for doubtful accounts of $4,357 and
$4,670, respectively) 58,079 17,493
Merchandise inventories............... 197,657 260,506
Prepaid expenses and other current
assets ............................ 58,318 69,467
Refundable income taxes............... -- 4,481
-------- --------
Total current assets................. 321,186 364,939
Property and equipment--at cost: 135,550 171,976
Less accumulated depreciation
and amortization...................... (49,121) (61,485)
-------- --------
86,429 110,491
-------- --------
Other assets............................ 3,206 17,961
-------- --------
Total assets............................ $410,821 $493,391
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--bank.................... $ -- $47,000
Accounts payable...................... 103,279 115,648
Other current liabilities............. 62,938 50,403
Federal and state income taxes payable 9,955 --
Deferred income taxes................. 12,555 12,555
Current portion of long-term debt..... 237
-------- --------
Total current liabilities............ 188,964 225,606
Long-term debt.......................... 86,855 295,257
Deferred credits and other long-term
liabilities............................. 32,996 42,240
Total liabilities.................... 308,815 563,103
======== ========
Redeemable preferred stock ............. -- 125,000
Stockholders' equity.................... 102,006 (194,712)
-------- --------
Total liabilities, redeemable
preferred stock and stockholders'
equity.................................. $410,821 $493,391
======== ========
See notes to unaudited condensed consolidated financial
statements.
F-14
J. CREW OPERATING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Forty Week Period Ended
November 8, November 7,
1996 1997
(Unaudited) (Unaudited)
(In thousands)
Net sales............................ $528,351 $556,993
Other revenues....................... 10,430 9,603
-------- -------
Revenues........................... 538,781 566,596
Cost of goods sold, including
buying and occupancy costs 292,056 310,865
Gross profit...................... 246,725 255,731
Selling, general and administrative
expenses............................ 240,197 253,159
-------- -------
Income from operations............ 7,078 2,572
Interest expense--net................ 8,101 11,869
Expenses incurred in connection
with recapitalization -- 19,851
-------- -------
Loss before income taxes and
extraordinary items (1,023) (29,148)
Income tax benefit................... 450 5,050
-------- -------
Net loss before extraordinary item $ (573) $(24,098)
Extraordinary item--loss on
refinancing of debt ($7,627 net of
income tax benefit of $3,127)...... -- (4,500)
-------- -------
Net loss........................... $ (573) $(28,598)
======== ========
See notes to unaudited condensed consolidated financial
statements.
F-16
J. CREW OPERATING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Forty Week Period Ended
November 8, November 7,
1996 1997
(Unaudited) (Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(573) $(28,598)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization ............ 7,625 10,191
Amortization of deferred financing
costs..................................... 311 2,268
Provision for losses on accounts
receivable .............................. 4,921 4,946
Changes in assets and liabilities
providing/(using) cash:
Accounts receivable ...................... (3,204) 35,640
Merchandise inventories .................. (79,203) (62,849)
Prepaid expenses and other current
assets ................................... (18,927) (11,149)
Other assets ............................. (590) (464)
Accounts payable ......................... 55,853 12,369
Other liabilities ........................ (11,134) (9,018)
Income taxes payable ..................... 2,155 (14,436)
------- -------
Net cash used in operating activities .... (42,766) (61,100)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ..................... (19,826) (38,426)
Proceeds from construction allowances .... 4,879 8,745
------- -------
Net cash used in investing activities .... (13,042) (28,265)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit
agreement ................................ 55,000 47,000
Issuance of long-term debt ............... -- 295,257
Costs incurred in connection with
issuance of debt ......................... -- (16,820)
Repayment of long-term debt .............. (178) (87,092)
Issuance of preferred stock............... -- 125,000
Issuance of common stock.................. -- 63,891
Distribution to stockholders.............. -- (316,688)
Preferred stock dividends................. -- (14,318)
Expenses incurred in connection with
recapitalization.......................... -- (13,594)
------- -------
Net cash provided by financing
activities ............................... 54,822 95,225
------- -------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .............................. (2,891) 5,860
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ..................................... 13,529 7,132
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...... $10,638 $12,992
======= =======
See notes to unaudited condensed consolidated financial
statements.
F-16
J. CREW GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FORTY WEEK PERIODS ENDED NOVEMBER 8, 1996 AND NOVEMBER 7, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements include the accounts of J. Crew Group, Inc.
("Holdings") and its wholly-owned subsidiaries (the "Company").
All significant intercompany balances and transactions have been
eliminated in consolidation.
Prior to the Recapitalization, Holdings owned all of the
stock, directly or indirectly, of its various operating
subsidiaries. In connection with the Recapitalization, Holdings
formed J. Crew Operating Corp. and immediately prior to the
consummation of the Recapitalization, Holdings transferred
substantially all of its assets and liabilities to J. Crew
Operating Corp.
The consolidated balance sheet as of November 7, 1997 and
the consolidated statements of operations and cash flows for the
forty week periods ended November 8, 1996 and November 7, 1997
have been prepared by the Company and have not been audited. In
the opinion of management, all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation
of the financial position of the Company, the results of its
operations and cash flows have been made.
Certain information and footnote disclosure normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's Consolidated Financial Statements for the fiscal year
ended January 31, 1997.
The results of operations for the forty week period ended
November 7, 1997 are not necessarily indicative of the operating
results for the full fiscal year.
2. RECAPITALIZATION TRANSACTION
The Company, its shareholders (the "Shareholders") and TPG
Partners II, L.P. are parties to a Recapitalization Agreement
dated July 22, 1997 as amended as of October 17, 1997 (the
"Recapitalization Agreement") which provided for the
recapitalization of the Company (the "Recapitalization").
Pursuant to the Recapitalization Agreement, the Company purchased
from the Shareholders all outstanding shares of the Company's
capital stock, other than shares of the Company's Common Stock
held by existing shareholders and which represented 14.8% of the
outstanding shares of the Company's Common Stock immediately
following the transaction. In connection with the
Recapitalization, the Company repaid substantially all of its
preexisting debt obligations immediately before the consummation
of the Recapitalization.
The Recapitalization Agreement was accounted for as a
recapitalization transaction for accounting purposes.
3. LINES OF CREDIT
On October 17, 1997, in connection with the Recapitalization
(as defined below), the Company entered into a syndicated
revolving credit agreement of up to $200.0 million (the
"Revolving Credit Agreement") with a group of banks with The
Chase Manhattan Bank, as administrative and collateral agent (the
"Administrative Agent"), and Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent. The Bank Facilities
may be utilized to fund the working capital requirements of the
Company's subsidiaries, including issuance of stand-by and trade
letters of credit and bankers' acceptances. Borrowings under the
Bank Facilities are secured by a perfected first priority
security interest in all assets (except for the accounts
receivable of Popular Club Plan, Inc.) of the Company's direct
and indirect domestic, and to the extent no adverse tax
consequences would result, foreign subsidiaries and bear
interest, at the Company's option at a base rate equal to the
Administrative Agent's Eurodollar
F-21
rate plus an applicable margin or an alternate base rate equal to
the highest of the Administrative Agent's prime rate, a
certificate of deposit rate plus 1% or the Federal Funds
effective rate plus one-half of 1% plus, in each case, an
applicable margin. The Revolving Credit Agreement matures on
October 17, 2003. The Revolving Credit Agreement replaced the
Company's previous revolving credit agreement which provided for
commitments in an aggregate amount of up to $200.0 million, of
which up to $120.0 million was available for direct borrowings.
During the forty week periods ended November 8, 1996 and
November 7, 1997, maximum borrowings under the revolving credit
agreements were $55,000,000 and $104,000,000, and average
borrowings were $34,500,000 and $66,700,000. Borrowings
outstanding under the Revolving Credit Agreement were $47,000,000
at November 7, 1997.
Outstanding letters of credit issued to facilitate
international merchandise purchases at November 7, 1997 amounted
to $37,400,000 million.
4. LONG TERM DEBT
The $70.0 million term loan is subject to the same interest
rates and security terms as the revolving credit facility. The
term loan is repayable in quarterly installments of $4.0 million
from February 2001 through November 2001 and $6.75 million from
February 2002 through November 2003. See Note 3, "Lines of
Credit."
The $150.0 million Senior Subordinated Notes are unsecured
general obligations of J. Crew Operating Corp. and are
subordinated in right of payment to all senior debt. Interest on
the notes will accrue at the rate of 10-3/8% per annum and will
be payable semi-annually in arrears on April 15 and October 15.
The notes will mature on October 15, 2007 and may be redeemed at
the option of the issuer subsequent to October 15, 2002 at prices
ranging from 105.188% in 2002 to 100% in 2005 and thereafter.
The Senior Discount Debentures were issued in aggregate
principal amount of $142.0 million at maturity and will mature on
October 15, 2008. These debentures are senior unsecured
obligations of Holdings. Cash interest will not accrue prior to
October 15, 2002 and the principal amount of the debentures will
accrete at a rate of 13- 1/8% per annum and will be payable in
arrears on April 15 and October 15 of each year. The Senior
Discount Debentures may be redeemed at the option of Holdings on
or after October 15, 2002 at prices ranging from 106.563% to 100%
in 2005 and thereafter.
5. SECURITIZATION
In connection with the Recapitalization, a facility was
entered into to securitize certain consumer loan installment
receivables of Popular Club Plan, Inc. on a revolving basis. This
securitization involved the transfer of receivables with limited
recourse through a special purpose bankruptcy remote subsidiary
to a trust in exchange for cash and subordinated certificates
representing undivided interests in the pool of receivables and
the subsequent sale by the trust of certificates of beneficial
interest to third party investors. The Company has no obligation
to reimburse the trust or the purchasers of beneficial interests
for credit losses. This transaction has been accounted for as a
sale in accordance with the provisions of Statement of Financial
Accounting Standards No. 125 and accordingly the accounts
receivable and the corresponding obligations are not reflected in
the consolidated financial statements as of November 7, 1997. At
November 7, 1997, $42.0 million of proceeds were received from
the sale of accounts receivable and a loss on sale of $400,000
has been recognized in the statement of operations.
F-22
6. CAPITAL STOCK
Holdings' restated certificate of incorporation authorizes
Holdings to issue capital stock consisting of:
(a) 100,000,000 shares of common stock; par value $.01
per share;
(b) 1,000,000 shares of Series A cumulative preferred
stock; par value $.01 per share; and
(c) 1,000,000 shares of Series B cumulative preferred
stock; par value $.01 per share.
In connection with the Recapitalization, Holdings issued
55,000 shares of Common Stock, 92,500 shares of Series A
Preferred Stock and 32,500 shares of Series B Preferred Stock.
The preferred stock will have an initial liquidation value
of $1,000 per share. The preferred stock will accumulate
dividends at the rate of 14.5% per annum payable quarterly for
periods ending on or prior to October 17, 2009. Shares of the
preferred stock may be redeemed at the option of Holdings at
redemption prices ranging from 103% of liquidation value at
October 17, 1997 to 100% at October 17, 2000 and thereafter. On
October 17, 2009, Holdings is required to redeem the Series B
Preferred Stock and to pay all accumulated but unpaid dividends
on the Series A Preferred Stock. Thereafter, the Series A
Preferred Stock will accumulate dividends at the rate of 16.5%
per annum.
* * * * * *
F-23
=================================================================
No person has been authorized to give any information or to make
any representations other than those contained or incorporated by
reference in this Prospectus and the accompanying Letter of
Transmittal and, if given or made, such information or
representations must not be relied upon as having been authorized
by the Company or the Exchange Agent. Neither this Prospectus nor
the accompanying Letter of Transmittal, or both together,
constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery
of this Prospectus, nor the accompanying Letter of Transmittal,
or both together, nor any sale made hereunder shall, under any
circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or
thereof or that the information contained herein is correct at
any time subsequent to the date hereof or thereof.
Until , 1998 (90 days after the date of this Prospectus), all
dealers effecting transactions in the New Debentures, whether or
not participating in this distribution, may be required to
deliver a Prospectus. This is in addition to the obligation of
the dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
Page
Available Information .................................... i
Incorporation of Certain Documents by Reference .......... i
Prospectus Summary ....................................... 1
Risk Factors ............................................. 16
The Recapitalization ..................................... 23
Texas Pacific Group ...................................... 25
Use of Proceeds .......................................... 25
Capitalization ........................................... 25
Unaudited Pro Forma Consolidated Financial Data .......... 26
Selected Consolidated Financial Data ..................... 31
Management's Discussion and Analysis of
Financial Condition and Results of Operations ....... 33
Business ................................................. 45
Management ............................................... 59
Certain Relationships and Related Transactions ........... 64
Capital Stock of Holdings and Operating Corp ............. 64
Description of Operating Corp Indebtedness ............... 66
The Exchange Offer ....................................... 68
Description of the New Debentures ........................ 76
Certain U.S. Federal Tax Considerations .................. 104
Plan of Distribution ..................................... 107
Legal Matters ............................................ 107
Experts .................................................. 108
Change in Accountants..................................... 108
onsolidated Financial Statements ......................... F-1
=================================================================
=================================================================
J. Crew Group, Inc.
Offer to Exchange
Series B 13-1/8% Senior Discount Debentures due 2008,
which have been registered under the
Securities Act of 1933, as amended,
for any and all outstanding
13-1/8% Senior Discount Debentures due 2008
PROSPECTUS
_________ __, 1998
=================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Issuer's Articles of Incorporation provide that a
person who is or was a director of the Issuer shall not have any
personal liability to the corporation or its shareholders for
damages for any breach of duty in such capacity, provided that
the foregoing shall not eliminate or limit liability where such
liability is imposed under the New York Business Corporation Law
(the "NYBCL"). The By-Laws of the Issuer provide that except to
the extent expressly prohibited by the NYBCL, the Issuer shall
indemnify each person made or threatened to be made a party to or
called as a witness in or asked to provide information in
connection with any pending or threatened action, proceeding,
hearing or investigation, whether civil or criminal, and whether
judicial, quasi-judicial, administrative, or legislative, and
whether or not for or in the right of the Issuer or any other
enterprise, by reason of the fact that such person or such
persons testator or intestate is or was a director or officer of
the Issuer, or is or was a director or officer of the Issuer who
also serves or served at the request of the Issuer any other
corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise in any capacity, against judgments,
fines, penalties, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred in connection with
such action or proceeding, or any appeal therein, provided that
no such indemnification shall be made if a judgment or other
final adjudication adverse to such person establishes that his or
her acts were committed in bad faith or were the result of active
and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in
fact a financial profit or other advantage to which he or she was
not legally entitled, and provided further that no such
indemnification shall be required with respect to any settlement
or other nonadjudicated disposition of any threatened or pending
action or proceeding unless the Issuer has given its prior
consent to such settlement or other disposition.
In case any provision in the By-Laws of the Issuer relating
to indemnification shall be determined at any time to be
unenforceable in any respect, the affected provision shall be
given the fullest possible enforcement in the circumstances, it
being the intention of the Issuer to afford indemnification and
advancement of expenses to its directors and officers, acting in
such capacities or in the other capacities mentioned herein, to
the fullest extent permitted by law. Section 722 of the NYBCL
provides as follows:
Authorization for indemnification of directors and officers
(a) A corporation may indemnify any person made, or
threatened to be made, a party to an action or proceeding
(other than one by or in the right of the corporation to
procure a judgment in its favor), whether civil or
criminal, including an action by or in the right of any
other corporation of any type or kind, domestic or foreign,
or any partnership, joint venture, trust, employee benefit
plan or other enterprise, which any director or officer of
the corporation served in any capacity at the request of the
corporation, by reason of the fact that he, his testator or
intestate, was a director or officer of the corporation, or
served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any
capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys'
fees actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, if such
director or officer acted, in good faith, for a purpose
which he resonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and,
in criminal actions or proceedings, in addition, had no
reasonable cause to believe that his conduct was unlawful.
(b) The termination of any such civil or criminal
action or proceedings by judgment, settlement, conviction
or upon a plea of nolo contendere, or its equivalent, shall
not in itself create a presumption that any such director
or officer did not act, in good faith, for a purpose which
he reasonably believed to be in, or, in the case of service
for any other corporation or any partnership, joint
venture, trust,
II-1
employee benefit plan or other enterprise, not opposed to,
the best interests of the corporation or that he had
reasonable cause to believe that his conduct was unlawful.
(c) A corporation may indemnify any person made, or
threatened to be made, a party to an action by or in the
right of the corporation to procure a judgment in its favor
by reason of the fact that he, his testator or intestate,
is or was a director or officer of the corporation, or is
or was serving at the request of the corporation as a
director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint
venture, trust, employee benefit plan or other enterprise,
against amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily
incurred by him in connection with the defense or
settlement of such actions, or in connection with an appeal
therein, if such director or officer acted, in good faith,
for a purpose which he reasonably believed to be in, or, in
the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the
corporation, except that no indemnification under this
paragraph shall be made in respect of (1) a threatened
action, or a pending action which is settled or otherwise
disposed of, or (2) any claim, issue or matter as to which
such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court
in which the action was brought, or, if no action was
brought, any court of competent jurisdiction, determines
upon application that, in view of all the circumstances of
the case, the person is fairly and reasonably entitled to
indemnify for such portion of the settlement amount and
expenses as the court deems proper.
(d) For the purposes of this section, a corporation
shall be deemed to have requested a person to serve an
employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or
otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be considered fines;
and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's
duties for a purpose reasonably believed by such person to
be in the interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the corporation.
The Issuer maintains directors' and officers' liability
insurance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits. A list of exhibits included as part of
this Registration Statement is set forth in the Exhibit Index
which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) Financial Statement Schedules. Schedules have been
omitted since the required information is not present, or not
present in amounts sufficient to require submission of the
schedule, or because the information is included in the financial
statements or notes thereto.
Item 22. Undertakings.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plans
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant, pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or
II-2
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by any such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether or not such indemnification is against public policy as
expressed in the Securities Act of 1933 and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration
statement through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be
signed on its behalf, thereunto duly authorized, in the City of
New York, State of New York, on December 15, 1997.
J. CREW GROUP, INC.
By: /s/ Emily Woods
-----------------------------
Name: Emily Woods
Title: Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below on this
Registration Statement hereby constitutes and appoints Emily
Woods and Michael P. McHugh, and each of them, with full power to
act without the other, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for
him and in his name, place and stead, in any and all capacities
(unless revoked in writing) to sign any and all amendments
(including post-effective amendments thereto) to this
Registration Statement to which this power of attorney is
attached, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and
Exchange Commission, granting to such attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as full to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons in the capacities indicated, on December 15, 1997.
Signature Title
--------- -----
/s/ Emily Woods Director and Chief Executive
- ---------------------------- Officer
Emily Woods
/s/ David Bonderman Director
- ----------------------------
David Bonderman
/s/ James G. Coulter Director
- ----------------------------
James G. Coulter
/s/ Richard W. Boyce Director
- ----------------------------
Richard W. Boyce
S-1
Signature Title
--------- -----
/s/ Michael P. McHugh Vice President Finance and
- ---------------------------- Chief Financial Officer
Michael P. McHugh
/s/ Nicholas Lamberti Vice President
- ----------------------------
Nicholas Lamberti
S-3
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
2.1 Recapitalization Agreement, dated as of July 22, 1997
between TPG Partners II, L.P. and J. Crew Group, Inc. (the
"Recapitalization Agreement")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Recapitalization Agreement.
2.2 Amendment to Recapitalization Agreement, dated as of October
17, 1997 between TPG Partners II, L.P. and J. Crew Group,
Inc. (the "Amendment")
NOTE: Pursuant to the provisions of paragraph (b)(2) of Item
601 of Regulation S-K, the Registrant hereby undertakes to
furnish to the Commission upon request copies of any
schedule to the Amendment.
3.1 Restated Certificate of Incorporation of J. Crew Group, Inc.
3.2 By-laws of J. Crew Group, Inc.
4.1 Stockholders' Agreement, dated as of October 17, 1997, among
J. Crew Group, Inc. and the Stockholder signatories thereto
4.2 Stockholders' Agreement, dated as of October 17, 1997, among
J. Crew Group, Inc., TPG Partners II, L.P. and Emily Woods
(included as Exhibit B to the Woods Employment Agreement filed
as Exhibit 10.1)
4.3 Indenture, dated as of October 17, 1997, between J. Crew
Group, Inc. as issuer, and State Street Bank and Trust
Company, as trustee, relating to the Debentures (the
"Indenture")
4.4 Form of Series B 13-1/8% Senior Discount Debenture due 2008
of J. Crew Group, Inc. (the "New Debentures") (included as
Exhibit B of the Indenture filed as Exhibit 4.2)
4.5 Credit Agreement, dated as of October 17, 1997, among J.
Crew Group, Inc., J. Crew Operating Corp., the Lenders Party
thereto, the Chase Manhattan Bank, as Administrative Agent,
and Donaldson, Lufkin & Jenrette Securities Corporation, as
Syndication Agent*
4.6 Guarantee Agreement dated as of October 17, among J. Crew
Group, Inc., the subsidiary guarantors of J. Crew Operating
Corp. that are signatories thereto and The Chase Manhattan
Bank
- --------
to be filed by amendment
X-1
Exhibit
No. Description
- ------- -----------
4.7 Indemnity, Subrogation and Contribution Agreement dated as
of October 17, 1997, amonhg J. Crew Operating Corp., the
subsidiary guarantors of J. Crew Operating Corp. that are
signatories thereto and The Chase Manhattan Bank
4.8 Pledge Agreement, dated as of October 17, among J. Crew
Operating Corp., J. Crew Group, Inc., the subsidiary
guarantors of J. Crew Operating Corp. that are signatories
thereto and The Chase Manhattan Bank
4.9 Security Agreement, dated as of October 17, among J. Crew
Operating Corp., J. Crew Group, Inc., the subsidiary
guarantors of J. Crew Operating Corp. that are signatories
thereto and The Chase Manhattan Bank
4.10 Registration Rights Agreement, dated as of October 17, 1997
by and among J. Crew Group, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc.
NOTE: Pursuant to the provisions of paragraph (b)(4)(iii) of
Item 601 of Regulation S-K, the Registrant hereby undertakes
to furnish to the Commission upon request copies of the
instruments pursuant to which various entities hold
long-term debt of the Company or its subsidiaries,
none of which instruments govern indebtedness exceeding 10
percent of the total assets of the Company and its
subsidiaries on a consolidated basis.
5.1 Opinion of Cleary, Gottlieb, Steen & Hamilton regarding
legality of the New Debentures
10.1 Employment Agreement, dated October 17, 1997, among J. Crew
Group, Inc., J. Crew Operating Corp., TPG Partners II, L.P.
(only with respect to Section 2(c) therein) and Emily Woods
(the "Woods Employment Agreement")
10.2 J. Crew Operating Corp. Senior Executive Bonus Plan (included
as Exhibit A to the Woods Employment Agreement filed as
Exhibit 10.1)
10.3 Stock Option Grant Agreement, made as of October 17, 1997
between J. Crew Group Inc. and Emily Woods (time based)
10.4 Stock Option Grant Agreement, made as of October 17, 1997
between J. Crew Group Inc. and Emily Woods (performance
based)
10.5 Letter Agreement between Matthew Rubel and J. Crew Group, Inc.*
- --------------
* to be filed by amendment
X-2
Exhibit
No. Description
10.6 Contract Carrier Agreement, between J. Crew Group, Inc. and
United Parcel Service, Inc.
10.7 Custom Pricing Agreement, made November 15, 1996 between
Federal Express Corporation and J Crew Group, Inc.
10.8 Lease dated as of October 21, 1981 between Vornado, Inc.
and Popular Services, Inc.
10.9 Agreement of Sublease dated November 4, 1993 between Revlon
Holdings Inc., as Sublessor, and Popular Club Plan, Inc., as
Sublessee
10.10 Letter Agreement, dated July 29, 1996, between World Color
and Clifford & Wills, Inc.
10.11 Agreement dated August 14, 1997 between R.R. Donnelley & Sons
Company and J. Crew Inc.
10.12 Letter Agreement between David DeMattei and J. Crew Group, Inc.*
10.13 J. Crew Group, Inc. 1997 Stock Option Plan
16.1 Letter re Change in Certifying Accountant
21.1 Subsidiaries of J. Crew Group, Inc.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibit 5.1)
25.1 Form T-1 with respect to the eligibility of State Street
Bank and Trust Company with respect to the Indenture
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4 Form of Letter to Clients
- --------------
* to be filed by amendment
X-3
EXECUTION COPY
--------------
RECAPITALIZATION AGREEMENT
by and among
THE SHAREHOLDERS LISTED ON SCHEDULE A HERETO,
as Sellers
J. CREW GROUP, INC.
and
TPG PARTNERS II, L.P.
as Buyer
July 22, 1997
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS...........................................1
SECTION 2. PURCHASE AND REDEMPTION OF SHARES.....................8
2.1. Purchase and Redemption of Shares...................8
2.2. Closing.............................................8
2.3. Deliveries and Actions at the Closing...............9
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING
SELLERS AND THE COMPANY.............................10
3.1. Organization and Good Standing of the
Company..........................................10
3.2. Subsidiaries.......................................11
3.3. Capitalization; Title to Shares....................12
3.4. Authority, Approvals and Consents..................12
3.5. Financial Statements...............................13
3.6. Absence of Material Adverse Change;
Conduct of Business..............................14
3.7. Taxes..............................................14
3.8. Legal Matters......................................15
3.9. Real Property......................................15
3.10. Contracts..........................................17
3.11. Employee Benefit Plans.............................17
3.12. Intellectual Property..............................18
3.13. Brokers............................................18
3.14. Environmental Matters..............................19
3.15. Transactions with Insiders.........................19
3.16. Insurance..........................................20
3.17. Certain Additional Items...........................20
3.18. No Other Representations or Warranties.............21
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING
BUYER...............................................21
4.1. Organization of Buyer..............................21
4.2. Power; Authorization; Consents.....................22
4.3. Brokers............................................22
4.4. Investment Intent of Buyer.........................23
4.5. Financial Matters..................................23
4.6. No Reliance........................................23
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SECTION 5. COVENANTS............................................24
5.1. Access; Confidentiality............................24
5.2. Announcements......................................24
5.3. New Financing......................................25
5.4. Recapitalization...................................25
5.5. Consents; Cooperation..............................26
5.6. Additional Agreement...............................26
5.7. Notification of Certain Matters....................27
5.8. Hart-Scott-Rodino..................................27
5.9. Further Assurances.................................27
5.10. Retention of Books and Records.....................27
5.11. Personnel..........................................28
5.12. Conduct of Business Prior to the Closing...........28
5.13. Sellers' Rights with Respect to Resales............30
5.14. Transfer Taxes.....................................32
5.15. Landlord Consents..................................32
5.16. Retention of Shares................................32
5.17. Termination of Existing Shareholder
Agreement........................................32
5.18. Indemnification....................................33
SECTION 6. CONDITIONS TO THE OBLIGATIONS OF BUYER...............33
6.1. Representations and Warranties;
Covenants........................................33
6.2. Hart-Scott-Rodino..................................34
6.3. Opinion of Sellers' Counsel........................34
6.4. Absence of Injunction..............................34
6.5. Directors..........................................34
6.6. Certificates.......................................34
6.7. Shareholder Approval...............................35
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF SELLERS.............35
7.1. Representations and Warranties;
Covenants........................................35
7.2. Hart-Scott-Rodino..................................35
7.3. Opinion of Buyer's Counsel.........................35
7.4. Absence of Injunction..............................36
7.5. Certificates.......................................36
7.6. Employment/Consulting Agreement....................36
SECTION 8. TERMINATION..........................................36
8.1. Termination........................................36
8.2. Effect of Termination..............................37
SECTION 9. SURVIVAL AND INDEMNIFICATION.........................37
9.1. Survival...........................................37
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9.2. Sellers' Indemnification...........................37
9.3. Buyer's Indemnification............................40
9.4. Claims by Third Parties............................41
9.5. Tax Claims of the Buyer............................43
SECTION 10. MISCELLANEOUS........................................44
10.1. Headings...........................................44
10.2. Notices............................................44
10.3. Assignment.........................................45
10.4. Entire Agreement...................................46
10.5. Amendment; Waiver..................................46
10.6. Counterparts.......................................46
10.7. Governing Law......................................46
10.8. Severability.......................................46
10.9. Consent to Jurisdiction............................47
10.10. Third Person Beneficiaries.........................47
10.11. Representations and Warranties;
Disclosure Schedule..............................47
10.12. United States Dollars..............................48
10.13. Expenses...........................................48
10.14. Liquidated Damages.................................48
Schedule A Shareholders
- ----------
Schedule B Seller Addresses
- ----------
Exhibit A Fees, Costs and Expenses
- ----------
Exhibit B Sellers Retained Shares
- ----------
Exhibit C Employment/Consulting Agreement
- ----------
-iii-
RECAPITALIZATION AGREEMENT
--------------------------
THIS AGREEMENT dated as of this 22nd day of July,
1997, by and among J. Crew Group, Inc., a New York corporation
(the "Company"), the holders of shares of Common Stock listed on
Schedule A hereto (each a "Seller," and collectively, the
"Sellers"), and TPG Partners II, L.P., a Delaware limited
partnership ("Buyer").
The parties hereto desire to effect a series of
transactions pursuant to which, among other things, the Buyer
will acquire from the Company equity securities of the Company,
which securities will represent all of the economic value and
voting power of the Company other than the Retained Shares (as
defined below), and Sellers will sell to the Company all of their
current equity ownership of the Company other than the Retained
Shares.
Accordingly, in consideration of the premises and of
the respective covenants and agreements contained herein, the
parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
-----------
In this Agreement (including the recitals), except as
expressly provided or as the context otherwise requires:
"Affiliate" means with respect to any Person, any
other Person directly or indirectly controlling, controlled by,
or under direct or indirect common control with, such Person. A
Person will be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause
the direction of the management and policies of such corporation,
whether through the ownership of voting securities, by contract
or otherwise.
"Agreement" means this agreement including all
recitals, exhibits and the Disclosure Schedule relating hereto.
"Amended Charter" shall have the meaning given such
term in Section 5.4 hereof.
"Business Day" means any day which is not a Saturday,
Sunday or any other day on which banks in the State of New York
are authorized or required by law to close.
"Closing" means the closing of the purchase and sale of the
Recapitalization Shares and the Redeemed Shares pursuant to this
Agreement.
"Closing Date" means the date on which the Closing
occurs as determined by Section 2.2 of this Agreement.
"Closing Deadline" shall have the meaning given such
term in Section 2.2 hereof.
"Closing Deliveries" means the deliveries specified by
Section 2.3 of this Agreement.
"Closing Payments" means (a) the aggregate principal
amount of indebtedness outstanding under the Senior Notes, the
IRB Debt and the Revolving Facility on the Closing Date, (b) the
aggregate amount of accrued and unpaid interest and any premium
due on such indebtedness as of the Closing, (c) any unpaid fees
or expenses due on such indebtedness as of the Closing, (d) the
redemption price for all of the Preferred Shares as specified in
the Company's Certificate of Incorporation as in effect on the
date hereof, and, without duplication, (e) the aggregate amount
of fees, costs and expenses set forth on Exhibit A hereto.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Common Shares" means all shares of Common Stock
issued and outstanding on the date hereof.
"Common Stock" means the common stock, par value $1.00
per share, of the Company.
"Company Agreement" means any mortgage, indenture,
note, agreement, contract, lease, license, franchise, obligation,
instrument or other commitment, arrangement or understanding of
any kind, to which the Company or a Subsidiary is a party or by
which the Company or a Subsidiary or any of their respective
property may be bound or affected.
"Confidentiality Agreement" means the Confidentiality
Agreement between Buyer and the Company dated April 26, 1996.
"Debt" shall mean any liability in respect of (i)
borrowed money, (ii) capitalized lease obligations, (iii)
obligations under interest rate agreements and currency
-2-
agreements and (iv) guarantees of any of the foregoing, provided
that Debt shall not include any New Financing.
"Disclosure Schedule" means the disclosure schedule
relating to this Agreement.
"8% Preferred Shares" means all issued and outstanding
shares of 8% Cumulative Preferred Stock, par value $100 per
share, of the Company.
"Employee Benefit Plan" shall have the meaning given
such term in Section 3.11 hereof.
"Employment/Consulting Agreement" shall have the
meaning given such term in Section 7.6 hereof.
"Environmental Law" means any and all federal, state
or local laws, ordinances or regulations relating to pollution,
the protection of the environment and the discharge or release of
materials into the environment.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Financial Statements" means the audited consolidated
balance sheets of the Company for the years ended February 3,
1995, February 2, 1996 and January 31, 1997, and the related
statements of income, stockholders equity and cash flow for the
periods then ended and the notes thereto accompanied by the
report thereon of Deloitte & Touche LLP.
"GAAP" shall mean United States generally accepted
accounting principles.
"Hazardous Material" shall mean any substance,
chemical, compound, product, solid, gas, liquid, waste or
byproduct which is classified or regulated as "hazardous" or
"toxic" pursuant to any Environmental Law and includes, without
limitation, asbestos, PCBs and petroleum (including crude oil or
any fraction thereof).
"HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
-3-
"Indemnitee" shall mean the Buyer, Sellers or Company upon
receipt by the Buyer, Sellers or Company of a Third Party Claim.
"Indemnitor" shall mean any of the Buyer, Sellers or
Company upon receipt by the Buyer, Sellers or Company of a claim
for indemnification from the Indemnitee pursuant to a Third Party
Claim.
"Insider" shall have the meaning given such term in
Section 3.15 hereof.
"Intellectual Property" means all of the following:
(i) trademarks and service marks (registered or unregistered) and
trade names, and all goodwill associated therewith; (ii) patents,
patentable inventions, discoveries, improvements, ideas, know-how
and processes; (iii) trade secrets and the right to limit the use
or disclosure thereof; (iv) copyrights in all works; and (v)
domain names.
"IRB Debt" means the aggregate principal amount
outstanding under the Deed of Assumption, dated as of December 1,
1985, between the Industrial Development Authority of the City of
Lynchburg, Virginia and the Company.
"Knowledge of Sellers", or words of similar import,
means the actual knowledge of Arthur Cinader, Emily Woods and/or
Michael McHugh.
"Leased Property" shall have the meaning given such
term in Section 3.9 hereof.
"Legal Requirements" means all statutes, ordinances,
codes, rules, regulations, standards, judgments, decrees, writs,
rulings, injunctions, orders and other requirements of
governmental, administrative or judicial entities that are
material and applicable to the Company and any of its property.
"Lien" means any encumbrance, mortgage, charge, right
or other security interest.
"Losses" means, in respect of Buyer or Sellers, any
and all losses, liabilities, claims and reasonable expenses of
defense thereof (including, without limitation, fees and
disbursements of counsel, but excluding compensation paid to
employees of Buyer or Sellers or their respective Affiliates, as
-4-
the case may be, in connection with such defense), Liens or other
obligations of any nature whatsoever.
"Material Adverse Effect" means any material adverse
effect on the business, operations, assets, financial condition,
properties or results of operations of the Company and its
Subsidiaries, taken as a whole.
"Material Agreement" means each Company Agreement that
is material to the business, operations, assets, financial
condition or properties of the Company and its Subsidiaries,
taken as a whole, including, without regard to materiality, each
of the following Company Agreements:
(a) any mortgage, indenture, note, installment
obligation or other instrument, agreement or arrangement
for or relating to borrowing of money by the Company or a
Subsidiary in excess of $100,000;
(b) any guaranty, direct or indirect, by the Company
or a Subsidiary of any obligation for borrowed money,
excluding endorsements made for collection in the ordinary
course of business in excess of $100,000;
(c) any obligation to sell or to register the sale of
any of the Common Shares or Preferred Shares or other
securities of the Company or a Subsidiary;
(d) any obligation to make payments, contingent or
otherwise, arising out of the prior acquisition of the
business of other persons;
(e) any collective bargaining agreement with any labor
union;
(f) any lease or similar arrangement for the use of
personal property involving payments by the Company or a
Subsidiary in excess of $100,000 per annum;
(g) any Company Agreement to which any Insider is a
party;
(h) any Company Agreement providing for aggregate
payments in excess of $100,000 per annum after the Closing
that is not terminable by the Company or a Subsidiary on
less than 180 days' notice without penalty;
-5-
(i) any Company Agreement containing non-competition
covenants binding on the Company or a Subsidiary;
(j) any partnership, joint venture or similar
agreement to which the Company or a Subsidiary is a party;
and
(k) any employment contracts, arrangements,
commitments or understandings of any kind with any officer,
director, employee or consultant of the Company or a
Subsidiary which may not be terminated by the Company or a
Subsidiary without penalty upon not more than 90 days'
notice, pursuant to which payments may be required to be
made following the Closing.
"New Financing" shall have the meaning given such term
in Section 5.3 hereof.
"Owned Property" shall have the meaning given such
term in Section 3.9 hereof.
"Person" means and includes an individual,
corporation, partnership (limited or general), joint venture,
association, trust, limited liability company, any other
unincorporated organization or entity and a governmental entity
or any department or agency thereto.
"Preferred Shares" means the 6% Preferred Shares and
the 8% Preferred Shares.
"Property Leases" shall have the meaning given such
term in Section 3.9 hereof.
"Real Property" shall mean the Owned Property and the
Leased Property.
"Recapitalization Purchase Price" shall have the
meaning given such term in Section 2.1 hereof.
"Recapitalization Shares" shall have the meaning given
such term in Section 2.1 hereof.
"Redeemed Shares" shall mean all of the Common Shares
except the Retained Shares.
-6-
"Release" shall mean any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, or disposing into the outdoor environment.
"Retained Shares" shall mean the Common Shares
retained by the Sellers pursuant to Section 5.16 hereof.
"Revolving Facility" means the $200,000,000 Credit
Agreement, dated as of April 18, 1997, among the Company, as
borrower, the Banks listed therein, the Issuing Banks listed
therein, and Morgan Guaranty Trust Company of New York, as agent.
"Sellers Redemption Price" shall mean $347,770,000
less the sum of (i) the value of the Retained Shares as set forth
in Section 5.16 of this Agreement and (ii) $1,184,400,
representing the amount necessary to redeem the Preferred Shares
pursuant to Section 2.3(a).
"Senior Notes" means the Company's 8.10% Senior Notes
due 2004.
"6% Preferred Shares" means all issued and outstanding
shares of 6% Noncumulative Preferred Stock, par value $100 per
share, of the Company.
"Subsidiaries" or "Subsidiary" shall mean any
corporation of which the Company, directly or indirectly, owns a
majority of the common stock or has the power to vote or direct
the voting of sufficient securities to elect a majority of the
board of directors of such corporation, including, but not
limited to, those corporations listed in Section 3.2 of the
Disclosure Schedule.
"Tax" or "Taxes" means all taxes, charges, fees,
levies or other assessments, and all estimated payments thereof,
including but not limited to income, excise, property, sales,
use, value added, environmental, franchise, payroll, transfer,
gross receipts, withholding, social security, and unemployment
taxes, imposed by any federal, state, county or local government,
or any subdivision or agency thereof, and any interest, penalties
and expenses relating to such taxes, charges, fees, levies or
other assessments.
"Tax Returns" means all federal, state and local Tax
returns, reports and declarations which are due and required to
be filed by any applicable Tax law.
-7-
"Third Party Claim" shall have the meaning given such
term in Section 9.4.
SECTION 2. PURCHASE AND REDEMPTION OF SHARES
---------------------------------
2.1. Purchase and Redemption of Shares. Upon and subject
to the terms and conditions of this Agreement, Buyer agrees to
purchase from the Company, and the Company agrees to sell to the
Buyer 48,400 shares of Common Stock, which immediately following
the Closing will constitute eighty-eight percent (88%) of all of
the outstanding common equity securities of the Company and all
of the then outstanding common equity securities of the Company
other than the Retained Shares (the "Recapitalization Shares").
The aggregate purchase price payable for the Recapitalization
Shares by the Buyer (the "Recapitalization Purchase Price") shall
be the amount equal to $549,600,000, less (i) the amount of
proceeds from the New Financing which the Company actually
receives and (ii) the value of the Retained Shares as set forth
in Section 5.16 of this Agreement. Buyer shall provide, or shall
cause one or more other Persons to provide, to the Company the
New Financing. Under no circumstances shall the failure of the
Company or the Buyer to obtain the New Financing relieve the
Buyer of its obligation to purchase the Recapitalization Shares
for the Recapitalization Purchase Price at the Closing. The Buyer
shall pay the Recapitalization Purchase Price in cash, by wire
transfer of immediately available funds to the account of the
Company as designated by the Company. Simultaneously with the
purchase of the Recapitalization Shares by the Buyer, the Company
shall redeem from the Sellers all of the Redeemed Shares for the
Sellers Redemption Price. The Sellers Redemption Price shall be
allocated among the Redeemed Shares in the manner set forth on
Schedule A hereto.
2.2. Closing.
(a) Subject to the satisfaction or waiver of
the conditions set forth in Sections 6 and 7 of this Agreement
(other than those requiring Closing Deliveries), the Closing will
take place at the offices of Willkie Farr & Gallagher, at 10:00
A.M. on a date to be mutually agreed upon by the Sellers and
Buyer (the "Closing Date"), which date shall not be more than 90
days from and after the date hereof (the "Closing Deadline"), or
at such other time and place as the parties may agree. Buyer
shall
-8-
use its best efforts to cause the Closing Date to occur not more
than 60 days from and after of the date hereof.
(b) If the Closing occurs at or before 12:00
noon New York time on the Closing Date, the Closing will be
effective as of the start of business on the Closing Date;
otherwise, the Closing will be effective as of the start of
business on the day following the Closing Date.
(c) Two business days prior to the Closing
Date, the Company shall deliver to Buyer a certificate of the
Chief Financial Officer of the Company, reflecting the best
available estimates of the Company of the amounts, as of the date
thereof, of the fees, costs and expenses set forth on Exhibit A
of this Agreement. To the extent that the amounts set forth in
such certificate, in the aggregate, exceed the aggregate of the
corresponding amounts set forth on Exhibit A of this Agreement by
at least $100,000, the Sellers Redemption Price payable to the
Sellers at the Closing shall be reduced by the amount by which
such excess exceeds $100,000 (which reduction shall be allocated
to the Sellers in proportion to the amounts set forth opposite
their names on Schedule A hereto).
2.3. Deliveries and Actions at the Closing.
Subject to the satisfaction or waiver of the conditions set forth
in Sections 6 and 7 hereof, at and in connection with the
Closing:
(a) the Company shall redeem the
Preferred Shares at the per share redemption price set
forth in the Company's Certificate of Incorporation as in
effect on the date hereof;
(b) the Company shall file the Amended Charter as
provided in Section 5.4 hereof;
(c) the Company shall borrow funds under the New
Financing;
(d) the Company shall deliver to the
Buyer:
(i) certificates representing the
Recapitalization Shares; and
(ii) all opinions, certificates and
other instruments or documents contemplated under
-9-
Section 6 to be delivered by the Company at or prior to
the Closing;
(e) the Sellers shall deliver to the
Company or the Buyer, as the case may be, all opinions,
certificates and other instruments or documents
contemplated under Section 6 to be delivered by the Sellers
at or prior to the Closing;
(f) the Sellers shall deliver to the
Company certificates representing the Redeemed Shares duly
endorsed for transfer;
(g) the Buyer shall deliver to the
Company the Recapitalization Purchase Price in immediately
available federal funds by wire transfer to the bank
account or accounts designated by the Company prior to the
Closing;
(h) the Company shall (i) deliver to the
Sellers the Sellers Redemption Price in immediately
available federal funds by wire transfer to the bank
account or accounts designated by the Sellers prior to the
Closing and (ii) pay, or make arrangements to pay, the
Closing Payments; and
(i) the Buyer shall deliver to the
Company and the Sellers all opinions, certificates and
other instruments and documents contemplated under Section
7 to be delivered by the Buyer at or prior to the Closing.
SECTION 3.1. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS AND
THE COMPANY
-----------
Except as disclosed in this Agreement, Sellers hereby
represent and warrant to Buyer as follows:
3.1. Organization and Good Standing of the
Company. The Company is duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
New York, and has the corporate power and authority to own, lease
and operate the property used in its business and to carry on its
business as now being conducted. The Company is registered to do
business and is in good standing in all jurisdictions in which
the character of the properties owned or held under lease by it
makes qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse
-10-
Effect. Sellers have made available to Buyer true and complete
copies of the Certificate of Incorporation and all amendments
thereto of the Company and each Subsidiary to the date hereof and
the By-Laws of the Company and each Subsidiary as in effect on
the date hereof. The minute and stock transfer books of the
Company have been made available to Buyer and the originals
thereof will be delivered to Buyer at Closing.
3.2. Subsidiaries. Except as set forth in
Section 3.2 of the Disclosure Schedule, the Company does not own,
directly or indirectly, any debt, shares or other equity interest
or securities in any corporation, partnership, joint venture or
other Person, and has no agreement or commitment to purchase any
such interest. Except as set forth in Section 3.2 of the
Disclosure Schedule, each Subsidiary is duly incorporated,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate
power and authority to own, lease and operate the property used
in its business and to carry on its business as now being
conducted, except where the failure to be in good standing would
not have a Material Adverse Effect. Except as set forth in
Section 3.2 of the Disclosure Schedule, each Subsidiary is
registered to do business and is in good standing in all
jurisdictions in which the character of the properties owned or
held under lease by such Subsidiary makes qualification
necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. Except as set
forth in Section 3.2 of the Disclosure Schedule, all of the
outstanding shares of capital stock of each Subsidiary of the
Company are validly issued, fully paid and non-assessable and
none of the Subsidiaries owns or controls, directly or
indirectly, any other equity interest in any corporation,
partnership, joint venture, limited liability company, trust,
firm or other entity. Except as set forth in Section 3.2 of the
Disclosure Schedule, the Company owns, directly or through a
Subsidiary, 100% of the outstanding capital stock of each
Subsidiary and there is no security, option, warrant, right,
call, subscription agreement, commitment or understanding of any
nature whatsoever to which the Company or the Sellers is a party,
that directly or indirectly (i) calls for the issuance, sale,
pledge or other disposition of any shares of capital stock of the
Subsidiaries or any securities convertible into, or other rights
to acquire, any shares of capital stock of the Subsidiaries, (ii)
obligates the Company or the Sellers to grant, offer or enter
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into any of the foregoing or (iii) relates to the voting or
control of such capital stock, securities or rights.
3.3. Capitalization; Title to Shares. The
authorized capital stock of the Company consists of (i) 1,000,000
shares of Common Stock of which 227,988 shares are issued and
outstanding, (ii) 20,000 shares of 6% Preferred Shares of which
9,339 shares are issued and outstanding and (iii) 10,000 shares
of 8% Preferred Shares of which 2,505 shares are issued and
outstanding. All of the Common Shares have been validly
authorized and issued, and are fully paid and nonassessable.
Section 3.3 of the Disclosure Schedule sets forth the record and
beneficial owners of all of the Common Shares and Preferred
Shares. Except as contemplated by this Agreement, or as set forth
in Section 3.3 of the Disclosure Schedule, there is no security,
option, warrant, right, call, subscription agreement, commitment
or understanding of any nature whatsoever to which any of the
Sellers or the Company is a party, that directly or indirectly
(i) calls for the issuance, sale, pledge or other disposition of
any shares of capital stock of the Company or any securities
convertible into, or other rights to acquire, any shares of
capital stock of the Company, (ii) obligates Sellers or the
Company to grant, offer or enter into any of the foregoing or
(iii) relates to the voting or control of such capital stock,
securities or rights. Except as set forth in Section 3.3 of the
Disclosure Schedule, Sellers have good and marketable title to
the Common Shares, free and clear of any Liens.
3.4. Authority, Approvals and Consents. The
Company has the corporate power and authority to execute, deliver
and perform this Agreement and, subject to the requisite approval
of the filing of the Amended Charter by the shareholders of the
Company, to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized and approved by the board of directors of the
Company and, except for the requisite approval of the filing of
the Amended Charter by the shareholders of the Company, no other
proceedings on the part of the Company are necessary to authorize
and approve this Agreement or any of the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding
bligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
-12-
moratorium, or similar laws affecting creditors' rights generally
or by the principles governing the availability of equitable
remedies. This Agreement has been duly executed and delivered by
the Sellers and constitutes a valid and binding obligation of
each Seller, enforceable against such Seller in accordance with
its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies. Except as
otherwise set forth in Section 3.4 of the Disclosure Schedule,
the execution, delivery and performance of this Agreement by the
Company and the Sellers and the consummation of the transactions
contemplated hereby do not and will not:
(a) contravene any provisions of the Certificate of
Incorporation or By-Laws of the Company;
(b) (after notice or lapse of time or both)
conflict with, result in a breach of any provision of,
constitute a default under, result in the modification or
cancellation of, or give rise to any right of prepayment
under or termination in respect of, any contract,
agreement, commitment, understanding or arrangement of any
kind to which Sellers or the Company is a party or to which
Sellers or any of Company's or any Subsidiary's property is
subject which is likely to have a Material Adverse Effect;
(c) violate or conflict with any Legal
Requirements applicable to Sellers, the Company or any
Subsidiary, except where such violation or conflict would
not have a Material Adverse Effect; or
(d) except for filings under the HSR Act,
require any authorization, consent, order, permit or
approval of, or notice to, or filing, registration or
qualification with, any governmental, administrative or
judicial authority which if not obtained or made is likely
to have a Material Adverse Effect.
3.5. Financial Statements. The Financial
Statements attached hereto as Section 3.5 of the Disclosure
Schedule have been prepared in accordance with the books and
records of the Company and its Subsidiaries and fairly present in
all material respects the financial position of the Company and
its Subsidiaries as of the dates indicated and the results of
-13-
operations of the business of the Company and its Subsidiaries
for the periods indicated, in conformity with GAAP applied on a
consistent basis.
3.6. Absence of Material Adverse Change;
Conduct of Business. Except as set forth in Section 3.6 of the
Disclosure Schedule or reflected in the most recent Financial
Statements of the Company, since the date of the most recent
Financial Statements, the business of the Company and its
Subsidiaries has been conducted in the ordinary course of
business and the Company and its Subsidiaries have not: (i)
experienced or suffered any change, occurrence or event that has
had a Material Adverse Effect; (ii) sold or otherwise disposed of
any assets or properties material to the Company and its
Subsidiaries, taken as a whole, other than sales of inventory in
the ordinary course of business; (iii) waived, released or
canceled any rights or indebtedness owing to the Company or any
Subsidiary that are material to the Company and its Subsidiaries,
taken as a whole, or prepaid any interest on any Debt; (iv) made
any material changes in its accounting systems, policies,
principles or practices; (v) acquired or leased any assets
material to the Company and its Subsidiaries, taken as a whole,
other than in the ordinary course of business; or (vi) taken any
of the actions addressed by Section 5.12(h) of this Agreement.
3.7. Taxes. Except as set forth in Section 3.7
of the Disclosure Schedule, each of the Company and its
Subsidiaries has filed all Tax Returns required to be filed by
any of them, and has paid (or the Company has paid on its
behalf), or has set up an adequate reserve for the payment of,
all material Taxes required to be paid in respect of the periods
covered by such Tax Returns. The information contained in such
Tax Returns is true, complete and accurate, except where a
failure to be so would not have a Material Adverse Effect. Except
as set forth in Section 3.7 of the Disclosure Schedule: (A) the
income Tax Returns have been examined by the Internal Revenue
Service or the appropriate state, local or foreign taxing
authority or the period of assessment of the Taxes in respect of
which such returns were required to be filed has expired; (B)
neither the Company nor any Subsidiary of the Company is
delinquent in the payment of any material Tax, assessment or
governmental charge; (C) no material deficiencies for any Tax
have been proposed, asserted or assessed against the Company or
any of its Subsidiaries that have not been finally settled or
paid in full, or for which adequate reserves have not been set
aside for the payment thereof; and (D) no
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requests for waivers of the time to assess any such Tax
are pending.
3.8. Legal Matters. Except as set forth in
Section 3.8 of the Disclosure Schedule, (i) there is no claim,
action, suit, litigation, formal investigation or proceeding
pending against, or, to the Knowledge of Sellers, threatened in
writing against, the Company or any Subsidiary before or by any
court, arbitrator, panel, agency or other governmental,
administrative or judicial entity which is likely to have a
Material Adverse Effect and (ii) neither the Company nor any
Subsidiary is subject to any judgment, decree, writ, injunction
or order of any governmental, administrative or judicial
authority which is likely to have a Material Adverse Effect. The
business of the Company is being conducted in compliance with all
Legal Requirements, except where the failure to comply would not
have a Material Adverse Effect. Except as set forth in Section
3.8 of the Disclosure Schedule, as of the date of this Agreement,
the Company has not received any written notice asserting any
noncompliance with any Legal Requirement, except for such
failures as would not have a Material Adverse Effect.
3.9. Real Property.
(a) Set forth in Section 3.9 of the Disclosure
Schedule are (i) a complete list of all real property (the
"Owned Property") owned by the Company or a Subsidiary of
the Company that is material to the Company and its
Subsidiaries considered as a whole; (ii) a complete list of
all real property (the "Leased Property") with respect to
which the Company or any Subsidiaries are parties to a
lease, sublease, license or other occupancy agreement,
together with a list of each lease, sublease, license or
other agreement or understanding pursuant to which any
party other than the Company or a Subsidiary occupies such
Leased Property; and (iii) a complete list of each lease,
sublease, license or other agreement or understanding, oral
or written, pursuant to which any party other than the
Company or a Subsidiary occupies all or any part of the
Owned Property or the Leased Property. (The Owned Property and
the Leased Property are sometimes collectively referred to
as the "Real Property.") True and complete copies of all
leases, subleases, licenses and other documents,
instruments, agreements and understandings to which the
Company or a Subsidiary is a party, whether as lessee,
-15-
lessor, sublessee, sublessor, licensee or licensor,
pertaining to the current or future occupancy of any Real
Property or any current or future right to occupy any Real
Property, together with all material amendments,
modifications and supplements thereto (collectively, the
"Property Leases") have been made available to the Buyer.
(b) With respect to the Property Leases, no
breach or event of default on the part of any party thereto
and no event that, with the giving of notice or lapse of
time or both, would constitute such breach or event of
default, has occurred and is continuing, except where such
breach or event of default would not have a Material
Adverse Effect. All of the Property Leases are in full
force and effect and are valid and enforceable against the
parties thereto in accordance with their terms. All rental
and other payments due under each of the Property Leases
have been duly paid in accordance with the terms of such
Property Lease, except where a failure to make such
payments would not have a Material Adverse Effect. Except
as set forth in Section 3.9 of the Disclosure Schedule, the
transactions contemplated by this Agreement do not require
the consent of any party to, and will not constitute an
event of default under or permit any party to terminate or
change the existing terms of, any Property Lease except
where the failure to obtain such consent or where such
default, termination or change would not have a Material
Adverse Effect.
(c) The Company and, as applicable, each
Subsidiary, has good and marketable title in fee simple to
the Owned Property, good and marketable leasehold title to
the Leased Property, and good and marketable title to all
plants, buildings, fixtures and improvements located on the
Real Property, in each case free and clear of any
mortgages, deeds of trust, liens, security interests,
judgments, options, rights, claims, charges, encroachments,
easements, rights-of-way, squatters' rights, encumbrances,
covenants, conditions, restrictions and other imperfections
of title (collectively, "Impairments"), except for those
Impairment that are set forth in Section 3.9 of the
Disclosure Schedule, or except where such Impairments would not
have a Material Adverse Effect.
(d) To the Knowledge of the Sellers, there is
no Impairment encumbering the title of the lessor to any
Leased
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Property or the plants, buildings, fixtures and
improvements thereon, except for those Impairments that are
set forth in Section 3.9 of the Disclosure Schedule, or
except where such Impairments would not have a Material
Adverse Effect.
3.10. Contracts. Sellers have made available to
Buyer for inspection true and complete copies of all Material
Agreements. Except as set forth in Section 3.10 of the Disclosure
Schedule, neither the Company nor, to the Knowledge of Sellers,
any other party to any of the Material Agreements, is in breach
of or default under any Material Agreement, except for breaches
or defaults which are not likely to have a Material Adverse
Effect.
3.11. Employee Benefit Plans. Section 3.11 of
the Disclosure Schedule sets forth all pension plans,
profit-sharing plans or other employee pension benefit plans and
all bonus, severance, incentive, savings, insurance, welfare or
other employee benefit plans (including without limitation any
such plan within the meaning of Section 3(2) or 3(3) of ERISA)
maintained by the Company or a Subsidiary, in which any employee
of the Company or a Subsidiary participates ("Employee Benefit
Plans"). Except as set forth in Section 3.11 of the Disclosure
Schedule:
(a) Neither the Company nor any Subsidiary is
required to make contributions to any multi-employer plan (within
the meaning of Section 3(37) of ERISA), and no employee of the
Company or a Subsidiary participates in any multi-employer plan;
(b) With respect to each Employee Benefit Plan
and any other similar arrangement or plan either currently or
previously terminated, maintained, or contributed to by any
entity which either is currently or was previously under common
control with the Company as determined under Code Section 414, no
event has occurred during the period when such entity was under
common control with the Company and no condition exists that
after the Closing could reasonably be expected to subject the
Company or any Subsidiary, directly or indirectly, to any
liability including liability under any indemnification agreement)
under Section 412, 413, 4971, 4975, or 4980B of the Code or Section
302, 502, 515, 601, 606, or Title IV of ERISA that is likely to
have a Material Adverse Effect;
-17-
(c) All benefits due under each Employee
Benefit Plan have been paid and there is no lawsuit or claim that
is likely to have a Material Adverse Effect, other than routine
claims for benefits, pending, or to the Knowledge of Sellers
threatened, against any Employee Benefit Plan or the fiduciaries
of any such plan or otherwise involving or pertaining to any such
plan;
(d) No audit or investigation by any
governmental authority is pending, or to the Knowledge of Sellers
threatened, regarding any Employee Benefit Plan, and, to the
Knowledge of Sellers, no party dealing with any Employee Benefit
Plan has engaged in any prohibited transactions (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) or
any breach of fiduciary duty that is likely to have a Material
Adverse Effect; and
(e) The Company is not obligated to make any payments
in connection with the transactions contemplated by this
Agreement pursuant to any severance, change of control or "golden
parachute" arrangements with any Insider or employee of the
Company.
3.12. Intellectual Property. Except as set forth in
Section 3.12 of the Disclosure Schedule:
(a) The Company either owns, or has by license
or otherwise the right to use, all Intellectual Property
owned by the Company or used in the business of the
Company; and
(b) To the Knowledge of Sellers, the conduct
by the Company or any Subsidiary of its business does not
infringe in any material respect on any valid Intellectual
Property rights of any other Person.
3.13. Brokers. Except for fees and expenses
payable by the Company to Goldman, Sachs & Co. listed on Exhibit
A hereto, which is acting for the Company, none of the Sellers
nor the Company has incurred or will incur any broker's, finder's
or similar fee, commission or expense, in each case in connection
with the transactions contemplated by this Agreement.
3.14. Environmental Matters. Except as set forth
in Section 3.14 to the Disclosure Schedule or otherwise disclosed
in environmental reports provided to or prepared by or on behalf
of Buyer, to the Knowledge of Sellers:
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(a) the Company's and its Subsidiaries' real
property complies with applicable Environmental Laws,
except for failures to comply that in the aggregate have
not had and would not be expected to have a Material
Adverse Effect;
(b) the Company and the Subsidiaries have
obtained all environmental consents, approvals, licenses
and permits required for its operations by any applicable
Environmental Law except for failures to obtain that in the
aggregate have not had and would not be expected to have a
Material Adverse Effect; and
(c) except as is not likely to have a Material
Adverse Effect, neither Sellers nor any other Person
(including the Company or any Subsidiary) has caused any
Release, threatened Release or disposal of any Hazardous
Material at or from the Company's or any Subsidiary's real
property and none of such real property is adversely
affected by any Release, threatened Release or disposal of
a Hazardous Material originating or emanating from any
adjoining property.
3.15. Transactions with Insiders. Set forth in
Section 3.15 to the Disclosure Schedule is a true and complete
list of the following agreements and transactions: (i) all
Company Agreements to which any Insider or, to the Knowledge of
Sellers, any Affiliate of the Company is a party and (ii) a true
and complete description of all transactions between the Company,
a Subsidiary or any Employee Benefit Plan, on the one hand, and
any Insider or, to the Knowledge of Sellers, any Affiliate of the
Company, on the other hand, other than benefits provided under
any Employee Benefit Plan in the ordinary course of business. For
purposes of this Agreement the term "Insider" means any
shareholder, director or officer of the Company or a Subsidiary.
3.16. Set forth in Section 3.16 of the
Disclosure Schedule is a complete and correct schedule of all
currently effective material insurance policies or binders of
insurance or programs of self-insurance which relate to the
business of the Company and its Subsidiaries. The coverage under
each such policy and binder is in full force and effect, and no
notice of cancellation or nonrenewal with respect to, or
disallowance of any claim under, or material increase of premium
for, any such policy or binder has been received by the Company
-19-
or any Subsidiary, except such notices, disallowances or
increases which are not likely to have a Material Adverse Effect.
3.17. Certain Additional Items . The aggregate
principal amount outstanding under the Senior Notes is
$85,000,000 and the aggregate amount of accrued but unpaid
interest and prepayment premium on the Senior Notes is
$5,490,500, in each case as of the date hereof. The aggregate
principal amount outstanding under the IRB Debt is $1,974,000 and
the aggregate amount of accrued but unpaid interest on the IRB
Debt is $6,000, in each case as of the date hereof. The aggregate
principal amount outstanding under the Revolving Facility is
$81,500,000 and the aggregate amount of accrued but unpaid
interest on the Revolving Facility is $342,000, in each case as
of the date hereof. As of the date hereof, there are no unpaid
fees or expenses due in respect of the Senior Notes, the IRB Debt
or the Revolving Facility. Neither the Company nor any Subsidiary
has any capitalized lease obligations on the date hereof. The
number of Preferred Shares is as set forth in Section 3.3, the
redemption price per Preferred Share is $100.00 and no dividends
on the Preferred Shares have been paid since January 31, 1997 nor
declared which have not been paid as of the date hereof. Exhibit
A hereto sets forth all fees, costs, expenses and payments to be
incurred by the Company specifically in connection with this
Agreement and the consummation of the transactions contemplated
hereby (except for the other Closing Payments, any fees, costs,
expenses and payments incurred or accrued in connection with
Section 5.14 and obtaining any consents under the leases or other
agreements relating to Leased Properties identified in Section
3.4 of the Disclosure Schedule, and any fees, costs, expenses and
payments to be incurred by Buyer in connection with its
obligations hereunder, in each case other than the fees and
expenses of legal counsel to the Company). It is understood and
agreed that, notwithstanding anything contained in this Agreement
to the contrary, (i) all fees, costs, expenses and payments
referred to in the preceding sentence, (ii) any prepayment
premium payable on the Senior Notes in excess of $4,000,000, and
(iii) solely for purposes of this Agreement, any amounts payable
to Matt Rubel pursuant to the letter agreement, dated January 29,
1997, by and between the Company and Mr. Rubel in excess of
$300,000, shall not be the responsibility and obligation of the
Sellers.
3.18. No Other Representations or Warranties.
Except for the representations and warranties contained in this
Section
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3, Sellers make no representation or warranty, express or
implied, written or oral, and Sellers hereby disclaim any such
representation or warranty (including without limitation any
warranty of merchantability or of fitness for a particular
purpose), whether by Sellers or the Company or any of their
officers, directors, employees, agents or representatives or any
other Person, with respect to the Company or the execution and
delivery of this Agreement or the transactions contemplated
hereby, notwithstanding the delivery or disclosure to Buyer, any
Affiliate of Buyer or any of its officers, directors, employees,
agents or representatives or any other Person of any
documentation or other information by Sellers or the Company or
any of their Affiliates, officers, directors, employees, agents
or representatives or any other Person with respect to any one or
more of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING BUYER
----------------------------------------------
Except as disclosed in this Agreement, Buyer
represents and warrants to the Sellers as follows:
4.1. Organization of Buyer. Buyer is duly
organized and is validly existing as a limited partnership in
good standing under the laws of Delaware, and has the requisite
power and authority to own, lease and operate the property used
in its business and to carry on its business as now being
conducted. Buyer is registered to do business in all
jurisdictions where it is required to be qualified as a foreign
entity except where the failure to be so qualified would not
impair Buyer's ability to execute, deliver and perform this
Agreement and consummate the transactions contemplated hereby or
have a Material Adverse Effect.
4.2. Power; Authorization; Consents. Buyer has the
requisite power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby and
thereby have been duly authorized and approved by the general
partner of the Buyer, and no other proceedings on the part of
Buyer are necessary to authorize and approve this Agreement or
any of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Buyer and constitutes and
will constitute a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms,
-21-
except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar
laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies. Except as
disclosed in Section 4.2 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by Buyer
and the consummation of the transactions contemplated hereby do
not and will not:
(a) contravene any provisions of the Certificate of
Limited Partnership or the Agreement of Limited Partnership
of Buyer;
(b) (after notice or lapse of time or both)
conflict with, result in a breach of any provision of,
constitute a default under, result in the modification or
cancellation of, or give rise to any right of termination
in respect of, any material contract, agreement,
commitment, understanding or arrangement of any kind to
which Buyer is a party;
(c) violate or conflict with any material Legal
Requirement applicable to Buyer or any of its business or
property; or
(d) except for filings under the HSR Act,
require any material authorization, consent, order, permit
or approval of, or notice to, or filing, registration or
qualification with, any governmental, administrative or
judicial authority.
4.3. Brokers. Except as disclosed in Section
4.3 of the Disclosure Schedule, Buyer has not employed any broker
or finder or has incurred or will incur any broker's, finder's or
similar fees, commissions or expenses, in each case in connection
with the transactions contemplated by this Agreement except for
such fees, commissions or expenses which will be borne by the
Buyer.
4.4. Investment Intent of Buyer. Buyer is
receiving the Recapitalization Shares delivered pursuant to this
Agreement for investment purposes for its own account, and not
with the view to or in connection with any distribution thereof.
Buyer understands that the Recapitalization Shares may not be
sold, assigned, offered for sale, pledged or otherwise
transferred unless such transaction is registered under the
Securities Act of 1933, as amended, and applicable state
securities laws, or
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exemptions from such registration requirements are
available or such requirements are not applicable.
4.5. Financial Matters. Buyer has sufficient
funds available to it to meet its obligations to pay the
Recapitalization Purchase Price on Closing and all of the fees,
costs and expenses related thereto.
4.6. No Reliance. Buyer has conducted its own
investigation and examination of the Company and its assets,
liabilities (actual, accrued and contingent), condition
(financial and otherwise), businesses, operations, affairs and
prospects based primarily upon its own knowledge and experience
and upon information and data provided by management of the
Company, and Buyer has such knowledge and experience, and has
consulted with such legal, financial and other professional
advisers to review such information and data, in order to enable
Buyer, based upon such information and data and upon Buyer's own
knowledge and experience and such professional advice, as has
been necessary to evaluate the merits and risks associated with
the purchase of the Recapitalization Shares and the completion of
the transactions contemplated hereby. Buyer and its respective
officers, employees and representatives have been given such
access to the offices, properties, personnel, businesses,
contracts, books and records of the Company, and have been
furnished with all such information and data, as they have
considered sufficient to enable Buyer pursuant to this Agreement,
to purchase the Recapitalization Shares pursuant to this
Agreement and to complete the transactions contemplated hereby
without relying in any respect upon any representation or
warranty, whether written or oral, express or implied, of the
Sellers, the Company or any Affiliate thereof or any of their
respective directors, officers, employees, representatives and
controlling persons (except only for the representations and
warranties of the Sellers contained in Section 3 of this
Agreement).
SECTION 5. COVENANTS
---------
5.1. Access; Confidentiality. Between the date
hereof and the Closing, Sellers will cause the Company and its
Subsidiaries, during normal business hours and upon reasonable
notice to the Company, to (i) provide to Buyer and its
representatives full access to the premises, property, files,
books, records, documents, and other information of or concerning
-23-
the Company and its Subsidiaries; (ii) furnish to Buyer and its
representatives financial, technical and operating data and other
information pertaining to the business and property of the
Company and its Subsidiaries; (iii) make available for inspection
and copying by Buyer and its representatives copies of any
documents relating to the foregoing; (iv) permit Buyer and its
representatives to conduct reasonable interviews of the
employees, sales representatives and auditors of the Company and
its Subsidiaries; and (v) make the officers of the Company and
the Subsidiaries reasonably available to cooperate with the Buyer
in obtaining financing for the transactions contemplated hereby;
provided, however, that (x) any such investigation will be
conducted in such a manner so (A) as to preserve the
confidentiality of the transactions contemplated hereby and (B)
as not to interfere unreasonably with the operation of the
business of the Company and its Subsidiaries and (y) Sellers may
limit such access described in clauses (i) through (v) above to
the extent such access could in the opinion of Sellers' counsel,
violate or give rise to liability under applicable law. During
the period from the date hereof to the Closing, all information
provided to Buyer or its representatives by or on behalf of
Sellers or the Company, or their representatives (whether
pursuant to this Section 5.1 or otherwise) will be governed and
protected by the Confidentiality Agreement.
5.2. Announcements. Prior to the Closing, no
party hereto will issue any press release or otherwise directly
or indirectly make any public statement or furnish any statement
or make any announcement to its customers with respect to the
transactions contemplated hereby without the prior consent of the
other, except as may be required by law.
5.3. New Financing. Buyer shall provide, or
shall cause one or more Persons to provide, to the Company
financing arrangements (the "New Financing") in an amount not
less than $474,600,000, the proceeds of which shall be used,
inter alia, to discharge Debt, to redeem the Preferred Shares, to
pay costs and expenses incurred by Buyer and the Company in
connection with the transactions contemplated hereby and the
other Closing Payments, to provide working capital to the Company
and the Subsidiaries, and to fund a portion of the Sellers
Redemption Price. To the extent Buyer is unable to obtain from
third parties the full amount of the New Financing, Buyer shall
provide the balance of the New Financing. Any amounts provided by
Buyer pursuant to the preceding sentence shall constitute New
Financing for purposes of
-24-
this Agreement. The failure of the Company to obtain
the New Financing shall not relieve Buyer of its obligations to
purchase the Recapitalization Shares for the Recapitalization
Purchase Price at the Closing. Neither the Company nor the
Sellers shall be required to pay any fees or other costs with
respect to the New Financing under any circumstances and any
agreements or understandings which the Company may make prior to
the Closing relating to the New Financing shall be conditioned
upon the occurrence of the Closing; provided, that the Company
may pay any fees or other costs with respect to the New Financing
following the Closing. The Company shall use all reasonable
efforts to assist Buyer in obtaining the New Financing, including
without limitation, by making available its senior officers to
participate in investor presentations and similar functions.
5.4. Recapitalization. The Recapitalization
Shares to be acquired by Buyer at the Closing shall consist of
48,400 shares of Common Stock, which immediately following the
Closing will constitute eighty-eight percent (88%) of all of the
outstanding equity securities of the Company and all of the then
outstanding equity securities of the Company other than the
Retained Shares. The Company and the Sellers agree to take or
cause to be taken all action necessary to effect the filing of an
Amended and Restated Certificate of Incorporation, in form and
substance reasonably satisfactory to Buyer and the Sellers (the
"Amended Charter"), immediately prior to the Closing as herein
contemplated.
5.5. Consents; Cooperation. Subject to the terms and
conditions hereof, Sellers, the Company and Buyer will use their
reasonable efforts:
(a) to obtain prior to the earlier of the date
required (if so required) or the Closing Date, all
authorizations, consents, orders, permits or approvals of,
or notices to, or filings, registrations or qualifications
with, any governmental, administrative or judicial
authority or any other Person that are required on their
respective parts, for the consummation of the transactions
contemplated by this Agreement;
(b) to defend, consistent with applicable
principles and requirements of law, any lawsuit or other
legal proceeding, whether judicial or administrative,
whether brought derivatively or on behalf of third persons
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(including governmental authorities) challenging this
Agreement or the transactions contemplated hereby;
(c) to furnish to each other such information
and assistance as may reasonably be requested in connection
with the foregoing; and
(d) to take, or cause to be taken, all actions
and to do, or cause to be done, all things reasonably
necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the
transactions contemplated by this Agreement.
5.6. Additional Agreement. Notwithstanding the
provisions of Section 5.5(a) hereof, Buyer will use reasonable
efforts to eliminate any concern on the part of any court or
government authority regarding the legality of the proposed
transactions contemplated hereby and take or cause to be taken
all such action as may reasonably be required in order to
consummate the transactions contemplated hereby under applicable
antitrust and other laws and regulations regarding competition,
including, without limitation, promptly (i) taking all steps
reasonably necessary to secure government antitrust clearance,
(ii) taking all reasonable steps to make arrangements for or to
effect the sale or other disposition of assets, voting securities
or business of Buyer, any of its subsidiaries or the Company, the
ownership of which causes any governmental authority to withhold
such clearance, and (iii) entering into a hold-separate agreement
with government authorities pending such sale or other
disposition of assets, voting securities or business of Buyer,
any of its subsidiaries, the Company, including without
limitation pursuant to a trust or other arrangement that
restricts, limits or prohibits access by Buyer to any business or
subsidiary of Buyer to the Company or to the voting shares or
capital stock thereof.
5.7. Notification of Certain Matters. Between
the date hereof and the Closing, Sellers, the Company and Buyer
will give prompt notice in writing to the other of: (i) any
information known to Sellers, the Company or Buyer that indicates
that any representation or warranty of the Sellers, the Company
or Buyer, as the case may be, contained herein will not be true
and correct in any material respect as of the Closing and (ii)
the occurrence of any event known to Sellers, the Company or
Buyer which will result, or has a reasonable prospect of
-26-
resulting, in the failure to satisfy a condition specified in
Section 6 or 7 hereof.
5.8. Hart-Scott-Rodino. As soon as practicable
(but in no event later than 10 days) after the date hereof, Buyer
and the Company will prepare and file all documents with the
Federal Trade Commission and the United States Department of
Justice that are required to comply with the HSR Act. The Company
and Buyer will promptly respond to any "second request" made in
connection with such filings and will promptly furnish all
materials requested by any of the regulatory agencies having
jurisdiction over such filings.
5.9. Further Assurances. Any time after the
Closing, Sellers and Buyer will, and Buyer will cause the Company
to, promptly execute, acknowledge and deliver any other
assurances or documents reasonably requested by Buyer or Sellers,
as the case may be, to satisfy or in connection with its
obligations hereunder.
5.10. Retention of Books and Records. For a
period of six years after the Closing Date (or in the case of
books, records and other documents relating to Taxes until the
expiration of the applicable statute of limitations), Buyer will
cause the Company to retain all books, records and other
documents pertaining to the Company in existence on the Closing
Date and to make the same available after the Closing Date for
examination and copying by Sellers or their representatives, at
such Sellers' expense, upon reasonable notice. No such books,
records or documents will be destroyed by Buyer or the Company
without first advising Sellers in writing and providing Sellers a
reasonable opportunity to obtain possession or make copies
thereof at such Seller's expense.
5.11. Personnel. For one year after the Closing,
Buyer shall cause the Company to continue in effect its Employee
Benefit Plans as are in effect on the date hereof; provided,
however, that the Company may replace or amend any such Employee
Benefit Plan if the benefits thereafter provided are at least
comparable to those provided prior to the Closing and the costs
to the employees therefor are not appreciably increased.
5.12. Conduct of Business Prior to the Closing.
From the date hereof to the Closing, Sellers shall cause the
business of the Company and each of its Subsidiaries to be
conducted in
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the ordinary course and shall cause the Company and
each of its Subsidiaries to use their commercially reasonable
efforts to preserve the current business organization and
existing business relationships. In addition, Sellers shall not
cause or permit the Company or any of its Subsidiaries to do any
of the following without the prior written consent of Buyer:
(a) except as contemplated by this Agreement, amend
its Certificate of Incorporation or By-Laws;
(b) except as set forth in Section 5.12 of the
Disclosure Schedule, make or grant any increase in
compensation or employee benefits or in severance or
termination pay to, any officer, executive officer,
employee, director, agent or consultant, or enter into any
employment agreement with any executive officer or other
individual, except as may be required under employment,
collective bargaining or termination agreements in effect
on the date hereof or, solely with respect to employees
other than officers, executive officers and directors, in
the ordinary course of business;
(c) except as set forth in Section 5.12 of the
Disclosure Schedule, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or
other business organization or division thereof or
otherwise acquire or agree to acquire, other than in the
ordinary course of business, any assets which are material,
individually or in the aggregate, to the Company;
(d) except as set forth in Section 5.12 of the
Disclosure Schedule, sell, pledge, mortgage, assign, lease,
give a security interest in or otherwise encumber or
dispose of, or agree to do any of the foregoing with
respect to, any of its assets, except in the ordinary
course of business;
(e) except in the ordinary course of business,
enter into or amend any other commitment, contractual
obligation or transaction which calls for aggregate
payments in excess of $100,000 and which does not expire or
is not terminable without cost or penalty at the Company's
option within a 180 day period;
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(f) except in the ordinary course of business,
accelerate the receipt of amounts due with respect to the
Company's trade accounts receivable or any other accounts
receivable;
(g) except in the ordinary course of business,
lengthen the period for payment of the Company's accounts
payable;
(h) (i) declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash,
stock or property) with respect to, or, except as
contemplated by this Agreement, purchase or redeem, any
shares of capital stock, or (ii) make any other payments or
benefits to Insiders, other than payments contemplated by
this Agreement or under any employment arrangement in
existence on the date hereof;
(i) except as set forth in Section 5.12 of the
Disclosure Schedule, (i) incur any Debt (excluding for this
purpose any interest, fees or premiums accruing on Debt
outstanding on the date hereof and borrowings in the
ordinary course of business for seasonal working capital
needs under the Revolving Facility and any interest, fees
and premiums thereon), (ii) prepay any interest on any
Debt, (iii) except in the ordinary course of business, make
any loans, advances or capital contributions to, or
investments in, any other person, other than the Company or
any direct or indirect wholly owned Subsidiary of the
Company or (iv) issue any shares of capital stock of the
Company;
(j) except as set forth in Section 5.12 of the
Disclosure Schedule, make or agree to make any new capital
expenditure or capital expenditures in excess of $100,000
in the aggregate, except in the ordinary course of
business; or
(k) except as set forth in Section 5.12 of the
Disclosure Schedule, except in the ordinary course of
business or except as is not likely to have a Material
Adverse Effect, modify, amend or terminate any Material
Agreement.
5.13. Sellers' Rights with Respect to Resales. In the
event that a Transfer (as defined below) occurs at any time
during the period commencing on the Closing Date and ending on
the date which is eighteen months from the Closing Date (the
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"Resale Period"), the Buyer agrees to pay or cause to be paid to
the Sellers an aggregate amount equal to (i) if such Transfer
occurs on or prior to the first anniversary of the Closing Date
(the "First Period"), 75% of the Resale Profit (as defined below)
on such Transfer, or (ii) in all other cases, 50% of the Resale
Profit on such Transfer, such amount to be paid in the same form
as the Transfer Consideration upon consummation of any such
Transfer such that the Sellers shall receive such percentage of
the Resale Profit in the kind and amount of cash, securities and
other property that they would have been entitled to receive had
they been holders of shares of capital stock of the Company
immediately prior to consummation of such Transfer. Buyer will
not, by amendment of the Company's charter or through a
reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Section
5.13, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the
Sellers to receive any Resale Profit. A Transfer consummated
after the expiration of the Resale Period or the First Period
shall be deemed to have occurred during the Resale Period or the
First Period, as the case may be, and Resale Profit shall be
payable to the Sellers in respect of such a Transfer, if such
Transfer was effected pursuant to an agreement, arrangement or
understanding entered into prior to the expiration of the Resale
Period or the First Period, as the case may be.
For purposes of this Section 5.13, the following terms
have the meanings set forth below:
"Resale Profit" means, with respect to any Transfer,
an amount equal to the excess, if any, of (I) the sum of (a) the
aggregate value of the Transfer Consideration received by,
payable to or inuring to the benefit of, the Buyer and its
Affiliates, directly or indirectly, as a result of such Transfer,
plus (b) the value of any dividends or distributions of any kind
paid, at any time following the Closing, in respect of the
Recapitalization Shares or any other equity interests in the
Company held by the Buyer or its Affiliates or upon any
redemption or repurchase of such shares or equity interests, over
(II) the sum of (x) $75,000,000 less the value of the Retained
Shares, plus (y) the fees and expenses incurred by Buyer in
connection with such Transfer, plus (z) any additional equity
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capital contributed to the Company or its Subsidiaries by the
Buyer or its Affiliates following the Closing.
"Transfer" means any sale, conveyance, assignment,
disposition or other transfer, other than to an Affiliate of any
of the Buyer who agrees in writing to be bound by the provisions
of this Section 5.13, in one or a series of related transactions,
of (i) all or substantially all of the assets or stock of the
Company and its Subsidiaries, taken as a whole (whether by sale
of stock or assets, merger, consolidation or otherwise), (ii) the
consummation of any transaction (other than the sale of shares of
capital stock of the Company or any Affiliate of the Company in
an underwritten public offering but including, without
limitation, any merger or consolidation) the result of which is
that the Buyer ceases to be the "beneficial owner" (as such term
is defined in Rule 13d-3 and Rule 12d-5 under the Securities
Exchange Act of 1934) of a majority of the voting capital stock
of the Company. Notwithstanding the foregoing, a pledge or
assignment of interests or assets of Buyer or the Company to a
lender in the ordinary course of business (and the subsequent
exercise of remedies by such lender) shall not constitute a
Transfer for purposes of this Section 5.13.
"Transfer Consideration" means the value of all cash,
securities and other property paid, or to be paid, directly or
indirectly, by an acquiror to the Buyer, its Affiliates or the
Company in connection with the Transfer. The value of any
non-cash consideration shall be the fair market value of such
consideration, as determined in good faith by the Board of
Directors of the Company. Transfer Consideration shall also
include the aggregate amount of any liabilities assumed or paid,
directly or indirectly, by the acquiror.
5.14. Transfer Taxes. The Company shall properly
prepare and file on a timely basis any transfer Tax Returns
required in connection with the transactions described in this
Agreement, including, without limitation, any real property,
personal property or gains Tax Returns, and shall pay any Taxes
shown as due thereon.
5.15. Landlord Consents. Sellers shall use
commercially reasonable efforts to obtain the landlord lease
consents set forth on Section 5.15 of the Disclosure Schedule, in
a form reasonably acceptable to Buyer; provided, however, that
-31-
the receipt of any or all of such landlord lease consents shall
not be a condition to the Closing under this Agreement.
5.16. Retention of Shares. At the Closing, the
Sellers shall retain such number of Common Shares as is set forth
opposite their respective names on Exhibit B hereto, which
immediately following the Closing will constitute twelve percent
(12%) of all of the outstanding common equity securities of the
Company and all of the outstanding common equity securities of
the Company other than the Recapitalization Shares. In the
aggregate, the Retained Shares shall represent 12% of the voting
power in the Company upon the Closing. For purposes of this
Agreement, the value of Retained Shares shall be $9,000,000.
5.17. Termination of Existing Shareholder Agreement.
Each of the Sellers and the Company hereby agree to terminate the
Agreement, dated as of April 18, 1997, by and among the Company
and the stockholders of the Company listed on the signature pages
thereof, and if requested by Buyer, any agreement between any
Seller or any entity controlled by a Seller, on the one hand, and
the Company or any Subsidiary, on the other hand, effective as
of, and conditioned upon, the Closing.
5.18. Indemnification. From and after the
Closing Date, the Company shall indemnify each present and former
director and officer of the Company and its Subsidiaries from any
and all claims arising out of or in connection with activities in
such capacity to the fullest extent provided under New York law,
and in addition, to the fullest extend provided in their
respective articles of incorporation, charters or by-laws, as
applicable, which obligations shall survive the Closing and shall
continue in full force and effect for a period of not less than
six years from the Closing Date; provided, however, that if any
claim or claims are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or
claims shall continue until disposition of any and all such
claims. Without limiting the foregoing, after the Closing Date,
the Company shall advance expenses (including reasonable
attorneys' fees and expenses) incurred with respect to the
foregoing, as they are incurred, to the fullest extent permitted
under applicable law, provided that the person on whose behalf
the expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such person is not
entitled to indemnification.
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SECTION 6. CONDITIONS TO THE OBLIGATIONS OF BUYER
--------------------------------------
The obligations of Buyer required to be performed by
it at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions, each of which
may be waived by Buyer:
6.1. Representations and Warranties; Covenants. The
representations and warranties of the Sellers contained in
Section 3 of this Agreement will be true and correct as of the
Closing (except for those that are made as of a certain time,
which shall be true and correct as of such time and provided
that, for this purpose only, no effect shall be given to any
materiality qualifiers contained in such representations and
warranties), except for changes contemplated by this Agreement
and failures to be true and correct that do not, in the
aggregate, result in a Material Adverse Effect. Each obligation
of Sellers required by this Agreement to be performed by them at
or prior to the Closing will have been duly performed and
complied with in all material respects at the Closing provided
that the covenants contained in Section 2.3(d)(i) will have been
complied with in all respects. At the Closing, Buyer will have
received certificates, dated the Closing Date and duly executed
by or on behalf of each of the Sellers, to the effect that the
conditions set forth in the preceding sentences have been
satisfied.
6.2. Hart-Scott-Rodino. Any applicable waiting
period under the HSR Act and the rules and regulations
promulgated thereunder will have expired or been terminated.
6.3. Opinion of Sellers' Counsel. Buyer will
have been furnished with the opinion of Willkie Farr & Gallagher,
dated the Closing Date, addressed to Buyer, in form and substance
reasonably satisfactory to Buyer with respect to (i) the first
sentence of Section 3.1, (ii) the first two sentences of Section
3.3 and (iii) the first four sentences of Section 3.4. In
rendering such opinion, such counsel may rely as to factual
matters upon certificates or other documents furnished by Sellers
and officers of the Company and by government officials and upon
such other documents and data, including opinions of local
counsel, as such counsel deem appropriate as a basis for such
opinion.
-33-
6.4. Absence of Injunction. No order, stay,
judgment or decree will have been issued by any court and be in
effect restraining or prohibiting the consummation of the
transactions contemplated hereby.
6.5. Directors. Buyer will have received the
written resignation of any director of the Company or any
Subsidiary of the Company (or such directors will have otherwise
been removed) whose resignation it has requested.
6.6. Certificates. Sellers and the Company will
have furnished Buyer with such certificates of their respective
officers and others as Buyer may reasonably request to evidence
satisfaction of the conditions set forth in this Section 6, such
certificates to be made without personal liability of such
officer or other person signing such certificate.
6.7. Shareholder Approval. The shareholders of
the Company shall have approved in form and substance reasonably
satisfactory to Buyer and to the Company, in order to take
advantage of the exemption provided in Section 280G(b)(5) of the
Code, all payments and benefits that may be deemed to constitute
parachute payments under Section 280G of the Code, in connection
with the transactions contemplated hereby.
SECTION 7. CONDITIONS TO THE OBLIGATIONS OF SELLERS
----------------------------------------
The obligations of the Sellers to be performed by them
at the Closing are subject to the satisfaction, at or prior to
the Closing, of each of the following conditions, each of which
may be waived by the Sellers:
7.1. Representations and Warranties; Covenants.
The representations and warranties of Buyer contained in this
Agreement will be true and correct as of the Closing (except for
those made as of a certain date, which shall be true and correct
as of such date), except for changes contemplated by this
Agreement and failures to be true and correct that do not result
in a material adverse effect on Buyer. Each obligation of Buyer
required by this Agreement to be performed by it at or prior to
the Closing will have been duly performed in all material
respects at or prior to the Closing except that the obligations
of Buyer pursuant to Section 2.3(g) shall be performed in all
respects. At the Closing, Sellers will have received a
certificate, dated the Closing Date and duly executed by an
executive officer of Buyer (without personal liability to such
-34-
officer) to the effect that the conditions set forth in the
preceding sentences have been satisfied.
7.2. Hart-Scott-Rodino. Any applicable waiting
period under the HSR Act and the rules and regulations
promulgated thereunder will have expired or been terminated.
7.3. Opinion of Buyer's Counsel. Sellers will
have been furnished with the opinion of Cleary, Gottlieb, Steen &
Hamilton, counsel to Buyer, dated the Closing Date, addressed to
Sellers, in form and substance reasonably satisfactory to Sellers
with respect to (i) the first sentence of Section 4.1 and (ii)
the first three sentences of Section 4.2. In rendering their
opinion, such counsel may rely as to factual matters upon
certificates or other documents furnished by officers and
directors of Buyer and by government officials, and upon such
other documents and data, including opinions of local counsel, as
such counsel deem appropriate as a basis for their opinion.
7.4. Absence of Injunction. No order, stay,
judgment or decree will have been issued by any court and be in
effect restraining or prohibiting the consummation of the
transactions contemplated hereby.
7.5. Certificates. Buyer will have furnished
Sellers with such certificates of its officers and others as
Sellers may reasonably request to evidence satisfaction of the
conditions set forth in this Section 7, such certificates to be
made without personal liability of such officer or other person
signing such certificate.
7.6. Employment/Consulting Agreement. The
Company shall have executed and delivered the
Employment/Consulting and Non-Compete Agreement with Arthur
Cinader in substantially the form of Exhibit C hereto (the
"Employment/Consulting Agreement").
SECTION 8. TERMINATION
-----------
8.1. Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual consent of Buyer and Sellers;
(b) by Buyer, on or after the date 100 days
from the date hereof, if any condition contained in Section
6 (other than those requiring a Closing Delivery), has not
been
-35-
satisfied or waived; by Sellers, on or after the date
100 days from the date hereof, if any condition contained
in Section 7 (other than those requiring a Closing
Delivery), has not been satisfied or waived; or
(c) by Buyer or Sellers, if any court of competent
jurisdiction or other governmental body has issued an order,
decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree,
ruling or other action has become final and non-appealable.
If Buyer or Sellers terminate this Agreement pursuant
to the provisions hereof, such termination will be effected by
written notice to the other party specifying the provision hereof
pursuant to which such termination is made.
8.2. Effect of Termination.
(a) Upon termination of this Agreement
pursuant to Section 8.1 hereof, except as provided in
clause (b) below:
(i) this Agreement will forthwith become null
and void;
(ii) such termination will be the sole
remedy with respect to any breach of any
representation or warranty contained in or
made pursuant to this Agreement, and
(iii) no party hereto or any of their
respective officers, directors, employees,
agents, consultants, stockholders or
principals will have any liability or
obligation hereunder or with respect
hereto.
(b) The provisions of clause (a) above
notwithstanding, no party will be relieved of liability for
any willful breach of this Agreement.
SECTION 9. SURVIVAL AND INDEMNIFICATION
----------------------------
9.1. Survival. Notwithstanding any otherwise
applicable statute of limitations, no claim, lawsuit, or other
proceeding arising out of or related to the breach of any
-36-
representation or warranty of the parties contained herein may be
made more than one year after the Closing Date.
9.2. Sellers' Indemnification.
(a) Sellers, severally but not jointly, subject to
the limitations set forth in this Section 9, will indemnify
Buyer against and in respect of any and all Losses, other
than Losses to the extent recoverable by Buyer or the
Company under any applicable insurance policy and net of
the present value of any tax benefit to Buyer or the
Company as a result of such Losses, which are incurred by
Buyer by reason of (i) the breach of any representation or
warranty made by Sellers in Section 3 of this Agreement or
(ii) of any breach of a covenant made by Sellers in this
Agreement.
(b) Notwithstanding anything to the contrary
in this Agreement (but subject to the last sentence of this
Section 9.2(b)), (i) the aggregate liability of Sellers
pursuant to Section 9.2(a) will not exceed ten percent of
the Sellers Redemption Price; (ii) Sellers will have no
liability or obligation to Buyer pursuant to this Section
9.2 or otherwise for any Losses arising out of any breach
of any representation or warranty made in this Agreement if
(x) disclosed in this Agreement or the Disclosure Schedule
hereto or (y) Buyer had knowledge of such breach as a
result of the disclosures made in this Agreement or in the
Disclosure Schedule hereto and (iii) Buyer will not be
entitled to recover consequential damages pursuant to this
Section 9.2. Notwithstanding the above, the limitations of
this Section 9.2(b) shall not apply to a breach of Sellers'
representations and warranties contained in the last
sentence of Section 3.3, clause (vi) of Section 3.6 or in
Section 3.17, in which event, the aggregate liability of
Sellers under this Section 9.2 shall in no event exceed the
Sellers Redemption Price.
(c) Buyer may make no claim for indemnification
pursuant to Section 9.2(a), (i) unless notice of such claim
(describing the basic facts or events, the existence or
occurrence of which constitute or have resulted in the alleged
breach of a representation or warranty made in this Agreement)
has been given to Sellers during the survival period set forth in
Section 9.1; and (ii) until such claims for which Losses are
otherwise recoverable hereunder by
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Buyer are in excess of (x) in the case of Losses
incurred by reason of a breach of Section 3.17 hereof, the
excess, if any, of (i) $100,000 over (ii) the amount by which the
aggregate of the amounts set forth on the officer's certificate
delivered pursuant to Section 2.2(c) exceeds the
aggregate of the amounts set forth on Exhibit A or (y) in
all other cases, the aggregate of 2% of the Sellers
Redemption Price (other than Losses to the extent
recoverable by Buyer or the Company under any applicable
insurance policy and net of the present value of any tax
benefit to Buyer or the Company as a result of such Losses)
and all reserves and accruals reflected on the Financial
Statements, after which Buyer will be entitled to make any
such claim for amounts in excess of such threshold, and
(iii) unless the amount of such claim as finally determined
exceeds $10,000; provided, however, that the limitations
set forth in this clause (c) shall not apply to Losses
incurred by reason of a breach of the representations and
warranties contained in the last sentence of Section 3.3,
clause (vi) of Section 3.6 or in Section 3.17 (except that
in the case of a breach of Section 3.17 the limitations set
forth in clauses (c)(i) and (c)(ii)(x) shall apply).
Nothing in this clause (c) shall affect the adjustment
provision relating to the Sellers Redemption Price under
clause (c) of Section 2.2 hereof.
(d) Any payment pursuant to this Section 9,
made by Sellers to Buyer, will be deemed an adjustment to
the Sellers Redemption Price.
(e) The rights of the Buyer under Section 8.1
and this Section 9.2 shall be the exclusive remedy of Buyer
with respect to breaches by Sellers of the representations
and warranties or covenants contained in this Agreement.
Buyer, on behalf of itself and its Affiliates (and its
partners, officers, directors and employees), hereby (i)
waives and releases each of the Sellers and their
respective Affiliates (and their shareholders, officers,
directors and employees) from any statutory or other rights
of contribution or indemnity (except as set forth in this
Section 9.2) with respect to Sellers' ownership of the
Common Shares and the Preferred Shares or operation of, or
otherwise relating to, the Company and (ii) waives and
releases all rights of subrogation with respect to claims
relating thereto.
-38-
(f) In the event that any of the Sellers is
obligated to indemnify Buyer pursuant to this Section 9,
such Seller will, upon payment of such indemnity, be
subrogated to all rights of Buyer with respect to claims to
which such indemnification relates.
9.3. Buyer's Indemnification.
(a) Buyer, subject to the limitations set
forth in this Section, will indemnify the Sellers against
and in respect of any and all Losses, other than Losses to
the extent recoverable by Sellers under any applicable
insurance policy and net of the present value of any tax
benefit to Sellers as a result of such Losses, which may be
incurred by reason of (i) the breach of any representation
or warranty made by Buyer in Section 4 hereof or (ii) any
breach of any covenant made by Buyer in this Agreement.
Buyer will so indemnify the Sellers as a result of Losses
which may be incurred by such Sellers arising out of the
operations of the Company after the Closing Date.
(b) Notwithstanding anything to the contrary
in this Agreement (but subject to the last sentence of this
Section 9.3(b)), (i) the aggregate liability of Buyer
pursuant to Section 9.3(a) will not exceed ten percent of
the Sellers Redemption Price; (ii) Buyer will have no
liability or obligation to Sellers pursuant to Section
9.3(a) or otherwise for any Losses arising out of any
breach by Buyer of any representation or warranty made in
this Agreement if (x) disclosed in this Agreement or the
Disclosure Schedule hereto or (y) Sellers had Knowledge of
such breach as a result of the disclosures made in this
Agreement or in the Disclosure Schedule hereto and (iii)
Sellers will be entitled to recover no consequential
damages pursuant to this Section 9.3. Notwithstanding the
above, the limitations of this Section 9.3(b) shall not
apply to a breach of Buyer covenants contained in Section
2.1 or 2.3(g).
(c) No claim for indemnification may be made
by Sellers pursuant to Section 9.3(a)(i), (i) unless notice
of such claim (describing the basic facts or events, the
existence or occurrence of which constitute or have
resulted in the alleged breach of a representation or
warranty made in this Agreement) has been given to Buyer
during the
-39-
survival period set forth in Section 9.1, and (ii)
until such claims for which Losses are otherwise recoverable
hereunder by Sellers are in excess of the aggregate of 2% of the
Sellers Redemption Price (other than Losses to the extent
recoverable by Sellers under any applicable insurance policy and
net of the present value of any tax benefit to Sellers as a
result of such Losses) after which such Sellers will be entitled
to make any such claim for amounts in excess of such threshold,
and (iii) unless the amount of such claim as finally determined
exceeds $10,000.
(d) Any payment pursuant to this Section 9,
made by Buyer to Sellers will be deemed an adjustment to
the Sellers Redemption Price.
(e) The rights of Sellers under this Section
9.3 will be the exclusive remedy of such Sellers with
respect to breaches by Buyer of representations and
warranties or covenants contained in or made pursuant to
this Agreement.
(f) In the event that Buyer is obligated to
indemnify Sellers pursuant to this Section 9, Buyer will,
upon payment of such indemnity, be subrogated to all rights
of Sellers with respect to claims to which such
indemnification relates.
9.4. Claims by Third Parties. Other than in the
case of any Tax Claim, which shall be governed by Section 9.5 of
this Agreement, if a party to this Agreement seeks indemnity
hereunder with respect to a claim by a third party:
(a) For the purposes of this Section 9.4,
"Third Party Claim" means any demand which has been made
on, or communicated to Buyer, Sellers or the Company by or
on behalf of any Person other than the entities
aforementioned in this Subsection 9.4(a) and which, if
maintained or enforced, might result in a claim for
indemnification in the nature described in Section 9.2 or
9.3 of this Agreement being made.
(b) Promptly upon receipt by Indemnitee of
notice of any Third Party Claim in respect of which the
Indemnitee proposes to demand indemnification from the
Indemnitor, the Indemnitee shall forthwith give notice to
that effect to the Indemnitor.
-40-
(c) The Indemnitor shall have the right, exercisable by
giving notice to the Indemnitee not later than 30 days after
receipt of the notice described in Subsection 9.2 (c) or 9.3(c),
as the case may be, to assume the control of the defense,
compromise or settlement of the Third Party Claim.
(d) Upon the assumption of control by the
Indemnitor as aforesaid, the Indemnitor shall, at its
expense, diligently proceed with the defense, compromise or
settlement of the Third Party Claim at the Indemnitor's
sole expense, including employment of counsel reasonably
satisfactory to the Indemnitee, and in connection
therewith, the Indemnitee shall cooperate fully, but at the
expense of the Indemnitor, to make available to the
Indemnitor all pertinent information and witnesses under
Indemnitee's control and to make such assignments and take
such other steps as in the opinion of counsel for the
Indemnitor are necessary to enable the Indemnitor to
conduct such defense, provided always that the Indemnitee
shall be entitled to reasonable security from the
Indemnitor for any expense, costs or other liabilities to
which it may be or may become exposed by reason of such
cooperation.
(e) The final determination of any such Third
Party Claim, including all related costs and expenses, will
be binding and conclusive upon the parties hereto as to the
validity or invalidity, as the case may be, of such Third
Party Claim against the Indemnitor hereunder.
(f) Should the Indemnitor fail to give notice
to the Indemnitee as provided in clause (c) hereof or in
the event the Indemnitor declines to undertake the defense
of any Third Party Claim, action or proceeding when first
notified thereof, the Indemnitee shall keep the Indemnitor
advised as to the current status and progress thereof. The
Indemnitee agrees not to make any offer of settlement
without first having provided five (5) days advance written
notice thereof to the Indemnitor.
(g) In the event the Indemnitor undertakes the
defense of any such claim, action or proceeding, the
Indemnitee shall nevertheless be entitled to participate in
(but not direct) the defense thereof with counsel of its
own choice and at its own expense, and the parties agree to
cooperate fully with one another in connection with the
defense and/or
-41-
settlement thereof; provided, however, that
any decision to settle any such claim, action or proceeding
shall be at the Indemnitor's sole discretion. From and
after delivery of the notice referred to in Section 9.4(c) above,
the Indemnitor shall be relieved of the obligation to reimburse
the Indemnitee for any other legal, accounting or other
out-of-pocket costs and expenses thereafter incurred by the
Indemnitee with respect to the defense of such claim,
action or proceeding notwithstanding any participation by
the Indemnitee therein.
(h) If the Indemnitee subsequently recovers
all or part of the Third Party Claim from any other person
legally obligated to pay the claim, the Indemnitee shall
forthwith repay to the Indemnitor the amounts recovered up
to an amount not exceeding the payment made by the
Indemnitor to the Indemnitee by way of indemnity.
9.5. Tax Claims of the Buyer. If a claim is made by any
Tax authority which, if successful, would result in a breach of a
representation or warranty contained in Section 3.7 hereof and is
likely to result in an indemnity payment to Buyer pursuant to
Section 9.2 of this Agreement, Buyer shall notify Sellers of such
claim (a "Tax Claim"), stating the nature and basis of such claim
and the amount thereof, to the extent known. Sellers will have
the right, at their option, upon timely notice to Buyer, to
assume control of any defense of any Tax Claim (other than a Tax
Claim relating solely to Taxes of the Company for a taxable
period that begins before but ends after the Closing Date (a
"Straddle Period")) with its own counsel, provided, however, such
counsel is reasonably satisfactory to Buyer. Sellers' right to
control a Tax Claim will be limited to amounts in dispute for
which Sellers would be liable pursuant to Section 9.2 of this
Agreement. Costs of such Tax Claims are to be borne by Sellers
unless the Tax Claim relates to taxable periods ending after the
Closing Date, in which event such costs will be fairly
apportioned. Buyer and the Company shall cooperate with Sellers
in contesting any Tax Claim, which cooperation shall include the
retention and, upon Sellers' request, the provision of records
and information which are reasonably relevant to such Tax Claim
and making employees available on a mutually convenient basis to
provide additional information or explanation of any material
provided hereunder. Notwithstanding the foregoing, Sellers shall
neither consent nor agree (nor cause the Company to consent or
agree) to the settlement of any Tax Claim with respect to any
liability for
-42-
Taxes that is likely to affect the liability for
any state or federal income tax of the Company or any affiliated
group (as defined in Section 1504(a) of the Code) of which the
Company is a member for any taxable period ending subsequent to
the Closing Date without the prior written consent of Buyer,
which consent shall not be unreasonably withheld. Buyer and
Seller shall jointly control all proceedings taken in connection
with any claims for Taxes relating solely to a Straddle Period of
the Company.
SECTION 10. MISCELLANEOUS
10.1 Headings. The section headings herein are
for convenience of reference only, do not constitute part of this
Agreement and will not be deemed to limit or otherwise affect any
of the provisions hereof. References to Sections, unless
otherwise indicated, are references to Sections of this
Agreement.
10.2. Notices. All notices to be given pursuant
to this Agreement to any party must be in writing and will be
deemed to have been validly given:
(a) if delivered by hand to an officer or agent of
such party at its address given below; or
(b) if delivered by facsimile transmission, to
such party at its address given below.
The address of each party for the purposes of this
Agreement is as follows:
If to Sellers, to the addresses specified on Schedule B
hereto;
With a copy to:
Willkie Farr and Gallagher
153 East 53rd Street
New York, New York 10022
Fax No. (212) 821-8111
Attention: Jack H. Nusbaum, Esq.
Daniel D. Rubino, Esq.
-43-
If to Buyer:
TPG Partners II, L.P.
201 Main Street
Suite 2420
Fort Worth, Texas 76102
Fax No. (817) 871-4010
Attention: Richard Ekleberry, Esq.
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Fax No. (212) 225-3999
Attention: Paul J. Shim, Esq.
Either party may by notice to the other change its
address for notice and will so change its address for notice
whenever its existing address for notice ceases to be adequate
for delivery both by hand and by facsimile.
Notices so given will be deemed to be given and
received:
(c) on the date of delivery, if delivered by hand; and
(d) 24 hours from the time of the transmission
if sent by facsimile.
10.3. Assignment. This Agreement and all
provisions hereof will be binding upon and inure to the benefit
of the parties hereto and their respective successors and
permitted assigns; provided, however, that neither this Agreement
nor any right, interest, or obligation hereunder may be assigned
by any party hereto without the prior written consent of the
other party; and, provided further, that no party hereto or
successor or assignee has the ability to subrogate any other
person to any right or obligation under this Agreement.
10.4. Entire Agreement. This Agreement (including
the Disclosure Schedule, Schedules and Exhibits hereto and
thereto)
-44-
embody the entire agreement and understanding of the
parties with respect to the transactions contemplated hereby and
thereby and supersede all prior written or oral commitments,
arrangements or understandings with respect thereto (other than
the Confidentiality Agreement, which will terminate at the
Closing). There is no restriction, agreement, promise, warranty,
covenant or undertaking with respect to the transactions
contemplated hereby and thereby other than those expressly set
forth herein or therein.
10.5. Amendment; Waiver.
(a) This Agreement may only be amended or
modified in writing signed on behalf of each of the parties
hereto.
(b) Any party hereto may, by an instrument in
writing, waive compliance with any term or provision of
this Agreement on the part of such other party or parties
hereto. The waiver by any party hereto of a breach of any
term or provision of this Agreement will not be construed
as a waiver of any subsequent breach.
10.6. Counterparts. This Agreement may be
executed in two or more counterparts, all of which will be
considered one and the same agreement and each of which will be
deemed an original.
10.7. Governing Law. This agreement will be
governed by the laws of the State of New York (regardless of the
laws that might be applicable under principles of conflicts of
law) as to all matters, including but not limited to matters of
validity, construction, effect and performance.
10.8. Severability. If any one or more of the
provisions of this Agreement is held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the
remaining provisions of this Agreement will not be affected
thereby, and Sellers and Buyer will use their reasonable efforts
to substitute one or more valid, legal and enforceable provisions
which insofar as practicable implement the purposes and intent
hereof. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this
Agreement invalid, illegal or unenforceable in any respect.
10.9. Consent to Jurisdiction. Buyer and Sellers
hereby submit to the exclusive jurisdiction of the courts of the
State of New York or the courts of the United States located in
-45-
the State of New York in respect of the interpretation and
enforcement of the provisions of this Agreement and any related
agreement and hereby waive, and agree not to assert, as a defense
in any action, suit or proceeding for the interpretation or
enforcement of this Agreement and any related agreement, that
they are not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in such
courts or that this Agreement may not be enforced in or by such
courts or that their property is exempt or immune from execution,
that the suit, action or proceeding is brought in an inconvenient
forum, or that the venue of the suit, action or proceeding is
improper. Service of process with respect thereto may be made
upon Buyer or Sellers by mailing a copy thereof by registered or
certified mail, postage prepaid, to such party at its address as
provided in Section 10.2 hereof.
10.10. Third Person Beneficiaries. This Agreement
is not intended to confer upon any other Person other than the
parties hereto, any rights or remedies hereunder.
10.11. Representations and Warranties; Disclosure
Schedule. Neither the specification of any dollar amount in the
representations and warranties set forth in Section 3 nor the
indemnification provisions of Section 9 nor the inclusion of any
items in the Disclosure Schedule to this Agreement will be deemed
to constitute an admission by Sellers or Buyer, or otherwise
imply, that any such amounts or the items so included are
material for the purposes of this Agreement. All documents or
information disclosed in any section of the Disclosure Schedule
to this Agreement are intended to be disclosed for all purposes
under this Agreement and will also be deemed to be incorporated
by reference in each of the other sections of the Disclosure
Schedule to this Agreement to which they may be relevant. For
purposes of this Agreement, the determination as to whether any
item, event, circumstance or amount is "material" shall be made
with reference to the Company and its Subsidiaries, taken as a
whole, and references to "Material Adverse Effect" shall be
deemed to be qualified by "individually or in the aggregate."
10.12. United States Dollars. All dollar amounts
referred to herein will be in lawful currency of the United
States of America.
10.13. Expenses. Except as otherwise provided
herein, each of the parties hereto shall bear its own costs and
expenses
-46-
(including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated
hereby.
10.14. Liquidated Damages. Notwithstanding
anything to the contrary contained in this Agreement, in the
event that the Buyer shall fail to consummate the transactions
contemplated by this Agreement on or before the Closing Deadline
for any reason whatsoever, other than the Sellers' failure to
deliver the Redeemed Shares, the Buyer shall pay to the Company
$10,000,000 in cash. Such amount is in the nature of liquidated
damages and does not constitute a penalty. The parties agree that
the amount provided for in this Section 10.14 is reasonably
intended to compensate the Company for its expenses incurred in
connection with the negotiation of this Agreement and any lost
opportunity resulting from the Buyer's failure to consummate the
transactions contemplated hereby and, upon payment of such amount
by the Buyer, the Company and the Sellers waive any and all
rights to any payments, damages, amounts, costs, fees or other
expenses, and agree that they shall not bring any action, suit or
proceeding of any kind to recover any amounts in connection with
any breach by Buyer of this Agreement, other than such
$10,000,000.
-47-
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the day and year first
above written.
J. CREW GROUP, INC.
By:________________________ ___________________________
Name: Arthur Cinader
Title:
- --------------------------- ---------------------------
Emily Woods Abigail Cinader
- --------------------------- ---------------------------
Arthur Cinader, Jr. Maud Bryt
- --------------------------- ---------------------------
Saul Charles Edna Charles
- --------------------------- ---------------------------
Linda Charles Fishman Amy Charles
___________________________ TRUST U/A DATED DECEMBER 29, 1992,
Robert Charles F/B/O ARTHUR CINADER FAMILY,
BETWEEN ARTHUR CINADER, AS GRANTOR
AND MICHAEL S. INSEL, AS TRUSTEE
By:________________________
Michael S. Insel, Trustee
TRUST U/A DATED DECEMBER 30, 1959 TRUST U/A DATED JUNE 14, 1955,
F/B/O JOHN MITCHELL CINADER, F/B/O OYER FAMILY, BETWEEN MITCHELL
BETWEEN ARTHUR CINADER, AS GRANTOR CINADER, AS GRANTOR AND ALICE OYER,
AND ALICE OYER, CALVIN OYER AND ARTHUR CINADER AND SADIE
SADIE CINADER, AS TRUSTEES CINADER, AS TRUSTEES
By:________________________ By:________________________
Alice Oyer, Trustee Arthur Cinader, Trustee
By:________________________ By:________________________
Calvin Oyer, Trustee Alice Oyer, Trustee
ARTHUR CINADER CHARITABLE REMAINDER
UNITRUST U/A DATED APRIL 25, 1997,
BETWEEN ARTHUR CINADER, AS GRANTOR
AND JOHANNA CINADER AND JOSH S.
WESTON, AS TRUSTEES
By:________________________
Johanna Cinader, Trustee
By:________________________
Josh S. Weston, Trustee
TPG PARTNERS II, L.P.
By: TPG Genpar II, L.P.
By: TPG Advisors II, Inc.
By:________________________
Name:
Title:
AMENDMENT TO RECAPITALIZATION AGREEMENT
Amendment, dated as of October 17, 1997 (this
"Amendment"), to that certain Recapitalization Agreement, dated
as of July 22, 1997 (the "Recapitalization Agreement"), by and
among J. Crew Group, Inc., a New York corporation (the
"Company"), the holders of shares of Common Stock of the Company
listed on the signature pages hereto (each a "Seller," and
collectively the "Sellers"), and TPG Partners II, L.P., a
Delaware limited partnership (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Recapitalization Agreement contemplates a
recapitalization of the Company which provides for, among other
things, the purchase by the Buyer from the Company of certain
shares of Common Stock;
WHEREAS, the parties desire to amend the
Recapitalization Agreement to, among other things, allow TPG
Investors II, L.P., a Delaware limited partnership ("TPG
Investors"), TPG Parallel II, L.P., a Delaware limited
partnership ("TPG Parallel" and, together with TPG Investors, the
"TPG Affiliates"), and certain other designees of the Buyer
(collectively with the TPG Affiliates, the "TPG Designees") as
set forth herein to purchase Recapitalization Shares directly
from the Company upon the terms and subject to the conditions set
forth herein and in the Recapitalization Agreement;
NOW, THEREFORE, in consideration of the foregoing
premises, and for other good and valuable consideration, the
parties hereby agree as follows:
SECTION 1. AMENDMENTS TO THE RECAPITALIZATION AGREEMENT
1.1. Addition of TPG Designees. Upon the terms and
subject to the conditions set forth herein, in the
Recapitalization Agreement and in the Participation Agreements to
be entered into on the date hereof by and between the Buyer and
each TPG Designee other than the TPG Affiliates, on the Closing
Date, the Buyer and the TPG Designees shall purchase from the
Company, and the Company shall sell to the Buyer and the TPG
Designees, the number of Recapitalization Shares set forth
opposite the Buyer's and such TPG Designees' names on Schedule I
hereto, and each such TPG Designee shall be entitled to receive
all of the benefits and to exercise all of the rights of the
Buyer under the Recapitalization Agreement with respect to those
Recapitalization Shares purchased by such TPG Designee; provided,
however, that nothing contained herein shall in any way amend or
modify the Buyer's obligations under the Recapitalization
Agreement, including without limitation the Buyer's obligation to
deliver the Recapitalization Purchase Price pursuant to Section
2.1 of the Recapitalization Agreement, to the extent they are not
satisfied by the TPG Designees.
1.2. Adjustment of Retained Shares. The
Recapitalization Agreement is hereby amended by (i) deleting
Exhibit B to the Recapitalization Agreement in its entirety and
inserting in its place Exhibit B to this Amendment and (ii)
amending Section 5.16 of the Recapitalization Agreement by (A)
deleting each of the references to "twelve percent (12%)"
contained therein and replacing them with "14.8127%" and (B)
deleting the number "$9,000,000" and replacing it with
"$11,109,514".
1.3. Adjustment of Sellers Redemption Price;
Allocation of Payment Thereof. The Recapitalization Agreement is
hereby amended as follows:
(a) by amending the definition of Sellers Redemption
Price by deleting the number "$347,770,000" and replacing it with
"$327,797,224"; and
(b) by modifying the allocation of the Sellers
Redemption Price among the Redeemed Shares by deleting Schedule A
to the Recapitalization Agreement in its entirety and inserting
in its place Schedule A to this Amendment.
1.4. Adjustment of Recapitalization Shares; Adjustment
of Recapitalization Purchase Price. Section 2.1 of the
Recapitalization Agreement is hereby amended by (i) deleting the
number "48,400" and replacing such number with the number
"46,853.023", (ii) deleting the reference therein to
"eighty-eight percent (88%)" therein and replacing such reference
with "85.1873%" and (iii) deleting the number "549,600,000" and
replacing such number with the number "$554,463,863".
SECTION 2. MISCELLANEOUS
2.1. Governing Law. This Amendment will be governed by
the laws of the State of New York (regardless of the laws that might
be applicable under principles of conflicts of law) as to all
matters, including but not limited to matters of validity,
construction, effect and performance.
2.2. Defined Terms; Effect of Amendment
(a) Capitalized terms used but not defined in this
Amendment shall have the respective meanings ascribed to them in
the Recapitalization Agreement.
(b) Except as expressly amended by this Amendment, the
Recapitalization Agreement shall remain in full force and effect
as the same was in effect immediately prior to the effectiveness
of this Amendment. All references in the Recapitalization
Agreement to "this Agreement" shall be deemed to refer to the
Recapitalization Agreement as amended by this Amendment.
2.3. Counterparts. This Amendment may be executed in
one or more counterparts, each of which shall be deemed an
original and all of which together shall be considered one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the day and year first
above written.
J. CREW GROUP, INC.
By: /s/ Michael McHugh /s/ A. Cinader
------------------------ ---------------------------
Name: Michael McHugh Arthur Cinader
Title: V.P. Finance CFO
/s/ Emily Woods /s/ A. Cinader
- --------------------------- ---------------------------
Emily Woods Abigail Cinader*
/s/ A. Cinader /s/ A. Cinader
- --------------------------- ---------------------------
Arthur Cinader, Jr.* Maud Bryt*
/s/ Saul Charles /s/ Saul Charles
- --------------------------- ---------------------------
Saul Charles Edna Charles**
/s/ Saul Charles /s/ Saul Charles
- --------------------------- ---------------------------
Linda Charles Fishman** Amy Charles**
/s/ Saul Charles TRUST U/A DATED DECEMBER 29, 1992,
- --------------------------- F/B/O ARTHUR CINADER FAMILY,
Robert Charles** BETWEEN ARTHUR CINADER, AS GRANTOR
AND MICHAEL S. INSEL, AS TRUSTEE
By: /s/ Michael S. Insel
---------------------------
Michael S. Insel, Trustee*
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
TRUST U/A DATED DECEMBER 30, 1959 TRUST U/A DATED JUNE 14, 1955,
F/B/O JOHN MITCHELL CINADER, F/B/O OYER FAMILY, BETWEEN MITCHELL
BETWEEN ARTHUR CINADER, AS GRANTOR CINADER, AS GRANTOR AND ALICE OYER,
AND ALICE OYER, CALVIN OYER AND ARTHUR CINADER AND CALVIN OYER, AS
SADIE CINADER, AS TRUSTEES TRUSTEES
By: /s/ A. Cinader By: /s/ Saul Charles
------------------------ -------------------------
Alice Oyer, Trustee* Arthur Cinader, Trustee**
By: /s/ A. Cinader By: /s/ Saul Charles
------------------------ -------------------------
Calvin Oyer, Trustee* Alice Oyer, Trustee**
By: /s/ Saul Charles
-------------------------
Calvin Oyer, Trustee**
ARTHUR CINADER CHARITABLE REMAINDER
UNITRUST U/A DATED APRIL 25, 1997,
BETWEEN ARTHUR CINADER, AS GRANTOR
AND JOHANNA CINADER AND JOSH S.
WESTON, AS TRUSTEES
By: /s/ Saul Charles
-------------------------
Johanna Cinader, Trustee**
By: /s/ Saul Charles
-------------------------
Josh S. Weston, Trustee**
TPG INVESTORS II, L.P. TPG PARTNERS II, L.P.
By: TPG GenPar II, L.P. By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc. By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet By: /s/ Jonathan J. Coslet
------------------------ -------------------------
Name: Jonathan J. Coslet Name: Jonathan J. Coslet
Title: Principal Title: Principal
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
TPG PARALLEL II, L.P.
By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet
------------------------
Name: Jonathan J. Coslet
Title: Principal
* - By Arthur Cinader, as attorney-in-fact
** - By Saul Charles, as attorney-in-fact
SCHEDULE I
Stockholder Recapitalization
Shares
TPG Parallel II, L.P. 2,154.198
TPG Investors II, L.P. 3,292.740
BancBoston Investments, Inc. 2,062.500
General Electric Capital Corporation 1,948.090
TCW/Crescent Mezzanine Partners, L.P. 2,323.141
TCW/Crescent Mezzanine Trust 707.128
TCW/Crescent Mezzanine Investment Partners, L.P. 63.481
Crescent/Mach I Partners, L.P. 171.875
TCW Shared Opportunity Fund II, L.P. 171.875
DLJ Fund Investment Partners II, L.P. 527.745
Ken Moelis 25.943
Mark Lanigan 25.943
Pauline Boghosian 25.943
Stephen Paul 13.342
Scott Honour 4.447
Bennett Goodman 20.013
Steve Rattner 20.013
Doug Ostrover 20.013
Rob Grien 19.272
Christine Fasano 13.342
Eric Swanson 10.377
Kevin Smith 2.965
Steve Hickey 10.377
DLJ Capital Corporation 1.482
Farallon Capital Partners, L.P. 742.500
Farallon Capital Institutional Partners, L.P. 577.500
Farallon Capital Institutional Partners II, L.P. 198.000
Farallon Capital Institutional Partners III, L.P. 66.000
RR Capital Partners, L.P. 66.000
SCHEDULE A TO AMENDMENT TO RECAPITALIZATION AGREEMENT
Number of Common Shares Allocation of Sellers
Seller Owned of Record Redemption Price
Arthur Cinader 104,836 $168,369,548 1
Emily Woods 18,110 2 $12,336,837 2
Arthur Cinader
Charitable Remainder 11,399 $14,647,063
Unitrust, dated April
25, 1997
Trust u/a dated December
29, 1992, f/b/o Arthur 5,217 $6,703,547
Cinader Family
Abigail Cinader 137 $176,037
Arthur Cinader, Jr. 137 $176,037
Maud Bryt 137 2 $0 2
Trust u/a dated December
30, 1959, f/b/o John 10,000 $12,849,428
Mitchell Cinader
Trust u/a dated June 14,
1955, f/b/o Oyer Family 24,164 $31,049,358
Edna Charles 20,000 $25,698,856
Saul Charles 19,861 $25,520,249
Linda Charles Fishman 3,330 $4,278,860
- --------
1 Amount includes an additional approximately $321 per share
as consideration for the sale of Mr. Cinader's controlling
interest in the Company.
2 Ms. Woods will retain a portion of her existing shares of
Common Stock (having an aggregate value of $10,933,477)
representing approximately 14.58% of the common equity of
the post-Closing Company. The value of such shares owned by
Ms. Woods, together with the cash to be received by her as
her pro rata share of the Sellers Redemption Price, equal,
in the aggregate, $23,270,314. Ms. Bryt will retain 129.094
of her existing shares of Common Stock (having an aggregate
value of $176,037) representing approximately .002347% of
the common equity of the post-Closing Company and will
surrender her remaining shares of Common Stock to the
Company for no additional consideration.
Amy Charles 5,330 $6,848,745
Robert Charles 5,330 $6,848,745
TOTAL 227,988 $315,503,310 2
EXHIBIT B TO AMENDMENT TO RECAPITALIZATION AGREEMENT
Emily Woods 8,017.883 Retained Shares
Maud Bryt 129.094 Retained Shares 1
- --------
1 Ms. Bryt will retain 129.094 of her existing shares of
Common Stock (having an aggregate value of $176,037)
representing approximately .002347% of the common equity of
the post-Closing Company and will surrender her remaining
shares of Common Stock to the Company for no additional
consideration.
RESTATED
CERTIFICATE OF INCORPORATION
OF
J. CREW GROUP, INC.
-----
Under Section 807 of the
Business Corporation Law
-----
RESTATED
CERTIFICATE OF INCORPORATION
OF
J. CREW GROUP, INC.
-----
Under Section 807 of the
Business Corporation Law
-----
The undersigned, being Vice President and Assistant
Secretary of J. Crew Group, Inc., pursuant to Section 807 of the
Business Corporation Law of the State of New York, do hereby
restate, certify and set forth:
1. The name of the corporation is J. CREW GROUP, INC.,
hereinafter sometimes called "the corporation."
2. The Certificate of Incorporation of the corporation
was filed by the Department of State, Albany, New York, on the
19th day of May, 1988.
3. The Certificate of Incorporation, as amended
heretofore, is hereby further amended as authorized by Section
801 of the Business Corporation Law (i) to change the purpose of
the corporation, (ii) to change the post office address to which
the secretary of state shall mail a copy of any process against
the corporation served upon him, (iii) to increase the aggregate
number of shares of Common Stock which the corporation shall have
authority to issue from 1,000,000 shares to 100,000,000 shares
and to reduce the par value of such shares from $1.00 per share
to $.01 per share, (iv) to change the existing 227,988 issued and
outstanding shares of Common Stock of the corporation, par value
$1.00 per share, to 55,000 issued and
1
outstanding shares of Common Stock of the corporation, par value
$.01 per share, and to change the existing 772,012 unissued
shares of Common Stock of the corporation, par value $1.00 per
share, to 99,945,000 unissued shares of Common Stock of the
corporation, par value $.01 per share, representing a rate of
change of 0.24 and 129.46 for issued and outstanding shares and
unissued shares, respectively, (v) to cancel twenty thousand
(20,000) shares of Preferred Stock with a par value of $100 per
share, (vi) to cancel ten thousand (10,000) shares of Prior
Preferred Stock with a par value of $100 per share, (vii) to add
ten million (10,000,000) shares of preferred stock with a par
value of $.01 per share, (viii) to grant authority to the Board
of Directors, as to the shares of preferred stock added hereby,
to establish or change the number of shares constituting each
series of such preferred stock, and to fix the designation and
relative rights, preferences and limitations of the shares of
each such series, (ix) to strike out certain provisions
addressing the number of directors of the corporation, the
duration of the corporation, and the participation in meetings of
the Board of Directors or any committee thereof by means of a
conference telephone, and (x) to add certain provisions
addressing the rights of the holders of shares of capital stock
of the corporation. This restated Certificate of Incorporation
reduces the stated capital from four million ($4,000,000) dollars
to one million one hundred thousand ($1,100,000) dollars, a
reduction of two million nine hundred thousand ($2,900,000)
dollars. The text of the Certificate of Incorporation is hereby
restated as amended to read as herein set forth in full:
FIRST: The name of the corporation is J. CREW GROUP, INC.,
hereinafter sometimes called "the corporation."
2
SECOND: The purposes for which the corporation is formed
are as follows:
The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized
under the Business Corporation Law, provided, however, that the
corporation is not formed to engage in any act or activity
requiring the consent or approval of any state official,
department, board, agency or other body without first obtaining
such consent or approval.
THIRD: The office of the corporation within the State of
New York is to be located in the County of New York.
FOURTH: The aggregate number of shares of all classes
which the corporation shall have authority to issue is
110,000,000 shares, consisting of one hundred million
(100,000,000) shares of Common Stock with a par value of $.01 per
share and ten million (10,000,000) shares of preferred stock with
a par value of $.01 per share.
FIFTH: The Board of Directors is authorized, subject
to the limitations prescribed by law and the terms of this
Certificate of Incorporation, to provide for the issuance of
shares of preferred stock in series, and, by filing a certificate
of amendment pursuant to the Business Corporation Law, to
establish or change the number of shares constituting each such
series and to fix the designation and relative rights,
preferences and limitations of the shares of each such series.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the
following:
(1) the number of shares constituting such series and the
distinctive designation of such series;
(2) the times at which and the conditions under which
dividends shall be payable on shares of such series, the dividend
rate on the shares of such series, whether dividends
3
shall be cumulative and, if so, from which date or dates, and the
status of such dividends as participating or non-participating;
(3) whether such series shall have voting rights in
addition to the voting rights provided by law and, if so, the
terms of such voting rights;
(4) whether such series shall have conversion or
exchange privileges and, if so, the terms and conditions of such
conversion or exchange, including the price or conversion or
exchange rate and provision for adjustment thereof in such events
as the Board of Directors shall determine;
(5) whether or not the shares of such series shall be
redeemable and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(6) the obligation, if any, of the corporation to
retire shares of such series pursuant to a sinking fund or
redemption or purchase account;
(7) the rights of the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up
of the corporation; and
(8) any other relative rights, preferences and limitations
of such series.
SIXTH: No present or future holder of any shares of any
class or series, whether heretofore or hereafter issued, shall
have any preemptive or preferential right to purchase or
subscribe for any part of the stock of the corporation, now or
hereafter authorized, or to any bonds, certificates of
indebtedness, debentures or other securities convertible into or
exchangeable for or carrying options or rights to purchase stock
of the corporation other than as the Board of Directors may
determine.
4
SEVENTH: Subject to the rights of the preferred stock,
if any, dividends may be paid upon the Common Stock as and when
declared by the Board of Directors out of any funds legally
available therefor.
EIGHTH: Upon any liquidation, dissolution or winding
up of the affairs of the corporation (which shall not be deemed
to include a consolidation or merger of the corporation, or the
sale of all or substantially all of the corporation's assets,
into, with or to any other corporation or corporations), whether
voluntary or involuntary, and after the holders of the preferred
stock, if any, shall have been paid in full the amounts, if any,
to which they respectively shall be entitled or provision for
such payment shall have been made, the remaining net assets of
the corporation shall be distributed pro rata to the holders of
the Common Stock.
NINTH: Every holder of shares of Common Stock of
record shall be entitled at every meeting of shareholders to one
vote for each share of Common Stock standing in his name on the
record of shareholders. Holders of shares of each series of
preferred stock, if any, shall be entitled to vote in accordance
with the provisions of this Certificate of Incorporation, as
amended, relating to such series.
TENTH: The secretary of state is designated as the agent
of the corporation upon whom process against the corporation may be
served. The post office address within the State of New York to
which the secretary of state shall mail a copy of any process
against the corporation served upon him is: J. Crew Group, Inc.,
770 Broadway, New York, New York 10003.
ELEVENTH: The corporation reserves the right to amend,
alter, change or repeal any provision herein contained in the
manner now or hereafter prescribed by applicable law, and all
rights conferred hereunder upon shareholders of the corporation
are granted subject to this reservation.
5
TWELFTH: (1) A person who is or was a director of
the corporation shall not have any personal liability to the
corporation or its shareholders for damages for any breach of
duty in such capacity, provided that the foregoing shall not
eliminate or limit liability where such liability is imposed
under the Business Corporation Law.
(2) Any repeal or modification of this Article Twelfth
shall be prospective only, and shall not affect any limitation on
the personal liability of a director of the corporation existing
at the time of such repeal or modification.
4. This restatement of the Certificate of
Incorporation was authorized, pursuant to Sections 803(a) and
615(a) of the Business Corporation Law, by vote of the Board of
Directors, followed by unanimous written consent, setting forth
the action so taken, signed by the holders of all outstanding
shares entitled to vote thereon.
6
IN WITNESS WHEREOF, the undersigned have executed,
signed and verified this Certificate of Incorporation this 17th
day of October, 1997.
/s/ Nicholas Lamberti
-------------------------
Nicholas Lamberti,
Vice President
Address:
/s/ Michael P. McHugh
-------------------------
Michael P. McHugh,
Assistant Secretary
Address:
7
J. CREW GROUP, INC.
------------------------
BY-LAWS
------------------------
ARTICLE I
The Corporation
---------------
Section 1.01. Name. The legal name of this corporation
(hereinafter called the "Corporation") is J. Crew Group, Inc.
Section 1.02. Offices. The Corporation shall have its
principal office in the City of New York, County of New York,
State of New York. The Corporation may also have offices at such
other places within and without the State of New York as the
Board of Directors may from time to time appoint or as the
business of the Corporation may require.
Section 1.03. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, New York." One or
more duplicate dies for impressing such seal may be kept and
used.
ARTICLE II
Meetings of Shareholders
------------------------
Section 2.01. Place of Meetings. All meetings of the
shareholders shall be held at the principal office of the
Corporation in the State of New York, or at such other place,
within or without the State of New York, as may be fixed in the
notice of the meeting.
Section 2.02. Annual Meeting. An annual meeting of the
shareholders of the Corporation for the election of directors and
the transaction of such other business as may properly come
before the meeting shall be held on the second Tuesday in May in
each year if not a legal holiday, and if a legal holiday, then on
the next business day following, at such time as may be fixed in
the notice of the meeting. If for any reason any annual meeting
shall not be held at the time herein specified, the same may be
held at any time thereafter upon notice, as herein provided, or
the business thereof may be transacted at any special meeting
called for the purpose.
Section 2.03. Special Meetings. Special meetings of
shareholders may be called by the Chairman of the Board or the
President whenever he deems it necessary or advisable, and shall
be called by the Chairman of the Board or the President or the
Secretary upon the written request of a majority of the entire
Board of Directors or of the holders of one-third of the number
of shares of the Corporation entitled to vote at such meeting.
Section 2.04. Notice of Meetings. Written notice of all
meetings stating the place, date and hour of the meeting shall be
given to each shareholder entitled to vote at such meeting
personally or by first class mail, not fewer than ten nor more
than fifty days before the date of the meeting. Notice of each
special meeting shall state the purpose or purposes for which the
meeting is called and shall indicate that it is being called by
or at the direction of the person or persons calling the meeting.
If, at any meeting, action is proposed to be taken which would,
if taken, entitle shareholders fulfilling the requirements of
Section 623 of the New York Business Corporation Law to receive
payment for their shares, the notice of such meeting shall
include a statement of that purpose and to that effect. If
mailed, a notice of meeting shall be deemed given when deposited
in the United States mail, with postage prepaid, directed to the
shareholder at his address as it appears on the record of
shareholders, or at such other address for mailing of notices as
any shareholder may in writing file with the Secretary of the
Corporation. Notice of a meeting need not be given to any
shareholder who submits a signed waiver of notice, in person or
by proxy, whether before or after the meeting. The attendance of
a shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of
notice of such meeting, shall constitute a waiver of notice by
him.
Section 2.05. Record Date for Shareholders. For the
purpose of determining the shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment
thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividend or the allotment of
any rights or for the purpose of any other action, the Board of
Directors may fix, in advance, a record date, which shall not be
more than fifty nor less than ten days before the date of such
meeting, nor more than fifty days prior to any other action. If
no record date is fixed, the record
-2-
date for determining shareholders entitled to notice of or to
vote at a meeting of shareholders shall be at the close of
business on the day next preceding the day on which notice is
given, or, if no notice is given, the day on which the meeting is
held; the record date for determining shareholders entitled to
express consent to or dissent from any proposal without a
meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent or
dissent, as the case may be, is expressed; and the record date
for determining shareholders for any other purpose shall be at
the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at any
meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
Section 2.06. Proxy Representation. Every shareholder
may authorize another person or persons to act for him by proxy
in all matters in which a shareholder is entitled to participate,
whether by waiving notice of any meeting, voting or participating
at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the shareholder or by his
attorney-in-fact. No proxy shall be valid after the expiration of
eleven months from the date thereof unless such proxy provides
for a longer period. Every proxy shall be revocable at the
pleasure of the shareholder executing it, except as may be
otherwise provided by law.
Section 2.07. Voting at Shareholders' Meetings. Except
as otherwise provided by statute or by the Certificate of
Incorporation, each outstanding share of stock having voting
power shall be entitled to one vote on each matter submitted to a
vote at a meeting of shareholders. Directors shall be elected by
the vote of the holders of a plurality of the shares present at a
meeting and entitled to vote in the election. Unless otherwise
provided by statute, any other corporate action shall be
authorized by the vote of the holders of a majority of the shares
present at a meeting of shareholders and entitled to vote
thereon. Voting need not be by ballot.
Section 2.08. Quorum and Adjournment. Except as
otherwise provided by statute or by the Certificate of
Incorporation, the holders of a majority of the shares of the
Corporation shall constitute a quorum for the transaction of any
business. When a quorum is once present to organize a
-3-
meeting, it shall not be broken by the subsequent withdrawal of
any shareholders. If a quorum is not present or represented at
any meeting of the shareholders, the shareholders present in
person or represented by proxy shall have power to adjourn the
meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2.09. List of Shareholders. The officer who has
charge of the record of shareholders of the Corporation shall
prepare, make and certify, at least ten days before every meeting
of shareholders, a complete list of the shareholders, as of the
record date fixed for such meeting, arranged in alphabetical
order, and showing the address of each shareholder and the number
of shares registered in each shareholder's name. Such list shall
be open to the examination of any shareholder, for any purpose
germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, at the
principal office of the Corporation or at a place within the
city, municipality or community where the meeting is to be held,
and shall be available for the examination of any shareholder at
the place and during the time of the meeting. If the right of any
shareholder to vote at any meeting is challenged, the
inspectors of election, if any, or the person presiding, shall
require such list of shareholders to be produced as evidence of
the right of the persons challenged to vote, and all persons who
appear from such list to be shareholders entitled to vote thereat
may vote at such meeting.
Section 2.10. Action of the Shareholders Without a
Meeting. Whenever shareholders are required or permitted to take
any action by vote, such action may be taken without a meeting on
written consent, setting forth the action so taken, signed by the
holders of all of the outstanding shares entitled to vote
thereon.
ARTICLE III
Directors
---------
Section 3.01. Number of Directors. The number of
directors which shall constitute the entire Board of Directors
shall not be less than five nor more than nine. Subject to the
foregoing limitation, the number of directors may be fixed from
-4-
time to time by action of a majority of the entire Board of
Directors or of the shareholders at an annual or special meeting,
or, if the number of directors is not so fixed, the number shall
be five.
Section 3.02. Election and Term. The initial Board of
Directors shall be elected by the incorporator and the initial
directors so elected shall hold office until the first annual
meeting of shareholders and until their successors have been
elected and qualified. Thereafter, each director who is elected
at an annual meeting of shareholders, and each director who is
elected in the interim to fill a vacancy or a newly created
directorship, shall hold office until the next annual meeting of
shareholders and until his successor has been elected and
qualified.
Section 3.03. Filling Vacancies, Resignation and
Removal. Any director may be removed, with or without cause, by
vote of the shareholders. In the interim between annual meetings
of shareholders or special meetings of shareholders called for
the election or removal of one or more directors, newly created
directorships and any vacancies in the Board of Directors,
including vacancies resulting from the resignation or removal of
directors, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum,
or by the sole remaining director.
Section 3.04. Qualifications and Powers. Each director
shall be at least eighteen years of age. A director need not be a
shareholder, a citizen of the United States or a resident of the
State of New York. The business of the Corporation shall be
managed by the Board of Directors, subject to the provisions of
the certificate of incorporation. In addition to the powers and
authorities expressly conferred upon it by these bylaws, the
Board may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the
certificate of incorporation or by these bylaws directed or
required to be exercised or done exclusively by the shareholders.
Section 3.05. Regular and Special Meetings of the
Board. The Board of Directors may hold its meetings, regular or
special, within or without the State of New York. The annual
meeting of the Board of Directors shall be held immediately
after, and at the same place as, the annual meeting of
shareholders. No notice shall be required for regular meetings
of the Board of Directors for which the time and place
-5-
have been fixed. Special meetings of the Board may be called
by or at the direction of the Chairman of the Board, the
President, any Vice President, the Secretary or a majority of the
directors in office, upon three days notice to each director,
delivered personally, sent by telegraph or mailed to each
director at his residence or usual place of business. Meetings of
the Board, regular or special, may be held at any time and place,
and for any purpose, without notice, when all the directors are
present or when all directors not present, before or after such
meeting, in writing waive notice of the holding of such meeting.
Any requirement of furnishing a notice shall be waived by any
director who attends any meeting of the Board without protesting,
prior thereto or at its commencement, the lack of notice to him.
Section 3.06. Chairman. At the Annual Meeting of
Directors, the Board shall elect from its members a Chairman of
the Board who shall hold office until the Annual Meeting of
Directors next succeeding his election. At all other meetings of
the Board of Directors, the Chairman of the Board, or in his
absence the President, shall preside. At all meetings of the
stockholders the Chairman of the Board, or in his absence the
President, shall preside.
Section 3.07. Quorum and Action. A majority of the
directors shall constitute a quorum of the Board of Directors.
Except as otherwise provided by the New York Business
Corporation Law, the vote of the majority of the directors
present at a meeting at which a quorum is present shall be the
act of the Board. A majority of the directors present at the time
and place of any regular or special meeting, although less than a
quorum, may adjourn the same from time to time without further
notice, until a quorum shall be present.
Section 3.08. Telephonic Meetings. Any member or
members of the Board of Directors, or of any committee designated
by the Board, may participate in a meeting of the Board, or any
such committee, as the case may be, by means of conference
telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the
same time, and participation in a meeting by such means shall
constitute presence in person at such meeting.
Section 3.09. Action Without a Meeting. Any action
required or permitted to be taken by the Board of Directors, or
any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent
-6-
in writing to the adoption of a resolution authorizing
the action. The resolution and the written consents thereto by
the members of the Board or committee shall be filed with the
minutes of proceedings of the Board or committee.
Section 3.10. Compensation of Directors. By
resolution of the Board of Directors, the directors may be paid
their expenses, if any, for attendance at each regular or special
meeting of the Board or of any committee designated by the Board
and may be paid a fixed sum for attendance at such meeting, or a
stated salary as director, or both. Nothing herein contained
shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor; provided, however, that directors who are also salaried
officers shall not receive fees or salaries as directors.
ARTICLE IV
Committees
----------
Section 4.01. In General. The Board of Directors may,
by resolution or resolutions passed by the affirmative vote of a
majority of the entire Board, designate an Executive Committee
and such other committees as the Board may from time to time
determine, each to consist of one or more directors, and each of
which, to the extent provided in the resolution or in the
certificate of incorporation or in the bylaws, shall have all the
powers of the Board, except that no such committee shall have
power to fill vacancies in the Board, or to change the membership
of or to fill vacancies in any committee, or to make, amend,
repeal or adopt By-laws of the Corporation, or to submit to the
shareholders any action that needs shareholder approval under
these By-laws or the New York Business Corporation Law, or to fix
the compensation of the directors for serving on the Board or any
committee thereof, or to amend or repeal any resolution of the
Board which by its terms shall not be so amendable or repealable.
Each committee shall serve at the pleasure of the Board. The
Board may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to
act at the meeting in the place of any such absent or
disqualified member.
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ARTICLE V
Officers
---------
Section 5.01. Designation, Term and Vacancies. The
officers of the Corporation shall be a Chairman of the Board, a
President, one or more Vice Presidents (one or more of whom may
be designated as Executive Vice President), a Secretary, a
Treasurer, and such other officers as the Board of Directors may
from time to time deem necessary. Such officers may have and
perform the powers and duties usually pertaining to their
respective offices, the powers and duties respectively prescribed
by law and by these bylaws, and such additional powers and duties
as may from time to time be prescribed by the Board. The same
person may hold any two or more offices, except that the offices
of President and Secretary may not be held by the same person
unless all the issued and outstanding stock of the Corporation is
owned by one person, in which instance such person may hold all
or any combination of offices.
The initial officers of the Corporation shall be
appointed by the initial Board of Directors. Thereafter, the
officers of the Corporation shall be appointed by the Board as
soon as practicable after the election of the Board at the annual
meeting of shareholders, and shall hold office until the regular
annual meeting of the Board of Directors following their
appointment and until their successors have been appointed and
qualified; provided, however, that the Board of Directors may
remove any officer at any time, with or without cause. Vacancies
occurring among the officers of the Corporation shall be filled
by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 5.02. Chairman. The Chairman of the Board shall
direct the policy and management of the Company on behalf of the
Board and shall have general charge of the business, affairs and
property of the Corporation, and general supervision over its
officers and agents.
Section 5.03. President. The President of the
Corporation shall be the administrative officer of the
Corporation and, as such, shall manage its operations, perform
all the duties incident to his office, and shall see that all
orders and resolutions of the Board of Directors are carried into
effect. In the event of the absence or the disability of the
Chairman of the Board, he shall act in his place and assume his
duties.
-8-
Section 5.04. Vice-Presidents. During the absence or
disability of the President, the Vice-President or, if there be
more than one, a Vice-President or Executive Vice-President
designated by the Board of Directors, shall exercise all the
functions of the President and, when so acting, shall have all
the powers of and be subject to all restrictions upon the
President. Each Vice-President shall have such powers and
discharge such duties as may be assigned to him from time to time
by the Board of Directors.
Section 5.05. Secretary. The Secretary shall have
custody of the seal of the Corporation and when required by the
Board of Directors, or when any instrument shall have been signed
by the President or by any other officer duly authorized to sign
the same, or when necessary to attest any proceedings of the
shareholders or directors, shall affix it to any instrument
requiring the same and shall attest the same with his signature,
provided that the seal may be affixed by the President or any
Vice President or other officer of the Corporation to any
document executed by either of them respectively on behalf of the
Corporation which does not require the attestation of the
Secretary. He shall attend to the giving and serving of notices
of meetings. He shall have charge of such books and papers as
properly belong to his office or as may be committed to his care
by the Board of Directors. He shall perform such other duties as
appertain to his office or as may be required by the Board of
Directors.
Section 5.06. Assistant Secretaries. Whenever requested
by or in the absence or disability of the Secretary, the
Assistant Secretary designated by the Secretary (or in the
absence of such designation, the Assistant-Secretary designated
by the Board of Directors) shall perform all the duties of the
Secretary and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Secretary.
Section 5.07. Treasurer. The Treasurer shall render to
the President or the Board of Directors whenever requested a
statement of the financial condition of the Corporation and of
all his transactions as Treasurer, and render a full financial
report at the annual meeting of the stockholders if called upon
to do so and perform such duties as are given to him by these
By-laws or as from time to time may be assigned to him by the
Board of Directors or the President.
Section 5.08. Assistant Treasurer. Whenever requested
by or in the absence or disability of the Treasurer,
-9-
the Assistant Treasurer designated by the Treasurer (or
in the absence of such designation, the Assistant-Treasurer
designated by the Board of Directors) shall perform all the
duties of the treasurer, and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the
Treasurer.
Section 5.09. Subordinate Officers and Agents. The
Board of Directors may from to time appoint such other officers
and agents as it may deem necessary or advisable, to hold office
for such period, have such authority and perform such duties as
the Board of Directors may from time to time determine. The Board
of Directors may delegate to any officer or agent the power to
appoint any such subordinate officers or agents and to prescribe
their respective terms of office, authorities and duties.
Section 5.10. Delegation. In case of the absence of any
officer of the Corporation, or for any other reason that the
Board of Directors may deem sufficient, the Board may temporarily
delegate the powers or duties, or any of them, of such officer to
any other officer or to any director.
Section 5.11. Compensation. The salaries or other
compensation of the officers shall be fixed from time to time by
the Board of Directors and no officer shall be prevented from
receiving such salary or any compensation by reason of the fact
that he is also a director of the Corporation. The Board of
Directors, in accordance with the provisions of Section 5.11 of
this Article V, may delegate to any officer or agent the power to
fix from time to time the salaries or other compensation of
officers or agents.
ARTICLE VI
Shares
------
Section 6.01. Certificates Representing Shares. All
certificates representing shares of the Corporation shall be
signed by the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, shall bear the seal of the
Corporation and shall not be valid unless so signed and sealed.
Certificates countersigned by a duly appointed transfer agent or
registered by a duly appointed registrar shall be deemed to be so
signed and sealed whether the signatures be manual or facsimile
signatures and whether the seal be a facsimile seal or any other
form of seal. All certificates shall be consecutively numbered
and the name of the person owning the
-10-
shares represented thereby, his residence, with the
number of such shares and the date of issue, shall be entered on
the Corporation's books. All certificates surrendered shall be
cancelled and no new certificates issued until the former
certificates for the same number of shares shall have been
surrendered and cancelled, except as provided for herein.
In case any officer who signed or whose facsimile
signature was affixed to any certificate shall have ceased to be
such officer before such certificate is issued, it nevertheless
may be issued by the Corporation as if he were such officer at
the date of its issuance.
When the Corporation is authorized to issue shares of
more than one class there shall be set forth upon the face or
back of the certificate, or the certificate shall have a
statement that the Corporation will furnish to any shareholder
upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the
shares of each class authorized to be issued and, if the
Corporation is authorized to issue any class of preferred shares
in series, the designation, relative rights, preferences and
limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate
and fix the relative rights, preferences and limitations of other
series.
Any restrictions on the transfer or registration of
transfer of any shares of any class or series shall be noted
conspicuously on the certificate representing such shares.
Section 6.02. Addresses of Shareholders. Every
shareholder shall furnish the Corporation with an address to
which notices of meetings and all other notices may be served
upon or mailed to him, and in default thereof notices may be
addressed to him at his last known post office address.
Section 6.03. Stolen, Lost or Destroyed Certificates.
The Board of Directors may in its sole discretion direct that a
new certificate for shares be issued in place of any certificate
for shares issued by the Corporation alleged to have been stolen,
lost or destroyed. When authorizing such issuance of a new
certificate, the Board of Directors may, in its discretion, and
as a condition precedent thereto, require the owner of such
stolen, lost or destroyed certificate or his legal representatives
to give the Corporation a bond in such sum as the Corporation may
direct
-11-
not exceeding double the value of the shares represented by the
certificate alleged to have been stolen, lost or destroyed.
Section 6.04. Transfers of Shares. Upon compliance with
all provisions restricting the transferability of shares, if any,
transfers of shares shall be made only upon the books of the
Corporation by the holder in person or by his attorney thereunto
authorized by power of attorney duly filed with the Secretary of
the Corporation or with a transfer agent or registrar, if any,
and upon the surrender and cancellation of the certificate or
certificates for such shares properly endorsed and the payment of
all taxes due thereon. The Board of Directors may appoint one or
more suitable banks or trust companies as transfer agents or
registrars of transfers, for facilitating transfers of any class
or series of shares of the Corporation by the holders thereof
under such regulations as the Board of Directors may from time to
time prescribe. Upon such appointment being made, all
certificates of shares of such class or series thereafter issued
shall be countersigned by one of such transfer agents or one of
such registrars of transfers, and shall not be valid unless so
countersigned.
ARTICLE VII
Dividends and Finance
---------------------
Section 7.01. Dividends. Subject to the conditions and
limitations set forth in the Certificate of Incorporation, the
Board of Directors shall have power to fix and determine and to
vary, from time to time, the amount of the working capital of the
Corporation before declaring any dividends among its
shareholders, to determine the date or dates for the declaration
and payment of dividends and the amount of any dividend, and the
amount of any reserves necessary in their judgment before
declaring any dividends among its shareholders, and to determine
the amount of surplus of the Corporation from time to time
available for dividends.
Section 7.02. Fiscal Year. The fiscal year of the
Corporation shall end on the last Friday of January in each year
and shall begin on the next succeeding day, or shall be for such
other period as the Board of Directors may from time to time
designate.
-12-
ARTICLE VIII
Indemnification
---------------
Section 8.01. Except to the extent expressly prohibited
by the New York Business Corporation Law, the Corporation shall
indemnify each person made or threatened to be made a party to or
called as a witness in or asked to provide information in
connection with any pending or threatened action, proceeding,
hearing or investigation, whether civil or criminal, and whether
judicial, quasi-judicial, administrative, or legislative, and
whether or not for or in the right of the Corporation or any
other enterprise, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of
the Corporation, or is or was a director or officer of the
Corporation who also serves or served at the request of the
Corporation any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred in
connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment
or other final adjudication adverse to such person establishes
that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to
the cause of action so adjudicated, or that he or she personally
gained in fact a financial profit or other advantage to which he
or she was not legally entitled, and provided further that no
such indemnification shall be required with respect to any
settlement or other nonadjudicated disposition of any threatened
or pending action or proceeding unless the Corporation has given
its prior consent to such settlement or other disposition.
The Corporation shall advance or promptly reimburse,
upon request of any person entitled to indemnification hereunder,
all expenses, including attorneys' fees, reasonably incurred in
defending any action or proceeding in advance of the final
disposition thereof upon receipt of a written undertaking by or
on behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so
advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in
good faith with any request by the Corporation that common
counsel be utilized by the parties to
-13-
an action or proceeding who are similarly situated unless to do
so would be inappropriate due to actual or potential differing
interests between or among such parties.
Nothing herein shall limit or affect any right of any
person otherwise than hereunder to indemnification or expenses,
including attorneys' fees, under any statute, rule, regulation,
certificate of incorporation, by-law, insurance policy, contract
or otherwise.
No elimination of this by-law, and no amendment of
this by-law adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be
effective until the 60th day following notice to such person of
such action, and no elimination of or amendment to this by-law
shall deprive any person of his or her rights hereunder arising
out of alleged or actual occurrences, acts or failures to act
prior to such 60th day. The provisions of this paragraph shall
supersede anything to the contrary in these by-laws.
The Corporation shall not, except by elimination or
amendment of this by-law in a manner consistent with the
preceding paragraph, take any corporate action or enter into any
agreement which prohibits, or otherwise limits the rights of any
person to, indemnification in accordance with the provisions of
this by-law. The indemnification of any person provided by this
by-law shall continue after such person has ceased to be a
director or officer of the Corporation and shall inure to the
benefit of such person's heirs, executors, administrators and
legal representatives.
The Corporation is authorized to enter into agreements
with any of its directors, officers or employees extending rights
to indemnification and advancement of expenses to such person to
the fullest extent permitted by applicable law, but the failure
to enter into any such agreement shall not affect or limit the
rights of such person pursuant to this by-law. It is hereby
expressly recognized that all directors and officers of the
Corporation, by serving as such after the adoption hereof, are
acting in reliance hereon and that the Corporation is estopped to
contend otherwise. Additionally, it is hereby expressly
recognized that all persons who serve or served as directors,
officers or employees of corporations which are subsidiaries or
affiliates of the Corporation (or other entities controlled by
the Corporation) and are directors or officers of the Corporation
are conclusively presumed to serve or have served as such at the
request of the Corporation
-14-
and, to the extent permitted by law, are entitled to
indemnification hereunder, but that no such person shall have any
rights hereunder or in connection herewith, except to the extent
that indemnification hereunder is permitted by law.
In case any provision in this by-law shall be
determined at any time to be unenforceable in any respect, the
other provisions shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest
possible enforcement in the circumstances, it being the intention
of the Corporation to afford indemnification and advancement of
expenses to its directors and officers, acting in such capacities
or in the other capacities mentioned herein, to the fullest
extent permitted by law.
For purposes of this by-law, the Corporation shall be
deemed to have requested a director or officer of the Corporation
to serve an employee benefit plan where the performance by such
person of his or her duties to the Corporation also imposes
duties on, or otherwise involves services by, such person to the
plan or participants or beneficiaries of the plan, and excise
taxes assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be considered indemnifiable
expenses. For purposes of this by-law, the term "Corporation"
shall include any legal successor to the Corporation, including
any corporation which acquires all or substantially all of the
assets of the Corporation in one or more transactions.
A person who has been successful, on the merits or
otherwise, in the defense of a civil or criminal action or
proceeding of the character described in the first paragraph of
this by-law shall be entitled to indemnification as authorized in
such paragraph. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under this by-law
shall be made by the Corporation if, and only if, authorized in
the specific case:
(1) By the Board of Directors acting by a quorum
consisting of directors who are not parties to such action
or proceeding upon a finding that the director or officer
has met the standard of conduct set forth in the first
paragraph of this by-law, or,
(2) If such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs:
-15-
(a) By the Board of Directors upon the opinion in
writing of independent legal counsel that
indemnification is proper in the circumstances because
the standard of conduct set forth in the first
paragraph of this by-law has been met by such director
or officer, or
(b) By the shareholders upon a finding that the
director or officer has met the applicable standard of
conduct set forth in such paragraph.
If any action with respect to indemnification of
directors and officers is taken by way of amendment of these
by-laws, resolution of directors, or by agreement, the
Corporation shall, not later than the next annual meeting of
shareholders, unless such meeting is held within three months
from the date of such action and, in any event, within fifteen
months from the date of such action, mail to its shareholders of
record at the time entitled to vote for the election of directors
a statement specifying the action taken.
ARTICLE IX
Miscellaneous Provisions
------------------------
Section 9.01. Books and Records. Subject to the New
York Business Corporation Law, the Corporation may keep its books
and accounts outside the State of New York.
Section 9.02. Notices. Whenever any notice is
required by these by-laws to be given, personal notice is
required only if it is expressly so stated, and any notice so
required shall be deemed to be sufficient if given by depositing
the same in a post office box in a sealed post-paid wrapper,
addressed to the person entitled thereto at his last known post
office address, and such notice shall be deemed to have been
given on the day of such mailing.
Any person may waive the right to receive any notice
by signing a written waiver thereof.
Section 9.03. Amendments. Except as otherwise provided
herein, these by-laws may be altered, amended, or repealed and
by-laws may be adopted by the shareholders or by the Board of
Directors.
-16-
STOCKHOLDERS' AGREEMENT
-----------------------
This AGREEMENT is made as of this 17th day of October,
1997, by and among J. Crew Group, Inc., a New York corporation
(the "Company"), and each of the following (hereinafter severally
referred to as a "Stockholder" and collectively referred to as
the "Stockholders"): TPG Partners II, L.P. ("TPG II"), TPG
Parallel II, L.P. ("TPG Parallel II"), TPG Investors II, L.P.
("TPG Investors II," and, together with TPG II and TPG Parallel
II, the "TPG Holders"), each of the other signatories hereto, and
each of the parties who become parties to this Agreement pursuant
to Article V hereof as stockholders of the Company.
WHEREAS, TPG II, the Company and certain shareholders
of the Company have heretofore entered into a Recapitalization
Agreement dated as of July 22, 1997, as amended (the
"Recapitalization Agreement"), which provides for, among other
things, the recapitalization of the Company on the terms and
subject to the conditions set forth in the Recapitalization
Agreement (the "Recapitalization") and the related acquisition of
shares of common stock of the Company by certain parties as
described therein;
WHEREAS, the Company, each of the TPG Holders and
certain other Stockholders are on the date hereof entering into a
Preferred Stock Subscription Agreement (the "Subscription
Agreement") which provides for, among other things, the
subscription for shares of Series A Cumulative Preferred Stock,
$.01 par value, of the Company ("Series A Preferred Stock") and
Series B Cumulative Redeemable Preferred Stock, $.01 par value,
of the Company ("Series B Preferred Stock" and, together with the
Series A Preferred Stock, the "Preferred Shares") by the other
parties thereto on the terms and subject to the conditions set
forth in the Subscription Agreement;
WHEREAS, the Stockholders, together with Emily Woods,
will acquire or hold all of the issued and outstanding shares of
common stock, $.01 par value, of the Company (such shares,
together with any additional shares of common stock issued by the
Company, being hereinafter severally referred to as a "Common
Share" and collectively referred to as the "Common Shares," and,
together with the Preferred Shares, being hereinafter severally
referred to as a "Share" and collectively referred to as the
"Shares"); and
WHEREAS, in consideration of the Recapitalization
Agreement and the Subscription Agreement and the transactions
contemplated thereby, the parties hereto desire to enter into an
agreement regarding certain matters described herein, including
the imposition of certain restrictions on the transferability of
Common Shares.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein, the parties mutually
agree as follows:
ARTICLE I
---------
Representations and Warranties
------------------------------
Each of the parties hereby severally represents and
warrants to each of the other parties as follows:
1.1 Authority; Enforceability. Such party has the
legal capacity or corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder. Such
party, if not an individual, is duly organized and validly
existing under the laws of its jurisdiction of organization, and
the execution of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all
necessary action. No other act or proceeding, corporate or
otherwise, on its part is necessary to authorize the execution of
this Agreement or the consummation of any of the transactions
contemplated hereby. This Agreement has been duly executed by
such party and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with the terms
of this Agreement, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of
creditors generally and to the exercise of judicial discretion in
accordance with general principles of equity (whether applied by
a court of law or of equity).
1.2 No Breach. Neither the execution of this Agreement
nor the performance by such party of its obligations hereunder
nor the consummation of the transactions contemplated hereby does
or will:
(a) conflict with or violate its articles of
incorporation, bylaws or other organizational documents;
(b) violate, conflict with or result in the breach or
termination of, or otherwise give any other person the right to
accelerate, re-negotiate or terminate or receive any payment, or
constitute a default or an event of default (or an event which
with notice, lapse of time, or both, would constitute a default
or event of default) under the terms of, any contract or
agreement to which it is a party or by which it or any of its
assets or operations are bound or affected; or
(c) constitute a violation by such party of any laws,
rules or regulations of any governmental, administrative or
regulatory authority or any judgments, orders, rulings or awards
of any court, arbitrator or other judicial authority or any
governmental, administrative or regulatory authority.
1.3 Consents. No consent, waiver, approval,
authorization, exemption, registration, license or declaration is
required to be made or obtained by such party, other than those
which have been made or obtained, in connection with (i) the
execution or enforceability of this Agreement or (ii) the
consummation of any of the transactions contemplated hereby.
1.4 Share Ownership. Such party will own, immediately
following the consummation of the transactions contemplated by
the Recapitalization Agreement, the number of Shares of each
class set forth opposite such party's name in Schedule 1.4
attached hereto, free
2
and clear of any and all liens, claims and encumbrances, other
than those created by this Agreement.
ARTICLE II
----------
Transfer of Shares
------------------
2.1 Restrictions on Transfers.
(a) No Stockholder may transfer by way of sale,
exchange, assignment, pledge, gift or other disposition (all of
which acts shall be deemed included in the term "transfer" as
used in this Agreement) any or all of the Shares (whether held in
its, his or her own right or by a representative of the
Stockholder, such Stockholder hereinafter being referred to as a
"Transferor") unless (i) such transfer of Shares is made on the
books of the Company and in accordance with the provisions of
Article II of this Agreement and (ii) the transferee of such
Shares (if other than (A) the Company or another Stockholder, (B)
a transferee in a sale of Shares made under Rule 144 (or any
successor provision) under the Securities Act of 1933, as amended
(the "Securities Act") or (C) a transferee of Shares registered
under the Securities Act, that is otherwise permitted by this
Agreement) agrees to become a party to this Agreement pursuant to
Article V hereof and executes such further documents as may be
necessary, in the opinion of the Company, to make him, her or it
a party hereto.
(b) Any purported transfer of Shares other than in
accordance with this Agreement by any Transferor shall be null
and void, and the Company shall refuse to recognize any such
transfer for any purpose and shall not reflect in its records any
change in record ownership of Shares pursuant to any such
transfer.
(c) The Company shall not, without the written consent
of the holders of a majority, by voting power, of the outstanding
Shares, issue any Shares upon original issue or reissue or
otherwise dispose of any Shares unless the recipient or
transferee of such Shares (if other than a Stockholder) shall
agree to become a party to this Agreement pursuant to Article V
hereof and executes such further documents as may be necessary,
in the opinion of the Company, to make him, her or it a party
hereto; provided that if the recipient or transferee of such
Shares is an affiliate of any of the TPG Holders that is not a
Stockholder and the TPG Holders shall hold a majority of the
outstanding Shares, the aforementioned consent must be obtained
from holders of a majority, by voting power, of the outstanding
Shares other than Shares held by the TPG Holders.
2.2 Right of First Offer.
(a) Prior to any underwritten initial public offering
by the Company of any Shares, in the event that a Transferor
desires to sell or transfer all or part of its Common Shares
("Offered Common Shares"), other than pursuant to Section 2.3,
2.4 or 2.5 of this Agreement or in reliance and in accordance
with Rule 144 (or any successor provision) under the Securities
Act, the Transferor shall give prompt written notice (a
"Transferor's Notice") of its desire to sell the Offered Common
Shares to the Company and TPG II, which notice shall identify (i)
the
3
number of Offered Common Shares, (ii) the number of shares, if
any, of Series A Preferred Stock and/or Series B Preferred Stock
which the Transferor proposes to sell or transfer in conjunction
with the sale or transfer of the Offer Common Shares (the
"Offered Preferred Shares" and, together with the Offered Common
Shares, "Offered Shares") and (iii) any other material items and
conditions of the proposed transfer (other than the offering
price). The date on which such Transferor's Notice is actually
received by the Company and TPG II is referred to hereinafter as
the "Notice Date." Following consummation of any underwritten
initial public offering by the Company of any Shares, a
Transferor shall, subject to compliance with the provisions of
Section 2.1(a), have the right to sell or transfer all or part of
its Shares without complying with the requirements of this
Section 2.2. Unless a Transferor desires to sell or transfer any
or all of its Preferred Shares in conjunction with the sale or
transfer of any or all of its Common Shares, prior to any
underwritten initial public offering by the Company of any
Shares, such Transferor may, subject to compliance with the
provisions of Section 2.1(a), sell any or all of its Preferred
Shares without complying with the provisions of this Section 2.2.
(b) The TPG Holders shall have fifteen (15) days
following the Notice Date to notify the Transferor and the
Company in writing of an offer to purchase in cash (the "Offer to
Purchase") all (but not less than all) of the Offered Shares by
one or more of the TPG Holders (the "Electing Holders"), the
proposed cash purchase price thereof, the proposed closing date
for the purchase and any other material term or condition of the
proposed purchase. If the Transferor does not receive a written
notice from any of the TPG Holders containing a cash offer to
purchase the Offered Shares within the fifteen (15) day period,
the TPG Holders shall be deemed to have declined to purchase such
Offered Shares and the Transferor may, subject to compliance with
the provisions of Section 2.1(a) and Section 2.2(e), thereafter
transfer to any purchaser at any time within one hundred twenty
(120) days following the Notice Date all (but not less than all)
of the Offered Shares upon the terms and conditions set forth in
the Transferor's Notice; provided that if TPG II notifies the
Transferor in writing, within fifteen (15) days following receipt
of the notice required by Section 2.2(e), of an objection to the
purchaser because the purchaser or one or more of its affiliates
competes with one or more of the businesses of the Company and
its subsidiaries, the Transferor shall not have the right to
transfer any of the Offered Common Shares to such purchaser (but
shall be permitted to transfer the Offered Preferred Shares); and
provided further that if the Offered Common Shares are not
transferred to a purchaser for any reason within one hundred
twenty (120) days following the Notice Date, then such Offered
Common Shares may be transferred only by again complying with all
of the terms and procedures set forth in this Article II.
(c) The Transferor shall have fifteen (15) days
following receipt of the Offer to Purchase to accept the offer
made by the Electing Holders to purchase all (but not less than
all) of the Offered Shares on the terms and subject to the
conditions set forth in the Offer to Purchase. If, in accordance
with the terms of the preceding sentence, the Transferor accepts
the offer made by the Electing Holders to purchase all (but not
less than all) of the Offered Shares on the terms and subject to
the conditions set forth in the Offer to Purchase, the closing
for such transaction shall take place at a time and place
reasonably acceptable to the Transferor and the Electing Holders;
provided that such closing shall not occur more than thirty (30)
days after the date on which the Electing Holders actually
receive notice that their Offer to Purchase has been
4
accepted by the Transferor. At such closing, the Electing Holders
shall deliver to the Transferor the consideration to be exchanged
for such Offered Shares, in immediately available funds, and the
Transferor shall deliver to the Electing Holders all documents
required to effect the sale of such Offered Shares, duly endorsed
and free of any liens, including appropriate documentation
providing indemnities to the Electing Holders regarding its title
to such Offered Shares and such other matters as are customary
for such transactions.
(d) If, within fifteen (15) days following receipt of
the Offer to Purchase, the Transferor rejects or does not accept
the Offer to Purchase made by the Electing Holders, such
Transferor may, subject to compliance with the provisions of
Section 2.1(a) and Section 2.2(e), thereafter sell all (but not
less than all) of the Offered Shares to any purchaser at any time
within one hundred twenty (120) days following the Notice Date;
provided that (i) the purchase price for such Offered Shares in
any such transaction is in cash and is greater than the proposed
cash purchase price offered by the Electing Holders for such
Offered Shares and (ii) if TPG II notifies the Transferor in
writing, within ten (10) days following receipt of the notice
required by Section 2.2(e), of an objection to the purchaser
because the purchaser or one or more of its affiliates competes
with one or more of the businesses of the Company and its
subsidiaries, the Transferor shall not have the right to transfer
any of the Offered Common Shares to such purchaser (but shall be
permitted to transfer the Offered Preferred Shares); and provided
further that if the Offered Common Shares are not transferred to
a purchaser for any reason within one hundred twenty (120) days
following the Notice Date, then such Offered Common Shares may be
transferred only by again complying with all of the terms and
procedures set forth in this Article II.
(e) As soon as practicable, but in any event no less
than fifteen (15) days prior to the consummation of a proposed
sale of Offered Shares to a purchaser pursuant to Section 2.2(d),
the Transferor shall give written notice to the Company and TPG
II, which notice shall specify with respect to each such proposed
sale (i) the identity of the purchaser, (ii) the cash purchase
price to be paid by such purchaser for the Offered Shares, (iii)
the date of the proposed transfer and (iv) any other material
items and conditions of the proposed sale.
2.3 Transfers to Permitted Transferees. A Stockholder
may transfer any or all of the Shares held by such Stockholder to
a Permitted Transferee (as hereinafter defined) of such
Stockholder without complying with any other provision of this
Article II other than Section 2.1. For purposes of this
Agreement, a "Permitted Transferee" means (a) in the case of any
Stockholder that is not a corporation, any general or limited
partner, member, managing director, officer, employee or
affiliate (as defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended) of such Stockholder, (b) in the case of
any Stockholder that is a corporation, any other entity that
owns, directly or indirectly, at least 51% of the equity
securities of such Stockholder ("majority ownership") or that is
under common majority ownership with such Stockholder, (c) in the
case of any Stockholder that is an individual, any successor by
death or divorce or (d) in the case of any Stockholder that is a
trust whose sole beneficiaries are individuals, such individuals
or their spouses or lineal descendants.
5
2.4 Bankruptcy of a Stockholder.
(a) Upon the bankruptcy (as hereinafter defined in
Section 2.4(d) below) of a Stockholder (a "Bankrupt
Stockholder"), the TPG Holders may, by written notice given to
the Bankrupt Stockholder, the other Stockholders and the Company
within 30 days following the occurrence of the event specified in
Section 2.4(d) which gives rise to such bankruptcy, elect to
purchase for cash part or all of such Bankrupt Stockholder's
shares (the "Bankrupt Shares") at a price equal to the fair
market value of such shares at the time of purchase, as
determined by an independent appraiser to be selected by the
Company. Fees and expenses of any independent appraiser selected
pursuant to this subsection shall be shared equally by the
Bankrupt Stockholder and the TPG Holders.
(b) If the TPG Holders elect to acquire fewer than all
of the Bankrupt Shares within 30 days after the event giving rise
to such bankruptcy, the Company shall thereupon have the option,
exercisable by written notice given to the Bankrupt Stockholder
and the other Stockholders within 45 days after the event giving
rise to such bankruptcy, to purchase for cash all or part of the
remaining Bankrupt Shares at the price determined in accordance
with Section 2.4(a) above.
(c) Upon the giving of the notices provided in
Sections 2.4(a) and (b) above, the TPG Holders and/or the
Company, as the case may be, shall be obligated severally, but
not jointly, to purchase, and the Bankrupt Stockholder shall be
obligated to sell to each of them, the respective numbers of such
Bankrupt Shares specified in such notices (or determined in
accordance with Section 2.4(a) above, as the case may be) for
cash at the price determined in accordance with Section 2.4(a)
above.
(d) The bankruptcy of a Stockholder shall be deemed to
occur upon the occurrence of any of the following events:
(i) The filing of a voluntary petition in bankruptcy
by such Stockholder;
(ii) The filing of an involuntary petition in
bankruptcy with respect to such Stockholder which remains
undismissed for a period of 90 days;
(iii) The appointment of a receiver with respect to
such Stockholder or with respect to all or substantially all of
his, her or its assets or affairs which remains undismissed for a
period of 60 days; or
(iv) The admission in writing by the Stockholder of
his, her or its inability to pay his, her or its debts generally
as they become due.
2.5 Certain Rights.
(a) Drag Along Rights. If the TPG Holders desire to
sell all or substantially all of their Common Shares to a
purchaser (other than pursuant to Section 2.3) and said purchaser
desires to acquire all or substantially all of the issued and
outstanding Common Shares (or all or
6
substantially all of the assets of the Company) upon such terms
and conditions as agreed to with the TPG Holders, each other
Stockholder agrees to sell all of its Common Shares to said
purchaser (or to vote such Common Shares in favor of any merger
or other transaction which would effect a sale of such Common
Shares (or all or substantially all of the assets of the Company)
provided that nothing herein shall in any way constrain, limit or
affect the ability, if any, of any Stockholder to vote its
Preferred Shares in such Stockholder's discretion in accordance
with the terms thereof in connection with any such merger or
other transaction) at the same price per Common Share and
pursuant to the same terms and conditions with respect to payment
for the Common Shares as agreed to by the TPG Holders. For
purposes of this Section 2.5(a), but only with respect to a sale
of Common Shares, "substantially all" shall mean at least 80% of
the Common Shares then owned by the TPG Holders. In all other
circumstances, "substantially all" shall be interpreted within
the meaning of the New York Business Corporation Law. In such
case, the TPG Holders shall give written notice of such sale to
the other Stockholders at least 30 days prior to the consummation
of such sale, setting forth (i) the consideration to be received
by the Stockholders, (ii) the identity of the purchaser, (iii)
any other material items and conditions of the proposed transfer
and (iv) the date of the proposed transfer and shall cause the
terms of any such transaction not to expose such other
Stockholders to joint and several liability as a selling
stockholder in such transaction.
(b) Tag Along Rights. (i) Subject to paragraph (v) of
this Section 2.5(b), if a TPG Holder proposes to transfer any
Common Shares, Series A Preferred Stock or Series B Preferred
Stock to a purchaser (including the Company or any of its
subsidiaries) other than a Permitted Transferee (which for
purposes of this Section 2.5(b) only, in the case of the TPG
Holders, shall not include the Company or any of its
subsidiaries) of such TPG Holder, such TPG Holder (hereinafter
referred to as a "Selling TPG Stockholder") shall give written
notice (a "Transfer Notice") of such proposed transfer to the
Stockholders other than the TPG Holders (the "Other
Stockholders") at least 30 days prior to the consummation of such
proposed transfer, setting forth for each class of Shares (A) the
number of Shares offered, if any, (B) the consideration to be
received for such Shares by such Selling TPG Stockholder, (C) the
identity of the purchaser, (D) any other material items and
conditions of the proposed transfer (including a representation
that if one or more Other Stockholders elect to sell Shares
pursuant to this Section 2.5, such Selling TPG Stockholder shall
use reasonable efforts to cause any transaction to be on terms
which do not expose such Other Stockholders to joint and several
liability as a selling stockholder in such transaction), (E) the
date of the proposed transfer and (F) that each such Other
Stockholder shall have the right to elect to sell up to the sum
of its Pro Rata Portion plus its Excess Pro Rata Portion (as
defined in Section 2.5(b)(iii) below) of such Shares.
(ii) Subject to paragraph (iv) of this Section 2.5(b),
upon delivery of a Transfer Notice, each Other Stockholder may
elect to sell up to the sum of (A) the Pro Rata Portion (as
defined in paragraph (iii) of this Section 2.5(b)) and (B) the
Excess Pro Rata Portion of its Shares of the same class and
series proposed to be sold by the Selling TPG Stockholder, at the
same price per Share of the same class and series and pursuant to
the same terms and conditions with respect to payment for the
Shares of the same class and series as agreed to by the Selling
TPG Stockholder, by sending written notice to the Selling TPG
Stockholder within 15 days of the date of the Transfer Notice,
indicating its election to sell up to the sum of the Pro Rata
Portion plus
7
the Excess Pro Rata Portion of its Shares of the same class and
series in the same transaction. Following such 15 day period, the
Selling TPG Stockholder and each Other Stockholder, concurrently
with the Selling TPG Stockholder, shall be permitted to sell to
the purchaser on the terms and conditions set forth in the
Transfer Notice the sum of (x) the Pro Rata Portion and (y) the
Excess Pro Rata Portion of its Shares.
(iii) For purposes of this Agreement, "Pro Rata
Portion" shall mean, with respect to Common Shares or Preferred
Shares, as the case may be, held by a Stockholder, a number equal
to the product of (A) the total number of such shares then owned
by such Stockholder and (B) a fraction, the numerator of which
shall be the total number of such shares proposed to be sold to a
purchaser as set forth in a Transfer Notice or initially proposed
to be registered by the Selling TPG Stockholder, as the case may
be, and the denominator of which shall be the total number of
such shares then outstanding (including such shares proposed to
be sold or registered by the Selling TPG Stockholder). For
purposes of this Agreement, "Excess Pro Rata Portion" shall mean,
with respect to Common Shares or Preferred Shares, as the case
may be, held by a Stockholder, a number equal to the product of
(x) the number of Non-Elected Shares (as defined below) and (y) a
fraction, the numerator of which shall be such Stockholder's Pro
Rata Portion with respect to such shares, and the denominator of
which shall be the sum of (1) the aggregate Pro Rata Portions
with respect to the Common Shares (when calculating "Excess Pro
Rata Portion" with respect to the Common Shares of a Stockholder)
or the Preferred Shares (when calculating "Excess Pro Rata
Portion" with respect to the Preferred Shares of a Stockholder),
as the case may be, of all of the Other Stockholders that have
elected to exercise in full their rights to sell their Pro Rata
Portion of Common Shares or Preferred Shares, as the case may be,
and (2) the Selling TPG Stockholder's Pro Rata Portion of Common
Shares (when calculating "Excess Pro Rata Portion" with respect
to the Common Shares of a Stockholder) or the Preferred Shares
(when calculating "Excess Pro Rata Portion" with respect to the
Preferred Shares of a Stockholder) (the aggregate amount of such
denominator is hereinafter referred to as the "Elected Shares").
For purposes of this Agreement, "Non-Elected Shares" shall mean
the excess, if any, of the total number of Common Shares (when
calculating "Excess Pro Rata Portion" with respect to the Common
Shares of a Stockholder) or the Preferred Shares (when
calculating "Excess Pro Rata Portion" with respect to the
Preferred Shares of a Stockholder), as the case may be, proposed
to be sold to a purchaser as set forth in a Transfer Notice or
initially proposed to be registered by the Selling TPG
Stockholder, as the case may be, less the amount of Elected
Shares.
(iv) Notwithstanding anything to the contrary
contained herein but subject to the last sentence of Section
2.5(b)(ii), if a Selling TPG Stockholder proposes to transfer
both Common Shares and Preferred Shares in the same transaction
or in related transactions, each Other Stockholder electing to
sell Shares pursuant to this Section 2.5(b) shall be required to
sell both Common Shares and Preferred Shares (of the same series)
proposed to be sold by the Selling TPG Stockholder. In such
event, the number of Preferred Shares which each Other
Stockholder may sell or transfer pursuant to this Section 2.5(b)
shall be up to its applicable Pro Rata Portion plus its Excess
Pro Rata Portion of such shares, and the number of Common Shares
which such Other Stockholder shall be required to sell or
transfer in such transaction or transactions shall be exactly the
product (rounded to the nearest whole number) of (A) the total
8
number of Preferred Shares to be sold or transferred by such
Other Stockholder determined in accordance with this Section
2.5(b)(iv) and (B) a fraction, of which the numerator shall be
the number of Common Shares proposed to be sold by the Selling
TPG Stockholder and the denominator shall be the number of
Preferred Shares proposed to be sold by the Selling TPG
Stockholder; provided that if the Selling TPG Stockholder
proposes to sell shares of both Series A Preferred Stock and
Series B Preferred Stock in the same transaction or in related
transactions, the ratio of the number of shares of Series A
Preferred Stock to the number of shares of Series B Preferred
Stock subject to election by each Other Stockholder must be
equivalent to the ratio of the number of shares of Series A
Preferred Stock to the number of shares of Series B Preferred
Stock proposed to be sold by such Selling TPG Stockholder in such
transaction or transactions.
(v) Notwithstanding anything to the contrary contained
herein, the provisions of this Section 2.5(b) shall not apply to
(A) any sale or transfer by the TPG Holders of Common Shares
unless and until the TPG Holders, after giving effect to the
proposed sale or transfer, shall have sold or transferred in the
aggregate, other than to Permitted Transferees, shares of Common
Shares representing 7.5% of the Common Shares owned by the TPG
Holders on the date hereof or (B) any sale or transfer by the TPG
Holders of Preferred Shares unless and until the TPG Holders,
after giving effect to the proposed sale or transfer, shall have
sold or transferred in the aggregate, other than to Permitted
Transferees, shares of Preferred Shares representing 7.5% of the
Preferred Shares owned by the TPG Holders on the date hereof.
(c) Piggyback Registration Rights.
(i) Notice to Stockholders. If the Company
determines that it will file a registration statement under the
Securities Act, other than a Form S-4, Form S-8 or any similar
form under the Securities Act, for an offering which includes
Common Shares held by a TPG Holder on the date hereof (a
"Registering Stockholder"), then the Company shall give prompt
written notice to each of the Other Stockholders that such filing
is expected to be made (but in no event less than 30 days nor
more than 60 days in advance of filing such registration
statement), the jurisdiction or jurisdictions in which such
offering is expected to be made, and the underwriter or
underwriters (if any) that the Company (or the person requesting
such registration) intends to designate for such offering. If the
Company, within 15 days after giving such notice, receives a
written request for registration of any Common Shares from any of
the Other Stockholders, then the Company shall include in the
same registration statement the number of additional Common
Shares to be sold by each Other Stockholder as shall have been
specified in its request; provided, however, that each Other
Stockholder shall not be permitted to register more than a Pro
Rata Portion (as defined in Section 2.5(b)(iii), substituting
"Registering Stockholder" for "Selling TPG Stockholder") of its
Common Shares; and provided further, that the Company shall not
be required to register any Common Shares which can be sold or
transferred without registration pursuant to Rule 144(k) under
the Securities Act. The Company shall bear all costs of preparing
and filing the registration statement (but shall not be
responsible for underwriting discounts or fees or similar costs
or expenses, or fees or expenses of counsel to any selling
stockholder), and shall indemnify and hold harmless, pursuant to
customary and reasonable indemnification and contribution
provisions to be entered into by the Company at the
9
time of filing of the registration statement, the seller of any
Common Shares covered by such registration statement.
Notwithstanding anything herein to the contrary, the
Company, on prior notice to the participating Stockholder, may
abandon its intention to file a registration statement under this
Section 2.5(c) at any time prior to such filing.
(ii) Allocation. If the managing underwriter
shall inform the Company (or the person requesting such
registration) in writing that the number of Common Shares
requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering within
a price range acceptable to the Company (or, if the offering is
not for the Company's account, such person), then the Company
shall include in such registration such number of Common Shares
which the Company (or such person) is so advised can be sold in
(or during the time of) such offering. All Stockholders proposing
to sell Common Shares shall share pro rata in the number of
Common Shares to be excluded from such offering, such sharing to
be based on the respective numbers of Common Shares as to which
registration has been requested by such Stockholders.
(iii) Permitted Transfer. Notwithstanding
anything to the contrary contained herein, sales of Common Shares
pursuant to a registration statement filed by the Company may be
made without compliance with any other provision of this Article
II other than this Section 2.5(c).
ARTICLE III
-----------
Legends on Share Certificates
-----------------------------
3.1 The certificates representing the Shares shall
include an endorsement typed conspicuously thereon of the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE
BOOKS OF THE ISSUER UNLESS SUCH TRANSFER IS MADE IN CONNECTION
WITH AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT OR SUCH ACT DOES NOT APPLY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS'
AGREEMENT DATED AS OF OCTOBER 17, 1997 AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF
SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS
AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH."
10
In the event that any Shares shall cease to be
Restricted Shares (as hereinafter defined), the Company shall,
upon the written request of the holder thereof, issue to such
holder a new certificate representing such Shares without the
first paragraph of the legend required by this Section 3.1. In
the event that any Shares shall cease to be subject to the
restrictions on transfer set forth in this Agreement, the Company
shall, upon the request of the holder thereof, issue to such
holder a new certificate representing such Shares without the
second paragraph of the legend required by Section 3.1.
"Restricted Shares" shall mean all Shares other than
(a) Shares that have been registered under a registration
statement pursuant to the Securities Act and sold thereunder, (b)
Shares with respect to which a sale or other disposition has been
made in reliance on and in accordance with Rule 144 (or any
successor provision) under the Securities Act, or (c) Shares with
respect to which the holder thereof shall have delivered to the
Company either (i) an opinion, in form and substance satisfactory
to the Company, of counsel, who shall be satisfactory to the
Company, or (ii) a "no action" letter from the Securities and
Exchange Commission, to the effect that subsequent transfers of
such Shares may be effected without registration under the
Securities Act.
3.2 All certificates for Shares representing
Restricted Shares hereafter issued, whether upon transfer or
original issue, shall be endorsed with a like legend.
3.3 Upon the exercise of any option to purchase
described herein, the certificates representing the Shares
purchased shall be delivered to the Secretary of the Company and
properly endorsed for transfer on the stock books of the Company.
ARTICLE IV
----------
Covenants
---------
4.1 Financial Information. During the term of this
Agreement, the Company shall, at its expense, provide to each
Stockholder signatory hereto at the date hereof, promptly
following the final preparation thereof, copies of consolidated
annual, quarterly and monthly financial statements of the Company
and its subsidiaries, such statements to include such type of
information as is required to be provided to the bank lenders
pursuant to the Credit Agreement, dated as of October 17, 1997,
by and among such lenders, the Company and J. Crew Operating
Corp., a wholly owned subsidiary of the Company, as in effect on
the date hereof. The rights provided by this Section 4.1 may not
be transferred or assigned to any other person without the
consent of the Company and TPG II, and shall be subject as to
each Stockholder to the provision by such Stockholder of
customary confidentiality undertakings.
4.2 Affiliate Transactions. The Company shall not, and
shall not permit any of its subsidiaries to, enter into any
transaction with any affiliate of the Company (other than a
majority owned subsidiary of the Company; provided that neither
the TPG Holders nor any affiliate of the TPG Holders (other than
the Company and its subsidiaries) has any equity interest in such
subsidiary other than through their ownership of Shares), except
upon fair and reasonable terms no less favorable to the Company
or such subsidiaries than would be obtainable in a
11
comparable arm's length transaction, unless the Company shall
obtain the written consent of a majority of the independent
directors of the Company or of the holders of a majority, by
voting power, of the outstanding Shares (excluding such affiliate
and its Shares and the Shares of its affiliates) entitled to vote
at a meeting of Stockholders; provided, that agreements in effect
on the date hereof (but excluding subsequent modifications) shall
be deemed not to violate this provision.
4.3 Restrictive Covenants. In addition to any
requirements imposed by the governing instruments of the
Preferred Shares, the Company shall not take any action requiring
the consent of holders of Preferred Shares pursuant to Section
3(a) of each of the designations of the Series A Preferred Stock
and the Series B Preferred Stock contained in Article Fifth of
the Company's Restated Certificate of Incorporation without also
obtaining the consent, in writing, of each Stockholder that (i)
owns Preferred Shares on the date hereof and (ii) has not sold,
transferred or otherwise disposed of any of such Preferred
Shares, except to Permitted Transferees which have not sold,
transferred or otherwise disposed of any of such Preferred
Shares.
4.4 Exchange of Shares. The Stockholders will use all
reasonable efforts to cause the Board of Directors of the Company
to authorize the exchange of (a) Shares held by any Stockholder
subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA"), to the extent necessary, for substantially equivalent
shares with diminished voting rights, to permit the ownership of
such Shares by such Stockholder to comply with the requirements
of Section 4(c)(6) or 4(c)(7) of the BHCA and (b) shares of
Series A Preferred Stock held by any Stockholder for shares of
Series B Preferred Stock, or shares of Series B Preferred Stock
held by any Stockholder for shares of Series A Preferred Stock,
to the extent necessary to permit such Stockholder to sell on a
timely basis the applicable series of shares of its Preferred
Stock pursuant to Section 2.5(b).
ARTICLE V
---------
Additional Parties
------------------
Notwithstanding the provisions of Section 6.3,
additional Stockholders may be added to and be bound by this
Agreement upon the signing and delivery of a counterpart of this
Agreement by the Company and the acceptance thereof by such
additional Stockholders, provided that any Permitted Transferee
of a TPG Holder that is an affiliate of such TPG Holder shall, by
signing and delivering such a counterpart of this Agreement,
become a TPG Holder under this Agreement. Promptly after signing
and delivering such a counterpart of this Agreement, the Company
will deliver a conformed copy thereof to the Stockholders.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
6.1 Specific Performance. The parties hereby declare
and acknowledge that it is impossible to measure in money the
damages which will accrue to any party hereto or to a
12
representative of a Stockholder by reason of a failure to perform
any of the obligations under this Agreement. Therefore, if any
party hereto or the representative of a Stockholder shall
institute any action or proceeding to enforce the provisions
hereof, the person against whom such action or proceeding is
brought hereby waives the claim or defense that such party or
such representative has an adequate remedy at law, and such
person shall not urge in any such action or proceeding the claim
or defense that such party or such representative has an adequate
remedy at law. The parties hereto agree that this Agreement shall
be specifically enforceable.
6.2 Notices. Any and all notices, designations,
offers, acceptances or other communications provided for herein
shall be given in writing by registered or certified mail, which
shall be addressed, in the case of the Company, to its principal
office, and, in the case of any Stockholder, to such
Stockholder's address appearing on the stock books of the Company
or to such other address as may be designated by such Stockholder
in writing to the Company.
6.3 Entire Agreement. This Agreement constitutes the
only agreement between the parties hereto respecting restrictions
on the transferability of the Shares and supersedes all prior
agreements, expressed or implied, between the parties.
6.4 Governing Law. The validity, construction and
performance of this Agreement shall be governed by the laws of
the State of New York without giving effect to principles of
conflicts of laws except Section 5-1401 of the General
Obligations Law of the State of New York.
6.5 Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, and their
successors and assigns.
6.6 Severability. If any portion of this Agreement
shall be declared void or unenforceable by any court or
administrative body of competent jurisdiction, such portion shall
be deemed severable from the remainder of this Agreement, which
shall continue in all respects valid and enforceable.
6.7 Amendment and Waiver. Any amendment of this
Agreement or any waiver of any provision hereof to be effective
shall be in writing and signed by all of the parties hereto. The
addition of a Transferee of Shares or a recipient of any Shares
as a party hereto pursuant to Article V hereof shall not
constitute an amendment hereto and need be signed only by the
Company and such Transferee or recipient. Any failure by any
party at any time to enforce any of the provisions of this
Agreement shall not be construed a waiver of such provision or
any other provisions hereof.
6.8 Termination. This Agreement shall terminate on the
earliest of (a) the date on which more than 50% of the issued and
outstanding Shares at such date shall have been registered and
sold pursuant to one or more registration statements filed under
the Securities Act, (b) the date on which the shares of capital
stock of the Company held by the TPG Holders represent, in the
aggregate, less than thirty-five percent (35%) of the total
voting power of the Company's capital stock, (c) in connection
with the underwritten initial public offering by the Company of
any Shares, the date on or after the consummation of such
offering on which the
13
holders of a majority of the outstanding Common Shares shall have
agreed, by 30 days' prior written notice to each of the parties
to this Agreement and to each party who becomes a party to this
Agreement, to terminate this Agreement, and (d) the tenth
anniversary of the date hereof; provided, however, that (i) the
rights, if any, of any Stockholder set forth in Section 2.5(b)
(with respect to Common Shares held by such Stockholder) of this
Agreement shall survive any such termination as to such
Stockholder until the Common Shares held by such Stockholder can
be sold pursuant to Rule 144(k) under the Securities Act (or any
successor provision) and (ii) the rights, if any, of Stockholders
set forth in Section 2.5(b) (with respect to Preferred Shares),
2.5(c) and 4.3 of this Agreement shall survive any such
termination.
6.9 Counterparts. This Agreement may be signed by each
party hereto upon a separate copy of this Agreement in which
event all of said copies shall constitute a single counterpart of
this Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
Each Stockholder in agreement with the foregoing
should sign the form of acceptance in the space provided for such
Stockholder's signature on this copy of this Agreement delivered
to such Stockholder. This Agreement will become a binding
agreement among such Stockholders and the Company when signed by
the Company and so accepted by such Stockholders.
14
The foregoing Stockholders' Agreement is hereby
accepted as of the day and year first above written.
J. CREW GROUP, INC.
By: /s/ Michael P. McHugh
---------------------------------
Name: Michael P. McHugh
Title: Vice President - Finance
[remainder of page intentionally left blank]
S-1
Stockholders:
TPG PARTNERS II, L.P.
By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet
---------------------------------
Name:
Title:
TPG PARALLEL II, L.P.
By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet
---------------------------------
Name:
Title:
TPG INVESTORS II, L.P.
By: TPG GenPar II, L.P.
By: TPG Advisors II, Inc.
By: /s/ Jonathan J. Coslet
---------------------------------
Name:
Title:
S-2
BANCBOSTON INVESTMENTS, INC.
By: /s/ Mark H. DeBlois
---------------------------------
Name: Mark H. DeBlois
Title: Managing Director
[remainder of page intentionally left blank]
S-3
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ George L. Hashbarger, Jr.
---------------------------------
Name: George L. Hashbarger, Jr.
Title: Senior Vice President and
Department Operations Manager
[remainder of page intentionally left blank]
S-4
TCW/CRESCENT MEZZANINE PARTNERS, L.P.
By: TCW Asset Management Company
By: /s/
---------------------------------
Name: John C. Rocchio
Title: Senior Vice President
By: /s/
---------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
TCW/CRESCENT MEZZANINE TRUST
By: TCW Asset Management Company
By: /s/
---------------------------------
Name: John C. Rocchio
Title: Senior Vice President
By: /s/
---------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
TCW/CRESCENT MEZZANINE INVESTMENT
PARTNERS, L.P.
By: TCW Asset Management Company
By: /s/
---------------------------------
Name: John C. Rocchio
Title: Senior Vice President
By: /s/
---------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
S-5
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company
By: /s/
---------------------------------
Name: John C. Rocchio
Title: Senior Vice President
By: /s/
---------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Asset Management Company
By: /s/
---------------------------------
Name: John C. Rocchio
Title: Senior Vice President
By: /s/
---------------------------------
Name: Jean-Marc Chapus
Title: Managing Director
S-6
DLJ FUND INVESTMENT PARTNERS II, L.P.
By: DLJ LBO Plans Management Corporation
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
KEN MOELIS
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
MARK LANIGAN
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
PAULINE BOGHOSIAN
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
S-7
STEPHEN PAUL
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ CAPITAL CORPORATION
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
BENNETT GOODMAN
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
STEVE RATTNER
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
S-8
DOUG OSTROVER
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
ROB GRIEN
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
SCOTT HONOUR
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
CHRISTINE FASANO
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
S-9
ERIC SWANSON
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
KEVIN SMITH
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
STEVE HICKEY
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
SCOTT HONOUR
By: DLJ LBO Plans Management Corporation
as Attorney-in Fact
By: /s/
---------------------------------
Name: Ivy Dodes
Title: Vice President
S-10
FARALLON CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
its General Partner
By: /s/ Andrew B. Fremder
---------------------------------
Name: Andrew B. Fremder
Title: Managing Member
FARALLON CAPITAL INSTITUTIONAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
its General Partner
By: /s/ Andrew B. Fremder
---------------------------------
Name:
Title:
FARALLON CAPITAL INSTITUTIONAL PARTNERS II, L.P.
By: Farallon Partners, L.L.C.
its General Partner
By: /s/ Andrew B. Fremder
---------------------------------
Name:
Title:
S-11
MAUD BRYT
By: /s/ Maud Bryt
---------------------------------
Name: Maud Bryt
Title:
[remainder of page intentionally left blank]
S-12
FARALLON CAPITAL INSTITUTIONAL PARTNERS III, L.P.
By: Farallon Partners, L.L.C.
its General Partner
By: /s/ Andrew B. Fremder
---------------------------------
Name:
Title:
RR CAPITAL PARTNERS, L.P.
By: Farallon Partners, L.L.C.
its General Partner
By: /s/ Andrew B. Fremder
---------------------------------
Name:
Title:
S-13
Schedule 1.4
------------
Stockholder Common Shares Owned
- ----------- -------------------
TPG Partners II, L.P. 31,566.779
TPG Parallel II, L.P. 2,154.198
TPG Investors II, L.P. 3,292.740
BancBoston Investments, Inc. 2,062.500
General Electric Capital Corporation 1,948.090
TCW/Crescent Mezzanine Partners, L.P. 2,323.141
TCW/Crescent Mezzanine Trust 707.128
TCW/Crescent Mezzanine Investment Partners, L.P. 63.481
Crescent/Mach I Partners, L.P. 171.875
TCW Shared Opportunity Fund II, L.P. 171.875
DLJ Fund Investment Partners II, L.P. 527.745
Ken Moelis 25.943
Mark Lanigan 25.943
Pauline Boghosian 25.943
Stephen Paul 13.342
Scott Honour 4.447
Bennett Goodman 20.013
Steve Rattner 20.013
Doug Ostrover 20.013
Rob Grien 19.272
Christine Fasano 13.342
Eric Swanson 10.377
Kevin Smith 2.965
Steve Hickey 10.377
DLJ Capital Corporation 1.482
Farallon Capital Partners, L.P. 742.500
Farallon Capital Institutional Partners, L.P. 577.500
Farallon Capital Institutional Partners II, L.P. 198.000
Farallon Capital Institutional Partners III, L.P. 66.000
RR Capital Partners, L.P. 66.000
Maud Bryt 129.094
Emily Woods 8,017.883
Stockholder Preferred Shares Owned
- ----------- ----------------------
TPG Partners II, L.P. 63,424.117
TPG Parallel II, L.P. 4,328.225
TPG Investors II, L.P. 6,615.789
BancBoston Investments, Inc. 12,187.500
General Electric Capital Corporation 3,914.112
TCW/Crescent Mezzanine Partners, L.P. 13,727.651
TCW/Crescent Mezzanine Trust 4,178.481
TCW/Crescent Mezzanine Investment Partners, L.P. 375.118
Crescent/Mach I Partners, L.P. 1,015.625
TCW Shared Opportunity Fund II, L.P. 1,015.625
DLJ Fund Investment Partners II, L.P. 1,060.347
Ken Moelis 52.124
Mark Lanigan 52.124
Pauline Boghosian 52.124
Stephen Paul 26.807
DLJ Capital Corporation 2.979
Scott Honour 8.936
Bennett Goodman 40.210
Steve Rattner 40.210
Doug Ostrover 40.210
Rob Grien 38.721
Christine Fasano 26.807
Eric Swanson 20.850
Kevin Smith 5.957
Steve Hickey 20.850
Farallon Capital Partners, L.P. 4,387.500
Farallon Capital Institutional Partners, L.P. 3,412.500
Farallon Capital Institutional Partners II, L.P. 1,170.000
Farallon Capital Institutional Partners III, L.P. 390.000
RR Capital Partners, L.P. 390.000
Emily Woods 2,978.505
Execution Copy
- -------------------------------------------------------------------
- -------------------------------------------------------------------
J. Crew Group, Inc.
----------------------------------------
13 1/8% SENIOR DISCOUNT DEBENTURES DUE 2008
----------------------------------------
-------------------
INDENTURE
DATED AS OF OCTOBER 17, 1997
-------------------
-------------------------------------
STATE STREET BANK AND TRUST COMPANY
TRUSTEE
-------------------------------------
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Indenture, dated as of October 17, 1997 between J. Crew
Group, Inc., a New York corporation (the "Company") and State
Street Bank and Trust Company, as trustee (the "Trustee").
The Company and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of
the holders of the Company's 13 1/8% Senior Discount Debentures
due 2008 (the "Senior Discount Notes") and the exchange 13 1/8%
Senior Discount Debentures due 2008 (the "Exchange Senior
Discount Notes" and, together with the Senior Discount Notes, the
"Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Accreted Value" means, as of any date of determination
prior to October 15, 2002, with respect to any Note, the sum of
(a) the initial offering price (which shall be calculated by
discounting the aggregate principal amount at maturity of such
Note at a rate of 13 1/8% per annum, compounded semi-annually on
each April 15 and October 15 from October 15, 2002 to the date of
issuance) of such Note and (b) the portion of the excess of the
principal amount of such Note over such initial offering price
which shall have been accreted thereon through such date, such
amount to be so accreted on a daily basis at a rate of 13 1/8% per
annum of the initial offering price of such Note, compounded
semi-annually on each April 15 and October 15 from the date of
issuance of the Notes through the date of determination, computed
on the basis of a 360-day year of twelve 30-day months.
"Acquired Debt" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary
of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person or
assumed in connection with the acquisition of any asset used or
useful in a Permitted Business acquired by such specified Person;
provided that such Indebtedness was not incurred in connection
with, or in contemplation of, such other Person merging with or
into or becoming a Subsidiary of such specified Person, or such
acquisition, as the case may be.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided that beneficial
ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer
or exchange of beneficial interests in a Global Note, the rules
and procedures of the Depositary that apply to such transfer and
exchange.
"Asset Sale" means (i) the sale, lease (other than an
operating lease), conveyance or other disposition of any assets
or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business
consistent with past practices (provided that the sale, lease
(other than an operating lease), conveyance or other disposition
of all or substantially all of the assets of the
Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of this Indenture described in
Sections 4.13 and 5.01 and not by the provisions of Section 4.10
hereof, and (ii) the sale by the Company and the issue or sale by
any of the Restricted Subsidiaries of the Company of Equity
Interests of any of the Company's Subsidiaries, in the case of
either clause (i) or (ii), whether in a single transaction or a
series of related transactions that have a fair market value (as
determined in good faith by the Board of Directors) in excess of
$1.0 million or for net cash proceeds in excess of $1.0 million.
Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary of the Company
(other than a Receivables Subsidiary) or by a Wholly Owned
Restricted Subsidiary of the Company to a Wholly-Owned Restricted
Subsidiary of the Company (other than a Receivables Subsidiary),
(ii) an issuance of Equity Interests by a Restricted Subsidiary
of the Company to the Company or to a Wholly Owned Restricted
Subsidiary of the Company (other than a Receivables Subsidiary),
(iii) a Restricted Payment that is permitted by Section 4.07
hereof, (iv) the sale and leaseback of any assets within 90 days
of the acquisition of such assets, (v) foreclosures on assets,
(vi) the clearance of inventory and (vii) the sale, conveyance or
other disposition of accounts receivables and related assets
customarily transferred in an asset securitization transaction
involving accounts receivable to a Receivables Subsidiary or by a
Receivables Subsidiary, in connection with a Qualified
Receivables Transaction, in each case, will not be deemed to be
Asset Sales.
"Attributable Debt" in respect of a sale and leaseback
transaction means, at the time of determination, the present
value (discounted at the rate of interest implicit in such
transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the
remaining term of the lease included in such sale and leaseback
transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
"Bankruptcy Law" means Title 11, U.S. Code or any
similar federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the
Company or any authorized committee of such board of directors.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease that would at such time be required
to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation,
corporate stock, (ii) in the case of an association or business
entity, any and all shares, interests, participation, rights or
other equivalents (however designated) of corporate stock, (iii)
in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited)
and (iv) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) securities issued or
unconditionally and fully guaranteed or insured by the full faith
and credit of the United States government or any agency or
instrumentality thereof having maturities of not more than one
year from the date of acquisition, (ii) obligations issued or
fully guaranteed by any state of the United States of America or
any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either Standard &
Poor's
2
Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), (iii) certificates of deposit and eurodollar time
deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding
one year and overnight bank deposits, in each case with any
lender party to the New Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $250.0
million, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (i) and (iii), above entered into with any financial
institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having one of the two of the highest
ratings obtainable from either Moody's or S&P and in each case
maturing within one year after the date of acquisition and (vi)
investments in funds investing exclusively in investments of the
types described in clauses (i) through (v) above.
"Cedel" means Cedel Bank, societe anonyme.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), other than the Principals and their Related
Parties, (ii) the adoption of a plan relating to the liquidation
or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or
consolidation) the result of which is that (A) any "person" (as
defined above), other than the Principal and their Related
Parties, becomes the "beneficial owner" (as such term is defined
in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of 40% or more of the Voting Stock of the Company
(measured by voting power rather than number of shares) and (B)
the Principals and their Related Parties beneficially own,
directly or indirectly, in the aggregate a lesser percentage of
the Voting Stock of the Company than such other "person", (iv)
the first day on which a majority of the members of the Board of
Directors of the Company are not Continuing Directors or (v) the
Company consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which any
of the outstanding Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than
any such transaction where (A) the Voting Stock of the Company
outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person and (B) the
"beneficial owners" (as defined above) of the Voting Stock of the
Company immediately prior to such transaction own, directly or
indirectly through one or more subsidiaries, not less than a
majority of the total Voting Stock of the surviving or transferee
corporation immediately after such transaction.
"Chase" means Chase Securities Inc.
"Commission" means the Securities and Exchange Commission.
"Company" means J. Crew Group, Inc., a New York
corporation, and its permitted successors.
"Consolidated Cash Flow" means, with respect to any Person
for any period, the Consolidated Net Income of such Person for
such period plus (i) an amount equal to any extraordinary loss
plus any net loss realized in connection with an Asset Sale (to
the extent such losses were deducted in computing such
Consolidated Net Income of such Person and its Restricted
Subsidiaries), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such
period, to the extent that such provision for taxes was included
in computing such Consolidated Net Income, plus (iii)
consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether
3
paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation
and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash charges
(excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash charge that was
paid in a prior period) of such Person and its Subsidiaries for
such period to the extent that such depreciation, amortization
and other non-cash expenses were deducted in computing such
Consolidated Net Income, plus (v) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person
or any of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or any of its Restricted Subsidiaries, in
each case, to the extent that such interest expense is deducted
in computing such Consolidated Net Income, minus (vi) non-cash
items increasing such Consolidated Net Income for such period, in
each case, on a consolidated basis and determined in accordance
with GAAP. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income
to compute Consolidated Cash Flow only to the extent (and in the
same proportion) that the Net Income of such Restricted
Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"Consolidated Net Income" means, with respect to any Person
for any period, the aggregate of the Net Income of such Person
and its Subsidiaries for such period, on a consolidated basis,
determined in accordance with GAAP, provided that (i) the Net
Income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or
a Restricted Subsidiary thereof, (ii) the Net Income of any
Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded,
and (iii) the cumulative effect of a change in accounting
principles shall be excluded.
"Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the
Company who (i) was a member of such Board of Directors on the
date hereof immediately after consummation of the
Recapitalization or (ii) was nominated for election or elected to
such Board of Directors with the approval of a majority of the
Continuing Directors who were either members of such Board at the
time of such nomination or election or are successor Continuing
Directors appointed by such Continuing Directors (or their
successors).
"Corporate Trust Office of the Trustee" shall be at the
address of the Trustee specified in Section 10.02 hereof or such
other address as to which the Trustee may give notice to the
Company.
"Credit Agent" means The Chase Manhattan Bank in its
capacity as Administrative Agent for the lenders party to the New
Credit Facility or any successor thereto or any person otherwise
appointed.
"Credit Facilities" means, with respect to the Company, one
or more debt facilities (including, without limitation, the New
Credit Facility) or commercial paper facilities with banks or
other institutional lenders providing for revolving credit loans,
term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed
to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified,
4
renewed, refunded, replaced or refinanced in whole or in part
from time to time. Indebtedness under Credit Facilities
outstanding on the Issue Date shall be deemed to have been
incurred on such date in reliance on the exceptions provided by
clause (i) of the definition of Permitted Debt.
"Default" means any event that is or with the passage of
time or the giving of notice or both would be an Event of
Default.
"Definitive Notes" means Notes that are in the form of
EXHIBIT A-1 attached hereto (but without including the text
referred to in footnotes 1 and 3 thereto).
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified
in Section 2.03 hereof as the Depositary with respect to the
Notes, until a successor shall have been appointed and become
such pursuant to Section 2.06 of this Indenture, and, thereafter,
"Depositary" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock that, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the
holder thereof), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or redeemable at the option of the Holder thereof,
in whole or in part, on or prior to the date on which the Notes
mature; provided, however, that a class of Capital Stock shall
not be Disqualified Stock hereunder solely as the result of any
maturity or redemption that is conditioned upon, and subject to,
compliance with Section 4.07 hereof; and provided, further, that
Capital Stock issued to any plan for the benefit of employees of
the Company or its subsidiaries or by any such plan to such
employees shall not constitute Disqualified Stock solely because
it may be required to be repurchased by the Company in order to
satisfy applicable statutory or regulatory obligations.
"DLJ" means Donaldson, Lufkin & Jenrette Securities Corporation.
"Equity Interests" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding
any debt security that is convertible into, or exchangeable for,
Capital Stock).
"Equity Offering" means an offering of common stock (other
than Disqualified Stock) of the Company, pursuant to an effective
registration statement filed with the Commission in accordance
with the Securities Act, other than an offering pursuant to Form
S-8 (or any successor thereto).
"Euroclear" means Morgan Guaranty Trust Company of New
York, the Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer by the Company to Holders
to exchange Senior Discount Notes for Exchange Senior Discount
Notes.
"Exchange Offer Registration Statement" has the meaning
set forth in the Registration Rights Agreement.
"Exchange Senior Discount Notes" means the Company's 13 1/8%
Senior Discount Debentures due 2008, which will be issued in
exchange for the Company's Senior Discount Notes.
5
"Existing Indebtedness" means Indebtedness of the Company
and its Subsidiaries (other than Indebtedness under the New
Credit Facility) in existence on the date of this Indenture,
until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated
interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging
Obligations; provided, however, that in no event shall any
amortization of deferred financing costs incurred in connection
with the Recapitalization be included in Fixed Charges), and (ii)
the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period,
and (iii) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or
Lien is called upon), and (iv) the product of (a) (without
duplication) (1) all dividends paid or accrued in respect of
Disqualified Stock which are not included in the interest expense
of such Person for tax purposes for such period and (2) all cash
dividend payments on any series of preferred stock of such Person
or any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests
(other than Disqualified Stock) of the Company, times (b) a
fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any
Person for any period, the ratio of the Consolidated Cash Flow of
such Person and its Restricted Subsidiaries for such period to
the Fixed Charges of such Person and its Restricted Subsidiaries
for such period. In the event that the Company or any of its
Restricted Subsidiaries incurs, assumes, Guarantees, repays or
redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee, repayment or redemption
of Indebtedness, or such issuance or redemption of preferred
stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be
deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow and Fixed Charges for
such reference period shall be calculated without giving effect
to clause (ii) of the proviso set forth in the definition of
Consolidated Net Income and shall reflect any pro forma expense
and cost reductions attributable to such acquisitions (to the
extent such expense and cost reduction would be permitted by the
Commission to be reflected in pro forma financial statements
included in a registration statement filed with the Commission),
and (ii) the Consolidated Cash Flow and Fixed Charges
attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and Consolidated
Cash Flow shall reflect any pro forma expense or cost reductions
relating to such discontinuance or disposition (to the extent
such expense or cost reductions would be permitted by the
Commission to be
6
reflected in pro forma financial statements included in a
registration statement filed with the Commission), and (iii) the
Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of
its Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which are in effect on the date
hereof; provided, however, that all reports and other financial
information provided by the Company to the Holders, the Trustee
and/or the Commission shall be prepared in accordance with GAAP,
as in effect on the date of such report or other financial
information.
"Global Notes" means the Rule 144A Global Notes, the
Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes and any Notes exchanged for any of the
foregoing in the Exchange Offer.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America for the
payment of which guarantee or obligations the full faith and
credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person,
the obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or the
value of foreign currencies.
"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any
indebtedness of such Person, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the
balance deferred and unpaid of the purchase price of any property
or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters
of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of
any date shall be (i) the accreted value thereof, in the case of
any Indebtedness that does not require current payments of
interest, and (ii) the principal amount thereof, together with
any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
7
"Investments" means, with respect to any Person, all
investments by such Person in other Persons (including
Affiliates) in the forms of direct or indirect loans (including
guarantees of Indebtedness or other obligations), advances or
capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with
all items that are or would be classified as investments on a
balance sheet prepared in accordance with GAAP. If the Company or
any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, such Person is no longer
a Restricted Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of
in an amount determined as provided in the final paragraph of
Section 4.07 hereof.
"Indenture" means this Indenture, as amended or
supplemented from time to time.
"Indirect Participant" means a Person who holds an
interest through a Participant.
"Initial Purchasers" means DLJ and Chase.
"Insolvency or Liquidation Proceedings" means (i) any
insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding,
relative to the Company or to the creditors of the Company, as
such, or to the assets of the Company or (ii) any liquidation,
dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary and involving insolvency or bankruptcy,
or (iii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
"Institutional Accredited Investor" means an "accredited
investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act.
"Issue Date" means the date on which notes are first issued
and authenticated under this Indenture.
"J. Crew Corp." means J. Crew Operating Corp., a Delaware corporation.
"Legal Holiday" means a Saturday, a Sunday or a day on
which banking institutions in the City of New York, the city in
which the principal Corporate Trust Office of the Trustee is
located or at a place of payment are authorized by law,
regulation or executive order to remain closed. If a payment date
is a Legal Holiday at a place of payment, payment shall be made
at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any
kind in respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in
the nature thereof, and any option or other agreement to sell or
give a security interest therein).
"Liquidated Damages" means all liquidated damages then
owing pursuant to Section 5 of the Registration Rights Agreement.
8
"Net Income" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with
any related provision for taxes on such gain (but not loss),
realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain
(but not loss).
"Net Proceeds" means the aggregate cash proceeds received
by the Company or any of its Restricted Subsidiaries in respect
of any Asset Sale (including, without limitation, any cash
received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking
into account any available tax credits or deductions and any tax
sharing arrangements), amounts required to be applied to the
repayment of Indebtedness (other than Indebtedness under the
Credit Facilities) secured by a Lien on the asset or assets that
were the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"New Credit Facility" means that certain credit facility,
dated as of October 17, 1997, by and among the Company, J. Crew
Corp. and Chase and DLJ, as agents and lenders, providing for up
to $70.0 million of term borrowings and $200.0 million of
revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended,
extended, modified, renewed, refunded, replaced or refinanced
from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which
neither the Company nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), or
(b) is directly or indirectly liable (as a guarantor or
otherwise), and (ii) as to which the lenders have been notified
in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries,
including the stock of such Unrestricted Subsidiary.
"Note Custodian" means the Trustee when serving as
custodian for the Depositary with respect to the Notes in global
form, or any successor entity thereto.
"Obligations" means, with respect to any Indebtedness, any
principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Offering" means the offer and sale of the Notes of the
Company as contemplated by the Offering Memorandum.
"Offerings" means the Offering and the concurrent
offering of the 10 3/8% Senior Subordinated Notes due 2007 by J.
Crew Corp. pursuant to an offering memorandum dated as of October
14, 1997.
"Offering Memorandum" means the Offering Memorandum, dated
October 14, 1997, relating to the Company's offering and
placement of the Senior Discount Notes.
9
"Officer" means, with respect to any Person, the Chairman
of the Board, the Chief Executive Officer, the President, the
Chief Operating Officer, the Chief Financial Officer, the
Treasurer, any Assistant Treasurer, the Controller, the Secretary
or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on
behalf of the Company by two Officers of the Company, one of whom
must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of the
Company, that meets the requirements of Section 10.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel
who is reasonably acceptable to the Trustee, that meets the
requirements of Section 10.05 hereof. The counsel may be an
employee of or counsel to the Company, any Subsidiary of the
Company or the Trustee.
"Participant" means, with respect to DTC, Euroclear or
Cedel, a Person who has an account with DTC, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear
and Cedel).
"Permitted Business" means the design, manufacture,
importing, exporting, distribution, marketing, licensing and
wholesale and retail sale of apparel, housewares, home
furnishings and related items, and businesses reasonably related
thereto.
"Permitted Investments" means (a) any Investment in the
Company or in a Restricted Subsidiary of the Company (other than
a Receivables Subsidiary); (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted
Subsidiary in a Person, if as a result of such Investment (i)
such Person becomes a Restricted Subsidiary of the Company (other
than a Receivables Subsidiary) or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Company or a Restricted Subsidiary of the Company (other than a
Receivables Subsidiary); (d) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset
Sale that was made pursuant to and in compliance with Section
4.10 hereof or any transaction not constituting an Asset Sale by
reason of the $1.0 million threshold contained in the definition
thereof; (e) any acquisition of assets solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) Hedging Obligations entered into in the ordinary
course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with this Indenture; (g)
loans and advances to employees and officers of the Company and
its Restricted Subsidiaries in the ordinary course of business
for bona fide business purposes not in excess of $5 million at
any one time outstanding; (h) additional Investments not to
exceed $25 million at any one time outstanding; (i) Investments
in securities of trade creditors or customers received in
settlement of obligations or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; and (j)
Investments by the Company or a Restricted Subsidiary in a
Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other Person, in each case, in connection with
a Qualified Receivables Transaction, provided, that any
Investment in any such Person is in the form of a Purchase Money
Note, any equity interest or interests in accounts receivable and
related assets generated by the Company or a Restricted
Subsidiary and transferred to any Person in connection with a
Qualified Receivables Transaction or any such Person owning such
accounts receivable.
"Permitted Liens" means (i) Liens existing as of the Issue
Date to the extent and in the manner such Liens are in effect on
the Issue Date; (ii) Liens on assets of Restricted Subsidiaries
securing Indebtedness of Restricted Subsidiaries permitted to be
incurred under this Indenture; (iii) Liens securing the Notes;
(iv) Liens securing the Company's obligations under the New
Credit Facility; (v) Liens of the
10
Company or a Wholly Owned Restricted Subsidiary on assets of any
Restricted Subsidiary of the Company; (vi) Liens securing
Permitted Refinancing Indebtedness which is incurred to refinance
any Indebtedness which has been secured by a Lien permitted under
this Indenture and which has been incurred in accordance with the
provisions hereof; provided, however, that such Liens (A) are not
materially less favorable to the Holders and are not materially
more favorable to the lienholders with respect to such Liens than
the Liens in respect of the Indebtedness being refinanced and (B)
do not extend to or cover any property or assets of the Company
or any of its Restricted Subsidiaries not securing the
Indebtedness so refinanced; (vii) Liens for taxes, assessments or
governmental charges or claims either (A) not delinquent or (B)
contested in good faith by appropriate proceedings and as to
which the Company or its Restricted Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to
GAAP; (viii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, supplies, materialmen, repairmen and
other Liens imposed by law incurred in the ordinary course of
business for sums not yet delinquent for a period of more than 60
days or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof; (ix) Liens incurred or
deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other
types of social security or similar obligations, including any
Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money); (x) judgment Liens not giving rise to an Event of Default
so long as such Lien is adequately bonded and any appropriate
legal proceedings which may have been duly initiated for the
review of such judgement shall not have been finally terminated
or the period within which such proceedings may be initiated
shall not have expired; (xi) easements, rights-of-way, zoning
restrictions and other similar charges or encumbrances in respect
of real property not interfering in any material respect with the
ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries; (xii) any interest or title of a lessor
under any lease, whether or not characterized as capital or
operating; provided that such Liens do not extend to any property
or assets which is not leased property subject to such lease;
(xiii) Liens securing Capital Lease Obligations and purchase
money Indebtedness incurred in accordance with Section 4.09
hereof; provided, however, that (A) the Indebtedness shall not
exceed the cost of such property or assets being acquired or
constructed and shall not be secured by any property or assets of
the Company or any Restricted Subsidiary of the Company other
than the property or assets of the Company or any Restricted
Subsidiary of the Company other than the property and assets
being acquired or constructed and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition
or construction; (xiv) Liens upon specific items of inventory or
other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created
for the account of such Person to facilitate the purchase,
shipment or storage of such inventory or other goods; (xv) Liens
securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof; (xvi)
Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements
of the Company or any of its Restricted Subsidiaries, including
rights of offset and set-off; (xvii) Liens securing Hedging
Obligations which Hedging Obligations relate to Indebtedness that
is otherwise permitted under this Indenture; (xviii) Liens
securing Acquired Debt incurred in accordance with Section 4.09
hereof; provided that (A) such Liens secured such Acquired Debt
at the time of and prior to the incurrence of such Acquired Debt
by the Company or a Restricted Subsidiary of the Company and were
not granted in connection with, or in anticipation of, the
incurrence of such Acquired Debt by the Company or a Restricted
Subsidiary of the Company and (B) such Liens do not extend to or
cover any property or assets of the Company or any of its
Restricted Subsidiaries other than the property or assets that
secured the Acquired Debt prior to the time such Indebtedness
11
became Acquired Debt of the Company or a Restricted Subsidiary of
the Company and are not more favorable to the lienholders than
those securing the Acquired Debt prior to the incurrence of such
Acquired Debt by the Company or a Restricted Subsidiary of the
Company; (xix) leases or subleases granted to others not
interfering in any material respect with the business of the
Company or its Restricted Subsidiaries; (xx) Liens arising out of
consignment or similar arrangements for the sale of goods entered
into by the Company or any Restricted Subsidiary in the ordinary
course of business; and (xxi) Liens or assets of a Receivables
Subsidiary arising in connection with a Qualified Receivables
Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness
of the Company or any of its Subsidiaries issued in exchange for,
or the net proceeds of which are used to extend, refinance,
prepay, retire, renew, replace, defease or refund Indebtedness of
the Company or any of its Subsidiaries (other than such
Indebtedness described in clauses (i), (vi), (vii), (viii), (ix),
(x), (xi), (xiii) and (xiv) of Section 4.09 hereof); provided
that: (i) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced,
renewed, prepaid, retired, replaced, defeased or refunded (plus
the amount of reasonable expenses incurred in connection
therewith including premiums paid, if any, to the holders
thereof); (ii) such Permitted Refinancing Indebtedness has a
final maturity date at or later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, prepaid, retired, replaced,
defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, prepaid, retired, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such
Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to
the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is
incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
"Principals" means TPG Partners II, L.P., a Delaware
limited partnership.
"Private Placement Legend" means the legend initially set
forth on the Senior Discount Notes in the form set forth in
Section 2.06(g) hereof.
"Purchase Money Note" means a promissory note evidencing a
line of credit, or evidencing other Indebtedness owed to the
Company or any Restricted Subsidiary in connection with a
Qualified Receivables Transaction, which note shall be repaid
from cash available to the maker of such note, other than amounts
required to be established as reserves pursuant to agreement,
amounts paid to investors in respect of interest, principal and
other amounts owing to such investors and amounts paid in
connection with the purchase of newly generated receivables.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A under the Securities Act.
"Qualified Proceeds" means any of the following or any
combination of the following: (i) cash, (ii) Cash Equivalents,
(iii) long-term assets that are used or useful in a Permitted
Business and (iv) the Capital Stock of any Person engaged
primarily in a Permitted Business if, in connection with the
receipt by the Company or any Restricted Subsidiary of the
Company of such Capital Stock, (a) such Person
12
becomes a Wholly Owned Restricted Subsidiary or (b) such Person
is merged, consolidated or amalgamated with or into, or transfers
or conveys substantially all of its assets to, or is liquidated
into, the Company or any Wholly-Owned Restricted Subsidiary of
the Company that is a Guarantor.
"Qualified Receivables Transaction" means any transaction
or series of transactions that may be entered into by the Company
or any Restricted Subsidiary pursuant to which the Company or any
Restricted Subsidiary may sell, convey or otherwise transfer to
(a) a Receivables Subsidiary (in the case of a transfer by the
Company or any Restricted Subsidiary) and (b) any other Person
(in the case of a transfer by a Receivables Subsidiary), or may
grant a security interest in, any accounts receivable (whether
now existing or arising in the future) of the Company or any
Restricted Subsidiary and any asset related thereto including,
without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred, or
in respect of which security interests are customarily granted,
in connection with asset securitization transactions involving
accounts receivable.
"Receivables" means, with respect to any Person or entity,
all of the following property and interests in property of such
Person or entity, whether now existing or existing in the future
or hereafter acquired or arising: (i) accounts, (ii) accounts
receivable incurred in the ordinary course of business, including
without limitation, all rights to payment created by or arising
from sales of goods, leases of goods or the rendition of services
no matter how evidenced, whether or not earned by performance,
(iii) all rights to any goods or merchandise represented by any
of the foregoing after creation of the foregoing, including,
without limitation, returned or repossessed goods, (iv) all
reserves and credit balances with respect to any such accounts
receivable or account debtors, (v) all letters of credit,
security, or guarantees for any of the foregoing, (vi) all
insurance policies or reports relating to any of the foregoing,
(vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all
books and records relating to any of the foregoing.
"Receivables Subsidiary" means a Wholly Owned Restricted
Subsidiary which engages in no activities other than in
connection with the financing of accounts receivables and which
is designated by the Board of Directors of the Company (as
provided below) as a Receivables Subsidiary (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any other Restricted
Subsidiary (excluding guarantees of obligations (other than the
principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (ii) is recourse to or obligates
the Company or any other Restricted Subsidiary in any way other
than pursuant to Standard Securitization Undertakings or (iii)
subjects any property or asset of the Company or any other
Restricted Subsidiary, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings, (b) with which neither the
Company nor any other Restricted Subsidiary has any material
contract, agreement, arrangement or understanding (except in
connection with a Purchase Money Note or Qualified Receivables
Transaction) other than on terms no less favorable to the Company
or such other Restricted Subsidiary than those that might be
obtained at the time from persons that are not Affiliates of the
Company, other than fees payable in the ordinary course of
business in connection with servicing accounts receivable, and
(c) to which neither the Company nor any other Restricted
Subsidiary has any obligation to maintain or preserve such
entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the
Board of Directors of the Company shall be evidenced by filing
with the Trustee a certified copy of the resolution of the Board
of Directors of the Company giving effect to such designation and
an Officers' Certificate certifying, to the best of such
officer's knowledge and belief after consulting with counsel,
that such designation complied with the foregoing conditions.
13
"Receivables Transaction" means (i) the sale or other
disposition to a third party of Receivables or an interest
therein, or (ii) the sale or other disposition of Receivables or
an interest therein to a Receivables Subsidiary followed by a
financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is
effected by such Receivables Subsidiary or by a third party to
whom such Receivables Subsidiary sells such Receivables or
interests therein); provided that in each of the foregoing, the
Company or its Subsidiaries receive at least 80% of the aggregate
principal amount of any Receivables financed in such transaction.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the date hereof, among the Company
and the Initial Purchasers.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S
Temporary Global Notes or the Regulation S Permanent Global Notes
as applicable.
"Regulation S Permanent Global Notes" means the permanent
global notes that do not contain the paragraphs referred to in
footnote 1 to the form of Note attached hereto as EXHIBIT A-2 and
that are deposited with and registered in the name of the
Depositary or its nominee, representing a series of Notes sold in
reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary
global notes that contain the paragraphs referred to in footnote
1 to the form of Note attached hereto as EXHIBIT A-2 and that are
deposited with and registered in the name of the Depositary or
its nominee, representing a series of Notes sold in reliance on
Regulation S.
"Related Party" with respect to any Principal means (A) any
controlling stockholder or a majority of (or more) owned
Subsidiary of such Principal or, in the case of an individual,
any spouse or immediate family member of such Principal, or (B)
any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding a majority (or more) controlling interest of
which consist of such Principal and/or such other Persons
referred to in the immediately preceding clause (A).
"Responsible Officer" when used with respect to the
Trustee, means any officer within the Corporate Trust
Administration of the Trustee (or any successor group of the
Trustee) or any other officer of the trustee customarily
performing functions similar to those performed by any of the
above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity
with the particular subject.
"Restricted Beneficial Interest" means any beneficial
interest of a Participant or Indirect Participant in the Rule
144A Global Note or the Regulation S Global Note.
"Restricted Broker Dealer" has the meaning set forth in
the Registration Rights Agreement.
"Restricted Global Notes" means the Rule 144A Global Notes
and the Regulation S Global Notes, all of which shall bear the
Private Placement Legend.
"Restricted Investment" means an Investment other than
a Permitted Investment.
14
"Restricted Subsidiary" means any Subsidiary of the
Company other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Notes" means the permanent global notes
that contain the paragraph referred to in footnote 1 and the
additional schedule referred to in footnote 3 to the form of the
Note attached hereto as EXHIBIT A-1, and that is deposited with
and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Rule 144A.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Subordinated Notes" means J. Crew Corp.'s 10 3/8%
Senior Subordinated Notes due 2007.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such
Regulation is in effect on the date hereof.
"Standard Securitization Undertakings" means
representations, warranties, covenants and indemnities entered
into by the Company or any Restricted Subsidiary which are
reasonably customary in an accounts receivable transaction.
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on
which such payment of interest or principal was scheduled to be
paid in the original documentation governing such Indebtedness,
and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more
than 50% of the total Voting Stock thereof is at the time owned
or controlled, directly or indirectly, by such Person or one or
more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of
which are such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.
Code Sections 77aaa-77bbbb), as amended, as in effect on the date
hereof.
"Transfer Restricted Securities" means Notes or beneficial
interests therein that bear or are required to bear the Private
Placement Legend.
"Trustee" means State Street Bank and Trust Company until a
successor replaces it in accordance with the applicable
provisions of this Indenture, and thereafter means the successor.
"Unrestricted Global Notes" means one or more Global Notes
that do not and are not required to bear the Private Placement
Legend.
15
"Unrestricted Subsidiary" means any Subsidiary of the
Company that is designated by the Board of Directors as an
Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Subsidiary: (a) is not party to any
agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary unless the terms of any such
agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not
Affiliates of the Company; (b) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (x) to subscribe for additional
Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any
specified levels of operating results; and (c) has not guaranteed
or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with a Trustee a
certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was
permitted by Section 4.07 hereof. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of this
Indenture and any Indebtedness of such Subsidiary shall be deemed
to be incurred by a Restricted Subsidiary of the Company as of
such date. The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be
an incurrence of Indebtedness and issuance of preferred stock by
a Restricted Subsidiary of the Company of any outstanding
Indebtedness or outstanding issue of preferred stock of such
Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness and preferred stock is
permitted to be incurred under Section 4.09 hereof, and (ii) no
Default or Event of Default would exist following such
designation.
"Voting Stock" of any Person as of any date means the
Capital Stock of such Person that is at the time entitled to vote
in the election of the Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to
any Indebtedness at any date, the number of years obtained by
dividing (i) the sum of the products obtained by multiplying (a)
the amount of each then remaining installment, sinking fund,
serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment, by
(ii) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Restricted
Subsidiary of such person all of the outstanding Capital Stock or
other ownership interests of which (other than directors'
qualifying shares) shall at the time be owned by such Person or
by one or more Wholly Owned Restricted Subsidiaries of such
Person or by such Person and one or more Wholly Owned
Subsidiaries of such Person.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"..................................4.11
"Asset Sale Offer".......................................4.10
"Change of Control Offer"................................4.13
"Change of Control Payment"..............................4.13
16
"Change of Control Payment Date".........................4.13
"Covenant Defeasance"....................................8.03
"Custodian"..............................................6.01
"DTC"....................................................2.03
"Electronic Message".....................................2.02
"Event of Default".......................................6.01
"Excess Proceeds"........................................4.10
"incur"..................................................4.09
"Legal Defeasance".......................................8.02
"Offer Amount"...........................................3.09
"Offer Period"...........................................3.09
"Pari Passu Indebtedness"................................4.10
"Paying Agent"...........................................2.03
"Payment Default"........................................6.01
"Permitted Debt".........................................4.09
"Purchase Date"..........................................3.09
"Registrar"..............................................2.03
"Repurchase Offer".......................................3.09
"Restricted Payments"....................................4.07
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA,
the provision is incorporated by reference in, and made a part
of, this Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company and any
successor obligor upon the Notes.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined
by the Commission rule under the TIA have the meanings so
assigned to them therein.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it herein;
17
(2) an accounting term not otherwise defined herein has
the meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in
the plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include substitute,
replacement or successor sections or rules adopted by
the Commission from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of EXHIBIT A-1 or EXHIBIT A-2
attached hereto. The Notes may have notations, legends or
endorsements required by law, stock exchange rule or usage. Each
Note shall be dated the date of its authentication. The Notes
initially shall be issued in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall
constitute, and are hereby expressly made, a part of this
Indenture and the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
(a) Global Notes. Notes offered and sold to QIBs in
reliance on Rule 144A shall be issued initially in the form of
Rule 144A Global Notes, which shall be deposited on behalf of the
purchasers of the Notes represented thereby with a custodian of
the Depositary, and registered in the name of the Depositary or a
nominee of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Rule 144A Global Notes may from
time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee as
hereinafter provided.
Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of the Regulation S Temporary Global
Note, which shall be deposited on behalf of the purchasers of the
Notes represented thereby with the Trustee, as custodian for the
Depositary, and registered in the name of the Depositary or the
nominee of the Depositary for the accounts of designated agents
holding on behalf of Euroclear or Cedel, duly executed by the
Company and authenticated by the Trustee as hereinafter provided.
The "40-day restricted period" (as defined in Regulation S) shall
be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary, together with copies of
certificates from Euroclear and Cedel certifying that they have
received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S
Temporary Global Notes (except to the extent of any beneficial
owners thereof who acquired an interest therein pursuant to
another exemption from registration under the Securities Act and
who will take delivery of a beneficial ownership interest in a
Rule 144A Global Note, all as contemplated by Section 2.06(a)(ii)
hereof), and (ii) an Officers' Certificate from the Company
certifying as to the same matters covered in clause (i) above.
18
Following the termination of the 40-day restricted period,
beneficial interests in the Regulation S Temporary Global Note
shall be exchanged for beneficial interests in Regulation S
Permanent Global Notes pursuant to the Applicable Procedures.
Simultaneously with the authentication of Regulation S Permanent
Global Notes, the Trustee shall cancel the Regulation S Temporary
Global Notes. The aggregate principal amount of the Regulation S
Temporary Global Notes and the Regulation S Permanent Global
Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee and the Depositary
or its nominee, as the case may be, in connection with transfers
of interest as hereinafter provided.
Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that
it shall represent the aggregate amount of outstanding Notes from
time to time endorsed thereon and that the aggregate amount of
outstanding Notes represented thereby may from time to time be
reduced or increased, as appropriate, to reflect exchanges,
redemptions and transfers of interests. Any endorsement of a
Global Note to reflect the amount of any increase or decrease in
the amount of outstanding Notes represented thereby shall be made
by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder
thereof as required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the
Euroclear System" and "Terms and Conditions Governing Use of
Euroclear" and the "Management Regulations" and "Instructions to
Participants" of Cedel shall be applicable to interests in the
Regulation S Temporary Global Notes and the Regulation S
Permanent Global Notes that are held by Participants through
Euroclear or Cedel. The Trustee shall have no obligation to
notify Holders of any such procedures or to monitor or enforce
compliance with the same.
Except as set forth in Section 2.06 hereof, the Global
Notes may be transferred, in whole and not in part, only to
another nominee of the Depositary or to a successor of the
Depositary or its nominee.
(b) Book-Entry Provisions. This Section 2.01(b) shall
apply to Rule 144A Global Notes and Regulation S Permanent Global
Notes deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in
accordance with this Section 2.01(b) and Section 2.02,
authenticate and deliver the Global Notes that (i) shall be
registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instructions or held
by the Trustee as custodian for the Depositary.
Participants shall have no rights either under this
Indenture with respect to any Global Note held on their behalf by
the Depositary or by the Note Custodian as custodian for the
Depositary or under such Global Note, and the Depositary may be
treated by the Company, the Trustee and any agent of the Company
or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written
certification, proxy or other authorization furnished by the
Depositary or impair, as between the Depositary and its
Participants, the operation of customary practices of such
Depositary governing the exercise of the rights of an owner of a
beneficial interest in any Global Note.
(c) Definitive Notes. Notes issued in certificated
form shall be substantially in the form of EXHIBIT A-1 attached
hereto (but without including the text referred to in footnotes 1
and 3 thereto).
19
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the
Company by manual or facsimile signature. The Company's seal
shall be reproduced on the Notes and may be in facsimile form.
If an Officer of the Company whose signature is on a Note
no longer holds that office at the time the Note is
authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee shall be
conclusive evidence that the Note has been authenticated under
this Indenture. The form of Trustee's certificate of
authentication to be borne by the Notes shall be substantially as
set forth in EXHIBIT A-1 OR EXHIBIT A-2 hereto.
The Trustee shall, upon a written order of the Company
signed by an Officer of the Company, authenticate Notes for
original issue up to an aggregate principal amount at maturity of
Notes stated in the Notes. The aggregate principal amount at
maturity of Notes outstanding at any time shall not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Notes. Unless limited by the terms
of such appointment, an authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate
of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency where
Notes may be presented for registration of transfer or for
exchange ("Registrar") and (ii) an office or agency where Notes
may be presented for payment ("Paying Agent"). The Registrar
shall keep a register of the Notes and of their transfer and
exchange. The Company may appoint one or more additional paying
agents. The term "Paying Agent" includes any additional paying
agent. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a
party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar or Paying Agent, the Trustee
shall act as such. The Company or any of its Subsidiaries may act
as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with
respect to the Global Notes. The Company initially appoints the
Trustee to act as the Registrar and Paying Agent with respect to
the Definitive Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent shall hold in
trust for the benefit of Holders or the Trustee all money held by
the Paying Agent for the payment of principal, premium or
Liquidated Damages, if any, or interest on the Notes, and shall
notify the Trustee of any default by the Company in making any
such payment. While any such
20
default continues, the Trustee may require a Paying Agent to pay
all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if
other than the Company or a Subsidiary) shall have no further
liability for the money. If the Company or a Subsidiary acts as
Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as
Paying Agent. Upon the occurrence of events specified in Section
6.01 (vii) or (viii) hereof, the Trustee shall serve as Paying
Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of
the names and addresses of all Holders and shall otherwise comply
with TIA Section 312(a). If the Trustee is not the Registrar, the
Company shall furnish to the Trustee at least seven (7) Business
Days before each interest payment date and at such other times as
the Trustee may request in writing, a list in such form and as of
such date as the Trustee may reasonably require of the names and
addresses of the Holders of Notes and the Company shall otherwise
comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. The transfer and
exchange of Global Notes or beneficial interests therein shall be
effected through the Depositary, in accordance with this
Indenture and the procedures of the Depositary therefor, which
shall include restrictions on transfer comparable to those set
forth herein to the extent required by the Securities Act.
Beneficial interests in a Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial
interest in the same Global Note in accordance with the transfer
restrictions set forth in the legend in subsection (g) of this
Section 2.06. Transfers of beneficial interests in the Global
Notes to Persons required to take delivery thereof in the form of
an interest in another Global Note shall be permitted as follows:
(i) Rule 144A Global Note to Regulation S Global Note.
If, at any time, an owner of a beneficial interest in a Rule
144A Global Note deposited with the Depositary (or the Trustee
as custodian for the Depositary) wishes to transfer its
beneficial interest in such Rule 144A Global Note to a Person who
is required or permitted to take delivery thereof in the form of
an interest in a Regulation S Global Note, such owner shall,
subject to the Applicable Procedures, exchange or cause the
exchange of such interest for an equivalent beneficial interest
in a Regulation S Global Note as provided in this Section
2.06(a)(i). Upon receipt by the Trustee of (1) instructions
given in accordance with the Applicable Procedures from a
Participant directing the Trustee to credit or cause to be
credited a beneficial interest in the Regulation S Global Note
in an amount equal to the beneficial interest in the Rule 144A
Global Note to be exchanged, (2) a written order given in
accordance with the Applicable Procedures containing information
regarding the Participant account of the Depositary and the
Euroclear or Cedel account to be credited with such increase,
and (3) a certificate in the form of EXHIBIT B-1 hereto given by
the owner of such beneficial interest stating that the transfer
of such interest has been made in compliance with the transfer
restrictions applicable to the Global Notes and pursuant to and
in accordance with Rule 903 or Rule 904 of Regulation S, then the
Trustee, as Registrar, shall instruct the Depositary to reduce or
cause to be reduced the aggregate principal amount at maturity of
the applicable Rule 144A Global Note and to increase or cause to
be increased the
21
aggregate principal amount at maturity of the
applicable Regulation S Global Note by the
principal amount at maturity of the beneficial
interest in the Rule 144A Global Note to be
exchanged or transferred, to credit or cause to
be credited to the account of the Person
specified in such instructions, a beneficial
interest in the Regulation S Global Note equal to
the reduction in the aggregate principal amount
at maturity of the Rule 144A Global Note, and to
debit, or cause to be debited, from the account
of the Person making such exchange or transfer
the beneficial interest in the Rule 144A Global
Note that is being exchanged or transferred.
(ii) Regulation S Global Note to Rule 144A Global
Note. If, at any time, after the expiration of
the 40-day restricted period, an owner of a
beneficial interest in a Regulation S Global Note
deposited with the Depositary or with the Trustee
as custodian for the Depositary wishes to
transfer its beneficial interest in such
Regulation S Global Note to a Person who is
required or permitted to take delivery thereof in
the form of an interest in a Rule 144A Global
Note, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of
such interest for an equivalent beneficial
interest in a Rule 144A Global Note as provided
in this Section 2.06(a)(ii). Upon receipt by the
Trustee of (1) instructions from Euroclear or
Cedel, if applicable, and the Depositary,
directing the Trustee, as Registrar, to credit or
cause to be credited a beneficial interest in the
Rule 144A Global Note equal to the beneficial
interest in the Regulation S Global Note to be
exchanged, such instructions to contain
information regarding the Participant account
with the Depositary to be credited with such
increase, (2) a written order given in accordance
with the Applicable Procedures containing
information regarding the participant account of
the Depositary and (3) a certificate in the form
of EXHIBIT B-2 attached hereto given by the owner
of such beneficial interest stating (A) if the
transfer is pursuant to Rule 144A, that the
Person transferring such interest in a Regulation
S Global Note reasonably believes that the Person
acquiring such interest in a Rule 144A Global
Note is a QIB and is obtaining such beneficial
interest in a transaction meeting the
requirements of Rule 144A and any applicable blue
sky or securities laws of any state of the United
States, (B) that the transfer complies with the
requirements of Rule 144 under the Securities
Act, (C) if the transfer is to an Institutional
Accredited Investor that such transfer is in
compliance with the Securities Act and a
certificate in the form of EXHIBIT C attached
hereto and, if such transfer is in respect of an
aggregate principal amount of less than $250,000,
an Opinion of Counsel acceptable to the Company
that such transfer is in compliance with the
Securities Act or (D) if the transfer is pursuant
to any other exemption from the registration
requirements of the Securities Act, that the
transfer of such interest has been made in
compliance with the transfer restrictions
applicable to the Global Notes and pursuant to
and in accordance with the requirements of the
exemption claimed, such statement to be supported
by an Opinion of Counsel from the transferee or
the transferor in form reasonably acceptable to
the Company and to the Registrar and in each
case, in accordance with any applicable
securities laws of any state of the United States
or any other applicable jurisdiction, then the
Trustee, as Registrar, shall instruct the
Depositary to reduce or cause to be reduced the
aggregate principal amount at maturity of such
Regulation S Global Note and to increase or cause
to be
22
increased the aggregate principal amount at
maturity of the applicable Rule 144A Global Note
by the principal amount at maturity of the
beneficial interest in the Regulation S Global
Note to be exchanged or transferred, and the
Trustee, as Registrar, shall instruct the
Depositary, concurrently with such reduction, to
credit or cause to be credited to the account of
the Person specified in such instructions a
beneficial interest in the applicable Rule 144A
Global Note equal to the reduction in the
aggregate principal amount at maturity of such
Regulation S Global Note and to debit or cause to
be debited from the account of the Person making
such transfer the beneficial interest in the
Regulation S Global Note that is being exchanged
or transferred.
(b) Transfer and Exchange of Definitive Notes. When
Definitive Notes are presented by a Holder to the Registrar with
a request to register the transfer of the Definitive Notes or to
exchange such Definitive Notes for an equal principal amount of
Definitive Notes of other authorized denominations, the Registrar
shall register the transfer or make the exchange as requested
only if the Definitive Notes are presented or surrendered for
registration of transfer or exchange, are endorsed and contain a
signature guarantee or accompanied by a written instrument of
transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney and contains a signature
guarantee, duly authorized in writing and the Registrar received
the following documentation (all of which may be submitted by
facsimile):
(i) in the case of Definitive Notes that are Transfer
Restricted Securities, such request shall be
accompanied by the following additional
information and documents, as applicable:
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder
for registration in the name of such Holder,
without transfer, or such Transfer
Restricted Security is being transferred to
the Company or any of its Subsidiaries, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto); or
(B) if such Transfer Restricted Security is
being transferred to a QIB in accordance
with Rule 144A under the Securities Act or
pursuant to an exemption from registration
in accordance with Rule 144 under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification to that effect from
such Holder (in substantially the form of
EXHIBIT B-3 hereto); or
(C) if such Transfer Restricted Security is
being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule
904 under the Securities Act, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto);
(D) if such Transfer Restricted Security is
being transferred to an Institutional
Accredited Investor in reliance on an
exemption from the registration requirements
of the Securities Act other than those
listed in subparagraphs (B) and (C) above, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto), a certification substantially
in the form of EXHIBIT C hereto, and, if
such transfer is in respect of an aggregate
principal amount of Notes of less than
$250,000,
23
an Opinion of Counsel acceptable to the Company
that such transfer is in compliance with the
Securities Act; or
(E) if such Transfer Restricted Security is
being transferred in reliance on any other
exemption from the registration requirements
of the Securities Act, a certification to
that effect from such Holder (in
substantially the form of EXHIBIT B-3
hereto) and an Opinion of Counsel from such
Holder or the transferee reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer
is in compliance with the Securities Act.
(c) Transfer of a Beneficial Interest in a Rule 144A
Global Note or Regulation S Permanent Global Note for a
Definitive Note.
(i) Any Person having a beneficial interest in a Rule
144A Global Note or Regulation S Permanent Global Note may upon
request, subject to the Applicable Procedures, exchange such
beneficial interest for a Definitive Note. Upon receipt by the
Trustee of written instructions or such other form of
instructions as is customary for the Depositary (or Euroclear
or Cedel, if applicable), from the Depositary or its nominee on
behalf of any Person having a beneficial interest in a
Rule 144A Global Note or Regulation S Permanent Global Note,
and, in the case of a Transfer Restricted Security, the
following additional information and documents (all of which
may be submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certification to that effect from such
Person (in substantially the form of EXHIBIT
B-4 hereto);
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule
144A under the Securities Act or pursuant to
an exemption from registration in accordance
with Rule 144 under the Securities Act or
pursuant to an effective registration
statement under the Securities Act, a
certification to that effect from the
transferor (in substantially the form of
EXHIBIT B-4 hereto);
(C) if such beneficial interest is being
transferred to an Institutional Accredited
Investor, pursuant to a private placement
exemption from the registration requirements
of the Securities Act (and based on an
opinion of counsel if the Company so
requests), a certification to that effect
from such Holder (in substantially the form
of EXHIBIT B-4 hereto) and a certificate
from the applicable transferee (in
substantially the form of EXHIBIT C hereto);
or
(D) if such beneficial interest is being
transferred in reliance on any other
exemption from the registration requirements
of the Securities Act, a certification to
that effect from the transferor (in
substantially the form of EXHIBIT B-4
hereto) and an Opinion of Counsel from the
transferee or the transferor reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer
is in compliance with the
24
Securities Act, in which case the Trustee or
the Note Custodian, at the direction of the
Trustee, shall, in accordance with the
standing instructions and procedures
existing between the Depositary and the Note
Custodian, cause the aggregate principal
amount of Rule 144A Global Notes or
Regulation S Permanent Global Notes, as
applicable, to be reduced accordingly and,
following such reduction, the Company shall
execute and, the Trustee shall authenticate
and deliver to the transferee a Definitive
Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a
beneficial interest in a Rule 144A Global Note or
Regulation S Permanent Global Note, as
applicable, pursuant to this Section 2.06(c)
shall be registered in such names and in such
authorized denominations as the Depositary,
pursuant to instructions from its direct or
Indirect Participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver
such Definitive Notes to the Persons in whose
names such Notes are so registered. Following any
such issuance of Definitive Notes, the Trustee,
as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate
principal amount at maturity of the applicable
Global Note to reflect the transfer.
(d) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than
the provisions set forth in subsection (g) of this Section 2.06),
a Global Note may not be transferred as a whole except by the
Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary.
(e) Transfer and Exchange of a Definitive Note for
Beneficial Interests in a Global Note. A Definitive Note may not
be transferred or exchanged for a beneficial interest in a Global
Note.
(f) Authentication of Definitive Notes in Absence of
Depositary. If at any time:
(i) the Depositary for the Notes notifies the Company
that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes and a
successor Depositary for the Global Notes is not
appointed by the Company within 90 days after
delivery of such notice; or
(ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the
issuance of Definitive Notes under this
Indenture,
then the Company shall execute, and the Trustee shall, upon
receipt of an authentication order in accordance with Section
2.02 hereof, authenticate and deliver, Definitive Notes in an
aggregate principal amount equal to the principal amount of the
Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs
(ii), (iii) and (iv), each Note certificate
evidencing Global Notes and Definitive Notes (and
all Notes issued in exchange therefor or
substitution thereof) shall bear the legend (the
"Private Placement Legend") in substantially the
following form:
25
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER
SECTION 5 OF THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY
NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON THE EXEMPTION FROM
THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF
THE COMPANY THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1)(a) INSIDE THE UNITED STATES TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT), IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED
STATES TO A FOREIGN PERSON IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 904 UNDER
THE SECURITIES ACT, (d) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) OF THE SECURITIES
ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), THAT PRIOR TO SUCH TRANSFER,
FURNISHED THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS (THE FORM OF WHICH CAN BE
OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, OR (e) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND, IN
THE CASE OF CLAUSE (b), (c), (d) OR (e),
BASED UPON AN OPINION OF COUNSEL IF THE
COMPANY SO REQUESTS), (2) TO THE COMPANY OR
(3) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer
Restricted Security represented by a Global Note)
pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement
under the Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
26
Transfer Restricted Security upon receipt of
a certification from the transferring holder
substantially in the form of EXHIBIT B-4
hereto; and
(B) in the case of any Transfer Restricted
Security represented by a Global
Note, such Transfer Restricted Security
shall not be required to bear the legend set
forth in (i) above, but shall continue to
be subject to the provisions of Section
2.06(a) and (b) hereof; provided, however,
that with respect to any request for an exchange
of a Transfer Restricted Security that
is represented by a Global Note for a
Definitive Note that does not bear
the legend set forth in (i) above, which
request is made in reliance upon Rule 144,
the Holder thereof shall certify in writing
to the Registrar that such request is
being made pursuant to Rule 144 (such
certification to be substantially in
the form of EXHIBIT B-4 hereto).
(iii) Upon any sale or transfer of a Transfer
Restricted Security (including any Transfer
Restricted Security represented by a Global Note)
in reliance on any exemption from the
registration requirements of the Securities Act
(other than exemptions pursuant to Rule 144A or
Rule 144 under the Securities Act) in which the
Holder or the transferee provides an Opinion of
Counsel to the Company and the Registrar in form
and substance reasonably acceptable to the
Company and the Registrar (which Opinion of
Counsel shall also state that the transfer
restrictions contained in the legend are no
longer applicable):
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such
Transfer Restricted Security shall not be
required to bear the legend set forth in (i)
above, but shall continue to be subject to
the provisions of Section 2.06(a) and (b)
hereof.
(iv) Notwithstanding the foregoing, upon the
consummation of the Exchange Offer in accordance
with the Registration Rights Agreement, the
Company shall issue and, upon receipt of an
authentication order in accordance with Section
2.02 hereof, the Trustee shall authenticate (i)
one or more Unrestricted Global Notes in
aggregate principal amount equal to the principal
amount of the Restricted Beneficial Interests
tendered for acceptance by persons that are not
(x) broker-dealers, (y) Persons participating in
the distribution of the Notes or (z) Persons who
are affiliates (as defined in Rule 144) of the
Company and accepted for exchange in the Exchange
Offer and (ii) Definitive Notes that do not bear
the Private Placement Legend in an aggregate
principal amount equal to the principal amount of
the Restricted Definitive Notes accepted for
exchange in the Exchange Offer. The Trustee shall
be entitled to rely upon the authentication order
when authenticating the Notes without any
obligation to verify that the restrictions in the
preceding sentence have been complied with.
Concurrently with the issuance of such Notes, the
Trustee shall cause the aggregate principal
amount of the
27
applicable Restricted Global Notes to be reduced
accordingly and the Company shall execute and the
Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive
Notes so accepted Definitive Notes in the
appropriate principal amount.
(v) Original Issue Discount Legend. Each Note shall
bear a legend in substantially the following form:
"FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE
DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF
THIS SECURITY, THE ISSUE PRICE IS $529.98, THE
AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $470.02, THE
ISSUE DATE IS OCTOBER 17, 1997 AND THE YIELD TO
MATURITY IS 13.125% PER ANNUM."
(h) Cancellation and/or Adjustment of Global Notes. At such
time as all beneficial interests in Global Notes have been
exchanged for Definitive Notes, redeemed, repurchased or
cancelled, all Global Notes shall be returned to or retained and
cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial
interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or cancelled, the principal amount of Notes
represented by such Global Note shall be reduced accordingly and
an endorsement may be made on such Global Note, by the Trustee or
the Notes Custodian, at the direction of the Trustee, to reflect
such reduction but any failure to make such an endorsement shall
not affect the reductions.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the
Trustee shall authenticate Global Notes and
Definitive Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder for
any registration of transfer or exchange, but the
Company may require payment of a sum sufficient
to cover any stamp or transfer tax or similar
governmental charge payable in connection
therewith (other than any such stamp or transfer
taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10,
3.06, 4.10, 4.13 and 9.05 hereto).
(iii) All Global Notes and Definitive Notes issued upon
any registration of transfer or exchange of
Global Notes or Definitive Notes shall be the
valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits
under this Indenture, as the Global Notes or
Definitive Notes surrendered upon such
registration of transfer or exchange.
(iv) The Registrar shall not be required: (A) to
issue, to register the transfer of or to exchange
Notes during a period beginning at the opening of
fifteen (15) Business Days before the day of any
selection of Notes for redemption under Section
3.02 hereof and ending at the close of business
on the day of selection, (B) to register the
transfer of or to exchange any Note so selected
for redemption
28
in whole or in part, except the unredeemed
portion of any Note being redeemed in part, or
(C) to register the transfer of or to exchange a
Note between a record date and the next
succeeding interest payment date.
(v) Prior to due presentment for the registration of
a transfer of any Note, the Trustee, any Agent
and the Company may deem and treat the Person in
whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving
payment of principal of and interest on such
Notes and for all other purposes, and neither the
Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes and
Definitive Notes in accordance with the
provisions of Section 2.02 hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the
Company and the Trustee receives evidence to their satisfaction
of the destruction, loss or theft of any Note, the Company shall
issue and the Trustee, upon the written order of the Company
signed by an Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the
Trustee and the Company to protect the Company, the Trustee, any
Agent and any authenticating agent from any loss that any of them
may suffer if a Note is replaced. The Company and the Trustee may
charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the
Company and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Notes duly
issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes
authenticated by the Trustee except for those cancelled by it,
those delivered to it for cancellation, those reductions in the
interest in a Global Note effected by the Trustee in accordance
with the provisions hereof, and those described in this Section
2.08 as not outstanding. Except as set forth in Section 2.09
hereof, a Note does not cease to be outstanding because the
Company or an Affiliate of the Company holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it
ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Note is held by a bona fide
purchaser.
If the principal amount of any Note is considered paid
under Section 4.01 hereof, it ceases to be outstanding and
interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary
or an Affiliate of any thereof) holds, on a redemption date or
maturity date, money sufficient to pay Notes payable on that
date, then on and after that date such Notes shall be deemed to
be no longer outstanding and shall cease to accrue interest.
29
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required
principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company, or by any Affiliate of
the Company shall be considered as though not outstanding, except
that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent,
only Notes shown on the Trustee's register as being owned shall
be so disregarded. Notwithstanding the foregoing, Notes that are
to be acquired by the Company or an Affiliate of the Company
pursuant to an exchange offer, tender offer or other agreement
shall not be deemed to be owned by such entity until legal title
to such Notes passes to such entity.
SECTION 2.10. TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company
may prepare and the Trustee shall authenticate temporary Notes
upon a written order of the Company signed by an Officer of the
Company. Temporary Notes shall be substantially in the form of
Definitive Notes but may have variations that the Company
considers appropriate for temporary Notes. Without unreasonable
delay, the Company shall prepare and the Trustee shall upon
receipt of a written order of the Company signed by an Officer
authenticate Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver to the Trustee for
cancellation any Notes previously authenticated and delivered
hereunder or which the Company may have acquired in any manner
whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. All Notes surrendered for registration
of transfer, exchange or payment, if surrendered to any Person
other than the Trustee, shall be delivered to the Trustee. The
Trustee and no one else shall cancel all Notes surrendered for
registration of transfer, exchange, payment, replacement or
cancellation. Subject to Section 2.07 hereof, the Company may not
issue new Notes to replace Notes that it has redeemed or paid or
that have been delivered to the Trustee for cancellation. All
cancelled Notes held by the Trustee shall be destroyed and
certification of their destruction delivered to the Company,
unless by a written order, signed by an Officer of the Company,
the Company shall direct that cancelled Notes be returned to it.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the
Notes, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted
interest, to the Persons who are Holders on a subsequent special
record date, which date shall be at the earliest practicable date
but in all events at least five (5) Business Days prior to the
payment date, in each case at the rate provided in the Notes and
in Section 4.01 hereof. The Company shall fix or cause to be
fixed each such special record date and payment date, and shall
promptly thereafter, notify the Trustee of any such date. At
least fifteen (15) days before the special record date, the
Company (or the Trustee, in the name and at the expense of the
Company) shall mail or cause to be mailed to Holders a notice
that states the special record date, the related payment date and
the amount of such interest to be paid.
30
SECTION 2.13. RECORD DATE.
The record date for purposes of determining the identity of
Holders of the Notes entitled to vote or consent to any action by
vote or consent authorized or permitted under this Indenture
shall be determined as provided for in TIA Section 316 (c).
SECTION 2.14. COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
SECTION 2.15. CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number,
and if it does so, the Trustee shall use the CUSIP number in
notices of redemption or exchange as a convenience to Holders;
provided that any such notice may state that no representation is
made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be
placed only on the other identification numbers printed on the
Notes. The Company shall promptly notify the Trustee of any
change in the CUSIP number.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall
furnish to the Trustee, at least 45 days but not more than 60
days before a redemption date (unless a shorter period is
acceptable to the Trustee) an Officers' Certificate setting forth
(i) the Section of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the
principal amount of Notes to be redeemed and (iv) the redemption
price.
If the Company is required to make an offer to purchase
Notes pursuant to Section 4.10 or 4.13 hereof, it shall furnish
to the Trustee, at least 45 days before the scheduled purchase
date, an Officers' Certificate setting forth (i) the section of
this Indenture pursuant to which the offer to purchase shall
occur, (ii) the terms of the offer, (iii) the principal amount of
Notes to be purchased, (iv) the purchase price, (v) the purchase
date and (vi) and further setting forth a statement to the effect
that (a) the Company or one its Subsidiaries has affected an
Asset Sale and there are Excess Proceeds aggregating more than
$10.0 million or (b) a Change of Control has occurred, as
applicable.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED OR PURCHASED.
If less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the
Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and
appropriate; provided that no Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part
31
only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed.
A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption
become due on the date fixed for redemption. On and after the
redemption date, interest and Liquidated Damages cease to accrue
on Notes or portions of them called for redemption unless the
Company defaults in making the redemption payment.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a
redemption date, the Company shall mail or cause to be mailed by
first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price for the Notes and accrued interest,
and Liquidated Damages, if any;
(3) if any Note is being redeemed in part, the
portion of the principal amount of such Notes to
be redeemed and that, after the redemption date,
upon surrender of such Note, a new Note or Notes
in principal amount equal to the unredeemed
portion shall be issued upon surrender of the
original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such
redemption payment, interest and Liquidated
Damages, if any, on Notes called for redemption
ceases to accrue on and after the redemption
date;
(7) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for
redemption are being redeemed; and
(8) that no representation is made as to the
correctness or accuracy of the CUSIP number, if
any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at the Company's expense;
provided, however, that the Company shall have delivered to the
Trustee, at least 45 days prior to the redemption date (or such
shorter period as shall be acceptable to the Trustee), an
Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in the
notice as provided in the preceding paragraph. The notice mailed
in the manner herein provided shall be conclusively presumed to
have been duly given whether or not the Holder receives such
notice. In any case, failure to give such notice by mail or any
defect in the notice to the Holder of any Note shall not affect
the validity of the proceeding for the redemption of any other
Note.
32
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with
Section 3.03 hereof, Notes called for redemption become
irrevocably due and payable on the redemption date at the
redemption price plus accrued and unpaid interest and Liquidated
Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 10:00 a.m. (New York City time) on each
redemption date or the date on which Notes must be accepted for
purchase pursuant to Section 4.10 or 4.13, the Company shall
deposit with the Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued and unpaid
interest and Liquidated Damages, if any, on all Notes to be
redeemed or purchased on that date. The Trustee or the Paying
Agent shall promptly return to the Company upon its written
request any money deposited with the Trustee or the Paying Agent
by the Company in excess of the amounts necessary to pay the
redemption price of (including any applicable premium), accrued
interest and Liquidated Damages, if any, on all Notes to be
redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale
Offer or Change of Control Offer are paid or if the Company has
deposited with the Trustee or Paying Agent money sufficient to
pay the redemption or purchase price of, unpaid and accrued
interest and Liquidated Damages, if any, on all Notes to be
redeemed or purchased, on and after the redemption or purchase
date interest and Liquidated Damages, if any, shall cease to
accrue on the Notes or the portions of Notes called for
redemption or tendered and not withdrawn in an Asset Sale Offer
or Change of Control Offer (regardless of whether certificates
for such securities are actually surrendered). If a Note is
redeemed or purchased on or after an interest record date but on
or prior to the related interest payment date, then any accrued
and unpaid interest and Liquidated Damages, if any, shall be paid
to the Person in whose name such Note was registered at the close
of business on such record date. If any Note called for
redemption shall not be so paid upon surrender for redemption
because of the failure of the Company to comply with the
preceding paragraph, interest shall be paid on the unpaid
principal and Liquidated Damages, if any, from the redemption or
purchase date until such principal and Liquidated Dames, if any,
is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case, at the rate provided in the
Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the
Company shall issue and, upon the Company's written request, the
Trustee shall authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed
portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in the next paragraph, the Notes
will not be redeemable at the Company's option prior to October
15, 2002. Thereafter, the Notes will be subject to redemption at
any time at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed
during the twelve-month period beginning on October 15 of the
years indicated below:
33
Year Percentage
2002 .................................... 106.563%
2003 .................................... 104.375%
2004 .................................... 102.188%
2005 and thereafter...................... 100.000%
(b) Notwithstanding the foregoing, at any time on or prior
to October 15, 2000, the Company may (but shall not have the
obligation to) redeem, on one or more occasions, up to an
aggregate of 35% of the principal amount of Notes originally
issued at a redemption price equal to 113.125% of the Accreted
Value thereof, plus Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of one or more Equity
Offerings; provided that at least 65% of the aggregate principal
amount at maturity of the Notes originally issued remain
outstanding immediately after the occurrence of such redemption;
and provided further, that such redemption shall occur within 90
days of the date of the closing of such Equity Offering.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09, 4.10 and 4.13
hereof, the Company shall not be required to make mandatory
redemption or sinking fund payments with respect to the Notes.
SECTION 3.09. REPURCHASE OFFERS.
In the event that the Company shall be required to commence
an offer to all Holders to repurchase Notes (a "Repurchase
Offer") pursuant to Section 4.10 hereof, an "Asset Sale," or
pursuant to Section 4.13 hereof, a "Change of Control Offer," the
Company shall follow the procedures specified below.
A Repurchase Offer shall commence no earlier than 30 days
and no later than 60 days after a Change of Control (unless the
Company is not required to make such offer pursuant to Section
4.13(c) hereof) or an Asset Sale Offer Triggering Event (as
defined below), as the case may be, and remain open for a period
of twenty (20) Business Days following its commencement and no
longer, except to the extent that a longer period is required by
applicable law (the "Offer Period"). No later than five (5)
Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount
of Notes required to be purchased pursuant to Section 4.10
hereof, in the case of an Asset Sale Offer, or 4.13 hereof, in
the case of a Change of Control Offer (the "Offer Amount") or, if
less than the Offer Amount has been tendered, all Notes tendered
in response to the Repurchase Offer. Payment for any Notes so
purchased shall be made in the same manner as interest payments
are made.
If the Purchase Date is on or after an interest record date
and on or before the related interest payment date, any accrued
and unpaid interest and Liquidated Damages, if any, shall be paid
to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest or
Liquidated Damages, if any, shall be payable to Holders who
tender Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company
shall send, by first class mail, a notice to the Trustee and each
of the Holders, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such
Holders to tender Notes pursuant to such Repurchase
34
Offer. The Repurchase Offer shall be made to all Holders. The
notice, which shall govern the terms of the Repurchase Offer,
shall describe the transaction or transactions that constitute
the Change of Control or Asset Sale Offer Triggering Event as the
case may be and shall state:
(a) that the Repurchase Offer is being made pursuant to
this Section 3.09 and Section 4.10 or 4.13 hereof, as the
case may be, and the length of time the Repurchase Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
(d) that, unless the Company defaults in making such
payment, any Note accepted for payment pursuant to the
Repurchase Offer shall cease to accrue interest and
Liquidated Damages, if any, after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant
to a Repurchase Offer shall be required to surrender the
Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note, duly completed, or
transfer by book-entry transfer, to the Company, the
Depositary, or the Paying Agent at the address specified in
the notice not later than the close of business on the last
day of the Offer Period;
(f) that Holders shall be entitled to withdraw their
election if the Company, the Depositary or the Paying
Agent, as the case may be, receives, not later than the
expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of
the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is
withdrawing his election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the
Company shall select the Notes to be purchased on a pro
rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in
denominations of $1,000, or integral multiples thereof,
shall be purchased); and
(h) that Holders whose Notes were purchased only in part
shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered (or
transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each
Purchase Date, the Company shall irrevocably deposit with the
Trustee or Paying Agent in immediately available funds the
aggregate purchase price with respect to a principal amount of
Notes equal to the Offer Amount, together with accrued and unpaid
interest and Liquidated Damages, if any, thereon, to be held for
payment in accordance with the terms of this Section 3.09. On the
Purchase Date, the Company shall, to the extent lawful, (i)
accept for payment, on a pro rata basis to the extent necessary,
the Offer Amount of Notes or portions thereof tendered pursuant
to the Repurchase Offer, or if less than the Offer Amount has
been tendered, all Notes tendered, (ii) deliver or cause the
Paying Agent or depository, as the case may be, to deliver to the
Trustee Notes so accepted and (iii) deliver to the Trustee an
Officers' Certificate stating that such Notes or portions thereof
were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the
Paying Agent, as the case may be, shall promptly (but in any case
not later than three (3) Business Days after the Purchase Date)
mail or deliver
35
to each tendering Holder an amount equal to the purchase price of
the Notes tendered by such Holder and accepted by the Company for
purchase, plus any accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Purchase Date and the Company
shall promptly issue a new Note, and the Trustee, shall
authenticate and mail or deliver such new Note, to such Holder,
equal in principal amount to any unpurchased portion of such
Holder's Notes surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce in a newspaper of
general circulation or in a press release provided to a
nationally recognized financial wire service the results of the
Repurchase Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09,
any purchase pursuant to this Section 3.09 shall be made pursuant
to the provisions of Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in
the manner provided in the Notes. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and
in the amounts set forth in the Registration Rights Agreement.
Principal, premium and Liquidated Damages, if any, and interest,
shall be considered paid for all purposes hereunder on the date
the Paying Agent if other than the Company or a Subsidiary
thereof holds, as of 10:00 a.m. (New York City time) money
deposited by the Company in immediately available funds and
designated for and sufficient to pay all such principal, premium
and Liquidated Damages, if any, and interest, then due.
The Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue
principal at the rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent lawful; it
shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable
grace period) at the same rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the
City of New York an office or agency (which may be an office of
the Trustee or an affiliate of the Trustee or Registrar) where
Notes may be surrendered for registration of transfer or for
exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or
more other offices or agencies where the Notes may be presented
or surrendered for any or all such purposes and may from time to
time rescind such designations; provided, however, that no such
designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough
of Manhattan, the
36
City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other
office or agency.
The Company hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Company in
accordance with Section 2.03 hereof.
SECTION 4.03. COMMISSION REPORTS.
From and after the earlier of the effective date of the
Exchange Offer Registration Statement or the effective date of
the Shelf Registration Statement, whether or not required by the
rules and regulations of the Commission, so long as any Notes are
outstanding, the Company shall furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial
condition and results of operation of the Company and its
consolidated subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would
be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports in each case within
the time periods set forth in the Commission's rules and
regulations. In addition, whether or not required by the rules
and regulations of the Commission, the Company shall file a copy
of all such information and reports with the Commission for
public availability (unless the Commission will not accept such a
filing) and make such information available to securities
analysts and prospective investors upon request. In addition, at
all times that the Commission does not accept the filings
provided for in the preceding sentence, the Company has agreed
that, for so long as any Notes remain outstanding, it shall
furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
The financial information to be distributed to Holders of
Notes shall be filed with the Trustee and mailed to the Holders
at their addresses appearing in the register of Notes maintained
by the Registrar, within 90 days after the end of the Company's
fiscal years and within 45 days after the end of each of the
first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient
number of copies of all reports and other documents and
information and, if requested by the Company and at the Company's
expense, the Trustee will deliver such reports to the Holders
under this Section 4.03.
SECTION 4.04. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 90 days
after the end of each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under
the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and
fulfilled its obligations under this Indenture (including, with
respect to any Restricted Payments made during such year, the
basis upon which the calculations required by Section 4.07 hereof
were computed, which calculations may be based on the Company's
latest available financial statements), and further stating, as
to each such Officer signing such certificate, that, to the best
of his or her knowledge, each entity has kept, observed,
performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance
of any of the terms, provisions and conditions of this Indenture
(or, if a Default or Event of Default shall have occurred,
describing all such Defaults or Events of Default of which he or
she may
37
have knowledge and what action the Company is taking or proposes
to take with respect thereto) and that, to the best of his or her
knowledge, no event has occurred and remains in existence by
reason of which payments on account of the principal of, premium
or Liquidated Damages, if any, or interest on the Notes is
prohibited or if such event has occurred, a description of the
event and what action the Company is taking or proposes to take
with respect thereto.
So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, in
connection with the year-end financial statements delivered
pursuant to Section 4.03 hereof, the Company shall use its best
efforts to deliver a written statement of the Company's
independent public accountants (who shall be a firm of
established national reputation) that in making the examination
necessary for certification of such financial statements, nothing
has come to their attention that would lead them to believe that
the Company has violated any provisions of Article Four or
Section 5.01 hereof or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or
indirectly to any Person for any failure to obtain knowledge of
any such violation. In the event that such written statement of
the Company's independent public accountants cannot be obtained,
the Company shall deliver an Officers' Certificate certifying
that it has used its best efforts to obtain such statements and
was unable to do so.
The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of any Default or Event of Default, an Officers'
Certificate specifying such Default or Event of Default and what
action the Company is taking or proposes to take with respect
thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency all material taxes,
assessments and governmental levies, except such as are contested
in good faith and by appropriate proceedings and with respect to
which appropriate reserves have been taken in accordance with
GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any
time hereafter in force, that may affect the covenants or the
performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law
has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
From and after the date hereof the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly
or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without
limitation, any such dividend, distribution or other payment made
as a payment in connection with any merger or consolidation
involving the Company), other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of
the Company or dividends or distributions payable to the Company
or any Wholly Owned Subsidiary of the Company; (ii) purchase,
redeem or otherwise
38
acquire or retire for value (including, without limitation, any
such purchase, redemption or other acquisition or retirement for
value made as a payment in connection with any merger or
consolidation involving the Company) any Equity Interests of the
Company or any Restricted Subsidiary (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of
the Company); (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes, except
a payment of interest or principal at Stated Maturity; or (iv)
make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at
the time of and immediately after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted
Payment and after giving pro forma effect thereto have been
permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of Section 4.09
hereof; and
(c) such Restricted Payment, together with the
aggregate amount of all other Restricted Payments made by
the Company and its Restricted Subsidiaries after the date
hereof (excluding Restricted Payments permitted by clauses
(ii), (iii), (iv) and (vi) of the next succeeding
paragraph), is less than the sum (without duplication) of
(i) 50% of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the
date hereof to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate
Qualified Proceeds received by the Company from
contributions to the Company's capital or the issue or sale
subsequent to the date hereof of Equity Interests of the
Company (other than Disqualified Stock) or of Disqualified
Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that
have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made
after the date hereof is sold for Qualified Proceeds or
otherwise liquidated or repaid (including, without
limitation, by way of a dividend or other distribution, a
repayment of a loan or advance or other transfer of assets)
for in whole or in part, the lesser of (A) the Qualified
Proceeds with respect to such Restricted Investment, (less
the cost of disposition, if any) and (B) the initial amount
of such Restricted Investment, plus (iv) upon the
redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the lesser of (x) the fair market value of such
Subsidiary or (y) the aggregate amount of all Investments
made in such Subsidiary subsequent to the Issue Date by the
Company and its Restricted Subsidiaries, plus (v) $15.0
million.
The foregoing provisions will not prohibit (i) the payment
of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have
complied with the provisions hereof; (ii) the redemption,
repurchase, retirement, defeasance or other acquisition of any
subordinated Indebtedness or Equity Interests of the Company in
exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, other Equity Interests of the
Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance
39
or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (iii) the defeasance, redemption,
repurchase, retirement or other acquisition of subordinated
Indebtedness in exchange for, or with the net cash proceeds from,
an incurrence of Permitted Refinancing Indebtedness; (iv) the
payment of any dividend (or the making of a similar distribution
or redemption) by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis; (v)
so long as no Default or Event of Default shall have occurred and
is continuing, the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company, or
any Restricted Subsidiary of the Company, held by any member of
the Company's (or any of its Restricted Subsidiaries')
management, employees or consultants pursuant to any management,
employee or consultant equity subscription agreement or stock
option agreement in effect as of the date hereof; provided that
the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed the sum of
(A) $10.0 million and (B) the aggregate cash proceeds received by
the Company from any reissuance of Equity Interests by the
Company to members of management of the Company and its
Restricted Subsidiaries (provided that the cash proceeds referred
to in this clause (B) shall be excluded from clause (c)(ii), of
the preceding paragraph); (vi) distributions made by the Company
on the date hereof, the proceeds of which are utilized solely to
consummate the Recapitalization; and (vii) so long as no Default
or Event of Default has occurred and is continuing, the
declaration and payment of dividends to holders of any class or
series of Disqualified Stock of the Company issued after the date
hereof in accordance with Section 4.09.
The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation
would not cause a Default or an Event of Default. For purposes of
making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to
be Restricted Payments at the time of such designation and will
reduce the amount available for Restricted Payments under the
first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount
equal to the greater of (i) the net book value of such
Investments at the time of such designation and (ii) the fair
market value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
The amount of (i) all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred
or issued by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment and (ii)
Qualified Proceeds (other than cash) shall be the fair market
value on the date of receipt thereof by the Company of such
Qualified Proceeds. The fair market value of any non-cash
Restricted Payment and Qualified Proceeds shall be determined by
the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee, such determination to be based
upon an opinion or appraisal issued by an accounting, appraisal
or investment banking firm of national standing if such fair
market value exceeds $10.0 million. Not later than the date of
making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the
calculations required by Section 4.07 were computed, together
with a copy of any fairness opinion or appraisal required by this
Indenture.
SECTION 4.08. DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Restricted
Subsidiary to (i)(a) pay dividends or make any other
distributions to the
40
Company or any of its Restricted Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation
in, or measured by, its profits, or (b) pay any Indebtedness owed
to the Company or any of its Restricted Subsidiaries, (ii) make
loans or advances to the Company or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for
such encumbrances or restrictions existing under or by reason of
(a) the New Credit Facility and the Senior Subordinated Notes, as
in effect as of the date hereof, and any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings
are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the New Credit
Facility or the Senior Subordinated Notes, as the case may be, as
in effect on the date hereof, (b) the Indenture and the Notes,
(c) applicable law or any applicable rule, regulation or order,
(d) any agreement or instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such agreement or instrument
was created or entered into in connection with or in
contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or
assets of the Person, so acquired, (e) by reason of customary
non-assignment provisions in leases, licenses, encumbrances,
contracts or similar assets entered into or acquired in the
ordinary course of business and consistent with past practices,
(f) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so
acquired, (g) any Purchase Money Note, or other Indebtedness or
contractual requirements incurred with respect to a Qualified
Receivables Transaction relating to a Receivables Subsidiary, (h)
Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being
refinanced and (i) contracts for the sale of assets containing
customary restrictions with respect to a Subsidiary pursuant to
an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired
Debt) and that the Company will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue
any shares of preferred stock; provided, however, that the
Company or any of its Restricted Subsidiaries may incur
Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or
such Disqualified Stock is issued would have been at least 1.75
to 1.0, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had
been issued, as the case may be, at the beginning of such
four-quarter period.
The Company shall not incur any Indebtedness that is
contractually subordinated in right of payment to any other
Indebtedness of the Company unless such Indebtedness is also
contractually subordinated in right of payment to the Notes on
substantially identical terms; provided, however, that no
Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the
Company solely by virtue of being unsecured.
41
The provisions of the first paragraph of this covenant will
not apply to the incurrence of any of the following items of
Indebtedness (collectively, "Permitted Debt"):
(i) Indebtedness of the Company and its Restricted
Subsidiaries under Credit Facilities; provided that the aggregate
principal amount of all Indebtedness (with letters of credit
being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted
Subsidiaries thereunder) outstanding under all Credit Facilities
after giving effect to such incurrence, including all
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (i), does not
exceed an amount equal to $270.0 million less the aggregate
principal of all principal payments thereunder constituting
permanent reductions of such Indebtedness pursuant to and in
accordance with Section 4.10.
(ii) the incurrence by the Company of Indebtedness
represented by the Notes and the incurrence by J. Crew Corp. and
its Subsidiaries of Indebtedness represented by the Senior
Subordinated Notes and any guarantee thereof;
(iii) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by Capital
Lease Obligations, mortgage financings or purchase money
obligations, in each case incurred for the purpose of financing
all or any part of the purchase price or cost of construction or
improvements of property used in the business of the Company or
such Restricted Subsidiary, in an aggregate principal amount not
to exceed $25.0 million at any time outstanding;
(iv) other Indebtedness of the Company and its
Restricted Subsidiaries outstanding on the Issue Date;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness (other than intercompany Indebtedness)
that is permitted by this Indenture to exist or be incurred;
(vi) the incurrence of intercompany Indebtedness (A)
between or among the Company and any Wholly Owned Restricted
Subsidiaries of the Company or (B) by a Restricted Subsidiary
that is not a Wholly Owned Restricted Subsidiary to the Company
or a Wholly Owned Subsidiary; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of
all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results
in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary of the Company
and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned
Restricted Subsidiary of the Company shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the
Company or such Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of the
Restricted Subsidiaries of Hedging Obligations that are incurred
for the purpose of fixing or hedging (i) interest rate risk with
respect to any floating rate Indebtedness that is permitted by
the terms of this Indenture to be outstanding or (ii) the value
of foreign currencies purchased or received by the Company in the
ordinary course of business;
(viii) Indebtedness incurred in respect of workers'
compensation claims, self-insurance obligations, performance,
surety and similar bonds and completion guarantees provided by
the Company or a Restricted Subsidiary in the ordinary course of
business;
42
(ix) Indebtedness arising from guarantees of Indebtedness
of the Company or any Subsidiary or the agreements of the Company
or a Restricted Subsidiary providing for indemnification,
adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of
any business, assets or Capital Stock of a Restricted Subsidiary,
or other guarantees of Indebtedness incurred by any person
acquiring all or any portion of such business, assets or Capital
Stock of a Restricted Subsidiary for the purpose of financing
such acquisition, provided that the maximum aggregate liability
in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(x) Indebtedness of a Receivables Subsidiary that is not
recourse to the Company or any other Restricted Subsidiary of the
Company (other than Standard Securitization Undertakings)
incurred in connection with a Qualified Receivables Transaction;
(xi) the guarantee by any Restricted Subsidiary of the
Company of Indebtedness of any Restricted Subsidiary of the
Company that was permitted to be incurred by another provision of
this covenant;
(xii) the incurrence by the Company or any of its
Restricted Subsidiaries of Acquired Debt in an aggregate
principal amount at any time outstanding not to exceed $20.0
million;
(xiii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary
course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence; and
(xiv) the incurrence by the Company or any Restricted
Subsidiary of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time
outstanding, including all indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this
clause (xiv), not to exceed $30.0 million.
For purposes of determining compliance with this covenant,
in the event that an item of Indebtedness meets the criteria of
more than one of the categories of Permitted Debt described in
clauses (i) through (xiv) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness
in any manner that complies with this covenant and such item of
Indebtedness will be treated as having been incurred pursuant to
only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, the accretion of accreted value and
the payment of interest in the form of additional Indebtedness
will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant.
SECTION 4.10. ASSETS SALES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless (i)
the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests
issued or sold or otherwise disposed of and (ii) at least 75% of
the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of (A) cash or Cash
Equivalents or (B) Qualified Proceeds; provided that the
aggregate fair market value of Qualified Proceeds (other than
cash or Cash Equivalents), which may be received in consideration
for asset sales pursuant
43
to this clause (ii)(B) shall not exceed $7.5 million since the
Issue Date; provided, further, that the amount of (x) any
liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes)
that are assumed by the transferee of any such assets pursuant to
a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash
(to extent of the cash received) within 180 days following the
closing of such Asset Sale, shall be deemed to be cash for
purposes of this provision.
Within 395 days after the receipt of any Net Proceeds from
an Asset Sale, the Company or its Restricted Subsidiaries may
apply such Net Proceeds, at its option, (a) to repay Indebtedness
of a Restricted Subsidiary of the Company, or (b) to the
investment in, or the making of a capital expenditure or the
acquisition of other property or assets in each case used or
useable in a Permitted Business, or Capital Stock of any Person
primarily engaged in a Permitted Business if, as a result of the
acquisition by the Company or any Restricted Subsidiary thereof,
such Person becomes a Restricted Subsidiary, or (c) as
combination of the uses described in clauses (a) and (b). Pending
the final application of any such Net Proceeds, the Company or
its Restricted Subsidiaries may temporarily reduce Indebtedness
of a Restricted Subsidiary of the Company or otherwise invest
such Net Proceeds in any manner that is not prohibited by this
Indenture. Any Net Proceeds from Asset Sales other than 20% of
the net proceeds from any sale of all or substantially all of the
Capital Stock or assets of the Company's Popular Club Plan
business or Clifford & Wills business (as each such business is
constituted on the Issue Date) which have been utilized to repay,
redeem, repurchase or otherwise retire outstanding Notes, that
are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0
million (an "Asset Sale Offer Triggering Event"), the Company
will be required to make an offer to all Holders of Notes and, to
the extent required by the terms of any Indebtedness ranking pari
passu with the Notes ("Pari Passu Indebtedness") to all holders
of such Pari Passu Indebtedness (an "Asset Sale Offer"), to
purchase the maximum principal amount of Notes and any such Pari
Passu Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase (or,
in the case of repurchases of Notes prior to October 15, 2002, at
a purchase price equal to 100% of the Accreted Value thereof plus
Liquidated Damages, as of the date of repurchase), in accordance
with the procedures set forth in Section 3.09 hereof or such Pari
Passu Indebtedness, as applicable. To the extent that the
aggregate principal amount at maturity of Notes (or Accreted
Value, as the case may be) and any such Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or its Restricted Subsidiaries may use any
remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount at maturity (or Accreted Value, as the
case may be) of Notes and any such Pari Passu Indebtedness
surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a
pro rata basis. Upon completion of such Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to or Investment in,
or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from,
or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction
is on terms that are no
44
less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers
to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v)
transactions with suppliers or other purchasers or sales of goods
or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture
agreements) and otherwise in accordance with the terms of this
Indenture which are fair to the Company, in the good faith
determination of the Board of Directors of the Company or the
senior management of the Company and are on terms at least as
favorable as might reasonably have been obtained at such time
from an unaffiliated party, (w) any employment agreements, stock
option or other compensation agreements or plans (and the payment
of amounts or the issuance of securities thereunder) and other
reasonable fees, compensation, benefits and indemnities paid or
entered into by the Company or any of its Restricted Subsidiaries
in the ordinary course of business of the Company or such
Restricted Subsidiary to or with the officers, directors or
employees of the Company or its Restricted Subsidiaries, (x)
transactions between or among the Company and/or its Restricted
Subsidiaries, (y) sales or other transfers or dispositions of
accounts receivable and other related assets customarily
transferred in an asset securitization transaction involving
accounts receivable to a Receivables Subsidiary in a Qualified
Receivables Transaction, and acquisitions of Permitted
Investments in connection with a Qualified Receivables
Transaction and (z) Restricted Payments (other than Restricted
Investments) that are permitted by Section 4.07 hereof, in each
case, shall not be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or suffer to exist any Lien securing Indebtedness
or trade payables on any asset now owned or hereafter acquired,
or any income or profits therefrom or assign or convey any right
to receive income therefrom for purposes of security, except
Permitted Liens, unless (x) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of
payment to the Notes, the Notes are secured by a Lien on such
property, assets or proceeds that is senior in priority to such
Liens, (with the same relative priority as such subordinate or
junior Indebtedness shall have with respect to the Notes) and (y)
in all other cases, the Notes are secured by such Lien on an
equal and ratable basis.
SECTION 4.13. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder of
Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof)
of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to
101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase or, in the case of repurchases of Notes prior to
October 15, 2002 at a purchase price equal to 101% of the
Accreted Value thereof as of the date of repurchase plus
Liquidated Damages, if any, (the "Change of Control Payment").
Within 65 days following any Change of Control, the Company shall
mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering
to repurchase Notes on the
45
date specified in such notice, which date shall be no earlier
than 30 days (or such shorter time period as may be permitted
under applicable law, rules and regulations) and no later than 60
days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by Section
3.09 hereof and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of
Control. To the extent that the provisions of any securities laws
or regulations conflict with the provisions hereof relating to
such Change of Control Offer, the Company will comply with the
applicable securities laws and regulations and shall not be
deemed to have breached its obligations described hereof by
virtue thereof.
On the Change of Control Payment Date, the Company shall,
to the extent lawful, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of
Notes or portions thereof being purchased by the Company. The
Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail (or cause to be
transferred by book entry) to each Holder a new Notes equal in
principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in
a principal amount of $1,000 or an integral multiple thereof. The
Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of
Control Payment Date in accordance with Section 3.09 hereof.
The Change of Control provisions described above will be
applicable whether or not any other provisions of this Indenture
are applicable. Except as described above with respect to a
Change of Control, this Indenture does not contain provisions
that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
Prior to complying with the provisions of the preceding
paragraphs, but in any event within 90 days following a Change of
Control, the Company shall either repay all outstanding
Indebtedness of its Subsidiaries or obtain the requisite
consents, if any, under the New Credit Facility and the Senior
Subordinated Notes to permit the repurchase of the Notes required
by this section. The Company will not be required to purchase any
Debentures until it has complied with the preceding sentence, but
the Company's failure to make a Change of Control Offer when
required or to purchase tendered Notes when tendered would
constitute an Event of Default under this Indenture.
The Company shall not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise
in compliance with the requirements set forth herein applicable
to a Change of Control Offer made by the Company and purchases
all Notes validly tendered and not withdrawn under such Change of
Control Offer.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Section 4.13 and Article 5 hereof, as the case
may be, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its
corporate existence and the corporate, partnership or other
existence of each of its Subsidiaries in accordance with the
respective
46
organizational documents (as the same may be amended from time to
time) of the Company or any such Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company
and its Subsidiaries; provided that the Company shall not be
required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its
Subsidiaries, if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
SECTION 4.15. BUSINESS ACTIVITIES.
The Company shall not, and shall not permit any Restricted
Subsidiary to engage in any business other than a Permitted
Businesses.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OF SALE OF ASSETS.
The Company shall not consolidate or merge with or into
(whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of its properties or assets in one or more
related transactions, to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving
any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation or
limited liability company organized or existing under the laws of
the United States, any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or
merger (if other than the Company) or the Person to which such
sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all the obligations of
the Company under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction no Default or
Event of Default exists; and (iv) except in the case of a merger
of the Company with or into a Wholly Owned Restricted Subsidiary
of the Company (other than a Receivables Subsidiary), the Company
or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which
such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made at the time of such transaction
and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of Section 4.09 hereof.
For purposes of this Section 5.01, the sale, lease,
conveyance, assignment, transfer, or other disposition of all or
substantially all of the properties and assets of one or more
Subsidiaries of the Company, which properties and assets, if held
by the Company instead of such Subsidiaries, would constitute all
or substantially all of the properties and assets of the Company
on a consolidated basis, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the
Company. Clause (iv) of the foregoing paragraph will not prohibit
(a) a merger between the Company and a Wholly Owned Subsidiary of
the Company created for the purpose of holding the Capital Stock
of the Company, (b) a merger between the Company and a Wholly
Owned Restricted Subsidiary of the Company or (c) a merger
between the Company and an Affiliate incorporated solely for the
purpose of reincorporating the
47
Company in another State of the United States so long as, in the
case of each of clause (a), (b) and (c), the amount of
Indebtedness of the Company and its Restricted Subsidiaries is
not increased thereby.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with
Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so
that from and after the date of such consolidation, merger, sale,
lease, conveyance or other disposition, the provisions of this
Indenture referring to the "Company" shall refer instead to the
successor corporation and not to the Company), and shall exercise
every right and power of the Company under this Indenture with
the same effect as if such successor Person had been named as the
Company herein; provided, that, (i) solely for the purposes of
computing Consolidated Net Income for purposes of clause (b) of
the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any person other than the Company and its Subsidiaries
shall be included only for periods subsequent to the effective
time of such merger, consolidation, combination or transfer of
assets; and (ii) in the case of any sale, assignment, transfer,
lease, conveyance, or other disposition of less than all of the
assets of the predecessor Company, the predecessor Company shall
not be released or discharged from the obligation to pay the
principal of or interest and Liquidated Damages, if any, on the
Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(i) default for 30 days in the payment when due of interest on,
or Liquidated Damages with respect to, the Notes;
(ii) default in payment when due of principal of or premium,
if any, on the Notes;
(iii) failure by the Company or any of its Restricted
Subsidiaries for 30 days after notice by the Trustee
or by the Holders of at least 25% in principal amount
of the Notes then outstanding to comply with the
provisions described under Sections 4.07, 4.09, 4.10
or 4.13;
(iv) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice from the Trustee
or by the Holders of at least 25% in principal amount
of the Notes then outstanding to comply with any of
its other agreement in this Indenture or the Notes;
(v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or
is created after the date hereof, which default (a) is
caused by a failure to pay principal of such
Indebtedness after giving effect to any grace period
48
provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its stated
maturity and, in each case, the principal amount of
any such Indebtedness, together with the principal
amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $20.0
million or more;
(vi) failure by the Company or any of its Subsidiaries to
pay final judgments aggregating in excess of $20.0
million (net of any amounts with respect to which a
reputable and credit worthy insurance company has
acknowledged liability in writing), which judgments
are not paid, discharged or stayed for a period of 60
days;
(vii) the Company or any of its Significant Subsidiaries or
any group of Subsidiaries that, taken as a whole would
constitute a Significant Subsidiary, pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against
it in an involuntary case,
(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors, or
(e) generally is not paying its debts as they become due; or
(viii) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that:
(a) is for relief against the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an
involuntary case;
(b) appoints a Custodian of the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or
substantially all of the property of the Company
or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary; or
(c) orders the liquidation of the Company or any of
its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for
60 consecutive days.
The term "Custodian" means any receiver, trustee, assignee,
liquidator or similar official under any Bankruptcy Law.
SECTION 6.02. ACCELERATION.
49
If any Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the
then outstanding Notes may declare all the Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default as described in clause (vii) or (viii) of
Section 6.01 hereof, all outstanding Notes will become due and
payable without further action or notice. Upon such declaration,
all principal of and accrued interest and Liquidated Damages, if
any, on (if on or after October 15, 2002) or Accreted Value of
and Liquidated Damages, if any, on (if prior to October 15, 2002)
the Notes shall be due and payable immediately. Holders of the
Notes may not enforce this Indenture or the Notes except as
provided in this Indenture. In the event of a declaration of
acceleration of the Notes because an Event of Default has
occurred and is continuing as a result of the acceleration of any
Indebtedness described in clause (v) of Section 6.01 hereof, the
declaration of acceleration of the Notes shall be automatically
annulled if the holders of any Indebtedness described in clause
(v) of Section 6.01 hereof have rescinded the declaration of
acceleration in respect of such Indebtedness within 30 days of
the date of such declaration and if (y) the annulment of the
acceleration of the Notes would not conflict with any judgment or
decree of a court of competent jurisdiction and (z) all existing
Events of Default, except nonpayment of principal or interest on
the Notes that became due solely because of the acceleration of
the Notes, have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the
Trustee may pursue any available remedy to collect the payment of
principal, premium, if any, interest and Liquidated Damages, if
any, on the Notes or to enforce the performance of any provision
of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a
Note in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
The Company is required to deliver to the Trustee annually
a statement regarding compliance with this Indenture, and the
Company is required upon becoming aware of any Default or Event
of Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf
of the Holders of all of the Notes waive any existing Default or
Event of Default and its consequences under this Indenture
(including any acceleration (other than an automatic acceleration
resulting from an Event of Default under clause (vii) or (viii)
of Section 6.01 hereof) except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the
Notes (other than as a result of an acceleration), which shall
require the consent of all of the Holders of the Notes then
outstanding.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then
outstanding Notes may direct the time, method and place of
conducting any proceeding for exercising any remedy available to
the Trustee or exercising any trust power conferred on it.
However, (i) the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines
may be unduly prejudicial to the
50
rights of other Holders of Notes or that may involve the Trustee
in personal liability, and (ii) the Trustee may take any other
action deemed proper by the Trustee which is not inconsistent
with such direction. In case an Event of Default shall occur
(which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man
in the conduct of his own affairs. Notwithstanding any provision
to the contrary in this Indenture, the Trustee is under no
obligation to exercise any of its rights or powers under this
Indenture at the request of any Holder of Notes, unless such
Holder shall offer to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default or the Trustee
receives such notice from the Company;
(b) the Holders of at least 25% in principal amount of the
then outstanding Notes make a written request to the
Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and,
if requested, provide to the Trustee indemnity
satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60
days after receipt of the request and the offer and,
if requested, the provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not
give the Trustee a direction inconsistent with the
request.
A Holder of a Note may not use this Indenture to prejudice
the rights of another Holder of a Note or to obtain a preference
or priority over another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of principal,
premium, if any, interest, and Liquidated Damages, if any, on
such Note, on or after the respective due dates expressed in such
Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without
the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(i) or (ii)
hereof occurs and is continuing, the Trustee is authorized to
recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal of,
premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be
sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
51
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel) and the Holders of the
Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its
property and shall be entitled and empowered to collect, receive
and distribute any money or other securities or property payable
or deliverable upon the conversion or exchange of the Notes or on
any such claims and any Custodian in any such judicial proceeding
is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section
7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof out of the estate in any such
proceeding, shall be denied for any reason, payment of the same
shall be secured by a Lien on, and shall be paid out of, any and
all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article
6, it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for
amounts due under Section 7.07 hereof, including payment of all
compensation, expense and liabilities incurred, and all advances
made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid
on the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, ratably, without preference or
priority of any kind, according to the amounts due and payable on
the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, respectively;
Third: without duplication, to the Holders for any
other Obligations owing to the Holders under this Indenture and
the Notes; and
Fourth: to the Company or to such party as a court of
competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as a Trustee, a court in its
discretion may require the
52
filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against
any party litigant in the suit, having due regard to the merits
and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the
Trustee, a suit by a Holder of a Note pursuant to Section 6.07
hereof, or a suit by Holders of more than 10% in principal amount
of the then outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing
of which a Responsible Officer of the Trustee has
knowledge, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise,
as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this
Indenture or the TIA and the Trustee need perform
only those duties that are specifically set forth
in this Indenture or the TIA and no others, and
no implied covenants or obligations shall be read
into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of
the statements and the correctness of the
opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However,
the Trustee shall examine the certificates and
opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for
its own negligent action, its own negligent failure to
act, or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible
Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to
any action it takes or omits to take in good
faith in accordance with a direction received by
it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every
provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c)
of this Section 7.01.
53
(e) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any
liability. The Trustee shall be under no obligation to
exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such
Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any
money received by it except as the Trustee may agree
in writing with the Company. Money held in trust by
the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely on the truth of the
statements and correctness of the opinions contained
in, and shall be protected from acting or refraining
from acting upon, any document believed by it to be
genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it
may require an Officers' Certificate or an Opinion of
Counsel or both. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance
on such Officers' Certificate or Opinion of Counsel. Prior
to taking, suffering or admitting any action, the
Trustee may consult with counsel of the Trustee's
own choosing and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization
and protection from liability in respect of any action
taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes
to be authorized or within the rights or powers
conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this
Indenture, any demand, request, direction or notice
from the Company shall be sufficient if signed by an
Officer of the Company.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this
Indenture at the request or direction of any of the
Holders unless such Holders shall have offered to the
Trustee reasonable security or indemnity satisfactory
to the Trustee against the costs, expenses and
liabilities that might be incurred by it in compliance
with such request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may
become the owner of Notes and may otherwise deal with the Company
or any Affiliate of the Company with the same rights it would
have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such
conflict within 90 days, apply to the Commission for permission
to continue as Trustee
54
or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11
hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture
or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes or any money paid to the Company
or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application
of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital
herein or any statement in the Notes or any other document in
connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing
and if it is known to a Responsible Officer of the Trustee, the
Trustee shall mail to Holders of Notes a notice of the Default or
Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment on any Note
pursuant to Section 6.01(i) or (ii) hereof, the Trustee may
withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes
remain outstanding, the Trustee shall mail to the Holders of the
Notes a brief report dated as of such reporting date that
complies with TIA Section 313(a) (but if no event described in TIA
Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also
shall comply with TIA Section 313(b). The Trustee shall also transmit
by mail all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the
Holders of Notes shall be mailed to the Company and filed with
the Commission and each stock exchange on which the Company has
informed the Trustee in writing the Notes are listed in
accordance with TIA Section 313(d). The Company shall promptly notify
the Trustee when the Notes are listed on any stock exchange and
of any delisting thereof.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and
services hereunder. To the extent permitted by law, the Trustee's
compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it arising out of or
in connection with the acceptance or administration of its duties
under this Indenture, including the costs and expenses of
enforcing this Indenture against the Company (including this
Section 7.07) and defending itself against any claim (whether
asserted by the Company or any Holder
55
or any other person) or liability in connection with the exercise
or performance of any of its powers or duties hereunder except to
the extent any such loss, liability or expense may be
attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall
not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07
shall survive the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section
7.07, the Trustee shall have a Lien prior to the Notes on all
money or property held or collected by the Trustee, except that
held in trust to pay principal, interest and Liquidated Damages,
if any, on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture and the resignation
or removal of the Trustee.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.01 (vii) or (viii)
hereof occurs, the expenses and the compensation for the services
(including the fees and expenses of its agents and counsel) are
intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of
a successor Trustee shall become effective only upon the
successor Trustee's acceptance of appointment as provided in this
Section 7.08.
The Trustee may resign in writing at any time and be
discharged from the trust hereby created by so notifying the
Company. The Holders of a majority in principal amount of the
then outstanding Notes may remove the Trustee by so notifying the
Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or
an order for relief is entered with respect to the Trustee
under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall
promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in
principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by
the Company.
56
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring
Trustee, the Company, or the Holders of at least 10% in principal
amount of the then outstanding Notes may petition any court of
competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee, after written request by any Holder of a
Note who has been a Holder of a Note for at least six months,
fails to comply with Section 7.10 hereof, such Holder of a Note
may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Company.
Thereupon, the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all
the rights, powers and the duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its
succession to the Holders of the Notes. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the
successor Trustee, provided that all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in
Section 7.07 hereof. Notwithstanding replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under
Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee or any Agent consolidates, merges or
converts into, or transfers all or substantially all of its
corporate trust business to, another corporation, the successor
corporation without any further act shall be the successor
Trustee or any Agent, as applicable.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the
United States of America or of any state thereof that is
authorized under such laws to exercise corporate trustee power,
that is subject to supervision or examination by federal or state
authorities. The Trustee and its direct parent shall at all times
have a combined capital surplus of at least $50.0 million as set
forth in its most recent annual report of condition.
This Indenture shall always have a Trustee who satisfies
the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee
is subject to TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to
the extent indicated therein.
57
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate,
at any time, elect to have either Section 8.02 or Section 8.03
hereof be applied to all Notes then outstanding upon compliance
with the conditions set forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.02, the Company shall,
subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, be deemed to have been discharged from their
respective obligations with respect to all Notes then outstanding
on the date the conditions set forth below are satisfied ("Legal
Defeasance"). For this purpose, Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the Notes outstanding, which shall
thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 and the other Sections of this Indenture referred to
in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee,
on demand of and at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive payments in respect of the principal
amount at maturity or Accreted Value (as applicable), premium, if
any, and interest and Liquidated Damages on such Notes when such
payments are due from the trust referred to in Section 8.04(a);
(b) the Company's obligations with respect to such Notes under
Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 4.02 and 4.03
hereof; (c) the rights, powers, trusts, duties and immunities of
the Trustee and the Company's obligations in connection
therewith; and (d) the provisions of this Section 8.02.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of
the option applicable to this Section 8.03, the Company shall,
subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, be released from its obligations under the
covenants contained in Article 5 and in Sections 4.03, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13 and 5.01 hereof with respect
to the outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Notes shall thereafter be deemed not "outstanding" for
the purposes of any direction, waiver, consent or declaration or
act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means
that, with respect to the outstanding Notes, the Company or any
of its Subsidiaries may omit to comply with and shall have no
liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the
remainder of this Indenture and such Notes shall be unaffected
thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03,
subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(iii) through (v) hereof shall
not constitute Events of Default.
58
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of
either Section 8.02 or Section 8.03 hereof to the outstanding
Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders of the Notes,
cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as shall be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay the principal amount at maturity of or
Accreted Value (as applicable) of, premium, if any, and interest
and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(b) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A)
the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (B) since the date
hereof, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, subject to customary
assumptions and exclusions, the Holders of the outstanding Notes
shall not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and shall be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Company shall
have delivered to the Trustee an opinion of counsel in
the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and
exclusions, the Holders of the outstanding Notes shall
not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance
and shall be subject to federal income tax on the same
amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance
had not occurred;
(d) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than
a Default or Event of Default resulting from the
financing of amounts to be applied to such deposit) or
insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the
period ending on the 91st day after the date of
deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a
default under any material agreement or instrument
(other than this Indenture) to which the Company or
any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
(f) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that, subject to
customary assumptions and exclusions (which
assumptions and exclusions shall not relate to the
operation of Section 547 of the United States
Bankruptcy Code or any
59
analogous New York State law provision), after the
91st day following the deposit, the trust funds shall
not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not
made by the Company with the intent of preferring the
Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or
others; and
(h) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND U.S. GOVERNMENT SECURITIES TO BE HELD
IN TRUST; OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 8.05, the "Trustee") pursuant to Section
8.04 hereof in respect of the then outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the
Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Notes of all sums due and to become due
thereon in respect of principal, premium, if any, interest and
Liquidated Damages, if any, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash
or non-callable Government Securities deposited pursuant to
Section 8.04 hereof or the principal and interest received in
respect thereof other than any such tax, fee or other charge
which by law is for the account of the Holders of the outstanding
Notes.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time
at the Company's written request and be relieved of all liability
with respect to any money or non-callable Government Securities
held by it as provided in Section 8.04 hereof which, in the
opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered
under Section 8.04(a) hereof), are in excess of the amount
thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
SECTION 8.06. REPAYMENT TO THE COMPANY.
Any money deposited with the Trustee or any Paying Agent,
or then held by the Company, in trust for the payment of the
principal of, premium, if any, interest or Liquidated Damages, if
any, on any Note and remaining unclaimed for one year after such
principal, and premium, if any, or interest, if any, or
Liquidated Damages, if any, have become due and payable shall be
paid to the Company on its written request or (if then held by
the Company) shall be discharged from such trust; and the Holder
of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment,
may at the expense of the Company
60
cause to be published once, in the New York Times and The Wall
Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any
United States dollars or non-callable Government Securities in
accordance with Section 8.02 hereof or Section 8.03 hereof, as
the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the obligations of the Company
under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section
8.02 hereof or Section 8.03 hereof, as the case may be, until
such time as the Trustee or Paying Agent is permitted to apply
all such money in accordance with Section 8.02 hereof or Section
8.03 hereof, as the case may be; provided, however, that, if the
Company makes any payment of principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note following the
reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF THE NOTES.
Notwithstanding Section 9.02 of this Indenture, without the
consent of any Holder of Notes the Company and the Trustee may
amend or supplement this Indenture or the Notes:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to provide for the assumption of the Company's obligations
to the Holders of the Notes in the case of a merger, or
consolidation pursuant to Article 5 hereof;
(d) to make any change that would provide any additional
rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights hereunder
of any Holder of the Notes; or
(e) to comply with requirements of the Commission in order
to effect or maintain the qualification of this
Indenture under the TIA or to allow any Subsidiary to
guarantee the Notes.
Upon the written request of the Company accompanied by a
resolution of its Board of Directors of the Company authorizing
the execution of any such amended or supplemental indenture, and
upon receipt by the Trustee of the documents described in Section
9.06 hereof, the Trustee shall join with the Company in the
execution of any amended or supplemental indenture authorized or
permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein
61
contained, but the Trustee shall not be obligated to enter into
such amended or supplemental indenture that affects its own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, this
Indenture and the Notes issued hereunder may be amended or
supplemented with the consent of the Holders of at least a
majority in principal amount at maturity of the Notes then
outstanding (including, without limitation, consents obtained in
connection with a purchase of, or a tender offer or exchange
offer for Notes), and any existing default or compliance with any
provision of this Indenture or the Notes may be waived with the
consent of the Holders of a majority in principal amount of the
then outstanding Notes (including, without limitation, consents
obtained in connection with a purchase of or a tender offer or
exchange offer for the Notes).
Upon the request of the Company accompanied by a resolution
of its Board of Directors authorizing the execution of any such
amended or supplemental indenture, and upon the filing with the
Trustee of evidence satisfactory to the Trustee of the consent of
the Holders of Notes as aforesaid, and upon receipt by the
Trustee of an Officers' Certificate and an Opinion of Counsel,
the Trustee shall join with the Company in the execution of such
amended or supplemental indenture unless such amended or
supplemental indenture affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise, in which case
the Trustee may, but shall not be obligated to, enter into such
amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of
Notes under this Section 9.02 to approve the particular form of
any proposed amendment or waiver, but it shall be sufficient if
such consent approves the substance thereof. After an amendment,
supplement or waiver under this Section 9.02 becomes effective,
the Company shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any
defect therein, shall not, however, in any way impair or affect
the validity of any such amended or supplemental indenture or
waiver.
Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then
outstanding may amend or waive compliance in a particular
instance by the Company with any provision of this Indenture or
the Notes. However, without the consent of each Holder affected,
an amendment, or waiver may not (with respect to any Note held by
a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity
of any Notes or alter the provisions with respect to
the redemption of the Notes (other than provisions
relating to Sections 3.09, 4.10 and 4.13 hereof) or
amend or modify the calculation of the Accreted Value
so as to reduce the amount of Accreted Value of the
Notes;
(c) reduce the rate of or change the time for payment of
interest on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the
Notes by the Holders of at least a majority in
aggregate principal amount at maturity of the Notes
and a waiver of the payment default that resulted from
such acceleration);
62
(e) make any Note payable in money other than that
stated in the Notes;
(f) make any change in Section 6.04 or 6.07 hereof;
(g) waive a redemption or repurchase payment with respect
to any Note (other than a payment required by Section
4.10 or 4.13 hereof); or
(h) make any change in the amendment and waiver provisions
of this Article 9.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the
Notes shall be set forth in an amended or supplemental indenture
that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective,
a consent to it by a Holder of a Note is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a
Note that evidences the same debt as the consenting Holder's
Note, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder of a Note may
revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or
amendment becomes effective. When an amendment, supplement or
waiver becomes effective in accordance with its terms, it
thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an
amendment, supplement or waiver on any Note thereafter
authenticated. The Company in exchange for all Notes may issue
and the Trustee shall authenticate new Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new
Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental
indenture authorized pursuant to this Article 9 if the amendment
or supplement does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Company may not
sign an amendment or supplemental indenture until its Board of
Directors approves it. In signing or refusing to sign any amended
or supplemental indenture the Trustee shall be entitled to
receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon an Officers' Certificate and an Opinion
of Counsel stating that the execution of such amended or
supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith, and that it will
be valid and binding upon the Company in accordance with its
terms.
63
ARTICLE 10
MISCELLANEOUS
SECTION 10.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA Section 318(c), the imposed
duties shall control.
SECTION 10.02. NOTICES.
Any notice or communication by the Company, the Subsidiary
Guarantors or the Trustee to the others is duly given if in
writing and delivered in Person or mailed by first class mail
(registered or certified, return receipt requested), telecopier
or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
Telecopier No.: (212) 209-2666
Attention: Chief Financial Officer
With a copy to:
Cleary Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telecopier No.: (212) 225-3999
Attention: Paul J. Shim
If to the Trustee:
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Telecopier No.: (860) 986-7920
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the others may
designate additional or different addresses for subsequent
notices or communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time
delivered by hand, if personally delivered; five Business Days
after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and the next Business
Day after timely delivery to the courier, if sent by overnight
air courier promising next Business Day delivery.
64
Any notice or communication to a Holder shall be mailed by
first class mail or by overnight air courier promising next
Business Day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so
mailed to any Person described in TIA Section 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to
a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner
provided above within the time prescribed, it is duly given,
whether or not the addressee receives it.
If the Company mails a notice or communication to Holders,
it shall mail a copy to the Trustee and each Agent at the same
time.
SECTION 10.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture
or the Notes. The Company, the Trustee, the Registrar and anyone
else shall have the protection of TIA Section 312(c).
SECTION 10.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the
Trustee to take any action under this Indenture (other than the
initial issuance of the Notes), the Company shall furnish to the
Trustee upon request:
(a) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall include
the statements set forth in Section 10.05 hereof) stating
that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been
satisfied; and
(b) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee (which shall include
the statements set forth in Section 10.05 hereof) stating
that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
SECTION 10.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture (other
than a certificate provided pursuant to TIA Section 314(a)(4)) shall
comply with the provisions of TIA Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(c) a statement that, in the opinion of such Person,
he or she has made such examination or investigation as is
necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been
satisfied; and
65
(d) a statement as to whether or not, in the opinion
of such Person, such condition or covenant has been
satisfied.
SECTION 10.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make
reasonable rules and set reasonable requirements for its
functions.
SECTION 10.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder
of the Company, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the
Notes, this Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder
of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the Notes.
SECTION 10.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND
BE USED TO CONSTRUE THIS INDENTURE AND THE NOTES.
SECTION 10.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other
indenture, loan or debt agreement of the Company or its
Subsidiaries or of any other Person. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 10.10. SUCCESSORS.
All agreements of the Company in this Indenture and the
Notes shall bind their respective successors and assigns. All
agreements of the Trustee in this Indenture shall bind its
successors and assigns.
SECTION 10.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
SECTION 10.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this
Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 10.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings
of the Articles and Sections of this Indenture have been inserted
for convenience of reference only, are not to be considered a
part of this Indenture and shall in no way modify or restrict any
of the terms or provisions hereof.
66
[Signatures on following page]
67
SIGNATURES
Dated as of October 17, 1997
J. CREW GROUP, INC.
By: /s/ Michael P. McHugh
---------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
as Trustee
By: /s/ Philip Kane Jr.
-----------------------------
Name: Philip G. Kane, Jr.
Title: Vice President
EXHIBIT A-1
(Face of Note)
13 1/8% Senior Discount Debentures due 2008
No. ___ $_______________
CUSIP NO.
J. CREW GROUP, INC.
promises to pay to _________________ or registered assigns, the
principal sum of ___________ Dollars ($___________) on October
15, 2008.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
J. CREW GROUP, INC.
By:______________________________
Name:
Title:
This is one of the 13 1/8%
Senior Discount Debentures referred to in the
within-mentioned Indenture:
Dated: ___________
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:__________________________________
A-1-1
(Back of Note)
13 1/8% Senior Discount
Debentures due 2008
[Unless and until it is exchanged in whole or in part
for Notes in definitive form, this Note may not be transferred
except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such
successor Depositary. Unless this certificate is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or
such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or
such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much
as the registered owner hereof, Cede & Co., has an interest
herein.]1
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), THAT PRIOR TO SUCH TRANSFER, FURNISHED THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c),
(d) OR (e), BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
- --------
1. This paragraph should be included only if the Note is issued in
global form.
A-1-2
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE.]2
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED, THIS SECURITY IS BEING ISSUED WITH ORIGINAL
ISSUE DISCOUNT; FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, THE
ISSUE PRICE IS $529.98, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $470.02,
THE ISSUE DATE IS OCTOBER 17, 1997 AND THE YIELD TO
MATURITY IS 13.125% PER ANNUM.
- --------
2 This paragraph should be removed upon the exchange of
Senior Discount Notes for Exchange Senior Discount Notes in
the Exchange Offer or upon the registration of the Senior
Discount Notes pursuant to the terms of the Registration
Rights Agreement.
A-1-3
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless
otherwise indicated.
1. INTEREST. J. Crew Group, Inc., a New York
corporation, or its successor (the "Company"), promises to pay
interest on the principal amount of this Note at the rate of
13 1/8% per annum and shall pay the Liquidated Damages, if any,
payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and
Liquidated Damages, if any, in United States dollars (except as
otherwise provided herein) semi-annually in arrears on April 15
and October 15, commencing on April 15, 2003, or if any such day
is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes shall accrue
from the most recent date to which interest has been paid or, if
no interest has been paid, from October 15, 2002; provided that
if there is no existing Default or Event of Default in the
payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next
succeeding Interest Payment Date (but after October 15, 2002),
interest shall accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of Notes, in
which case interest shall accrue from October 15, 2002. The
Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at
the rate equal to 1% per annum in excess of the then applicable
interest rate on the Notes to the extent lawful; it shall pay
interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace
period) at the same rate to the extent lawful. Interest shall be
computed on the basis of a 360-day year comprised of twelve
30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on
the Notes (except defaulted interest) and Liquidated Damages, if
any, on the applicable Interest Payment Date to the Persons who
are registered Holders of Notes at the close of business on the
April 1 or October 1 next preceding the Interest Payment Date,
even if such Notes are cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The
Notes shall be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the
Company maintained for such purpose within or without the City
and State of New York, or, at the option of the Company, payment
of interest and Liquidated Damages, if any, may be made by check
mailed to the Holders at their addresses set forth in the
register of Holders; provided that payment by wire transfer of
immediately available funds shall be required with respect to
principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes. Such payment shall be in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street
Bank and Trust Company, the Trustee under the Indenture, shall
act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an
Indenture dated as of October __, 1997 ("Indenture") between the
Company and the Trustee. The terms of the Notes include those
stated in the Indenture and those made a part of the Indenture by
reference
A-1-4
to the Trust Indenture Act of 1939, as amended (15
U.S. Code Sections 77aaa-77bbbb) (the "TIA"). The Notes
are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement
of such terms. The Notes are general unsecured
Obligations of the Company limited to $142.0 million
in aggregate principal amount at maturity, plus
amounts, if any, sufficient to pay premium or
Liquidated Damages, if any, and interest on
outstanding Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the
Notes shall not be redeemable at the Company's option
prior to October 15, 2002. Thereafter, the Notes shall
be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set
forth below together with accrued and unpaid interest
and any Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the
years indicated below:
Year Percentage
2002............................................106.563%
2003............................................104.375%
2004............................................102.188%
2005 and thereafter.............................100.000%
Notwithstanding the foregoing, at any time prior
to October 15, 2000, the Company may (but shall not
have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal
amount of the Notes originally issued at a redemption
price of 113.125% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, to the redemption
date, with the net proceeds of one or more Equity
Offerings; provided that at least 65% of the aggregate
principal amount at maturity of the Notes originally
issued remain outstanding immediately after the
occurrence of such redemption; and provided, further,
that such redemption shall occur within 90 days of the
date of the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the
Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash
equal to 101% of the Accreted Value thereof on the
date of purchase and Liquidated Damages, if any (if
such date of purchase is prior to October 15, 2002) or
101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if
any, thereon, to the date of purchase plus Liquidated
Damages (if such date of purchase is on or after
October 15,
A-1-5
2002). Within 65 days following any Change of Control,
the Company will mail a notice to each Holder
describing the transaction or transactions that
constitute the Change of Control setting forth the
procedures governing the Change of Control Offer
required by the Indenture.
(b) When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to
make an offer to all Holders of Notes and, to the
extent required by the terms of any Pari Passu
Indebtedness to all holders of such Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and any such Pari
Passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the Accreted Value thereof on
the date of purchase (if such date of purchase is
prior to October 15, 2002) or 100% of the principal
amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of
purchase (if such date of purchase is on or after
October 15, 2002), in each case in accordance with the
procedures set forth in the Indenture or such Pari
Passu Indebtedness. To the extent that the aggregate
principal amount at maturity of (or Accreted Value, as
the case may be) and any such Pari Passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining
Excess Proceeds for general corporate purposes. If the
aggregate principal amount at maturity (or Accreted
Value, as the case may be) of Notes and any Pari Passu
Indebtedness surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall
select the Notes to be purchased on a pro rata basis.
Upon completion of such offer to purchase, the amount
of Excess Proceeds shall be reset at zero.
(c) Holders of the Notes that are the subject of an
offer to purchase will receive a Change of Control
Offer or Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such
Notes purchased by completing the form titled "Option
of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be
mailed at least 30 days but not more than 60 days
before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000, unless all
of the Notes held by a Holder are to be redeemed. On
and after the redemption date, interest and Liquidated
Damages, if any, ceases to accrue on the Notes or
portions thereof called for redemption unless the
Company defaults in making the redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in initial denominations of
$1,000 and integral multiples of $1,000. The transfer of the
Notes may be registered and the Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by
the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not exchange or register the
transfer of any Notes for a period of 15 days before a selection
of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
A-1-6
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the
following paragraphs and to the provisions of the Indenture, the
Indenture and the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount
of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of or, tender
offer or exchange offer for Notes), and any existing Default or
Event of Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding
Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to
provide for the assumption of the Company's
obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would
provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder,
to comply with requirements of the Commission in order
to effect or maintain the qualification of the
Indenture under the Trust Indenture Act or to allow
any Subsidiary to guarantee the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include:
(i) default for 30 days in the payment when due of interest on or
Liquidated Damages, if any, with respect to the Notes; (ii)
default in payment when due of the principal of or premium, if
any, on the Notes; (iii) failure by the Company or any Restricted
Subsidiary for 30 days after notice from the Trustee or at least
25% in principal amount of the Notes to comply with the
provisions described in Sections 4.07, 4.09, 4.10 and 4.13 of the
Indenture; (iv) failure by the Company or any Subsidiary for 60
days after notice from the Trustee or the Holders of at least 25%
in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (A)(i) is caused by a
failure to pay principal of such Indebtedness after giving effect
to any grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its stated maturity
and, (B) in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $20.0
million or more; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments aggregating in excess of
$20.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its
Significant Subsidiaries
A-1-7
If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may
declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain
events of bankruptcy or insolvency, with respect to
the Company, all outstanding Notes will become due and
payable without further action or notice. Upon any
acceleration of maturity of the Notes, all principal
of and accrued interest and Liquidated Damages, if
any, on (if on or after October 15, 2002) or Accreted
Value of and Liquidated Damages, if any, on (if prior
to October 15, 2002) the Notes shall be due and
payable immediately. Holders of the Notes may not
enforce the Indenture or the Notes except as provided
in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of
principal or interest) if it determines that
withholding notice is in their interest. In the event
of a declaration of acceleration of the Notes because
an Event of Default has occurred and is continuing as
a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph,
the declaration of acceleration of the Notes shall be
automatically annulled if the holders of any
Indebtedness described in clause (v) of the preceding
paragraph have rescinded the declaration of
acceleration in respect of such Indebtedness within 30
days of the date of such declaration and if (a) the
annulment of the acceleration of Notes would not
conflict with any judgment or decree of a court of
competent jurisdiction and (b) all existing Events of
Default, except nonpayment of principal or interest on
the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to,
accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the
Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder, of the Company,
as such, shall have any liability for any obligations
of the Company under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an
authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to Holders of the
Notes under the Indenture, Holders of Transfer Restricted
Securities (as defined in the Registration Rights Agreement)
shall have all the
A-1-8
rights set forth in the Registration Rights Agreement,
dated as of the date hereof, among the Company, and
the Initial Purchasers (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the
Trustee may use CUSIP numbers in notices of redemption
as a convenience to the Holders. No representation is
made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-1-9
The Company shall furnish to any Holder upon written
request and without charge a copy of the Indenture and/or the
Registration Rights Agreement. Requests may be made to:
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
Telecopy: (212) 209-2666
Attention: Chief Financial Officer
A-1-10
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or
(we) assign and transfer this Note to
- -----------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint__________________________________________
to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
_________________________________________________________________
Date:______________________
Your Signature:___________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:
A-1-11
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by
the Company pursuant to Section 4.10 or 4.13 of the Indenture,
check the box below:
|_| Section 4.10 |_| Section 4.13
If you want to elect to have only part of the Note
purchased by the Company pursuant to Section 4.10 or Section 4.13
of the Indenture, state the amount you elect to have purchased:
$______________
Date:________________ Your Signature:___________________
(Sign exactly as your name appears
on the face of this Note)
Tax Identification No.:___________
Signature Guarantee.
A-1-12
SCHEDULE OF EXCHANGES OF NOTES3
The following exchanges of a part of this Global Note for other
Notes have been made:
- ------------------------------------------------------------------------------
Signature
of
Principal Amount authorized
of this Global officer of
Amount of decrease Amount of increase Note following Trustee or
Date of in Principal Amount in Principal Amount such decrease Note
Exchange of this Global Note of this Global Note (or increase) Custodian
- ------------------------------------------------------------------------------
- -------------------------
3. This should be included only if the Note is issued in global form.
A-1-13
EXHIBIT A-2
(Face of Regulation S Temporary Global Note)
13 1/8% Senior Discount Debentures due 2008
No. ___ $_______________
CUSIP NO.
J. CREW GROUP, INC.
promises to pay to _________________ or registered assigns, the
principal sum of ___________ Dollars ($___________) on October
15, 2008.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
J. CREW GROUP, INC.
By:______________________________
Name:
Title:
This is one of the 13 1/8%
Senior Discount Debentures referred to in the
within-mentioned Indenture:
Dated: ___________
STATE STREET BANK AND TRUST COMPANY
as Trustee
By:__________________________________
A-2-1
(Back of Regulation S Temporary Global Note)
13 1/8% Senior Discount Debentures due 2008
[Unless and until it is exchanged in whole or in part
for Notes in definitive form, this Note may not be transferred
except as a whole by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such
successor Depositary. Unless this certificate is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York, New York) ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or
such other name as may be requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or
such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL in as much
as the registered owner hereof, Cede & Co., has an interest
herein.]4
[THE SECURITY (OR ITS PREDECESSOR) EVIDENCED
HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION
FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1)(a) INSIDE THE UNITED STATES
TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT), IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF
THE SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED
INVESTOR"), THAT PRIOR TO SUCH TRANSFER, FURNISHED THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF SECURITIES LESS THAN
$250,000, AN OPINION OF COUNSEL THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND, IN THE CASE OF CLAUSE (b), (c),
(d) OR (e), BASED UPON AN OPINION OF COUNSEL IF THE COMPANY
SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS
REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY
EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN
(A) ABOVE.]5
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4. This paragraph should be included only if the Note is issued in global
form.
5. This paragraph should be removed upon the exchange of
Notes for Exchange Senior Discount Notes in the Exchange Offer or
upon the registration of the Notes pursuant to the terms of the
Registration Rights Agreement.
A-2-2
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY
GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS
EXCHANGE FOR DEFINITIVE NOTES, ARE AS SPECIFIED IN THE INDENTURE
(AS DEFINED HEREIN).
NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS
REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE
PAYMENT OF INTEREST HEREON PRIOR TO THE EXCHANGE OF THIS NOTE FOR
A REGULATION S PERMANENT GLOBAL NOTE AS CONTEMPLATED BY THE
INDENTURE.]
Until this Regulation S Temporary Global Note is exchanged
for Regulation S Permanent Global Notes, the Holder hereof shall
not be entitled to receive payments of interest or Liquidated
Damages, if any, hereon although interest and Liquidated Damages,
if any, will continue to accrue; until so exchanged in full, this
Regulation S Temporary Global Note shall in all other respects be
entitled to the same benefits as other Notes under the Indenture.
This Regulation S Temporary Global Note is exchangeable in
whole or in part for one or more Regulation S Permanent Global
Notes or Rule 144A Global Notes only (i) on or after the
termination of the 40-day restricted period (as defined in
Regulation S) and (ii) upon presentation of certificates
(accompanied by an Opinion of Counsel, if applicable) required by
Article 2 of the Indenture. Upon exchange of this Regulation S
Temporary Global Note for one or more Regulation S Permanent
Global Notes or Rule 144A Global Notes, the Trustee shall cancel
this Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become
valid or obligatory until the certificate of authentication
hereon shall have been duly manually signed by the Trustee in
accordance with the Indenture. This Regulation S Temporary Global
Note shall be governed by and construed in accordance with the
laws of the State of the New York. All references to "$,"
"Dollars," "dollars" or "U.S. $" are to such coin or currency of
the United States of America as at the time shall be legal tender
for the payment of public and private debts therein.1
Capitalized terms used herein shall have the meanings
assigned to them in the Indenture referred to below unless
otherwise indicated.
1. INTEREST. J. Crew Group, Inc., a New York
corporation, or its successor (the "Company"), promises to pay
interest on the principal amount of this Note at the rate of
13 1/8% per annum and shall pay the Liquidated Damages, if any,
payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Company will pay interest and
Liquidated Damages, if any, in United States dollars (except as
otherwise provided herein) semi-annually in arrears on April 15
and October 15, commencing on April 15, 2003, or if any such day
is not a Business Day, on the next succeeding Business Day (each
an "Interest Payment Date"). Interest on the Notes shall accrue
from the most recent date to which interest has been paid or, if
no interest has been paid, from October 15, 2002; provided that
if there is no existing Default or Event of Default in the
payment of interest, and if this Note is authenticated between a
record date referred to on the face hereof and the next
succeeding Interest Payment Date (but after October 15, 2002),
interest shall accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of Notes, in
which case interest shall accrue from
- -----------------------
1. These paragraphs should be removed upon the exchange of Regulation S
Temporary Global Notes for Regulation S Permanent Global Notes pursuant to
the terms of the Indenture.
A-2-3
October 15, 2002. The Company shall pay interest
(including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal at the
rate equal to 1% per annum in excess of the then
applicable interest rate on the Notes to the extent
lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law)
on overdue installments of interest and Liquidated
Damages (without regard to any applicable grace
period) at the same rate to the extent lawful.
Interest shall be computed on the basis of a 360-day
year comprised of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on
the Notes (except defaulted interest) and Liquidated Damages, if
any, on the applicable Interest Payment Date to the Persons who
are registered Holders of Notes at the close of business on the
April 1 or October 1 next preceding the Interest Payment Date,
even if such Notes are cancelled after such record date and on or
before such Interest Payment Date, except as provided in Section
2.12 of the Indenture with respect to defaulted interest. The
Notes shall be payable as to principal, premium and Liquidated
Damages, if any, and interest at the office or agency of the
Company maintained for such purpose within or without the City
and State of New York, or, at the option of the Company, payment
of interest and Liquidated Damages, if any, may be made by check
mailed to the Holders at their addresses set forth in the
register of Holders; provided that payment by wire transfer of
immediately available funds shall be required with respect to
principal of, premium and Liquidated Damages, if any, and
interest on, all Global Notes. Such payment shall be in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, State Street
Bank and Trust Company, the Trustee under the Indenture, shall
act as Paying Agent and Registrar. The Company may change any
Paying Agent or Registrar without notice to any Holder. The
Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an
Indenture dated as of October 17, 1997 ("Indenture") between the
Company and the Trustee. The terms of the Notes include those
stated in the Indenture and those made a part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code Sections 77aaa-77bbbb) (the "TIA"). The Notes are subject
to all such terms, and Holders are referred to the Indenture and
such Act for a statement of such terms. The Notes are general
unsecured Obligations of the Company limited to $142.0 million in
aggregate principal amount at maturity, plus amounts, if any,
sufficient to pay premium or Liquidated Damages, if any, and
interest on outstanding Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the
Notes shall not be redeemable at the Company's option
prior to October 15, 2002. Thereafter, the Notes shall
be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set
forth below together with accrued and unpaid interest
and any Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the
twelve-month period beginning on October 15 of the
years indicated below:
A-2-4
Year Percentage
2002............................................106.563%
2003............................................104.375%
2004............................................102.188%
2005 and thereafter.............................100.000%
Notwithstanding the foregoing, at any time prior
to October 15, 2000, the Company may (but shall not
have the obligation to) redeem, on one or more
occasions, up to an aggregate of 35% of the principal
amount of the Notes originally issued at a redemption
price of 113.125% of the Accreted Value thereof, plus
Liquidated Damages thereon, if any, to the redemption
date, with the net proceeds of one or more Equity
Offerings; provided that at least 65% of the aggregate
principal amount at maturity of the Notes originally
issued remain outstanding immediately after the
occurrence of such redemption; and provided, further,
that such redemption shall occur within 90 days of the
date of the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the
Company shall not be required to make mandatory
redemption or sinking fund payments with respect to
the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each
Holder of Notes will have the right to require the
Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's
Notes pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash
equal to 101% of the Accreted Value thereof on the
date of purchase and Liquidated Damages, if any (if
such date of purchase is prior to October 15, 2002) or
101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if
any, thereon, to the date of purchase plus Liquidated
Damages (if such date of purchase is on or after
October 15, 2002). Within 65 days following any Change
of Control, the Company will mail a notice to each
Holder describing the transaction or transactions that
constitute the Change of Control setting forth the
procedures governing the Change of Control Offer
required by the Indenture.
(b) When the aggregate amount of Excess Proceeds
exceeds $10.0 million, the Company will be required to
make an offer to all Holders of Notes and, to the
extent required by the terms of any Pari Passu
Indebtedness to all holders of such Pari Passu
Indebtedness (an "Asset Sale Offer") to purchase the
maximum principal amount of Notes and any such Pari
Passu Indebtedness that may be purchased out of the
Excess Proceeds, at an offer price in cash in an
amount equal to 100% of the Accreted Value thereof on
the date of purchase (if such date of purchase is
prior to October 15, 2002) or 100% of the principal
amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of
purchase (if such date of purchase is on or after
October 15, 2002), in each case in accordance with the
procedures set forth in the Indenture or such Pari
Passu Indebtedness. To the extent that the aggregate
principal amount at maturity of (or Accreted Value, as
the case may be) and any such Pari Passu
A-2-5
Indebtedness tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, the Company may use
any remaining Excess Proceeds for general corporate
purposes. If the aggregate principal amount at
maturity (or Accreted Value, as the case may be) of
Notes and any Pari Passu Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes to be purchased on
a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset
at zero.
(c) Holders of the Notes that are the subject of an
offer to purchase will receive a Change of Control
Offer or Asset Sale Offer from the Company prior to
any related purchase date and may elect to have such
Notes purchased by completing the form titled "Option
of Holder to Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be
mailed at least 30 days but not more than 60 days
before the redemption date to each Holder whose Notes
are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000, unless all
of the Notes held by a Holder are to be redeemed. On
and after the redemption date, interest and Liquidated
Damages, if any, ceases to accrue on the Notes or
portions thereof called for redemption unless the
Company defaults in making the redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form without coupons in initial denominations of
$1,000 and integral multiples of $1,000. The transfer of the
Notes may be registered and the Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Company may require a
Holder to pay any taxes and fees required by law or permitted by
the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for
redemption, except for the unredeemed portion of any Note being
redeemed in part. Also, it need not exchange or register the
transfer of any Notes for a period of 15 days before a selection
of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may
be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the
following paragraphs and to the provisions of the Indenture, the
Indenture and the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount
of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of or, tender
offer or exchange offer for Notes), and any existing Default or
Event of Default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding
Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of any Holder of Notes, the
Company and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect
or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to
A-2-6
provide for the assumption of the Company's
obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would
provide any additional rights or benefits to the
Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder,
to comply with requirements of the Commission in order
to effect or maintain the qualification of the
Indenture under the Trust Indenture Act or to allow
any Subsidiary to guarantee the Notes.
12. DEFAULTS AND REMEDIES. Events of Default include:
(i) default for 30 days in the payment when due of interest on or
Liquidated Damages, if any, with respect to the Notes; (ii)
default in payment when due of the principal of or premium, if
any, on the Notes; (iii) failure by the Company or any Restricted
Subsidiary for 30 days after notice from the Trustee or at least
25% in principal amount of the Notes to comply with the
provisions described in Sections 4.07, 4.09, 4.10 and 4.13 of the
Indenture; (iv) failure by the Company or any Subsidiary for 60
days after notice from the Trustee or the Holders of at least 25%
in principal amount of the Notes then outstanding to comply with
its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the
date of the Indenture, which default (A)(i) is caused by a
failure to pay principal of such Indebtedness after giving effect
to any grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (ii) results in the
acceleration of such Indebtedness prior to its stated maturity
and, (B) in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $20.0
million or more; (vi) failure by the Company or any of its
Subsidiaries to pay final judgments aggregating in excess of
$20.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days; and (vii) certain events of bankruptcy
or insolvency with respect to the Company or any of its
Significant Subsidiaries
If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Notes may
declare all the Notes to be due and payable
immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain
events of bankruptcy or insolvency, with respect to
the Company, all outstanding Notes will become due and
payable without further action or notice. Upon any
acceleration of maturity of the Notes, all principal
of and accrued interest and Liquidated Damages, if
any, on (if on or after October 15, 2002) or Accreted
Value of and Liquidated Damages, if any, on (if prior
to October 15, 2002) the Notes shall be due and
payable immediately. Holders of the Notes may not
enforce the Indenture or the Notes except as provided
in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any
continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of
principal or interest) if it determines that
withholding notice is in their interest. In the event
of a declaration of acceleration of the Notes because
an Event of Default has occurred and is continuing as
a result of the acceleration of any Indebtedness
described in clause (v) of the preceding paragraph,
the
A-2-7
declaration of acceleration of the Notes shall be
automatically annulled if the holders of any
Indebtedness described in clause (v) of the preceding
paragraph have rescinded the declaration of
acceleration in respect of such Indebtedness within 30
days of the date of such declaration and if (a) the
annulment of the acceleration of Notes would not
conflict with any judgment or decree of a court of
competent jurisdiction and (b) all existing Events of
Default, except nonpayment of principal or interest on
the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its
individual or any other capacity, may make loans to,
accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates, as if it were not the
Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or stockholder, of the Company,
as such, shall have any liability for any obligations
of the Company under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of
Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the
consideration for the issuance of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM
(= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED
SECURITIES. In addition to the rights provided to
Holders of the Notes under the Indenture, Holders of
Transfer Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the
rights set forth in the Registration Rights Agreement,
dated as of the date hereof, among the Company, and
the Initial Purchasers (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the
Trustee may use CUSIP numbers in notices of redemption
as a convenience to the Holders. No representation is
made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the
other identification numbers placed thereon.
A-2-8
The Company shall furnish to any Holder upon written
request and without charge a copy of the Indenture and/or the
Registration Rights Agreement. Requests may be made to:
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
Telecopy: (212) 209-2666
Attention: Chief Financial Officer
A-2-9
Exhibit B-1
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(1) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 13 1/8% Senior Discount Debentures due 2008 of J. Crew Group, Inc.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Group, Inc.,
a New York corporation (the "Company") and State Street Bank and
Trust Company, as trustee (the "Trustee"). Capitalized terms used
but not defined herein shall have the meanings given to them in
the Indenture.
This letter relates to $ _______________ principal amount
of Notes which are evidenced by one or more Rule 144A Global
Notes and held with the Depositary in the name of
________________ (the "Transferor"). The Transferor has requested
a transfer of such beneficial interest in the Notes to a Person
who will take delivery thereof in the form of an equal principal
amount of Notes evidenced by one or more Regulation S Global
Notes, which amount, immediately after such transfer, is to be
held with the Depositary through Euroclear or Cedel or both.
In connection with such request and in respect of such
Notes, the Transferor hereby certifies that such transfer has
been effected in compliance with the transfer restrictions
applicable to the Global Notes and pursuant to and in accordance
with Rule 903 or Rule 904 under the United States Securities Act
of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:
(1) The offer of the Notes was not made to a person in the United States;
(2) either:
(a) at the time the buy order was originated, the
transferee was outside the United States or the
Transferor and any person acting on its behalf
reasonably believed and believes that the transferee
was outside the United States;
(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market
and neither the Transferor nor any person acting on
its behalf knows that the transaction was prearranged
with a buyer in the United States;
(3) no directed selling efforts have been made in contravention
of the requirements of Rule 904(b) of Regulation S;
B-1-1
(4) the transaction is not part of a plan or scheme to evade
the registration provisions of the Securities Act; and
(5) upon completion of the transaction, the beneficial
interest being transferred as described above is to be
held with the Depositary through Euroclear or Cedel or
both.
Upon giving effect to this request to exchange a beneficial
interest in a Rule 144A Global Note for a beneficial interest in
a Regulation S Global Note, the resulting beneficial interest
shall be subject to the restrictions on transfer applicable to
Regulation S Global Notes pursuant to the Indenture and the
Securities Act and, if such transfer occurs prior to the end of
the 40-day restricted period associated with the initial offering
of Notes, the additional restrictions applicable to transfers of
interest in the Regulation S Temporary Global Note.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and Donaldson,
Lufkin & Jenrette Securities Corporation and Chase Securities
Inc., the initial purchasers of such Notes being transferred.
Terms used in this certificate and not otherwise defined in the
Indenture have the meanings set forth in Regulation S under the
Securities Act.
[Insert Name of Transferor]
By:_______________________
Name:
Title:
Dated:
cc: J. Crew Group, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-1-2
EXHIBIT B-2
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 13 1/8% Senior Discount Debentures due 2008 of J. Crew Group, Inc.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Group, Inc.,
a New York corporation (the "Company") and State Street Bank and
Trust Company, as trustee (the "Trustee"). Capitalized terms used
but not defined herein shall have the meanings given to them in
the Indenture.
This letter relates to $_________ principal amount at
maturity of Notes which are evidenced by one or more Regulation S
Global Notes and held with the Depositary through Euroclear or
Cedel in the name of ______________ (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest
in the Notes to a Person who will take delivery thereof in the
form of an equal principal amount of the Notes evidenced by one
or more Rule 144A Global Notes, to be held with the Depositary.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the
"Surrendered Notes"), the Holder of such Surrendered Notes hereby
certifies that:
[CHECK ONE]
|_| such transfer is being effected pursuant to and in
accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies
that the Notes are being transferred to a Person that the
Transferor reasonably believes is purchasing the Notes for
its own account, or for one or more accounts with respect
to which such Person exercises sole investment discretion,
and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A;
or
|_| such transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
|_| such transfer is being effected pursuant to an exemption
under the Securities Act other than Rule 144A, Rule 144 or
Rule 904 and the Transferor further certifies that the
Transfer complies with the transfer restrictions applicable
to beneficial interests in Global Notes and Definitive
Notes bearing the Private Placement Legend and the
requirements of the exemption claimed, which certification
is supported by (x) if such transfer is in respect of a
principal amount of Notes at
B-2-1
the time of Transfer of $250,000 or more, a certificate
executed by the Transferee in the form of EXHIBIT C to the
Indenture, or (y) if such Transfer is in respect of a
principal amount of Notes at the time of transfer of less
than $250,000, (1) a certificate executed in the form of
EXHIBIT C to the Indenture and (2) an Opinion of Counsel
provided by the Transferor or the Transferee (a copy of
which the Transferor has attached to this certification),
to the effect that (1) such Transfer is in compliance with
the Securities Act and (2) such Transfer complies with any
applicable blue sky securities laws of any state of the
United States;
or
|_| such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
|_| such transfer is being effected pursuant to an
exemption from the registration requirements of the Securities
Act other than Rule 144A or Rule 144, and the Transferor hereby
further certifies that the Notes are being transferred in
compliance with the transfer restrictions applicable to the
Global Notes and in accordance with the requirements of the
exemption claimed, which certification is supported by an Opinion
of Counsel, provided by the transferor or the transferee (a copy
of which the Transferor has attached to this certification) in
form reasonably acceptable to the Company and to the Registrar,
to the effect that such transfer is in compliance with the
Securities Act;
and such Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United
States.
Upon giving effect to this request to exchange a beneficial
interest in Regulation S Global Notes for a beneficial interest
in 144A Global Notes, the resulting beneficial interest shall be
subject to the restrictions on transfer applicable to Rule 144A
Global Notes pursuant to the Indenture and the Securities Act.
B-2-2
This certificate and the statements contained herein are
made for your benefit and the benefit of the Company and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc., collectively the initial purchasers of such
Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:__________________________
Name:
Title:
Dated:
cc: J. Crew Group, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-2-3
EXHIBIT B-3
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
OF DEFINITIVE SENIOR DISCOUNT DEBENTURES
(Pursuant to Section 2.06(b) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 13 1/8% Senior Discount Debentures due 2008 J. Crew Group, Inc.
Reference is hereby made to the Indenture, dated as of
October 17 , 1997 (the "Indenture"), between J. Crew Group, Inc.,
a Delaware corporation (the "Company") and State Street Bank and
Trust Company, as trustee (the "Trustee"). Capitalized terms used
but not defined herein shall have the meanings given to them in
the Indenture.
This relates to $__________ principal amount of Notes which are
evidenced by one or more Definitive Notes in the name of ________ (the
"Transferor"). The Transferor has requested an exchange or
transfer of such Definitive Note(s) in the form of an equal
principal amount of Notes evidenced by one or more Definitive
Notes, to be delivered to the Transferor or, in the case of a
transfer of such Notes, to such Person as the Transferor
instructs the Trustee.
In connection with such request and in respect of the
Senior Discount Notes surrendered to the Trustee herewith for
exchange (the "Surrendered Notes"), the Holder of such
Surrendered Notes hereby certifies that:
[CHECK ONE]
|_| the Surrendered Notes are being acquired for the Transferor's
own account, without transfer;
or
|_| the Surrendered Notes are being transferred to the Company;
or
|_| the Surrendered Notes are being transferred pursuant to and
in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies
that the Surrendered Notes are being transferred to a
Person that the Transferor reasonably believes is
purchasing the Surrendered Notes for its own account, or
for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and
each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A;
or
B-3-1
|_| the Surrendered Notes are being transferred in a transaction permitted
by Rule 144 under the Securities Act;
or
|_| the Surrendered Notes are being transferred
pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies
that the Transfer complies with the transfer restrictions
applicable to beneficial interests in Global Notes and Definitive
Notes bearing the Private Placement Legend and the requirements
of the exemption claimed, which certification is supported by (x)
if such transfer is in respect of a principal amount of Notes at
the time of Transfer of $250,000 or more, a certificate executed
by the Transferee in the form of EXHIBIT C to the Indenture, or
(y) if such Transfer is in respect of a principal amount of Senior
Discount Notes at the time of transfer of less than $250,000,
(1) a certificate executed in the form of EXHIBIT C to the
Indenture and (2) an Opinion of Counsel provided by the Transferor
or the Transferee (a copy of which the Transferor has attached to
this certification), to the effect that (1) such Transfer is in
compliance with the Securities Act and (2) such Transfer complies
with any applicable blue sky securities laws of any state of the
United States;
or
|_| the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
|_| such transfer is being effected pursuant to an
exemption from the registration requirements of the Securities
Act other than Rule 144A or Rule 144, and the Transferor hereby
further certifies that the Senior Discount Notes are being
transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is
supported by an Opinion of Counsel, provided by the transferor or
the transferee (a copy of which the Transferor has attached to
this certification) in form reasonably acceptable to the Company
and to the Registrar, to the effect that such transfer is in
compliance with the Securities Act;
and the Surrendered Notes are being transferred in compliance
with any applicable blue sky securities laws of any state of the
United States.
B-3-2
This certificate and the statements contained herein are
made for your benefit and the benefit of the Company and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc., the initial purchasers of such Senior Discount
Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:____________
Name:
Title:
Dated:
cc: J. Crew Group, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-3-3
EXHIBIT B-4
-----------
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE
TO DEFINITIVE SENIOR DISCOUNT NOTE
(Pursuant to Section 2.06(c) of the Indenture)
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 13 1/8% Senior Discount Debentures due 2008 J. Crew Group, Inc.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Group, Inc.,
a New York corporation (the "Company") and State Street Bank and
Trust Company, as trustee (the "Trustee"). Capitalized terms used
but not defined herein shall have the meanings given to them in
the Indenture.
This letter relates to $__________ principal amount of
Notes which are evidenced by a beneficial interest in one or more
Rule 144A Global Notes or Regulation S Permanent Global Notes in
the name of __________ (the "Transferor"). The Transferor has requested
an exchange or transfer of such beneficial interest in the form of
an equal principal amount of Notes evidenced by one or more
Definitive Notes, to be delivered to the Transferor or, in the
case of a transfer of such Notes, to such Person as the
Transferor instructs the Trustee.
In connection with such request and in respect of the Notes
surrendered to the Trustee herewith for exchange (the
"Surrendered Notes"), the Holder of such Surrendered Notes hereby
certifies that:
[CHECK ONE]
|_| the Surrendered Notes are being transferred to the beneficial
owner of such Notes;
or
|_| the Surrendered Notes are being transferred pursuant to and
in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"),
and, accordingly, the Transferor hereby further certifies
that the Surrendered Notes are being transferred to a
Person that the Transferor reasonably believes is
purchasing the Surrendered Notes for its own account, or
for one or more accounts with respect to which such Person
exercises sole investment discretion, and such Person and
each such account is a "qualified institutional buyer"
within the meaning of Rule 144A, in each case in a
transaction meeting they requirements of Rule 144A;
or
B-4-1
|_| the Surrendered Notes are being transferred in a transaction
permitted by Rule 144 under the Securities Act;
or
|_| the Surrendered Notes are being transferred pursuant to an effective
registration statement under the Securities Act;
or
|_| the Surrendered Notes are being transferred
pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies
that the Transfer complies with the transfer restrictions
applicable to beneficial interests in Global Notes and Definitive
Senior Discount Notes bearing the Private Placement Legend and
the requirements of the exemption claimed, which certification is
supported by (x) if such transfer is in respect of a principal
amount of Senior Discount Notes at the time of Transfer of
$250,000 or more, a certificate executed by the Transferee in the
form of EXHIBIT C to the Indenture, or (y) if such Transfer is in
respect of a principal amount of Senior Discount Notes at the
time of transfer of less than $250,000, (1) a certificate
executed in the form of EXHIBIT C to the Indenture and (2) an
Opinion of Counsel provided by the Transferor or the Transferee
(a copy of which the Transferor has attached to this
certification), to the effect that (1) such Transfer is in
compliance with the Securities Act and (2) such Transfer complies
with any applicable blue sky securities laws of any state of the
United States;
or
|_| such transfer is being effected pursuant to an
exemption from the registration requirements of the Securities
Act other than Rule 144A or Rule 144, and the Transferor hereby
further certifies that the Senior Discount Notes are being
transferred in compliance with the transfer restrictions
applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is
supported by an Opinion of Counsel, provided by the transferor or
the transferee (a copy of which the Transferor has attached to
this certification) in form reasonably acceptable to the Company
and to the Registrar, to the effect that such transfer is in
compliance with the Securities Act;
and the Surrendered Notes are being transferred in
compliance with any applicable blue sky securities laws of any
state of the United States.
B-4-2
This certificate and the statements contained herein are
made for your benefit and the benefit of the Company and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc., the initial purchasers of such Senior Discount
Notes being transferred. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in
Regulation S under the Securities Act.
[Insert Name of Transferor]
By:_________________
Name:
Title:
Dated:
cc: J. Crew Group, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
B-4-3
EXHIBIT C
---------
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
State Street Bank and Trust Company
777 Main Street
Hartford, Connecticut 06115
Re: 13 1/8% Senior Discount Debentures due 2008 of J. Crew Group, Inc.
Reference is hereby made to the Indenture, dated as of
October 17, 1997 (the "Indenture"), between J. Crew Group, Inc.,
a Delaware corporation (the "Company") and _____________________,
as trustee (the "Trustee"). Capitalized terms used but not
defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of
$__________ aggregate principal amount of:
(a) |_| Beneficial interests, or
(b) |_| Definitive Notes,
we confirm that:
1. We understand that any subsequent transfer of the
Notes or any interest therein is subject to certain restrictions
and conditions set forth in the Indenture and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes or any interest therein except in compliance
with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that the
Notes and any interest therein may not be offered or sold except
as permitted in the following sentence. We agree, on our own
behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell the Notes or any
interest therein, (A) we will do so only (1)(a) to a person who
we reasonably believe is a qualified institutional buyer (as
defined in Rule 144A under the Securities Act) in a transaction
meeting the requirements of 144A, (b) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (c)
outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 of the Securities Act, or
(d) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of
counsel), (2) to the Company or any of its subsidiaries or (3)
pursuant to an effective registration statement and, in each
case, in accordance with any applicable securities laws of any
State of the United States or any other applicable jurisdiction
and (B) we will, and each subsequent holder will
C-1
be required to, notify any purchaser from it of the
security evidenced hereby of the resale restrictions set forth in
(A) above."
3. We understand that, on any proposed resale of the
Notes or beneficial interests, we will be required to furnish to
you and the Company such certifications, legal opinions and other
information as you and the Company may reasonably require to
confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by
us will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) and have such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of our investment in the Notes, and we and any
accounts for which we are acting are each able to bear the
economic risk of our or its investment.
5. We are acquiring the Notes or beneficial interests
therein purchased by us for our own account or for one or more
accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment
discretion.
6. We are not acquiring the Notes with a view to any
distribution thereof that would violate the Securities Act or the
securities laws of any State of the United States.
C-2
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters
covered hereby.
______________________________
[Insert Name of Accredited
Investor]
By:___________________________
Name:
Title:
Dated: ______________, ____
C-3
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1).......................................... 7.10
(a)(2).......................................... 7.10
(a)(3) ......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.10
(b) ............................................ 7.03; 7.10
(c) ............................................ N.A.
311 (a) ............................................ 7.11
(b) ............................................ 7.11
(c) ............................................ N.A.
312 (a)............................................. 2.05
(b)............................................. 10.03
(c) ............................................ 10.03
313 (a) ............................................ 7.06
(b)(1) ......................................... 7.06
(b)(2) ......................................... 7.06; 7.07
(c) ............................................ 7.06;10.02
(d)............................................. 7.06
314 (a) ............................................ 4.03;10.05
(b) ............................................ N.A.
(c)(1) ......................................... 10.04
(c)(2) ......................................... 10.04
(c)(3) ......................................... N.A.
(d)............................................. N.A.
(e) ........................................... 10.05
(f)............................................. N.A.
315 (a)............................................. 7.01
(b)............................................. 7.05,10.02
(c) ........................................... 7.01
(d)............................................. 7.01
(e)............................................. 6.11
316 (a)(last sentence) ............................. 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B) ...................................... 6.04
(a)(2) ......................................... 2.13
(b) ............................................ 6.07
(c) ............................................ N.A.
317 (a)(1) ......................................... 6.08
(a)(2).......................................... 6.09
(b) ............................................ 2.04
318 (a)............................................. 10.01
(b)............................................. N.A.
(c)............................................. 10.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions...................... 1
Section 1.02. Other Definitions................ 17
Section 1.03. Incorporation by Reference of
Trust Indenture Act ............. 17
Section 1.04. Rules of Construction............ 18
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.................. 18
Section 2.02. Execution and Authentication..... 20
Section 2.03. Registrar and Paying Agent....... 22
Section 2.04. Paying Agent to Hold
Money in Trust .................. 22
Section 2.05. Holder Lists..................... 23
Section 2.06. Transfer and Exchange............ 23
Section 2.07. Replacement Notes................ 31
Section 2.08. Outstanding Notes................ 32
Section 2.09. Treasury Notes................... 32
Section 2.10. Temporary Notes.................. 32
Section 2.11. Cancellation..................... 32
Section 2.12. Defaulted Interest............... 33
Section 2.13. Record Date...................... 33
Section 2.14. Computation of Interest.......... 33
Section 2.15. CUSIP Number..................... 33
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee............... 33
Section 3.02. Selection of Notes to be
Redeemed or Purchased ........... 34
Section 3.03. Notice of Redemption............. 34
Section 3.04. Effect of Notice of Redemption... 35
Section 3.05. Deposit of Redemption or
Purchase Price .................. 35
Section 3.06. Notes Redeemed in Part........... 36
Section 3.07. Optional Redemption.............. 36
Section 3.08. Mandatory Redemption............. 36
Section 3.09. Repurchase Offers................ 37
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes................. 38
i
Page
Section 4.02. Maintenance of Office or Agency.. 39
Section 4.03. Commission Reports............... 39
Section 4.04. Compliance Certificate........... 40
Section 4.05. Taxes............................ 41
Section 4.06. Stay, Extension and Usury Laws... 41
Section 4.07. Restricted Payments.............. 41
Section 4.08. Dividends and Other Payment
Restrictions Affecting
Restricted Subsidiaries.......... 43
Section 4.09. Incurrence of Indebtedness and
Issuance of Preferred Stock..... 44
Section 4.10. Assets Sales..................... 46
Section 4.11. Transactions With Affiliates..... 47
Section 4.12. Liens............................ 48
Section 4.13. Offer to Purchase Upon Change
of Control ...................... 48
Section 4.14. Corporate Existence.............. 50
Section 4.15. Business Activities.............. 50
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation of Sale
of Assets........................ 50
Section 5.02. Successor Corporation
Substituted...................... 51
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default................ 51
Section 6.02. Acceleration..................... 53
Section 6.03. Other Remedies................... 53
Section 6.04. Waiver of Past Defaults.......... 53
Section 6.05. Control by Majority.............. 54
Section 6.06. Limitation on Suits.............. 54
Section 6.07. Rights of Holders of Notes to
Receive Payment ................. 54
Section 6.08. Collection Suit by Trustee....... 54
Section 6.09. Trustee May File Proofs of Claim. 55
Section 6.10. Priorities....................... 55
Section 6.11. Undertaking for Costs............ 56
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee................ 56
Section 7.02. Rights of Trustee................ 57
Section 7.03. Individual Rights of Trustee..... 57
Section 7.04. Trustee's Disclaimer............. 58
Section 7.05. Notice of Defaults............... 58
Section 7.06. Reports by Trustee to Holders
of the Notes ................... 58
ii
Page
Section 7.07. Compensation and Indemnity....... 58
Section 7.08. Replacement of Trustee........... 59
Section 7.09. Successor Trustee by Merger, etc. 60
Section 7.10. Eligibility; Disqualification.... 60
Section 7.11. Preferential Collection of Claims
Against the Company.............. 60
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance
or Covenant Defeasance........... 61
Section 8.02. Legal Defeasance and Discharge... 61
Section 8.03. Covenant Defeasance.............. 61
Section 8.04. Conditions to Legal or Covenant
Defeasance ...................... 62
Section 8.05. Deposited Money and U.S.
Government Securities to be
Held in Trust; Other Miscellaneous
Provisions ...................... 63
Section 8.06. Repayment to the Company......... 63
Section 8.07. Reinstatement.................... 64
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders
of the Notes .................... 64
Section 9.02. With Consent of Holders of Notes. 65
Section 9.03. Compliance with Trust Indenture
Act ............................. 66
Section 9.04. Revocation and Effect of
Consents ........................ 66
Section 9.05. Notation on or Exchange of Notes. 66
Section 9.06. Trustee to Sign Amendments, etc.. 66
ARTICLE 10
MISCELLANEOUS
Section 10.01. Trust Indenture Act Controls.... 67
Section 10.02. Notices......................... 67
Section 10.03. Communication by Holders of
Notes with Other Holders of
Notes .......................... 68
Section 10.04. Certificate and Opinion as to
Conditions Precedent ........... 68
Section 10.05. Statements Required in Certificate
or Opinion ..................... 68
Section 10.06. Rules by Trustee and Agents..... 69
Section 10.07. No Personal Liability of Directors,
Officers, Employees and
Stockholders.................... 69
Section 10.08. Governing Law................... 69
Section 10.09. No Adverse Interpretation of
Other Agreements ............... 69
Section 10.10. Successors...................... 69
Section 10.11. Severability.................... 69
Section 10.12. Counterpart Originals........... 69
iii
Page
Section 10.13. Table of Contents,
Headings, etc. ................ 69
iv
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFEROR
Exhibit C FORM OF CERTIFICATE FROM ACQUIRING
INSTITUTIONAL ACCREDITED INVESTOR
v
EXECUTION COPY
GUARANTEE AGREEMENT dated as of October 17, among
each of the subsidiaries listed on Schedule I hereto
(each such subsidiary individually, a "Subsidiary
Guarantor" and collectively, the "Subsidiary
Guarantors") of J. CREW OPERATING CORP., a Delaware
corporation (the "Borrower"), J. CREW GROUP, INC., a
New York corporation ("Holdings" and, together with
the Subsidiary Guarantors, the "Guarantors"), and THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent") for the Secured Parties (as
defined in the Security Agreement, Exhibit G to the
Credit Agreement referred to below).
Reference is made to the Credit Agreement dated as of
October 17, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among Holdings, the
Borrower, the lenders from time to time party thereto (the
"Lenders"), Donaldson, Lufkin & Jenrette Securities Corporation
as syndication agent, and Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral
Agent and, with respect to Letters of Credit and Acceptances
issued under the Credit Agreement, as issuing bank (in such
capacity, the "Issuing Bank"). Capitalized terms used herein and
not defined herein shall have the meanings assigned to such terms
in the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower,
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. In connection therewith, each Guarantor has
agreed to guarantee the Obligations (as defined below) by
entering into this Agreement. Each of the Subsidiary Guarantors
is a directly or indirectly wholly owned Subsidiary of the
Borrower, and each of the Subsidiary Guarantors and Holdings
acknowledges that it will derive substantial benefit from the
making of the Loans by the Lenders, and the issuance of the
Letters of Credit and Acceptances by the Issuing Bank. The
obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit and Acceptances are conditioned on,
among other things, the execution and delivery by the Guarantors
of a Guarantee Agreement in the form hereof. As consideration
therefor and in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit and Acceptances, the
Guarantors are willing to execute this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally
guarantees, jointly with the other Guarantors and severally, as a
primary obligor and not merely as a surety, (a) the due and
punctual payment of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on
the Loans, when and as due, whether at maturity, by acceleration,
upon one or more dates set for prepayment or otherwise, (ii) each
payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit or any
Acceptance, when and as due, including payments in respect of
reimbursement of disbursements made by the Issuing Bank with
respect thereto, interest thereon and obligations to provide,
under certain circumstances, cash collateral in connection
therewith and (iii) all other monetary obligations, including
fees, costs, expenses and indemnities, whether primary,
secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding),
of the Loan Parties to the Secured Parties under the Credit
Agreement and the other Loan Documents, (b) the due and punctual
performance of all covenants, agreements, obligations and
liabilities of the Loan Parties under or pursuant to the Credit
Agreement, this Agreement and the other Loan Documents and (c)
unless otherwise agreed to in writing by the applicable Lender
party thereto, the due and punctual payment and performance of
all obligations of the Borrower under each Hedging Agreement
entered into with any counterparty that was a Lender at the time
such Hedging Agreement was entered into (all the monetary and
other obligations described in the preceding clauses (a) through
(c) being collectively called the "Obligations"). Each Guarantor
further agrees that the Obligations may be extended or renewed,
in whole or in part, without notice to or further assent from it.
SECTION 2. Obligations Not Waived. To the fullest
extent permitted by applicable law, each Guarantor waives
presentment to, demand of payment from and protest to the
Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment.
To the fullest extent permitted by applicable law, the
obligations of each Guarantor hereunder shall not be affected by
(a) the failure of the Collateral Agent or any other Secured
Party to assert any claim or demand or to enforce or exercise any
right or remedy against the Borrower or any other Guarantor under
the provisions of the Credit Agreement, any other Loan Document
or otherwise, (b) any rescission, waiver (except the effect of
any waiver obtained pursuant to Section 12(b)), amendment or
modification of, or any release from any of the terms or
provisions of this Agreement, any other Loan Document, any
Guarantee or any other agreement, including with respect to any
other Guarantor under this Agreement or (c) the failure to
perfect any security interest in, or the release of, any of the
security held by or on behalf of the Collateral Agent or any
other Secured Party.
SECTION 3. Security. Each of the Guarantors authorizes
the Collateral Agent and each of the other Secured Parties, to
(a) take and hold security for the payment of this Guarantee and
the Obligations and exchange, enforce, waive and release any such
security, (b) apply such security and direct the order or manner
of sale thereof as they in their sole discretion may determine
and (c) release or substitute any one or more endorsees, other
Guarantors of other obligors.
SECTION 4. Guarantee of Payment. Each Guarantor
further agrees that its guarantee constitutes a guarantee of
payment when due and not of collection, and waives any right to
require that any resort be had by the Collateral Agent or any
other Secured Party to any of the security held for payment of
the Obligations or to any balance of any deposit account or
credit on the books of the Collateral Agent or any other Secured
Party in favor of the Borrower or any other person.
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SECTION 5. No Discharge or Diminishment of Guarantee.
The obligations of each Guarantor hereunder shall not be subject
to any reduction, limitation, impairment or termination for any
reason (other than the indefeasible payment in full in cash of
the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations,
and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Obligations or otherwise.
Without limiting the generality of the foregoing, the obligations
of each Guarantor hereunder shall not be discharged or impaired
or otherwise affected by the failure of the Collateral Agent or
any other Secured Party to assert any claim or demand or to
enforce any remedy under the Credit Agreement, any other Loan
Document or any other agreement, by any waiver or modification of
any provision of any thereof, by any default, failure or delay,
wilful or otherwise, in the performance of the Obligations, or by
any other act or omission that may or might in any manner or to
any extent vary the risk of any Guarantor or that would otherwise
operate as a discharge of each Guarantor as a matter of law or
equity (other than the indefeasible payment in full in cash of
all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest
extent permitted by applicable law, each of the Guarantors waives
any defense based on or arising out of any defense of the
Borrower or the unenforceability of the Obligations or any part
thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than the final and indefeasible
payment in full in cash of the Obligations. The Collateral Agent
and the other Secured Parties may, at their election, foreclose
on any security held by one or more of them by one or more
judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of
the Obligations, make any other accommodation with the Borrower
or any other guarantor or exercise any other right or remedy
available to them against the Borrower or any other guarantor,
without affecting or impairing in any way the liability of any
Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to
applicable law, each of the Guarantors waives any defense arising
out of any such election even though such election operates,
pursuant to applicable law, to impair or to extinguish any right
of reimbursement or subrogation or other right or remedy of such
Guarantor against the Borrower or any other Guarantor or
guarantor, as the case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In
furtherance of the foregoing and not in limitation of any other
right that the Collateral Agent or any other Secured Party has at
law or in equity against any Guarantor by virtue hereof, upon the
failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at
maturity, by acceleration, after notice of prepayment or
otherwise, each Guarantor hereby promises to and will forthwith
pay, or cause to be paid, to the Collateral Agent or such other
Secured Party as designated thereby in cash the amount of such
unpaid Obligations. Upon payment by any Guarantor of any sums to
the Collateral Agent or any Secured Party as provided above, all
rights of such Guarantor against the Borrower arising as a result
thereof by way of right of subrogation, contribution,
reimbursement, indemnity or otherwise shall in all respects be
subordinate and junior in right of payment to the prior indefeasible
payment in full in cash of all the Obligations. If any amount shall
erroneously be paid to any Guarantor on account of such
3
subrogation, contribution, reimbursement, indemnity or similar
right, such amount shall be held in trust for the benefit of the
Secured Parties and shall forthwith be paid to the Collateral
Agent to be credited against the payment of the Obligations,
whether matured or unmatured, in accordance with the terms of the
Loan Documents.
SECTION 8. Information. Each of the Guarantors assumes
all responsibility for being and keeping itself informed of the
Borrower's financial condition and assets, and of all other
circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks that
such Guarantor assumes and incurs hereunder, and agrees that none
of the Collateral Agent or the other Secured Parties will have
any duty to advise any of the Guarantors of information known to
it or any of them regarding such circumstances or risks.
SECTION 9. Representations and Warranties. Each of the
Subsidiary Guarantors represents and warrants as to itself that
all representations and warranties relating to it contained in
the Credit Agreement are true and correct in all material
respects.
SECTION 10. Termination. The Guarantees made hereunder
(a) shall terminate when all the Obligations have been indefeasibly
paid in full and the Lenders have no further commitment to lend
under the Credit Agreement, the LC and Acceptance Exposure has
been reduced to zero and the Issuing Bank has no further
obligation to issue Letters of Credit or Acceptances under the
Credit Agreement and (b) shall continue to be effective or be
reinstated, as the case may be, if at any time payment, or any
part thereof, of any Obligation is rescinded or must otherwise be
restored by any Secured Party or any Guarantor upon the
bankruptcy or reorganization of the Borrower, any Guarantor or
otherwise.
SECTION 11. Binding Effect; Several Agreement;
Assignments. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of the Guarantors that are
contained in this Agreement shall bind and inure to the benefit
of the Secured Parties and their respective successors and
assigns. This Agreement shall become effective as to any
Guarantor when a counterpart hereof executed on behalf of such
Guarantor shall have been delivered to the Collateral Agent, and
a counterpart hereof shall have been executed on behalf of the
Collateral Agent, and thereafter shall be binding upon such
Guarantor and the Collateral Agent and their respective
successors and assigns, and shall inure to the benefit of such
Guarantor, the Collateral Agent and the other Secured Parties,
and their respective successors and assigns, except that no
Guarantor shall have the right to assign its rights or
obligations hereunder or any interest herein (and any such
attempted assignment shall be void), except as expressly
contemplated by this Agreement or the other Loan Documents. If
all of the capital stock of a Subsidiary Guarantor is sold,
transferred or otherwise disposed of pursuant to a transaction
permitted by Section 6.05 of the Credit Agreement, such
Subsidiary Guarantor shall be released from its obligations under
this Agreement without further action. This Agreement shall be
construed as a separate agreement with respect to each Guarantor
and may be amended, modified, supplemented, waived or released
with respect to any Guarantor without the approval of any other
Guarantor and without affecting the obligations of any other
Guarantor hereunder.
4
SECTION 12. Waivers; Amendment. (a) No failure or delay
of the Collateral Agent in exercising any power or right hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of
any other right or power. The rights and remedies of the
Collateral Agent hereunder and of the other Secured Parties under
the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or consent to any departure by
any Guarantor therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such
waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand
on any Guarantor in any case shall entitle such Guarantor to any
other or further notice or demand in similar or other
circumstances.
(b) Neither this Agreement nor any provision hereof
may be waived, amended or modified except pursuant to a written
agreement entered into between the Guarantors with respect to
which such waiver, amendment or modification relates and the
Collateral Agent, with the prior written consent of the Required
Lenders (except as otherwise provided in the Credit Agreement).
SECTION 13. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 14. Notices. All communications and notices
hereunder shall be in writing and given as provided in Section
9.01 of the Credit Agreement. All communications and notices
hereunder to each Subsidiary Guarantor shall be given to it at
its address set forth in Schedule I.
SECTION 15. Survival of Agreement; Severability. (a)
All covenants, agreements, representations and warranties made by
the Guarantors herein shall be considered to have been relied
upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the
issuance of the Letters of Credit and Acceptances by the Issuing
Bank regardless of any investigation made by the Secured Parties
or on their behalf, and shall continue in full force and effect
as long as the principal of or any accrued interest on any Loan
or any other fee or amount payable under this Agreement or any
other Loan Document is outstanding and unpaid or the LC and
Acceptance Exposure does not equal zero and as long as the
Commitments and the Revolving Commitment have not been
terminated.
(b) In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal
5
or unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.
SECTION 16. Counterparts. This Agreement may be
executed in counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute a
single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this
Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of
interpretation specified in Section 1.03 of the Credit Agreement
shall be applicable to this Agreement.
SECTION 18. Jurisdiction; Consent to Service of
Process. (a) Each Guarantor hereby irrevocably and
unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal
court of the United States of America sitting in New York City,
and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the
other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect
any right that the Collateral Agent or any other Secured Party
may otherwise have to bring any action or proceeding relating to
this Agreement or the other Loan Documents against any Guarantor
or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 14. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner
permitted by law.
SECTION 19. Waiver of Jury Trial. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
6
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND
THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 19.
SECTION 20. Additional Subsidiary Guarantors. Pursuant
to Section 5.12 of the Credit Agreement, each Subsidiary of the
Borrower which is also a Subsidiary Loan Party that was not in
existence on the date of the Credit Agreement or was an Inactive
Subsidiary is required to enter into this Agreement as a
Subsidiary Guarantor (or upon ceasing to be an Inactive
Subsidiary) upon becoming such a Subsidiary. Upon execution and
delivery after the date hereof by the Collateral Agent and such a
Subsidiary of an instrument in the form of Annex 1 hereto, such
Subsidiary shall become a Subsidiary Guarantor hereunder with
effect from and after the date of such execution and delivery.
The execution and delivery of any such instrument shall not
require the consent of any other Guarantor hereunder. The rights
and obligations of each Guarantor hereunder shall remain in full
force and effect notwithstanding the addition of any new
Subsidiary Guarantor as a party to this Agreement.
SECTION 21. Right of Setoff. If an Event of Default
shall have occurred and be continuing, each Secured Party is
hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or
final) at any time held and other Indebtedness at any time owing
by such Secured Party to or for the credit or the account of any
Guarantor against any or all the obligations of such Guarantor
now or hereafter existing under this Agreement and the other Loan
Documents held by such Secured Party, irrespective of whether or
not such Secured Party shall have made any demand under this
Agreement or any other Loan Document and although such
obligations may be unmatured. The rights of each Secured Party
under this Section 21 are in addition to other rights and
remedies (including other rights of setoff) which such Secured
Party may have.
7
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
by /s/ Michael P. McHugh
--------------------------
Name:
Title: Authorized Officer
J. CREW GROUP, INC.,
as a Guarantor
by /s/ Michael P. McHugh
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Bruce S. Borden
--------------------------
Name:
Title:
8
SCHEDULE I TO THE
GUARANTEE AGREEMENT
Guarantor [Address]
Annex 1 to the
Guarantee Agreement
SUPPLEMENT NO. dated as of , to the Guarantee
Agreement dated as of October 17, 1997, among each of
the subsidiaries listed on Schedule I thereto (each
such subsidiary individually, a "Subsidiar Guarantor"
and collectively, the "Subsidiary Guarantors") of J.
CREW OPERATING CORP., a Delaware corporation (the
"Borrower"), J. CREW GROUP, INC. a New York
corporation ("Holdings" and, together with the
Subsidiary Guarantors, the "Guarantors"), and THE
CHASE MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (the "Collateral
Agent") for the Secured Parties (as defined in the
Security Agreement, Exhibit G to the Credit Agreement
referred to below).
A. Reference is made to the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among
Holdings, the Borrower, the lenders from time to time party
thereto (the "Lenders"), Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and Chase, as administrative
agent (in such capacity the "Administrative Agent") and, with
respect to Letters of Credit and Acceptances issued under the
Credit Agreement as issuing bank (in such capacity, the "Issuing
Bank"). Capitalized terms used herein and not defined herein
shall have the meanings assigned to such terms in the Credit
Agreement.
B. The Guarantors have entered into the Guarantee
Agreement in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit and Acceptances. Pursuant
to Section 5.12 of the Credit Agreement, each Subsidiary of the
Borrower who is also a Subsidiary Loan Party that was not in
existence or not such a Subsidiary on the date of the Credit
Agreement or was an Inactive Subsidiary is required to enter into
the Guarantee Agreement as a Subsidiary Guarantor upon becoming
such a Subsidiary (or upon ceasing to be an Inactive Subsidiary).
Section 20 of the Guarantee Agreement provides that such
additional Subsidiaries of the Borrower may become Subsidiary
Guarantors under the Guarantee Agreement by execution and
delivery of an instrument in the form of this Supplement. The
undersigned Subsidiary of the Borrower (the "New Subsidiary
Guarantor") is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Subsidiary
Guarantor under the Guarantee Agreement in order to induce the
Lenders to make additional Loans and the Issuing Bank to issue
additional Letters of Credit and Acceptances and as consideration
for Loans previously made and Letters of Credit and Acceptances
previously issued.
Accordingly, the Collateral Agent and the New
Subsidiary Guarantor agree as follows:
SECTION 1. In accordance with Section 20 of the
Guarantee Agreement, the New Subsidiary Guarantor by its
signature below becomes a Subsidiary Guarantor under the
Guarantee Agreement with effect from and after the date of
execution and delivery of this
Agreement in accordance with Section 3 hereof and the New
Subsidiary Guarantor hereby (a) agrees to all the terms and
provisions of the Guarantee Agreement applicable to it as a
Subsidiary Guarantor thereunder and (b) represents and warrants
that the representations and warranties made by it as a
Subsidiary Guarantor thereunder are true and correct on and as of
the date hereof. Each reference to a "Subsidiary Guarantor" in
the Guarantee Agreement shall be deemed to include the New
Subsidiary Guarantor. The Guarantee Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Subsidiary Guarantor represents and
warrants to the Collateral Agent and the other Secured Parties
that this Supplement has been duly authorized, executed and
delivered by it and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Collateral Agent
shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Subsidiary
Guarantor and the Collateral Agent. Delivery of an executed
signature page to this Supplement by facsimile transmission shall
be as effective as delivery of a manually executed counterpart of
this Supplement.
SECTION 4. Except as expressly supplemented hereby,
the Guarantee Agreement shall remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 6. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and
in the Guarantee Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a
particular provision hereof in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any
other jurisdiction). The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.
SECTION 7. All communications and notices hereunder
shall be in writing and given as provided in Section 14 of the
Guarantee Agreement. All communications and notices hereunder to
the New Subsidiary Guarantor shall be given to it at the address
set forth under its signature below, with a copy to the Borrower.
SECTION 8. The New Subsidiary Guarantor agrees to
reimburse the Collateral Agent for its reasonable out-of-pocket
expenses in connection with this Supplement, including the fees,
disbursements and other charges of counsel for the Collateral
Agent.
2
IN WITNESS WHEREOF, the New Subsidiary Guarantor and
the Collateral Agent have duly executed this Supplement to the
Guarantee Agreement as of the day and year first above written.
[Name of New Subsidiary Guarantor],
by
--------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by
--------------------------
Name:
Title:
3
EXECUTION COPY
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT
dated as of October 17, 1997, among J. CREW OPERATING
CORP., a Delaware corporation (the "Borrower") and a
wholly-owned subsidiary of J. CREW GROUP, INC., a New
York corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (the
"Guarantors") and THE CHASE MANHATTAN BANK, a New York
banking corporation ("Chase"), as collateral agent (in
such capacity, the "Collateral Agent") for the Secured
Parties (as defined in the Credit Agreement referred
to below).
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and Chase, as administrative
agent for the Lenders (in such capacity, the "Administrative
Agent"), Collateral Agent and, with respect to Letters of Credit
and Acceptances issued under the Credit Agreement, as issuing
bank (in such capacity, the "Issuing Bank"), and (b) the
Guarantee Agreement dated as of October 17, 1997, among the
Guarantors, Holdings and the Collateral Agent (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement"). Capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in
the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower,
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. The Guarantors have agreed to guarantee such
Loans and the other Obligations (as defined in the Guarantee
Agreement) of the Borrower under the Credit Agreement pursuant to
the Guarantee Agreement; certain Guarantors have also granted
Liens on and security interests in certain of their assets to
secure such guarantees pursuant to (a) the Pledge Agreement dated
as of October 17, 1997, among Holdings, the Borrower, the
Guarantors and the Collateral Agent and (b) the Security
Agreement dated as of October 17, 1997, among Holdings, the
Borrower, the Guarantors and the Collateral Agent. The
obligations of the Lenders to make Loans and of the Issuing Bank
to issue Letters of Credit and Acceptances are conditioned on,
among other things, the execution and delivery by the Borrower
and the Guarantors of an agreement in the form hereof.
Accordingly, the Borrower, each Guarantor and the
Collateral Agent agree as follows:
SECTION 1. Indemnity and Subrogation. In addition to
all such rights of indemnity and subrogation as the Guarantors
may have under applicable law (but subject to Section 3), the
Borrower agrees that (a) in the event a payment shall be made by
any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and
such Guarantor shall be subrogated to the rights of the person to
1
whom such payment shall have been made to the extent of such
payment and (b) in the event any assets of any Guarantor shall be
sold pursuant to any Security Document to satisfy a claim of any
Secured Party, the Borrower shall emnify such Guarantor in an
amount equal to the greater of the book value or the fair market
value of the assets so sold.
SECTION 2. Contribution and Subrogation. Each
Guarantor (a "Contributing Guarantor") agrees (subject to Section
3) that, in the event a payment shall be made by any other
Guarantor under the Guarantee Agreement or assets of any other
Guarantor shall be sold pursuant to any Security Document to
satisfy a claim of any Secured Party and such other Guarantor
(the "Claiming Guarantor") shall not have been fully indemnified
by the Borrower as provided in Section 1, the Contributing
Guarantor shall indemnify the Claiming Guarantor in an amount
equal to the amount of such payment or the greater of the book
value or the fair market value of such assets, as the case may
be, in each case multiplied by a fraction of which the numerator
shall be the net worth of the Contributing Guarantor on the date
hereof and the denominator shall be the aggregate net worth of
all the Guarantors on the date hereof (or, in the case of any
Guarantor becoming a party hereto pursuant to Section 12, the
date of the Supplement hereto executed and delivered by such
Guarantor). Any Contributing Guarantor making any payment to a
Claiming Guarantor pursuant to this Section 2 shall be subrogated
to the rights of such Claiming Guarantor under Section 1 to the
extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision
of this Agreement to the contrary, all rights of the Guarantors
under Sections 1 and 2 and all other rights of indemnity,
contribution or subrogation under applicable law or otherwise
shall be fully subordinated to the indefeasible payment in full
in cash of the Obligations. No failure on the part of the
Borrower or any Guarantor to make the payments required by
Sections 1 and 2 (or any other payments required under applicable
law or otherwise) shall in any respect limit the obligations and
liabilities of any Guarantor with respect to its obligations
hereunder, and each Guarantor shall remain liable for the full
amount of the obligations of such Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive
and be in full force and effect so long as any Obligation is
outstanding and has not been indefeasible paid in full in cash,
and so long as the LC and Acceptance Exposure has not been
reduced to zero or any of the Commitments under the Credit
Agreement have not been terminated, and shall continue to be
effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Guaranteed Obligation is
rescinded or must otherwise be restored by any Secured Creditor
or any Guarantor upon the bankruptcy or reorganization of the
Borrower, any Guarantor or otherwise.
SECTION 5. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the
part of the Collateral Agent or any Guarantor to exercise, and no
delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy by the Collateral
Agent or any Guarantor preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any
other remedies provided by law. None of the Collateral
2
Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and
signed by such parties.
(b) Neither this Agreement nor any provision hereof
may be waived, amended or modified except pursuant to a written
agreement entered into between the Borrower, the Guarantors and
the Collateral Agent, with the prior written consent of the
Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 7. Notices. All communications and notices
hereunder shall be in writing and given as provided in the Guarantee
Agreement and addressed as specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in
this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns
of such party; and all covenants, promises and agreements by or
on behalf of the parties that are contained in this Agreement
shall bind and inure to the benefit of their respective
successors and assigns. Neither the Borrower nor any Guarantor
may assign or transfer any of its rights or obligations hereunder
(and any such attempted assignment or transfer shall be void)
without the prior written consent of the Required Lenders.
Notwithstanding the foregoing, at the time any Guarantor is
released from its obligations under the Guarantee Agreement in
accordance with such Guarantee Agreement and the Credit
Agreement, such Guarantor will cease to have any rights or
obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a)
All covenants and agreements made by the Borrower and each
Guarantor herein shall be considered to have been relied upon by
the Collateral Agent, the other Secured Parties and each
Guarantor and shall survive the making by the Lenders of the
Loans and the issuance of the Letters of Credit and Acceptance by
the Issuing Bank, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loans or
any other fee or amount payable under the Credit Agreement or
this Agreement or under any of the other Loan Documents is
outstanding and unpaid or the LC and Acceptance Exposure does not
equal zero and as long as the Commitments have not been
terminated.
(b) In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, no party hereto shall be required
to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 10. Counterparts. This Agreement may be
executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a
single contract. This Agreement shall be effective with respect
to any Guarantor when a counterpart bearing the signature of such
Guarantor shall have been delivered to the Collateral Agent.
Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as delivery of a
manually signed counterpart of this Agreement.
3
SECTION 11. Additional Guarantors. Pursuant to Section
5.12 of the Credit Agreement, each Subsidiary of the Borrower which
is also a Subsidiary Loan Party that was not in existence or not
such a Subsidiary on the date of the Credit Agreement or was an
Inactive Subsidiary is required to enter into the Guarantee
Agreement as a Guarantor upon becoming such a Subsidiary (or upon
ceasing to be an Inactive Subsidiary). Upon execution and
delivery after the date hereof by the Collateral Agent and such
Subsidiary of an instrument in the form of Annex 1 hereto, such
Subsidiary shall become a Guarantor hereunder with effect from
and after the date of such execution and delivery. The execution
and delivery of any such instrument shall not require the consent
of any other Guarantor hereunder. The rights and obligations of
each Guarantor hereunder shall remain in full force and effect
notwithstanding the addition of any new Guarantor as a party to
this Agreement.
4
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of
the date first appearing above.
J. CREW OPERATING CORP.,
by
----------------------------
Name:
Title:
EACH OF THE SUBSIDIARIES
LISTED ON SCHEDULE I HERETO,
as a Guarantor,
by
----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
----------------------------
Name:
Title:
5
SCHEDULE I
to the Indemnity Subrogation
and Contribution Agreement
Guarantors
Name
Address
Annex 1 to
the Indemnity, Subrogation and
Contribution Agreement
SUPPLEMENT NO. dated as of [ ], to the Indemnity,
Subrogation and Contribution Agreement dated as of
October 17, 1997, (as the same may be amended,
supplemented or otherwise modified from time to time,
the "Indemnity, Subrogation and Contribution
Agreement"), among J. CREW OPERATING CORP., a Delaware
corporation (the "Borrower") and wholly-owned
subsidiary of J. CREW GROUP, INC., a New York
corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I thereto (the
"Guarantors"), and THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), as collateral
agent (the "Collateral Agent"), for the Secured
Parties (as defined in the Credit Agreement referred
to below).
A. Reference is made to (a) the Credit Agreement dated
as of October 17, 1997, (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and Chase, as administrative
agent for the Lenders (in such capacity, the "Administrative
Agent"), Collateral Agent and, with respect to Letters of Credit
and Acceptances issued under the Credit Agreement, as issuing
bank (in such capacity, the "Issuing Bank"), and (b) the
Guarantee Agreement dated as of October 17, 1997, among the
Guarantors, Holdings and the Collateral Agent (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement").
B. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in
the Indemnity, Subrogation and Contribution Agreement and the
Credit Agreement.
C. The Borrower and the Guarantors have entered into
the Indemnity, Subrogation and Contribution Agreement in order to
induce the Lenders to make Loans and the Issuing Bank to issue
Letters of Credit and Acceptances. Pursuant to Section 5.12 of
the Credit Agreement, each Subsidiary of the Borrower which is
also a Subsidiary Loan Party that was not in existence or not
such a Subsidiary on the date of the Credit Agreement or was an
Inactive Subsidiary is required to enter into the Guarantee
Agreement as a Guarantor upon becoming such a Subsidiary (or upon
ceasing to be an Inactive Subsidiary). Section 11 of the
Indemnity, Subrogation and Contribution Agreement provides that
such additional Subsidiaries of the Borrower may become
Guarantors under the Indemnity, Subrogation and Contribution
Agreement by execution and delivery of an instrument in the form
of this Supplement. The undersigned Subsidiary of the Borrower
(the "New Guarantor") is executing this Supplement in accordance
with the requirements of the Credit Agreement to become a
Guarantor under the Indemnity, Subrogation and Contribution
Agreement in order to induce the Lenders to make additional Loans
and the Issuing Bank to issue additional Letters of Credit and
Acceptances and
as consideration for Loans previously made and Letters of Credit
and Acceptances previously issued.
Accordingly, the Collateral Agent and the New
Guarantor agree as follows:
SECTION 1. In accordance with Section 11 of the
Indemnity, Subrogation and Contribution Agreement, the New
Guarantor by its signature below becomes a Guarantor under the
Indemnity, Subrogation and Contribution Agreement with effect
from and after the date of execution and delivery of this
Agreement in accordance with Section 3 hereof and the New
Guarantor hereby agrees to all the terms and provisions of the
Indemnity, Subrogation and Contribution Agreement applicable to
it as a Guarantor thereunder. Each reference to a "Guarantor" in
the Indemnity, Subrogation and Contribution Agreement shall be
deemed to include the New Guarantor. The Indemnity, Subrogation
and Contribution Agreement is hereby incorporated herein by
reference.
SECTION 2. The New Guarantor represents and warrants
to the Collateral Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but
all of which when taken together shall constitute a single
contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the
New Guarantor and the Collateral Agent. Delivery of an executed
signature page to this Supplement by facsimile transmission shall
be as effective as delivery of a manually signed counterpart of
this Supplement.
SECTION 4. Except as expressly supplemented hereby,
the Indemnity, Subrogation and Contribution Agreement shall
remain in full force and effect.
SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 6. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, neither party hereto shall be
required to comply with such provision for so long as such
provision is held to be invalid, illegal or unenforceable, but
the validity, legality and enforceability of the remaining
provisions contained herein and in the Indemnity, Subrogation and
Contribution Agreement shall not in any way be affected or
impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
2
SECTION 7. All communications and notices hereunder shall
be in writing and given as provided in Section 7 of the Indemnity,
Subrogation and Contribution Agreement. All communications and
notices hereunder to the New Guarantor shall be given to it at
the address set forth under its signature.
SECTION 8. The New Guarantor agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral
Agent.
IN WITNESS WHEREOF, the New Guarantor and the
Collateral Agent have duly executed this Supplement to the
Indemnity, Subrogation and Contribution Agreement as of the day
and year first above written.
[Name Of New Guarantor],
by
----------------------------
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Collateral
Agent,
by
----------------------------
Name:
Title:
3
EXECUTION COPY
PLEDGE AGREEMENT dated as of October 17, 1997, among
J. CREW OPERATING CORP., a Delaware corporation (the
"Borrower"), J. CREW GROUP, INC., a New York
corporation ("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (each such
subsidiary individually a "Subsidiary Pledgor" and,
collectively, the "Subsidiary Pledgors"; the Borrower,
Holdings and the Subsidiary Pledgors are referred to
collectively herein as the "Pledgors") and THE CHASE
MANHATTAN BANK, a New York banking corporation
("Chase"), as collateral agent (in such capacity, the
"Collateral Agent"), for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral
Agent and, with respect to Letters of Credit and Acceptances
issued under the Credit Agreement, as issuing bank (in such
capacity, the "Issuing Bank"), and Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent, and (b) the
Guarantee Agreement dated as of October 17, 1997 (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement"), among the Subsidiary Pledgors, Holdings
and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. Holdings and the Subsidiary Pledgors have
agreed to guarantee, among other things, all the obligations of
the Borrower under the Credit Agreement. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of
Credit and Acceptances are conditioned upon, among other things,
the execution and delivery by the Pledgors of a Pledge Agreement
in the form hereof to secure (a) the due and punctual payment of
(i) the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in
respect of any Letter of Credit or any Acceptance, when and as
due, including payments in respect of reimbursement of
disbursements made by the Issuing Bank with respect thereto,
interest thereon and obligations to provide, under certain
circumstances, cash collateral in connection therewith and (iii)
all other monetary obligations, including fees, costs, expenses
and indemnities, whether primary, secondary, direct, contingent,
fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or
allowable in such proceeding), of the Loan Parties to the Secured
Parties under the Credit Agreement and the other Loan Documents,
(b) the due and punctual performance of all covenants,
agreements, obligations
1
and liabilities of the Loan Parties under or pursuant to the
Credit Agreement, this Agreement and the other Loan Documents and
(c) unless otherwise agreed to in writing by the applicable
Lender party thereto, the due and punctual payment and
performance of all obligations of the Borrower under each Hedging
Agreement entered into with any counterparty that was a Lender at
the time such Hedging Agreement was entered into (all the
monetary and other obligations described in the preceding clauses
(a) through (c) being collectively called the "Obligations").
Capitalized terms used herein and not defined herein shall have
meanings assigned to such terms in the Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on
behalf of itself and each Secured Party (and each of their
respective successors or assigns), hereby agree as follows:
SECTION 1. Pledge. As security for the payment and
performance, as the case may be, in full of the Obligations, each
Pledgor hereby pledges and grants to the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured
Parties, a security interest in all of such Pledgor's right,
title and interest in, to and under (a) the shares of capital
stock owned by it and listed on Schedule II hereto and any shares
of capital stock of the Borrower or any Subsidiary obtained in
the future by such Pledgor and the certificates representing all
such shares (the "Pledged Stock"); provided that the Pledged
Stock shall not include (i) more than 65% of the issued and
outstanding shares of stock of any Foreign Subsidiary or (ii) to
the extent that applicable law requires that a Subsidiary of such
Pledgor issue directors' qualifying shares, such qualifying
shares; (b)(i) the debt securities listed opposite the name of
such Pledgor on Schedule II hereto, (ii) any debt securities in
the future issued to such Pledgor and (iii) the promissory notes
and any other instruments evidencing such debt securities (the
"Pledged Debt Securities"); (c) all other property that may be
delivered to and held by the Collateral Agent pursuant to the
terms hereof; (d) subject to Section 5, all payments of principal
or interest, dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed, in
respect of, in exchange for or upon the conversion of the
securities referred to in clauses (a) and (b) above; (e) subject
to Section 5, all rights and privileges of the Pledgor with
respect to the securities and other property referred to in
clauses (a), (b), (c) and (d) above; and (f) all proceeds of any
of the foregoing (the items referred to in clauses (a) through
(f) above being collectively referred to as the "Collateral").
Upon delivery to the Collateral Agent, (a) any Pledged Stock,
Pledged Debt Securities or other securities now or hereafter
included in the Collateral (the "Pledged Securities") shall be
accompanied by stock powers duly executed in blank or other
instruments of transfer satisfactory to the Collateral Agent and
by such other instruments and documents as the Collateral Agent
may reasonably request and (b) all other property comprising part
of the Collateral shall be accompanied by proper instruments of
assignment duly executed by the applicable Pledgor and such other
instruments or documents as the Collateral Agent may reasonably
request. Each delivery of Pledged Securities shall be accompanied
by a schedule describing the securities theretofore and then
being pledged hereunder, which schedule shall be attached hereto
as Schedule II and made a part hereof. Each schedule so delivered
shall supersede any prior schedules so delivered.
TO HAVE AND TO HOLD the Collateral, together with all
right, title, interest, powers, privileges and preferences
pertaining or incidental thereto, unto the Collateral Agent, its
successors and assigns, for the ratable benefit of the Secured
Parties, forever; subject, however, to the terms, covenants and
conditions hereinafter set forth.
2
SECTION 2. Delivery of the Collateral. (a) Each
Pledgor agrees promptly to deliver or cause to be delivered to
the Collateral Agent any and all Pledged Securities, and any and
all certificates or other instruments or documents representing
the Collateral.
(b) Each Pledgor will cause any indebtedness for
borrowed money (other than indebtedness evidenced by a Purchase
Money Note) owed to such Pledgor by any Person to be evidenced by
a duly executed promissory note that is pledged and delivered to
the Collateral Agent pursuant to the terms hereof.
SECTION 3. Representations, Warranties and Covenants.
Each Pledgor hereby represents, warrants and covenants, as to
itself and the Collateral pledged by it hereunder, to and with
the Collateral Agent that:
(a) the Pledged Stock represents that percentage
as set forth on Schedule II of the issued and outstanding
shares of each class of the capital stock of the issuer
with respect thereto;
(b) except for the security interest granted
hereunder, the Pledgor (i) is and will at all times
continue to be the direct owner, beneficially and of
record, of the Pledged Securities indicated on Schedule II,
(ii) holds the same free and clear of all Liens, (iii) will
make no assignment, pledge, hypothecation or transfer of,
or create or permit to exist any security interest in or
other Lien on, the Collateral, other than pursuant hereto,
and (iv) subject to Section 5, will cause any and all
Collateral, whether for value paid by the Pledgor or
otherwise, to be forthwith deposited with the Collateral
Agent and pledged or assigned hereunder;
(c) the Pledgor (i) has the power and authority
to pledge the Collateral in the manner hereby done or
contemplated and (ii) will defend its title or interest
thereto or therein against any and all Liens (other than
the Lien created by this Agreement), however arising, of
all persons whomsoever;
(d) no consent of any other person (including
stockholders or creditors of any Pledgor) and no consent or
approval of any Governmental Authority or any securities
exchange was or is necessary to the validity of the pledge
effected hereby;
(e) by virtue of the execution and delivery by
the Pledgors of this Agreement, when the Pledged
Securities, certificates or other documents representing or
evidencing the Collateral are delivered to the Collateral
Agent in accordance with this Agreement, the Collateral
Agent will obtain a valid and perfected first lien upon and
security interest in such Pledged Securities as security
for the payment and performance of the Obligations;
(f) the pledge effected hereby is effective to
vest in the Collateral Agent, on behalf of the Secured
Parties, the rights of the Collateral Agent in the
Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized
and validly issued and is fully paid and nonassessable;
3
(h) all information set forth herein relating to the
Pledged Stock is accurate and complete in all material respects
as of the date hereof; and
(i) the pledge of the Pledged Stock pursuant to
this Agreement does not violate Regulation G, T, U or X of
the Federal Reserve Board or any successor thereto as of
the date hereof.
SECTION 4. Registration in Nominee Name;
Denominations. The Collateral Agent, on behalf of the Secured
Parties, shall have the right (in its sole and absolute
discretion) to hold the Pledged Securities in its own name as
pledgee, the name of its nominee (as pledgee or as sub-agent) or
the name of the Pledgors, endorsed or assigned in blank or in
favor of the Collateral Agent. Each Pledgor will promptly give to
the Collateral Agent copies of any notices or other
communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent
shall at all times have the right to exchange the certificates
representing Pledged Securities for certificates of smaller or
larger denominations for any purpose consistent with this
Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc.
(a) Unless and until an Event of Default shall have occurred and
be continuing:
(i) Each Pledgor shall be entitled to exercise
any and all voting and/or other consensual rights and
powers inuring to an owner of Pledged Securities or any
part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan
Documents; provided, however, that such Pledgor will not be
entitled to exercise any such right if the result thereof
could reasonably be expected to materially and adversely
affect the rights inuring to a holder of the Pledged
Securities or the rights and remedies of any of the Secured
Parties under this Agreement or the Credit Agreement or any
other Loan Document or the ability of the Secured Parties
to exercise the same.
(ii) The Collateral Agent shall execute and
deliver to each Pledgor, or cause to be executed and
delivered to each Pledgor, all such proxies, powers of
attorney and other instruments as such Pledgor may
reasonably request for the purpose of enabling such Pledgor
to exercise the voting and/or consensual rights and powers
it is entitled to exercise pursuant to subparagraph (i)
above and to receive the cash dividends it is entitled to
receive pursuant to subparagraph (iii) below.
(iii) Each Pledgor shall be entitled to receive and
retain any and all cash dividends, interest and principal
paid on the Pledged Securities to the extent and only to
the extent that such cash dividends, interest and principal
are permitted by, and otherwise paid in accordance with,
the terms and conditions of the Credit Agreement, the other
Loan Documents and applicable laws. All noncash dividends,
interest and principal, and all dividends, interest and
principal paid or payable in cash or otherwise in
connection with a partial or total liquidation or
dissolution, return of capital, capital surplus or paid-in
surplus, and all other distributions (other than
distributions referred to in the preceding sentence) made
on or in respect of the Pledged Securities, whether paid or
payable in cash or otherwise, whether resulting from a
subdivision, combination or reclassification of the
outstanding capital stock of the issuer of any Pledged
Securities or received in exchange for Pledged Securities
or any part thereof, or in redemption thereof, or as a
result of any
4
merger, consolidation, acquisition or other exchange of
assets to which such issuer may be a party or otherwise,
shall be and become part of the Collateral, and, if
received by any Pledgor, shall not be commingled by such
Pledgor with any of its other funds or property but shall
be held separate and apart therefrom, shall be held in
trust for the benefit of the Collateral Agent and shall be
forthwith delivered to the Collateral Agent in the same
form as so received (with any necessary endorsement).
(b) Upon the occurrence and during the continuance of
an Event of Default, all rights of any Pledgor to dividends,
interest or principal that such Pledgor is authorized to receive
pursuant to paragraph (a)(iii) above shall cease, and all such
rights shall thereupon become vested in the Collateral Agent,
which shall subject to the provisions of this paragraph (b) have
the sole and exclusive right and authority to receive and retain
such dividends, interest or principal. All dividends, interest or
principal received by the Pledgor contrary to the provisions of
this Section 5 shall be held in trust for the benefit of the
Collateral Agent, shall be segregated from other property or
funds of such Pledgor and shall be forthwith delivered to the
Collateral Agent upon demand in the same form as so received
(with any necessary endorsement). Any and all money and other
property paid over to or received by the Collateral Agent
pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in an account to be established
by the Collateral Agent upon receipt of such money or other
property and shall be applied in accordance with the provisions
of Section 7. After all Events of Default have been cured or
waived, the Collateral Agent shall promptly repay to each Pledgor
all cash dividends, interest or principal (without interest),
that such Pledgor would otherwise be permitted to retain pursuant
to the terms of paragraph (a)(iii) above and which remain in such
account.
(c) Upon the occurrence and during the continuance of
an Event of Default, all rights of any Pledgor to exercise the
voting and consensual rights and powers it is entitled to
exercise pursuant to paragraph (a)(i) of this Section 5, and the
obligations of the Collateral Agent under paragraph (a)(ii) of
this Section 5, shall cease, and all such rights shall thereupon
become vested in the Collateral Agent, which shall have the sole
and exclusive right and authority to exercise such voting and
consensual rights and powers, provided that, unless otherwise
directed by the Required Lenders, the Collateral Agent shall have
the right from time to time following and during the continuance
of an Event of Default to permit the Pledgors to exercise such
rights. After all Events of Default have been cured or waived,
such Pledgor will have the right to exercise the voting and
consensual rights and powers that it would otherwise be entitled
to exercise pursuant to the terms of paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence
and during the continuance of an Event of Default, subject to
applicable regulatory and legal requirements, the Collateral
Agent may sell the Collateral, or any part thereof, at public or
private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent
shall be authorized at any such sale (if it deems it advisable to
do so) to restrict the prospective bidders or purchasers to
persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a
view to the distribution or sale thereof, and upon consummation
of any such sale the Collateral Agent shall have the right to
assign, transfer and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such
sale shall hold the property sold absolutely free from any claim
or right on the part of any Pledgor, and, to the extent permitted
by applicable law, the Pledgors hereby waive all rights of
redemption, stay,
5
valuation and appraisal any Pledgor now has or may at any time in
the future have under any rule of law or statute now existing or
hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days'
prior written notice (which each Pledgor agrees is reasonable
notice within the meaning of Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's
intention to make any sale of such Pledgor's Collateral. Such
notice, in the case of a public sale, shall state the time and
place for such sale and, in the case of a sale at a broker's
board or on a securities exchange, shall state the board or
exchange at which such sale is to be made and the day on which
the Collateral, or portion thereof, will first be offered for
sale at such board or exchange. Any such public sale shall be
held at such time or times within ordinary business hours and at
such place or places as the Collateral Agent may fix and state in
the notice of such sale. At any such sale, the Collateral, or
portion thereof, to be sold may be sold in one lot as an entirety
or in separate parcels, as the Collateral Agent may (in its sole
and absolute discretion) determine. The Collateral Agent shall
not be obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of
sale of such Collateral shall have been given. The Collateral
Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid in full by the
purchaser or purchasers thereof, but the Collateral Agent shall
not incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon
like notice. At any public (or, to the extent permitted by
applicable law, private) sale made pursuant to this Section 6,
any Secured Party may bid for or purchase, free from any right of
redemption, stay or appraisal on the part of any Pledgor (all
said rights being also hereby waived and released), the
Collateral or any part thereof offered for sale and may make
payment on account thereof by using any claim then due and
payable to it from such Pledgor as a credit against the purchase
price, and it may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a)
a written agreement to purchase the Collateral or any portion
thereof shall be treated as a sale thereof, (b) the Collateral
Agent shall be free to carry out such sale pursuant to such
agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto,
notwithstanding the fact that after the Collateral Agent shall
have entered into such an agreement all Events of Default shall
have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by a suit or suits at law or
in equity to foreclose upon the Collateral and to sell the
Collateral or any portion thereof pursuant to a judgment or
decree of a court or courts having competent jurisdiction or
pursuant to a proceeding by a court-appointed receiver.
SECTION 7. Application of Proceeds of Sale. The
proceeds of any sale of Collateral pursuant to Section 6, as well
as any Collateral consisting of cash, shall be applied by the
Collateral Agent as follows:
FIRST, to the payment of all costs and expenses
incurred by the Collateral Agent in connection with such
sale or otherwise in connection with this Agreement, any
6
other Loan Document or any of the Obligations, including
all court costs and the reasonable fees and expenses of its
agents and legal counsel, the repayment of all advances
made by the Collateral Agent hereunder or under any other
Loan Document on behalf of any Pledgor and any other costs
or expenses incurred in connection with the exercise of any
right or remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations
(the amounts so applied to be distributed among the Secured
Parties pro rata in accordance with the amounts of the
Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or
assigns, or as a court of competent jurisdiction may
otherwise direct.
The Collateral Agent shall have absolute discretion as
to the time of application of any such proceeds, moneys or
balances in accordance with this Agreement. Upon any sale of the
Collateral by the Collateral Agent (including pursuant to a power
of sale granted by statute or under a judicial proceeding), the
receipt of the purchase money by the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Collateral so sold and such
purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for
the misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each
Pledgor agrees to pay upon demand to the Collateral Agent the
amount of any and all reasonable expenses, including the
reasonable fees, other charges and disbursements of its counsel
and of any experts or agents, that the Collateral Agent may incur
in connection with (i) the administration of this Agreement, (ii)
the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral in accordance
with the terms hereof, (iii) the exercise or enforcement of any
of the rights of the Collateral Agent hereunder or (iv) the
failure by such Pledgor to perform or observe any of the
provisions hereof applicable to it.
(b) Without limitation of its indemnification
obligations under the other Loan Documents, each Pledgor agrees
to indemnify the Indemnitees (as defined in Section 9.03 of the
Credit Agreement) against, and hold each Indemnitee harmless
from, any and all losses, claims, damages, liabilities and
related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any
Indemnitee arising out of, in any way connected with, or as a
result of (i) the execution or delivery of this Agreement or any
other Loan Document or any agreement or instrument contemplated
hereby or thereby, the performance by the parties hereto of their
respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or
(ii) any claim, litigation, investigation or proceeding relating
to any of the foregoing, whether or not any Indemnitee is a party
thereto, provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be
additional Obligations secured hereby and by the other Security
Documents. The provisions of this Section 8 shall remain
operative and in full force and effect regardless of the
termination of this Agreement, the consummation of the
transactions contemplated hereby, the repayment of any of the
Obligations,
7
the invalidity or unenforceability of any term or provision of
this Agreement or any other Loan Document or any investigation
made by or on behalf of the Collateral Agent or any other Secured
Party. All amounts due under this Section 8 shall be payable on
written demand therefor and shall bear interest at the rate
specified in Section 2.13(a) of the Credit Agreement.
SECTION 9. Collateral Agent Appointed
Attorney-in-Fact. Each Pledgor hereby appoints the Collateral
Agent the attorney-in-fact of such Pledgor for the purpose of
carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may
in its reasonable judgment deem necessary or advisable to
accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Without limiting the generality of
the foregoing, the Collateral Agent shall have the right, upon
the occurrence and during the continuance of an Event of Default,
with full power of substitution either in the Collateral Agent's
name or in the name of such Pledgor, to ask for, demand, sue for,
collect, receive and give acquittance for any and all moneys due
or to become due under and by virtue of any Collateral, to
endorse checks, drafts, orders and other instruments for the
payment of money payable to the Pledgor representing any interest
or dividend or other distribution payable in respect of the
Collateral or any part thereof or on account thereof and to give
full discharge for the same, to settle, compromise, prosecute or
defend any action, claim or proceeding with respect thereto, and
to sell, assign, endorse, pledge, transfer and to make any
agreement respecting, or otherwise deal with, the same; provided,
however, that nothing herein contained shall be construed as
requiring or obligating the Collateral Agent to make any
commitment or to make any inquiry as to the nature or sufficiency
of any payment received by the Collateral Agent, or to present or
file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become
due in respect thereof or any property covered thereby. The
Collateral Agent and the other Secured Parties shall be
accountable only for amounts actually received as a result of the
exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be
responsible to any Pledgor for any act or failure to act
hereunder, except for their own gross negligence or wilful
misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or
delay of the Collateral Agent in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of
the Collateral Agent hereunder and of the other Secured Parties
under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise
have. No waiver of any provisions of this Agreement or consent to
any departure by any Pledgor therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b)
below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No
notice or demand on any Pledgor in any case shall entitle such
Pledgor to any other or further notice or demand in similar or
other circumstances.
(b) Neither this Agreement nor any provision hereof
may be waived, amended or modified except pursuant to a written
agreement entered into between the Collateral Agent and
the respective Pledgor or Pledgors with respect to which such
waiver, amendment or modification is to apply, subject to any
consent required in accordance with Section 9.02 of the Credit
Agreement.
8
SECTION 11. Securities Act, etc. In view of the
position of the Pledgors in relation to the Pledged Securities,
or because of other current or future circumstances, a question
may arise under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Securities
Act") with respect to any disposition of the Pledged Securities
permitted hereunder. Each Pledgor understands that compliance
with the Securities Act might very strictly limit the course of
conduct of the Collateral Agent if the Collateral Agent were to
attempt to dispose of all or any part of the Pledged Securities,
and might also limit the extent to which or the manner in which
any subsequent transferee of any Pledged Securities could dispose
of the same. Similarly, there may be other legal restrictions or
limitations affecting the Collateral Agent in any attempt to
dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws. Each Pledgor recognizes
that in light of such restrictions and limitations the Collateral
Agent may, with respect to any sale of the Pledged Securities,
limit the purchasers to those who will agree, among other things,
to acquire such Pledged Securities for their own account, for
investment, and not with a view to the distribution or resale
thereof. Each Pledgor acknowledges and agrees that in light of
such restrictions and limitations, the Collateral Agent, in its
sole and absolute discretion, (a) may proceed to make such a sale
whether or not a registration statement for the purpose of
registering such Pledged Securities or part thereof shall have
been filed under the Securities Act and (b) may approach and
negotiate with a single potential purchaser to effect such sale,
in either case in accordance with a valid exemption from
registration under the Securities Act. Each Pledgor acknowledges
and agrees that any such sale might result in prices and other
terms less favorable to the seller than if such sale were a
public sale without such restrictions. In the event of any such
sale, the Collateral Agent shall incur no responsibility or
liability for selling all or any part of the Pledged Securities
at a price that the Collateral Agent, in its sole and absolute
discretion, may in good faith deem reasonable under the
circumstances, notwithstanding the possibility that a
substantially higher price might have been realized if the sale
were deferred until after registration as aforesaid or if more
than a single purchaser were approached. The provisions of this
Section 11 will apply notwithstanding the existence of a public
or private market upon which the quotations or sales prices may
exceed substantially the price at which the Collateral Agent
sells.
SECTION 12. Registration, etc. Each Pledgor agrees
that, upon the occurrence and during the continuance of an Event
of Default hereunder, if for any reason the Collateral Agent
desires to sell any of the Pledged Securities of the Borrower at
a public sale, it will, at any time and from time to time, upon
the written request of the Collateral Agent, use its reasonable
best efforts to take or to cause the issuer of such Pledged
Securities to take such action and prepare, distribute and/or
file such documents, as are required or advisable in the
reasonable opinion of counsel for the Collateral Agent to permit
the public sale of such Pledged Securities. Each Pledgor further
agrees to indemnify, defend and hold harmless the Collateral
Agent, each other Secured Party, any underwriter and their
respective officers, directors, affiliates and controlling
persons from and against all loss, liability, expenses, costs of
counsel (including, without limitation, reasonable fees and
expenses to the Collateral Agent of legal counsel), and claims
(including the costs of investigation) that they may incur
insofar as such loss, liability, expense or claim arises out of
or is based upon any alleged untrue statement of a material fact
contained in any prospectus (or any amendment or supplement
thereto) or in any notification or offering circular, or arises
out of or is based upon any alleged omission to state a material
fact required to be stated therein or necessary to make the
statements in any thereof not misleading, except insofar as the
same may have been caused by any untrue statement or omission
based
9
upon information furnished in writing to such Pledgor or the
issuer of such Pledged Securities by the Collateral Agent or any
other Secured Party expressly for use therein. Each Pledgor
further agrees, upon such written request referred to above, to
use its reasonable best efforts to qualify, file or register, or
cause the issuer of such Pledged Securities to qualify, file or
register, any of the Pledged Securities under the Blue Sky or
other securities laws of such states as may be requested by the
Collateral Agent and keep effective, or cause to be kept
effective, all such qualifications, filings or registrations.
Each Pledgor will bear all costs and expenses of carrying out its
obligations under this Section 12. Each Pledgor acknowledges that
there is no adequate remedy at law for failure by it to comply
with the provisions of this Section 12 and that such failure
would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 12 may be
specifically enforced.
SECTION 13. Security Interest Absolute. All rights of
the Collateral Agent hereunder, the grant of a security interest
in the Collateral and all obligations of each Pledgor hereunder,
shall be absolute and unconditional irrespective of (a) any lack
of validity or enforceability of the Credit Agreement, any other
Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any
of the foregoing, (b) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent
to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of
the foregoing, (c) any exchange, release or nonperfection of any
other collateral, or any release or amendment or waiver of or
consent to or departure from any guaranty, for all or any of the
Obligations or (d) any other circumstance that might otherwise
constitute a defense available to, or a discharge of, any Pledgor
in respect of the Obligations or in respect of this Agreement
(other than the indefeasible payment in full of all the
Obligations).
SECTION 14. Termination or Release. (a) This Agreement
and the security interests granted hereby shall terminate when
all the Obligations have been indefeasibly paid in full and the
Lenders have no further commitment to lend under the Credit
Agreement, the LC and Acceptance Exposure has been reduced to
zero and the Issuing Bank has no further obligation to issue
Letters of Credit or Acceptances under the Credit Agreement.
(b) Upon any sale or other transfer by any Pledgor of
any Collateral that is permitted under the Credit Agreement to
any person that is not a Pledgor, or, upon the effectiveness of
any written consent to the release of the security interest
granted hereby in any Collateral pursuant to Section 9.02(b) of
the Credit Agreement, the security interest in such Collateral
shall be automatically released.
(c) In connection with any termination or release
pursuant to paragraph (a) or (b), the Collateral Agent shall
execute and deliver to any Pledgor, at such Pledgor's expense,
all documents that such Pledgor shall reasonably request to
evidence such termination or release. Any execution and delivery
of documents pursuant to this Section 14 shall be without
recourse to or warranty by the Collateral Agent.
SECTION 15. Notices. All communications and notices
hereunder shall be in writing and given as provided in Section
9.01 of the Credit Agreement. All communications and notices
hereunder to any Subsidiary Pledgor shall be given to it at the
address for notices set forth on Schedule I.
10
SECTION 16. Further Assurances. Each Pledgor agrees to
do such further acts and things, and to execute and deliver such
additional conveyances, assignments, agreements and instruments,
as the Collateral Agent may at any time reasonably request in
connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof
or in order better to assure and confirm unto the Collateral
Agent its rights and remedies hereunder.
SECTION 17. Binding Effect; Several Agreement;
Assignments. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises
and agreements by or on behalf of any Pledgor that are contained
in this Agreement shall bind and inure to the benefit of its
successors and assigns. This Agreement shall become effective as
to any Pledgor when a counterpart hereof executed on behalf of
such Pledgor shall have been delivered to the Collateral Agent
and a counterpart hereof shall have been executed on behalf of
the Collateral Agent, and thereafter shall be binding upon such
Pledgor and the Collateral Agent and their respective successors
and assigns, and shall inure to the benefit of such Pledgor, the
Collateral Agent and the other Secured Parties, and their
respective successors and assigns, except that no Pledgor shall
have the right to assign its rights or obligations hereunder or
any interest herein or in the Collateral (and any such attempted
assignment shall be void), except as expressly contemplated by
this Agreement or the other Loan Documents. If all of the capital
stock of a Pledgor is sold, transferred or otherwise disposed of
to a person that is not an Affiliate of the Borrower pursuant to
a transaction permitted by Section 6.05 of the Credit Agreement,
such Pledgor shall be released from its obligations under this
Agreement without further action. This Agreement shall be
construed as a separate agreement with respect to each Pledgor
and may be amended, modified, supplemented, waived or released
with respect to any Pledgor without the approval of any other
Pledgor and without affecting the obligations of any other
Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a)
All covenants, agreements, representations and warranties made by
each Pledgor herein and in the certificates or other instruments
prepared or delivered in connection with or pursuant to this
Agreement or any other Loan Document shall be considered to have
been relied upon by the Collateral Agent and the other Secured
Parties and shall survive the making by the Lenders of the Loans
and the issuance of the Letters of Credit and Acceptances by the
Issuing Bank, regardless of any investigation made by the Secured
Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any
Loan or any other fee or amount payable under this Agreement or
any other Loan Document is outstanding and unpaid or the LC and
Acceptance Exposure does not equal zero and as long as the
Commitments and the Revolving Commitments have not been
terminated.
(b) In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby (it being
understood that the invalidity of a particular provision in a
particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
11
SECTION 19. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall
constitute an original, but all of which, when taken together,
shall constitute a single contract, and shall become effective as
provided in Section 17. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile transmission shall
be as effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 21. Rules of Interpretation. The rules of
interpretation specified in Section 1.03 of the Credit Agreement
shall be applicable to this Agreement. Section headings used
herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
SECTION 22. Jurisdiction; Consent to Service of
Process. (a) Each Pledgor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally
agrees that, to the extent permitted by applicable law, all
claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted
by law, in such Federal court. Each of the parties hereto agrees
that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. Nothing in
this Agreement shall affect any right that the Collateral Agent
or any other Secured Party may otherwise have to bring any action
or proceeding relating to this Agreement or the other Loan
Documents against any Pledgor or its properties in the courts of
any jurisdiction.
(b) Each Pledgor hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter
have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents in any New York State or Federal court. Each of the
parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 15. Nothing in this Agreement will affect the right of
any party to this Agreement to serve process in any other manner
permitted by law.
SECTION 23. Waiver Of Jury Trial. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
12
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section
5.12 of the Credit Agreement, each Subsidiary of the Borrower
that was not in existence or not a Subsidiary on the date of the
Credit Agreement or was an Inactive Subsidiary is required to
enter in this Agreement as a Subsidiary Pledgor upon becoming a
Subsidiary (or upon ceasing to be an Inactive Subsidiary) if such
Subsidiary is a Subsidiary Loan Party and owns or possesses
property of a type that would be considered Collateral hereunder.
Upon execution and delivery by the Collateral Agent and any such
Subsidiary of an instrument in the form of Annex 1, such
Subsidiary shall become a Subsidiary Pledgor hereunder with
effect from and after the date of such execution and delivery.
The execution and delivery of such instrument shall not require
the consent of any other Pledgor hereunder. The rights and
obligations of each Pledgor hereunder shall remain in full force
and effect notwithstanding the addition of any new Subsidiary
Pledgor as a party to this Agreement.
13
IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement as of the day and year first above
written.
J CREW OPERATING CORP.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
J CREW GROUP, INC.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
THE SUBSIDIARY PLEDGORS LISTED ON
SCHEDULE I HERETO,
by /s/ Michael P. McHugh
----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Bruce S. Borden
----------------------------
Name:
Title:
14
Schedule I to the
Pledge Agreement
SUBSIDIARY PLEDGORS
Name Address
- ---- -------
Schedule II to the
Pledge Agreement
CAPITAL STOCK
Number of Registered Number and Percentage
Issuer Certificate Owner Class of Shares of Shares
------ ----------- ---------- --------------- ----------
DEBT SECURITIES
Issuer Principal Amount Date of Note Maturity Date
------ ---------------- ------------ -------------
Annex 1 to the
Pledge Agreement
SUPPLEMENT NO. dated as of , to the PLEDGE AGREEMENT
dated as of October 17, 1997, among J. CREW OPERATING
CORP., a Delaware corporation (the "Borrower"), J.
CREW GROUP, INC., a New York corporation ("Holdings"),
and each subsidiary of the Borrower listed on Schedule
I thereto (each such subsidiary individually a
"Subsidiary Pledgor" and, collectively, the
"Subsidiary Pledgors"; the Borrower, Holdings and
Subsidiary Pledgors are referred to collectively
herein as the "Pledgors") and THE CHASE MANHATTAN
BANK, a New York banking corporation ("Chase"), as
collateral agent, (in such capacity, the "Collateral
Agent"), for the Secured Parties (as defined in the
Credit Agreement referred to below)
A. Reference is made to (a) the Credit Agreement dated
as of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral
Agent and, with respect to Letters of Credit and Acceptances
issued under the Credit Agreement as issuing bank (in such
capacity, the "Issuing Bank"), Donaldson, Lufkin & Jenrette
Securities Corporation, as syndication agent, and (b) the
Guarantee Agreement dated as of October 17, 1997 (as amended,
supplemented or otherwise modified from time to time, the
"Guarantee Agreement"), among the Subsidiary Pledgors, Holdings
and the Collateral Agent.
B. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in
the Credit Agreement.
C. The Pledgors have entered into the Pledge Agreement
in order to induce the Lenders to make Loans and the Issuing Bank
to issue Letters of Credit and Acceptances. Pursuant to Section
5.12 of the Credit Agreement, each Subsidiary of the Borrower
that was not in existence or not a Subsidiary on the date of the
Credit Agreement or was an Inactive Subsidiary is required to
enter into the Pledge Agreement as a Subsidiary Pledgor upon
becoming a Subsidiary (or upon ceasing to be an Inactive
Subsidiary) if such Subsidiary is also a Subsidiary Loan Party
and owns or possesses property of a type that would be considered
Collateral under the Pledge Agreement. Section 24 of the Pledge
Agreement provides that such Subsidiaries may become Subsidiary
Pledgors under the Pledge Agreement by execution and delivery of
an instrument in the form of this Supplement. The undersigned
Subsidiary (the "New Pledgor") is executing this Supplement in
accordance with the requirements of the Credit Agreement to
become a Subsidiary Pledgor under the Pledge Agreement in order
to induce the Lenders to make additional Loans and the Issuing
Bank to issue additional Letters of Credit and Acceptances and as
consideration for Loans previously made and Letters of Credit and
Acceptances previously issued.
Accordingly, the Collateral Agent and the New Pledgor
agree as
follows:
SECTION 1. In accordance with Section 24 of the Pledge
Agreement, the New Pledgor by its signature below becomes a
Pledgor under the Pledge Agreement with effect from and after the
date of execution and delivery of this Agreement in accordance
with Section 3 hereof and the New Pledgor hereby agrees (a) to
all the terms and provisions of the Pledge Agreement applicable
to it as a Pledgor thereunder and (b) represents and warrants
that the representations and warranties made by it as a Pledgor
thereunder are true and correct on and as of the date hereof. In
furtherance of the foregoing, the New Pledgor, as security for
the payment and performance in full of the Obligations (as
defined in the Pledge Agreement), does hereby create and grant to
the Collateral Agent, its successors and assigns, for the benefit
of the Secured Parties, their successors and assigns, a security
interest in and lien on all of the New Pledgor's right, title and
interest in and to the Collateral (as defined in the Pledge
Agreement) of the New Pledgor. Each reference to a "Subsidiary
Pledgor" or a "Pledgor" in the Pledge Agreement shall be deemed
to include the New Pledgor. The Pledge Agreement is hereby
incorporated herein by reference.
SECTION 2. The New Pledgor represents and warrants to
the Collateral Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts, each of which shall constitute an original, but all
of which when taken together shall constitute a single contract.
This Supplement shall become effective when the Collateral Agent
shall have received counterparts of this Supplement that, when
taken together, bear the signatures of the New Pledgor and the
Collateral Agent. Delivery of an executed signature
page to this Supplement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this
Supplement.
SECTION 4. The New Pledgor hereby represents and
warrants that set forth on Schedule I attached hereto is a true
and correct schedule of all its Pledged Securities.
SECTION 5. Except as expressly supplemented hereby,
the Pledge Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 7. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, neither party hereto shall be
required to comply with such provision for so long as such
provision is held to be invalid, illegal or unenforceable, but
the validity, legality and enforceability of the remaining
provisions contained herein and in the Pledge Agreement shall not
in any
2
way be affected or impaired. The parties hereto shall endeavor in
good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic
effect of which comes as close as possible to that of the
invalid, illegal or unenforceable provisions.
SECTION 8. All communications and notices hereunder
shall be in writing and given as provided in Section 15 of the
Pledge Agreement. All communications and notices hereunder to the
New Pledgor shall be given to it at the address set forth under
its signature hereto.
SECTION 9. The New Pledgor agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral
Agent.
IN WITNESS WHEREOF, the New Pledgor and the Collateral
Agent have duly executed this Supplement to the Pledge Agreement
as of the day and year first above written.
[Name of New Pledgor],
by ____________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by ____________________________
Name:
Title:
3
Schedule I to
Supplement No.
to the Pledge Agreement
Pledged Securities of the New Pledgor
-------------------------------------
CAPITAL STOCK
Number of Registered Number and Percentage
Issuer Certificate Owner Class of Shares of Shares
------ ----------- ---------- --------------- ----------
DEBT SECURITIES
Issuer Principal Amount Date of Note Maturity Date
------ ---------------- ------------ -------------
EXECUTION COPY
SECURITY AGREEMENT dated as of October
17, 1997, among J. CREW OPERATING CORP., a
Delaware corporation (the "Borrower"), J.
CREW GROUP, INC., a New York corporation
("Holdings"), each subsidiary of the
Borrower listed on Schedule I hereto (each
such subsidiary individually a "Subsidiary
Guarantor" and collectively, the "Subsidiary
Guarantors"; the Subsidiary Guarantors,
Holdings and the Borrower are referred to
collectively herein as the "Grantors") and
THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as collateral agent
(in such capacity, the "Collateral Agent")
for the Secured Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), Collateral Agent
and, with respect to Letters of Credit and Acceptances issued
under the Credit Agreement, as issuing bank (in such capacity,
the "Issuing Bank"), and Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent and (b) the Guarantee Agreement
dated as of October 17, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Guarantee Agreement"),
among the Subsidiary Guarantors, Holdings and the Collateral
Agent.
The Lenders have agreed to make Loans to the Borrower,
and the Issuing Bank has agreed to issue Letters of Credit and
Acceptances for the account of the Borrower, pursuant to, and
upon the terms and subject to the conditions specified in, the
Credit Agreement. Each of Holdings and the Subsidiary Guarantors
has agreed to guarantee, among other things, all the obligations
of the Borrower under the Credit Agreement. The obligations of
the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the
execution and delivery by the Grantors of a Security Agreement in
the form hereof to secure (a) the due and punctual payment of (i)
the principal of and premium, if any, and interest (including
interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless
of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, (ii) each payment
required to be made by the Borrower under the Credit Agreement in
respect of any Letter of Credit or any acceptance, when and as
due, including payments in respect of reimbursement of
disbursements made by the Issuing Bank with respect thereto,
interest thereon and obligations to provide, under certain
circumstances, cash collateral in connection therewith and (iii)
all other monetary obligations, including fees, costs, expenses
and indemnities, whether primary, secondary, direct, contingent,
fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or
allowable in such
proceeding), of the Loan Parties to the Secured Parties
under the Credit Agreement and the other Loan Documents, (b) the
due and punctual performance of all covenants, agreements,
obligations and liabilities of the Loan Parties under or pursuant
to the Credit Agreement, this Agreement and the other Loan
Documents and (c) unless otherwise agreed to in writing by the
applicable Lender party thereto, the due and punctual payment and
performance of all obligations of the Borrower under each Hedging
Agreement entered into with any counterparty that was a Lender at
the time such Hedging Agreement was entered into (all the
monetary and other obligations described in the preceding clauses
(a) through (c) being collectively called the "Obligations").
Accordingly, the Grantors and the Collateral Agent, on
behalf of itself and each Secured Party (and each of their
respective successors or assigns), hereby agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless
the context otherwise requires, all capitalized terms used but
not defined herein shall have the meanings set forth in the
Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein.
As used herein, the following terms shall have the following
meanings:
"Account Debtor" shall mean any person who is or who
may become obligated to any Grantor under, with respect to or on
account of an Account.
"Accounts" shall mean all "accounts" (as defined in the
Uniform Commercial Code as in effect in the state of New York
("UCC")) of any Grantor and shall include, without limitation,
any and all right, title and interest of any Grantor to payment
for goods sold or leased or services rendered, including any such
right evidenced by chattel paper, whether due or to become due,
whether or not it has been earned by performance, and whether now
or hereafter acquired or arising in the future, including
accounts receivable from Affiliates of the Grantors.
"Accounts Receivable" shall mean all Accounts and all
right, title and interest in any returned goods, together with
all rights, titles, securities and guarantees with respect
thereto, including any rights to stoppage in transit, replevin,
reclamation and resales, and all related security interests,
liens and pledges, whether voluntary or involuntary, in each case
whether now existing or owned or hereafter arising or acquired.
"Collateral" shall mean all (a) Accounts Receivable,
(b) Documents, (c) Equipment, (d) General Intangibles, (e)
Inventory, (f) cash and cash accounts and (g) Proceeds.
"Copyright License" shall mean any written agreement,
now or hereafter in effect, granting any right to any third party
under any Copyright now or hereafter owned by any Grantor
or which such Grantor otherwise has the right to license, or
granting any right to such Grantor
2
under any Copyright now or hereafter owned by any third
party, and all rights of such Grantor under any such agreement.
"Copyrights" shall mean all of the following now owned
or hereafter acquired by any Grantor: (a) all copyright rights in
any work subject to the copyright laws of the United States or
any other country, whether as author, assignee, transferee or
otherwise, and (b) all registrations and applications for
registration of any such copyright in the United States or any
other country, including registrations, recordings, supplemental
registrations and pending applications for registration in the
United States Copyright Office, including those listed on
Schedule II.
"Credit Agreement" shall have the meaning assigned to
such term in the preliminary statement of this Agreement.
"Documents" shall mean all instruments, files, records,
ledger sheets and other documents covering or relating to any of
the Collateral.
"Equipment" shall mean all "equipment" (as defined in
the UCC) of any Grantor and shall include, without limitation,
equipment, furniture and furnishings, and all tangible personal
property similar to any of the foregoing, including tools, parts
and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter
owned by any Grantor. The term Equipment shall include Fixtures.
"Fixtures" shall mean all items of Equipment, whether
now owned or hereafter acquired, of any Grantor that become so
related to particular real estate that an interest in them arises
under any real estate law applicable thereto.
"General Intangibles" shall mean all "general
intangibles" (as defined in the UCC) of any Grantor and shall
include, without limitation, choses in action and causes of
action and all other assignable intangible personal property of
any Grantor of every kind and nature (other than Accounts
Receivable) now owned or hereafter acquired by any Grantor,
including corporate or other business records, indemnification
claims, contract rights (including rights under leases, whether
entered into as lessor or lessee, Hedging Agreements and other
agreements), Intellectual Property, goodwill, registrations,
franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or
granted to any Grantor to secure payment by an Account Debtor of
any of the Accounts Receivable.
"Intellectual Property" shall mean all intellectual and
similar property of any Grantor of every kind and nature now
owned or hereafter acquired by any Grantor, including inventions,
designs, Patents, Copyrights, Licenses, Trademarks, trade
secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information,
software and databases and all embodiments or fixations thereof
and related documentation, registrations and franchises, and all
additions, improvements and accessions to, and books and records
describing or used in connection with, any of the foregoing.
3
"Inventory" shall mean all "inventory" (as defined in
the UCC) of any Grantor and shall include, without limitation,
goods of any Grantor, whether now owned or hereafter acquired,
held for sale or lease, or furnished or to be furnished by any
Grantor under contracts of service, or consumed in any Grantor's
business, including raw materials, intermediates, work in
process, packaging materials, finished goods, semi-finished
inventory, scrap inventory, manufacturing supplies and spare
parts, and all such goods that have been returned to or
repossessed by or on behalf of any Grantor.
"License" shall mean any Patent License, Trademark
License, Copyright License or other license or sublicense to
which any Grantor is a party, including those listed on Schedule
III (other than those license agreements in existence on the date
hereof and listed on Schedule III and those license agreements
entered into after the date hereof, which by their terms prohibit
assignment or a grant of a security interest by such Grantor as
licensee thereunder).
"Obligations" shall have the meaning assigned to such
term in the preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now
or hereafter in effect, granting to any third party any right to
make, use or sell any invention on which a Patent, now or
hereafter owned by any Grantor or which any Grantor otherwise has
the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent,
now or hereafter owned by any third party, is in existence, and
all rights of any Grantor under any such agreement.
"Patents" shall mean all of the following now owned or
hereafter acquired by any Grantor: (a) all letters patent of the
United States or any other country, all registrations and
recordings thereof, and all applications for letters patent of
the United States or any other country, including registrations,
recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country,
including those listed on Schedule IV, and (b) all reissues,
continuations, divisions, continuations-in-part, renewals or
extensions thereof, and the inventions disclosed or claimed
therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate
substantially in the form of Annex 1 hereto, completed and
supplemented with the schedules and attachments contemplated
thereby, and duly executed by a Financial Officer.
"Proceeds" shall mean "proceeds" (as defined in the
UCC) of any Grantor and shall include, without limitation, any
consideration received from the sale, exchange, license, lease or
other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession
of any Collateral and any payment received from any insurer or
other person or entity as a result of the destruction, loss,
theft, damage or other involuntary conversion of whatever nature
of any asset or property which constitutes Collateral, and shall
include (a) any claim of any Grantor against any third party for
(and the right to sue and recover for and the rights to damages
or profits due or accrued arising out of or in connection with)
(i) past, present or future infringement of any Patent now or
hereafter owned by any Grantor, or
4
licensed under a Patent License, (ii) past, present or future
infringement or dilution of any Trademark now or hereafter owned
by any Grantor or licensed under a Trademark License or injury to
the goodwill associated with or symbolized by any Trademark now
or hereafter owned by any Grantor, (iii) past, present or future
breach of any License and (iv) past, present or future
infringement of any Copyright now or hereafter owned by any
Grantor or licensed under a Copyright License and (b) any and all
other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Receivables Transaction Assets" means all assets
described in the Receivables Transaction Documents as being sold,
contributed, assigned, transferred or conveyed to the Receivables
Subsidiary by Popular Club, or described in the Receivables
Transaction Documents as being sold, contributed, assigned,
transferred or conveyed by the Receivables Subsidiary to any
other Person; provided, however, that any amendment or
modification to the description of such assets in such documents
made after the date hereof shall not be effective for purposes of
this Agreement unless the Collateral Agent shall have consented
in writing to such amendment.
"Secured Parties" shall mean (a) the Lenders, (b) the
Administrative Agent, (c) the Collateral Agent, (d) the Issuing
Bank, (e) each counterparty to a Hedging Agreement entered into
with the Borrower if such counterparty was a Lender at the time
the Hedging Agreement was entered into, (f) the beneficiaries of
each indemnification obligation undertaken by any Grantor under
any Loan Document and (g) the successors and assigns of each of
the foregoing.
"Security Interest" shall have the meaning assigned to
such term in Section 2.01.
"Trademark License" shall mean any written agreement,
now or hereafter in effect, granting to any third party any right
to use any Trademark now or hereafter owned by any Grantor or
which any Grantor otherwise has the right to license, or granting
to any Grantor any right to use any Trademark now or hereafter
owned by any third party, and all rights of any Grantor under any
such agreement.
"Trademarks" shall mean all of the following now owned
or hereafter acquired by any Grantor: (a) all trademarks, service
marks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, trade dress,
logos, other source or business identifiers, designs and general
intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
registration and recording applications filed in connection
therewith, including registrations and registration applications
in the United States Patent and Trademark Office, any State of
the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals
thereof, including those listed on Schedule V, (b) all goodwill
associated therewith or symbolized thereby and (c) all other
assets, rights and interests that uniquely reflect or embody such
goodwill.
SECTION 1.03. Rules of Interpretation. The rules of
interpretation specified in Section 1.02 of the Credit Agreement
shall be applicable to this Agreement.
5
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the
payment or performance, as the case may be, in full of the
Obligations, each Grantor hereby assigns and grants to the
Collateral Agent, its successors and assigns, for the ratable
benefit of the Secured Parties, a security interest in, all of
such Grantor's right, title and interest in, to and under the
Collateral (the "Security Interest"). Without limiting the
foregoing, the Collateral Agent is hereby authorized to file one
or more financing statements (including fixture filings),
continuation statements, filings with the United States Patent
and Trademark Office or United States Copyright Office (or any
successor office or any similar office in any other country) or
other documents for the purpose of perfecting, confirming,
continuing, enforcing or protecting the Security Interest granted
by each Grantor, without the signature of any Grantor, and naming
any Grantor or the Grantors as debtors and the Collateral Agent
as secured party.
SECTION 2.02. No Assumption of Liability. The Security
Interest is granted as security only and shall not subject the
Collateral Agent or any other Secured Party to, or in any way
alter or modify, any obligation or liability of any Grantor with
respect to or arising out of the Collateral.
SECTION 2.03 Release of Receivable Transaction Assets.
Notwithstanding anything herein to the contrary, the Collateral
shall not include any Receivable Transaction Assets, and the
Collateral Agent hereby releases, without recourse or warranty,
any security or other interest which it may have in the
Receivable Transaction Assets. The parties to the Receivables
Transaction Documents shall be entitled to rely on this Section
2.03, and this Section 2.03 shall not be amended without the
prior written consent of the trustee appointed under the terms of
the Receivables Transaction Documents. To further evidence such
release and to give effect to certain other agreements between
the Collateral Agent and such trustee, the Collateral Agent shall
(and is hereby authorized to) enter into intercreditor agreements
with such trustee in such form as the Collateral Agent deems
appropriate. By accepting the benefits of this Agreement, each
holder of an Obligation authorizes the Collateral Agent to enter
into such intercreditor agreements, and agrees to be bound by the
terms thereof. The failure of the Collateral Agent to execute any
such intercreditor agreement shall not, however, impair or
otherwise affect the release provided for in this Section 2.03 or
any other provision of this Section.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and
warrant to the Collateral Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has
good and valid rights in and title to the Collateral with respect
to which it has purported to grant a Security Interest
6
hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral
pursuant hereto and to execute, deliver and perform its
obligations in accordance with the terms of this Agreement,
without the consent or approval of any other person other than
any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate
has been duly prepared, completed and executed and the
information set forth therein is correct and complete in all
material respects. Fully executed Uniform Commercial Code
financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations
containing a description of the Collateral have been delivered to
the Collateral Agent for filing in each governmental, municipal
or other office specified in Schedule 6 to the Perfection
Certificate, which are all the filings, recordings and
registrations (other than filings required to be made in the
United States Patent and Trademark Office and the United States
Copyright Office in order to perfect the Security Interest in
Collateral consisting of United States Patents, Trademarks and
Copyrights) that are necessary to publish notice of and protect
the validity of and to establish a legal, valid and perfected
security interest in favor of the Collateral Agent (for the
ratable benefit of the Secured Parties) in respect of all
Collateral in which the Security Interest may be perfected by
filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and
possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is
necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation
statements.
(b) Each Grantor shall ensure that fully executed
security agreements in the form hereof (or short-form supplements
to this Agreement in form and substance satisfactory to the
Collateral Agent) and containing a description of all Collateral
consisting of Intellectual Property shall have been received and
recorded within three months after the execution of this
Agreement with respect to United States Patents and United States
registered Trademarks (and Trademarks for which United States
registration applications are pending) and within one month after
the execution of this Agreement with respect to United Sates
registered Copyrights have been delivered to the Collateral Agent
for recording by the United States Patent and Trademark Office
and the United States Copyright Office pursuant to 35 U.S.C. ss.
261, 15 U.S.C. ss. 1060 or 17 U.S.C. ss. 205 and the regulations
thereunder, as applicable, and otherwise as may be required
pursuant to the laws of any other necessary jurisdiction in the
United States (or any political subdivision thereof) and its
territories and possessions, to protect the validity of and to
establish a legal, valid and perfected security interest in favor
of the Collateral Agent (for the ratable benefit of the Secured
Parties) in respect of all Collateral consisting of Patents,
Trademarks and Copyrights in which a security interest may be
perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories
and possessions, or in any other necessary jurisdiction, and no
further or subsequent filing, refiling, recording, rerecording,
registration or reregistration is necessary (other than such
actions as are necessary to perfect the Security Interest with
respect to any Collateral consisting of Patents, Trademarks and
Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).
SECTION 3.03. Validity of Security Interest. The
Security Interest constitutes (a) a legal and valid security
interest in all the Collateral securing the payment and
performance
7
of the Obligations, (b) subject to the filings described in
Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by
filing, recording or registering a financing statement or
analogous document in the United States (or any political
subdivision thereof) and its territories and possessions pursuant
to the UCC or other analogous applicable law in such
jurisdictions and (c) a security interest that shall be perfected
in all Collateral in which a security interest may be perfected
upon the receipt and recording of this Agreement with the United
States Patent and Trademark Office and the United States
Copyright Office, as applicable, within the three month period
(commencing as of the date hereof) pursuant to 35 U.S.C. ss. 261
or 15 U.S.C. ss. 1060 or the one month period (commencing as of
the date hereof) pursuant to 17 U.S.C. ss. 205 and otherwise as
may be required pursuant to the laws of any other necessary
jurisdiction in the United States (or any political subdivision
thereof) and its territories and possessions. The Security
Interest is and shall be prior to any other Lien on any of the
Collateral, other than Liens expressly permitted to be prior to
the Security Interest pursuant to Section 6.02 of the Credit
Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is
owned by the Grantors free and clear of any Lien, except for
Liens expressly permitted pursuant to Section 6.02 of the Credit
Agreement. The Grantor has not filed or consented to the filing
of (a) any financing statement or analogous document under the
UCC or any other applicable laws covering any Collateral, (b) any
assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral
with the United States Patent and Trademark Office or the United
States Copyright Office or (c) any assignment in which any
Grantor assigns any Collateral or any security agreement or
similar instrument covering any Collateral with any foreign
governmental, municipal or other office, which financing
statement or analogous document, assignment, security agreement
or similar instrument is still in effect, except, in each case,
for Liens expressly permitted pursuant to Section 6.02 of the
Credit Agreement.
ARTICLE IV
Covenants
SECTION 4.01. Records. Each Grantor agrees to maintain,
at its own cost and expense, such complete and accurate records
with respect to the Collateral owned by it as is consistent with
its current practices but in any event to include complete
accounting records indicating all payments and proceeds received
with respect to any part of the Collateral, and, at such time or
times as the Collateral Agent may reasonably request, promptly to
prepare and deliver to the Collateral Agent an updated Perfection
Certificate, noting all material changes, if any, since the date
of the most recent Perfection Certificate.
SECTION 4.02. [Intentionally Omitted]
SECTION 4.03. Protection of Security. Each Grantor
shall, at its own cost and expense, take any and all reasonable
actions necessary to defend title to the Collateral against all
persons and to defend the Security Interest of the Collateral
Agent in the Collateral and the
8
priority thereof against any Lien not expressly permitted
pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees,
at its own expense, to execute, acknowledge, deliver and cause to
be duly filed all such further instruments and documents and take
all such actions as the Collateral Agent may from time to time
reasonably request to better assure, preserve, protect and
perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in
connection with the execution and delivery of this Agreement, the
granting of the Security Interest and the filing of any financing
statements (including fixture filings) or other documents in
connection herewith or therewith. If any amount payable under or
in connection with any of the Collateral shall be or become
evidenced by any promissory note or similar instrument, such note
or instrument shall be immediately pledged and delivered to the
Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent.
SECTION 4.05. Inspection and Verification. The
Collateral Agent and such persons as the Collateral Agent may
reasonably designate shall have the right to inspect the
Collateral, all records related thereto (and to make extracts and
copies from such records) and the premises upon which any of the
Collateral is located, at reasonable times and intervals during
normal business hours upon reasonable advance notice to the
respective Grantor, to verify under reasonable procedures the
validity, amount, quality, quantity, value, condition and status
of the Collateral. The Collateral Agent shall have the right to
share any information it gains from such inspection or
verification with any Secured Party in accordance with and
subject to the provisions set forth in Section 9.12 of the Credit
Agreement; provided that any information shared with a Secured
Party pursuant to this Section 4.05 shall be deemed "Information"
which has been "clearly identified at the time of delivery as
confidential" under Section 9.12 of the Credit Agreemnent.
SECTION 4.06. Taxes; Encumbrances. At its option, the
Collateral Agent may discharge past due taxes, assessments,
charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted
pursuant to Section 6.02 of the Credit Agreement, and may pay for
the maintenance and preservation of the Collateral to the extent
any Grantor fails to do so as required by the Credit Agreement or
this Agreement, and each Grantor jointly and severally agrees to
reimburse the Collateral Agent on demand for any payment made or
any expense incurred by the Collateral Agent pursuant to the
foregoing authorization; provided, however, that nothing in this
Section 4.06 shall be interpreted as excusing any Grantor from
the performance of, or imposing any obligation on the Collateral
Agent or any Secured Party to cure or perform, any covenants or
other promises of any Grantor with respect to taxes, assessments,
charges, fees, liens, security interests or other encumbrances
and maintenance as set forth herein or in the other Loan
Documents.
SECTION 4.07. Assignment of Security Interest. If at
any time any Grantor shall take a security interest in any
property of an Account Debtor or any other person to secure
payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent to
the extent permitted by any contracts or arrangements to which
such property is subject. Such assignment need not be filed of
public record unless necessary to
9
continue the perfected status of the security interest against
creditors of and transferees from the Account Debtor or other
person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors.
Each Grantor shall remain liable to observe and perform all the
conditions and obligations to be observed and performed by it
under each contract, agreement or instrument relating to the
Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to
indemnify and hold harmless the Collateral Agent and the Secured
Parties from and against any and all liability for such
performance.
SECTION 4.09. Use and Disposition of Collateral. None
of the Grantors shall make or permit to be made an assignment,
pledge or hypothecation of the Collateral or shall grant any
other Lien in respect of the Collateral, except as expressly
permitted by Section 6.02 of the Credit Agreement. None of the
Grantors shall make or permit to be made any transfer of the
Collateral and each Grantor shall remain at all times in
possession of the Collateral owned by it, except that (a)
Inventory may be sold and Accounts Receivable may be collected in
the ordinary course of business and (b) unless and until the
Collateral Agent shall notify the Grantors that an Event of
Default shall have occurred and be continuing and that during the
continuance thereof the Grantors shall not sell, convey, lease,
assign, transfer or otherwise dispose of any Collateral (which
notice may be given by telephone if promptly confirmed in
writing), the Grantors may use and dispose of the Collateral in
any lawful manner not inconsistent with the provisions of this
Agreement, the Credit Agreement or any other Loan Document.
Without limiting the generality of the foregoing, each Grantor
agrees that it shall not permit any material Inventory to be in
the possession or control of any warehouseman, bailee, agent or
processor at any time unless such warehouseman, bailee, agent or
processor shall have been notified of the Security Interest and
shall have agreed in writing to hold the Inventory subject to the
Security Interest and the instructions of the Collateral Agent
and to waive and release any Lien held by it with respect to such
Inventory, whether arising by operation of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts.
None of the Grantors will, without the Collateral Agent's prior
written consent, grant any extension of the time of payment of
any of the Accounts Receivable, compromise, compound or settle
the same for less than the full amount thereof, release, wholly
or partly, any person liable for the payment thereof or allow any
credit or discount whatsoever thereon, other than extensions,
credits, discounts, compromises or settlements granted or made in
the ordinary course of business and consistent with its current
practices.
SECTION 4.11. Insurance. The Grantors, at their own
expense, shall maintain or cause to be maintained insurance
covering physical loss or damage to the Inventory and Equipment
in accordance with Section 5.07 of the Credit Agreement. Each
Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents
designated by the Collateral Agent) as such Grantor's true and
lawful agent (and attorney-in-fact) for the purpose, during the
continuance of an Event of Default, of making, settling and
adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check,
draft, instrument or other item of payment for the proceeds of
such policies of insurance and for making all determinations and
decisions with respect thereto. In the event that
10
any Grantor at any time or times shall fail to obtain or maintain
any of the policies of insurance required hereby or to pay any
premium in whole or part relating thereto, the Collateral Agent
may, without waiving or releasing any obligation or liability of
the Grantors hereunder or any Event of Default, in its sole
discretion, obtain and maintain such policies of insurance and
pay such premium and take any other actions with respect thereto
as the Collateral Agent deems advisable. All sums disbursed by
the Collateral Agent in connection with this Section 4.11,
including reasonable attorneys' fees, court costs, expenses and
other charges relating thereto, shall be payable, upon demand, by
the Grantors to the Collateral Agent and shall be additional
Obligations secured hereby.
SECTION 4.12. [Intentionally Omitted]
SECTION 4.13. Covenants Regarding Patent, Trademark and
Copyright Collateral. (a) Each Grantor agrees that it will not,
nor will it permit any of its licensees to, do any act, or omit
to do any act, whereby any Patent which is material to the
conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to
mark any products covered by a Patent with the relevant patent
number as necessary and sufficient to establish and preserve its
rights under the laws pursuant to which each such Patent is
issued.
(b) Each Grantor (either itself or through its
licensees or its sublicensees) will, for each Trademark material
to the conduct of such Grantor's business, (i) maintain such
Trademark in full force free from any circumstance that would
lead to a finding of abandonment or invalidity for non-use, (ii)
maintain the quality of products and services offered under such
Trademark sufficient to preclude any findings of abandonment,
(iii) display such Trademark with notice of Federal or foreign
registration to the extent necessary and sufficient to establish
and preserve its rights under the laws pursuant to which each
such Trademark is issued and (iv) not knowingly use or knowingly
permit the use of such Trademark in violation of any third party
rights.
(c) Each Grantor (either itself or through licensees)
will, for each work covered by a material Copyright, continue to
publish, reproduce, display, adopt and distribute the work with
appropriate copyright notice as necessary and sufficient to
establish and preserve its rights under the laws pursuant to
which each such copyright is issued.
(d) Each Grantor shall notify the Collateral Agent
immediately if it knows or has reason to know that any Patent,
Trademark or Copyright material to the conduct of its business
may become abandoned, lost or dedicated to the public, or of any
adverse determination or development (including the institution
of, or any such determination or development in, any proceeding
in the United States Patent and Trademark Office, United States
Copyright Office or any court or similar office of any country)
regarding such Grantor's ownership of any Patent, Trademark or
Copyright, its right to register the same, or to keep and
maintain the same.
(e) In no event shall any Grantor, either itself or
through any agent, employee, licensee or designee, file an
application for any Patent, Trademark or Copyright (or for the
registration of any Trademark or Copyright) with the United
States Patent and Trademark Office, United States Copyright
Office or any office or agency in any political subdivision of
the United
11
States or in any other country or any political subdivision
thereof, unless it promptly informs the Collateral Agent, and,
upon request of the Collateral Agent, executes and delivers any
and all agreements, instruments, documents and papers as the
Collateral Agent may request to evidence the Collateral Agent's
security interest in such Patent, Trademark or Copyright. Each
Grantor hereby appoints the Collateral Agent as its
attorney-in-fact to execute and file such writings evidencing the
Collateral Agent's security interest in such Patent, Trademark or
Copyright, all acts of such attorney being hereby ratified and
confirmed; such power, being coupled with an interest, is
irrevocable.
(f) Each Grantor will take all reasonably necessary
steps that are consistent with the practice in any proceeding
before the United States Patent and Trademark Office, United
States Copyright Office or any similar office or agency in any
political subdivision of the United States or in any other
country or any political subdivision thereof, to maintain and
pursue each material application relating to the Patents,
Trademarks and/or Copyrights (and to obtain the relevant grant or
registration) and to maintain each issued Patent and each
registration of the Trademarks and Copyrights that is material to
the conduct of any Grantor's business, including timely filings
of applications for renewal, affidavits of use, affidavits of
incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition,
interference and cancellation proceedings against third parties.
(g) In the event that any Grantor has reason to believe
that any Collateral consisting of a Patent, Trademark or
Copyright material to the conduct of any Grantor's business has
been or is about to be infringed, misappropriated or diluted by a
third party, such Grantor promptly shall notify the Collateral
Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and
to recover any and all damages for such infringement,
misappropriation or dilution, and take such other actions as are
appropriate under the circumstances to protect such Collateral.
(h) Upon and during the continuance of an Event of
Default, each Grantor shall use its best efforts to obtain all
requisite consents or approvals by the third party licensor of
each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title and
interest thereunder to the Collateral Agent or its designee.
ARTICLE V
Collections
SECTION 5.01. Power of Attorney. Each Grantor
irrevocably makes, constitutes and appoints the Collateral Agent
(and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent and
attorney-in-fact, and in such capacity the Collateral Agent shall
have the right, with power of substitution for each Grantor and
in each Grantor's name or otherwise, for the use and benefit of
the Collateral Agent and the Secured Parties, upon the occurrence
and during the continuance of an Event of Default (a) to receive,
endorse, assign and/or deliver any and all notes, acceptances,
checks, drafts, money orders or other evidences of payment
relating to the Collateral or any part thereof; (b) to demand,
collect, receive payment of, give receipt for and give discharges
and releases of all or any of the
12
Collateral; (c) to sign the name of any Grantor on any invoice or
bill of lading relating to any of the Collateral; (d) to send
verifications of Accounts Receivable to any Account Debtor; (e)
to commence and prosecute any and all suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the
Collateral or to enforce any rights in respect of any Collateral;
(f) to settle, compromise, compound, adjust or defend any
actions, suits or proceedings relating to all or any of the
Collateral; (g) to notify, or to require any Grantor to notify,
Account Debtors to make payment directly to the Collateral Agent;
and (h) to use, sell, assign, transfer, pledge, make any
agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things reasonably
necessary to carry out the purposes of this Agreement, as fully
and completely as though the Collateral Agent were the absolute
owner of the Collateral for all purposes; provided, however, that
nothing herein contained shall be construed as requiring or
obligating the Collateral Agent or any Secured Party to make any
commitment or to make any inquiry as to the nature or sufficiency
of any payment received by the Collateral Agent or any Secured
Party, or to present or file any claim or notice, or to take any
action with respect to the Collateral or any part thereof or the
moneys due or to become due in respect thereof or any property
covered thereby, and no action taken or omitted to be taken by
the Collateral Agent or any Secured Party with respect to the
Collateral or any part thereof shall give rise to any defense,
counterclaim or offset in favor of any Grantor or to any claim or
action against the Collateral Agent or any Secured Party. It is
understood and agreed that the appointment of the Collateral
Agent as the agent and attorney-in-fact of the Grantors for the
purposes set forth above is coupled with an interest and is
irrevocable. The provisions of this Section shall in no event
relieve any Grantor of any of its obligations hereunder or under
any other Loan Document with respect to the Collateral or any
part thereof or impose any obligation on the Collateral Agent or
any Secured Party to proceed in any particular manner with
respect to the Collateral or any part thereof, or in any way
limit the exercise by the Collateral Agent or any Secured Party
of any other or further right which it may have on the date of
this Agreement or hereafter, whether hereunder, under any other
Loan Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the
occurrence and during the continuance of an Event of Default,
each Grantor agrees to deliver each item of Collateral to the
Collateral Agent on demand, and it is agreed that the Collateral
Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any
Collateral consisting of Intellectual Property, on demand, to
cause the Security Interest to become an assignment, transfer and
conveyance of any of or all such Collateral by the applicable
Grantors to the Collateral Agent (except to the extent
assignment, transfer or conveyance thereof would result in a loss
of said Intellectual Property), or to license or sublicense,
whether general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any such Collateral throughout
the world on such terms and conditions and in such manner as the
Collateral Agent shall determine (other than in violation of any
then-existing licensing arrangements to the extent that waivers
cannot be obtained), and (b) with or without legal process and
with or without prior notice or demand for performance, to take
possession of the Collateral and without liability for
13
trespass to enter any premises where the Collateral may
be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights
afforded to a secured party under the UCC or other applicable
law. Without limiting the generality of the foregoing, each
Grantor agrees that the Collateral Agent shall have the right,
subject to the mandatory requirements of applicable law, to sell
or otherwise dispose of all or any part of the Collateral, at
public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery
as the Collateral Agent shall deem appropriate. The Collateral
Agent shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are
purchasing the Collateral for their own account for investment
and not with a view to the distribution or sale thereof, and upon
consummation of any such sale the Collateral Agent shall have the
right to assign, transfer and deliver to the purchaser or
purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor
hereby waives (to the extent permitted by law) all rights of
redemption, stay and appraisal which such Grantor now has or may
at any time in the future have under any rule of law or statute
now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days'
prior written notice (which each Grantor agrees is reasonable
notice within the meaning of Section 9-504(3) of the Uniform
Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's
intention to make any sale of Collateral. Such notice, in the
case of a public sale, shall state the time and place for such
sale and, in the case of a sale at a broker's board or on a
securities exchange, shall state the board or exchange at which
such sale is to be made and the day on which the Collateral, or
portion thereof, will first be offered for sale at such board or
exchange. Any such public sale shall be held at such time or
times within ordinary business hours and at such place or places
as the Collateral Agent may fix and state in the notice (if any)
of such sale. At any such sale, the Collateral, or portion
thereof, to be sold may be sold in one lot as an entirety or in
separate parcels, as the Collateral Agent may (in its sole and
absolute discretion) determine. The Collateral Agent shall not be
obligated to make any sale of any Collateral if it shall
determine not to do so, regardless of the fact that notice of
sale of such Collateral shall have been given. The Collateral
Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time
by announcement at the time and place fixed for sale, and such
sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or
any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the
Collateral Agent until the sale price is paid by the purchaser or
purchasers thereof, but the Collateral Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to
take up and pay for the Collateral so sold and, in case of any
such failure, such Collateral may be sold again upon like notice.
At any public (or, to the extent permitted by law, private) sale
made pursuant to this Section, any Secured Party may bid for or
purchase, free (to the extent permitted by law) from any right of
redemption, stay, valuation or appraisal on the part of any
Grantor (all said rights being also hereby waived and released to
the extent permitted by law), the Collateral or any part thereof
offered for sale and may make payment on account
thereof by using any claim then due and payable to such Secured
Party from any Grantor as a credit
14
against the purchase price, and such Secured Party may,
upon compliance with the terms of sale, hold, retain and dispose
of such property without further accountability to any Grantor
therefor. For purposes hereof, a written agreement to purchase
the Collateral or any portion thereof shall be treated as a sale
thereof; the Collateral Agent shall be free to carry out such
sale pursuant to such agreement and no Grantor shall be entitled
to the return of the Collateral or any portion thereof subject
thereto, notwithstanding the fact that after the Collateral Agent
shall have entered into such an agreement all Events of Default
shall have been remedied and the Obligations paid in full. As an
alternative to exercising the power of sale herein conferred upon
it, the Collateral Agent may proceed by a suit or suits at law or
in equity to foreclose this Agreement and to sell the Collateral
or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a
proceeding by a court-appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral
Agent shall apply the proceeds of any collection or sale of the
Collateral, as well as any Collateral consisting of cash, as
follows:
FIRST, to the payment of all costs and expenses
incurred by the Administrative Agent or the Collateral
Agent (in its capacity as such hereunder or under any other
Loan Document) in connection with such collection or sale
or otherwise in connection with this Agreement or any of
the Obligations, including all court costs and the fees and
expenses of its agents and legal counsel, the repayment of
all advances made by the Collateral Agent hereunder or
under any other Loan Document on behalf of any Grantor and
any other costs or expenses incurred in connection with the
exercise of any right or remedy hereunder or under any
other Loan Document;
SECOND, to the payment in full of the Obligations (the
amounts so applied to be distributed among the Secured
Parties pro rata in accordance with the amounts of the
Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns,
or as a court of competent jurisdiction may otherwise
direct.
The Collateral Agent shall have absolute discretion as
to the time of application of any such proceeds, moneys or
balances in accordance with this Agreement. Upon any sale of the
Collateral by the Collateral Agent (including pursuant to a power
of sale granted by statute or under a judicial proceeding), the
receipt of the Collateral Agent or of the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of
the Collateral so sold and such purchaser or purchasers shall not
be obligated to see to the application of any part of the
purchase money paid over to the Collateral Agent or such officer
or be answerable in any way for the misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual
Property. For the purpose of enabling the Collateral Agent to
exercise rights and remedies under this Article at such time as
the Collateral Agent shall be lawfully entitled to exercise such
rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to the Grantors) to use,
license or sub-license any of
15
the Collateral consisting of Intellectual Property now
owned or hereafter acquired by such Grantor, and wherever the
same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be
recorded or stored and to all computer software and programs used
for the compilation or printout thereof. The use of such license
by the Collateral Agent shall be exercised, at the option of the
Collateral Agent, upon the occurrence and during the continuation
of an Event of Default; provided that any license, sub-license or
other transaction entered into by the Collateral Agent in
accordance herewith shall be binding upon the Grantors
notwithstanding any subsequent cure of an Event of Default.
ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices
hereunder shall (except as otherwise expressly permitted herein)
be in writing and given as provided in Section 9.01 of the Credit
Agreement. All communications and notices hereunder to any
Subsidiary Guarantor shall be given to it at its address or
telecopy number set forth on Schedule I, with a copy to the
Borrower.
SECTION 7.02. Security Interest Absolute. All rights of
the Collateral Agent hereunder, the Security Interest and all
obligations of the Grantors hereunder shall be absolute and
unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement, any other Loan Document,
any agreement with respect to any of the Obligations or any other
agreement or instrument relating to any of the foregoing, (b) any
change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement
or instrument, (c) any exchange, release or non- perfection of
any Lien on other collateral, or any release or amendment or
waiver of or consent under or departure from any guarantee,
securing or guaranteeing all or any of the Obligations, or (d)
any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Grantor in respect of the
Obligations or this Agreement (other than the indefeasible
payment in full of all the Obligations).
SECTION 7.03. Survival of Agreement. All covenants,
agreements, representations and warranties made by any Grantor
herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement shall
be considered to have been relied upon by the Secured Parties and
shall survive the making by the Lenders of the Loans, and the
execution and delivery to the Lenders of any notes evidencing
such Loans, regardless of any investigation made by the Lenders
or on their behalf, and shall continue in full force and effect
until this Agreement shall terminate as provided in Section 7.14.
SECTION 7.04. Binding Effect; Several Agreement. This
Agreement shall become effective as to any Grantor when a
counterpart hereof executed on behalf of such Grantor shall have
been delivered to the Collateral Agent and a counterpart hereof
shall have been executed on behalf of the Collateral Agent, and
thereafter shall be binding upon such Grantor and the Collateral
Agent and their respective successors and assigns, and shall
inure to the benefit of
16
such Grantor, the Collateral Agent and the other Secured
Parties and their respective successors and assigns, except that
no Grantor shall have the right to assign or transfer its rights
or obligations hereunder or any interest herein or in the
Collateral (and any such assignment or transfer shall be void)
except as expressly contemplated by this Agreement or the Credit
Agreement. This Agreement shall be construed as a separate
agreement with respect to each Grantor and may be amended,
modified, supplemented, waived or released with respect to any
Grantor without the approval of any other Grantor and without
affecting the obligations of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this
Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns
of such party; and all covenants, promises and agreements by or
on behalf of any Grantor or the Collateral Agent that are
contained in this Agreement shall bind and inure to the benefit
of their respective successors and assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses;
Indemnification. (a) Each Grantor jointly and severally agrees to
pay upon demand to the Collateral Agent the amount of any and all
reasonable expenses, including the reasonable fees, disbursements
and other charges of its counsel and of any experts or agents,
which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from or other
realization upon any of the Collateral in accordance with the
terms hereof, (iii) the exercise, enforcement or protection of
any of the rights of the Collateral Agent hereunder or (iv) the
failure of any Grantor to perform or observe any of the
provisions hereof applicable to it.
(b) Without limitation of its indemnification
obligations under the other Loan Documents, each Grantor jointly
and severally agrees to indemnify the Collateral Agent and the
other Indemnitees against, and hold each of them harmless from,
any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other
charges of counsel, incurred by or asserted against any of them
arising out of, in any way connected with, or as a result of, the
execution, delivery or performance of this Agreement or any
claim, litigation, investigation or proceeding relating hereto or
to the Collateral, whether or not any Indemnitee is a party
thereto; provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims,
damages, liabilities or related expenses resulted from the gross
negligence or willful misconduct of such Indemnitee.
(c) Any such amounts payable as provided hereunder
shall be additional Obligations secured hereby and by the other
Security Documents. The provisions of this Section 7.06 shall
remain operative and in full force and effect regardless of the
termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the
repayment of any of the Loans, the invalidity or unenforceability
of any term or provision of this Agreement or any other Loan
Document, or any investigation made by or on behalf of the
Collateral Agent or any Lender. All amounts due under this
Section 7.06 shall be payable on written demand therefor.
17
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or
delay of the Collateral Agent in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of
the Collateral Agent hereunder and of the Collateral Agent, the
Issuing Bank, the Administrative Agent and the Lenders under the
other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of
any provisions of this Agreement or any other Loan Document or
consent to any departure by any Grantor therefrom shall in any
event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for
which given. No notice to or demand on any Grantor in any case
shall entitle such Grantor or any other Grantor to any other or
further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may
be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Collateral Agent and
the respective Grantor or Grantors with respect to which such
waiver, amendment or modification is to apply, subject to any
consent required in accordance with Section 9.02 of the Credit
Agreement. In addition, any waiver, amendment or modification of
Section 2.03 shall be subject to the prior written consent of the
trustee acting for the benefit of investors under the Receivables
Transaction Documents.
SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 7.09.
SECTION 7.10. Severability. In the event any one or
more of the provisions contained in this Agreement should be held
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it
being understood that the invalidity of a particular provision in
a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
18
SECTION 7.11 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall
constitute an original but all of which when taken together shall
constitute but one contract (subject to Section 7.04), and shall
become effective as provided in Section 7.04. Delivery of an
executed signature page to this Agreement by facsimile
transmission shall be effective as delivery of a manually
executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings
used herein are for the purpose of reference only, are not part
of this Agreement and are not to affect the construction of, or
to be taken into consideration in interpreting, this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of
Process. (a) Each Grantor hereby irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding
arising out of or relating to this Agreement or the other Loan
Documents, or for recognition or enforcement of any judgment, and
each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or,
to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other
manner provided by law. Nothing in this Agreement shall affect
any right that the Collateral Agent, the Administrative Agent,
the Issuing Bank or any Lender may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan
Documents against any Grantor or its properties in the courts of
any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents
to service of process in the manner provided for notices in
Section 7.01. Nothing in this Agreement will affected the right
of any party to this Agreement to serve process in any other
manner permitted by law.
SECTION 7.14. Termination. This Agreement and the
Security Interest shall terminate when all the Obligations have
been indefeasibly paid in full, the Lenders have no further
commitment to lend under the Credit Agreement, the LC and
Acceptance Exposure has been reduced to zero and the Issuing Bank
has no further commitment to issue Letters of Credit and
Acceptances under the Credit Agreement, at which time the
Collateral Agent shall execute and deliver to the Grantors, at
the Grantors' expense, all Uniform Commercial Code termination
statements and similar documents which the Grantors shall
reasonably request to evidence such termination. Any execution
and delivery of termination statements or documents pursuant to
this Section 7.14 shall be without recourse to or warranty by the
Collateral Agent. A Subsidiary Guarantor shall automatically be
released from its obligations hereunder and the Security Interest
19
in the Collateral of such Subsidiary Guarantor shall be
automatically released in the event that all the capital stock of
such Subsidiary Guarantor shall be sold, transferred or otherwise
disposed of to a person that is not an Affiliate of the Borrower
in accordance with the terms of the Credit Agreement; provided
that the Required Lenders shall have consented to such sale,
transfer or other disposition (to the extent required by the
Credit Agreement) and the terms of such consent did not provide
otherwise.
SECTION 7.15. Additional Grantors. Upon execution and
delivery by the Collateral Agent and a Subsidiary Loan Party that
was not in existence on the date of the Credit Agreement or was
an Inactive Subsidiary that ceased to be an Inactive Subsidiary
of an instrument in the form of Annex 2 hereto, such Subsidiary
shall become a Grantor hereunder with effect from and after the
date of such execution and delivery. The execution and delivery
of any such instrument shall not require the consent of any other
Grantor hereunder. The rights and obligations of each Grantor
hereunder shall remain in full force and effect notwithstanding
the addition of any new Grantor as a party to this Agreement.
20
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
J. CREW OPERATING CORP.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
J. CREW GROUP, INC.,
by /s/ Michael P. McHugh
----------------------------
Name:
Title:
EACH OF THE SUBSIDIARY
GUARANTORS LISTED ON
SCHEDULE I HERETO,
by /s/ Michael P. McHugh
----------------------------
Name:
Title: Authorized Officer
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by /s/ Bruce S. Borden
----------------------------
Name:
Title: Authorized Officer
22
SCHEDULE I
SUBSIDIARY GUARANTORS
SCHEDULE II
COPYRIGHTS
SCHEDULE III
LICENSES
SCHEDULE IV
PATENTS
SCHEDULE V
TRADEMARKS
Annex 1 to the
Security Agreement
[Form Of]
PERFECTION' CERTIFICATE
Reference is made to (a) the Credit Agreement dated as
of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"),
among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), The Chase Manhattan Bank, as
administrative agent for the Lenders (in such capacity, the
"Administrative Agent"), Collateral Agent and, with respect to
Letters of Credit and Acceptances issued under the Credit
Agreement, as issuing bank (in such capacity, the "Issuing Bank")
and Donaldson, Lufkin & Jenrette Securities Corporation, as
syndication agent, and (b) the Guarantee Agreement dated as of
October 17, 1997 (as amended, supplemented or otherwise modified
from time to time, the "Guarantee Agreement"), among the
Subsidiary Guarantors, Holdings and the Collateral Agent.
Capitalized terms used herein and not defined herein shall have
the meaning assigned to such terms in the Guarantee Agreement and
the Credit Agreement.
The undersigned, a Financial Officer, hereby certifies
to the Collateral Agent and each other Secured Party as follows:
1. Names. (a) The exact corporate name of each Grantor,
as such name appears in its respective certificate of
incorporation, is as follows:
(b) Set forth below is each other corporate name each
Grantor has had in the past five years, together with the date of
the relevant change:
(c) Except as set forth in Schedule 1 hereto, no
Grantor has changed its identity or corporate structure in any
way within the past five years. Changes in identity or corporate
structure would include mergers, consolidations and acquisitions,
as well as any change in the form, nature or jurisdiction of
corporate organization. If any such change has occurred, include
in Schedule 1 the information required by Sections 1 and 2 of
this certificate as to each acquiree or constituent party to a
merger or consolidation.
(d) The following is a list of all other names
(including trade names or similar appellations) used by each
Grantor or any of its divisions or other business units in
connection with the conduct of its business or the ownership of
its properties at any time during the past five years:
(e) Set forth below is the Federal Taxpayer
Identification Number of each Grantor:
2. Current Locations. (a) The chief executive office of
each Grantor is located at the address set forth opposite its
name below:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(b) Set forth below opposite the name of each Grantor
are the locations where such Grantor maintains any books or
records relating to any Accounts Receivable (with each location
at which chattel paper, if any, is kept being indicated by an
"*"):
Grantor Mailing Address County State
- ------- --------------- ------ -----
(c) Set forth below opposite the name of each Grantor
are all the places of business of such Grantor not identified in
paragraph (a) or (b) above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(d) Set forth below opposite the name of each Grantor
are all the locations where such Grantor maintains any Collateral
not identified above:
Grantor Mailing Address County State
- ------- --------------- ------ -----
(e) Set forth below opposite the name of each Grantor
are the names and addresses of all persons other than such
Grantor that have possession of any of the Collateral of such
Grantor:
Grantor Mailing Address County State
- ------- --------------- ------ -----
2
3. Unusual Transactions. All Accounts Receivable have
been originated by the Grantors and all Inventory has been
acquired by the Grantors in the ordinary course of business.
4. UCC Filings. Duly signed financing statements on
Form UCC-1 in substantially the form of Schedule 5 hereto have
been prepared for filing in the Uniform Commercial Code filing
office in each jurisdiction where a Grantor has Collateral as
identified in Section 2 hereof.
5. Schedule of Filings. Attached hereto as Schedule 5
is a schedule setting forth, with respect to the filings
described in Section 5 above, each filing and the filing office
in which such filing is to be made.
6. Stock Ownership. Attached hereto as Schedule 6 is a
true and correct list of all the duly authorized, issued and
outstanding stock of each Subsidiary and the record and
beneficial owners of such stock.
7. Notes. Attached hereto as Schedule 7 is a true and
correct list of all notes held by Holdings and each Subsidiary
and all intercompany notes (other than a Purchase Money Note)
between Holdings and each Subsidiary of Holdings and between each
Subsidiary of Holdings and each other such Subsidiary.
8. Advances. Attached hereto as Schedule 8 is (a) a
true and correct list of all advances made by (i) Holdings to the
Borrower or any Subsidiary Loan Party, (ii) the Borrower to
Holdings or any Subsidiary Loan Party and (iii) any Subsidiary
Loan Party to Holdings, the Borrower or any other Subsidiary Loan
Party, which advances will be on and after the date hereof
evidenced by one or more intercompany notes pledged to the
Collateral Agent under the Pledge Agreement, and (b) a true and
correct list of all unpaid intercompany transfers of goods sold
and delivered by or to Holdings or any Subsidiary of Holdings.
9. Mortgage Filings. Attached hereto as Schedule 9 is a
schedule setting forth, with respect to each Mortgaged Property,
(i) the exact corporate name of the corporation that owns such
property as such name appears in its certificate of
incorporation, (ii) if different from the name identified
pursuant to clause (i), the exact name of the current record
owner of such property reflected in the records of the filing
office for such property identified pursuant to the following
clause and (iii) the filing office in which a Mortgage with
3
respect to such property must be filed or recorded in order for
the Collateral Agent to obtain a perfected security interest
therein.
IN WITNESS WHEREOF, the undersigned have duly executed
this certificate on this [ ] day of [ ].
J. CREW OPERATING CORP.
by_______________________________
Name:
Title: [Financial Officer]
by_______________________________
Name:
Title: [Legal Officer]
5
Annex 2 to the
Security Agreement
SUPPLEMENT NO. __ dated as of , to the
Security Agreement dated as of October 17, 1997,
among J. CREW OPERATING CORP., a Delaware
corporation (the "Borrower"), J. CREW GROUP, INC.,
a New York corporation ("Holdings"), each
subsidiary of the Borrower listed on Schedule I
thereto (each such subsidiary individually a
"Subsidiary Guarantor" and collectively, the
"Subsidiary Guarantors"; the Subsidiary Guarantors,
Holdings and the Borrower are referred to
collectively herein as the "Grantors") and THE
CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), as collateral agent (in such
capacity, the "Collateral Agent") for the Secured
Parties (as defined herein).
A. Reference is made to (a) the Credit Agreement dated
as of October 17, 1997 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the
Borrower, Holdings, the lenders from time to time party thereto
(the "Lenders"), Chase, as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"), Collateral Agent
and, with respect to Letters of Credit and Acceptances issued
under the Credit Agreement, as issuing bank (in such capacity,
the "Issuing Bank"), and Donaldson, Lufkin & Jenrette Securities
Corporation, as syndication agent, and (b) the Guarantee
Agreement dated as of October 17, 1997 (as amended, supplemented
or otherwise modified from time to time, the "Guarantee
Agreement"), among the Subsidiary Guarantors, Holdings and the
Collateral Agent.
B. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in
the Security Agreement and the Credit Agreement.
C. The Grantors have entered into the Security
Agreement in order to induce the Lenders to make Loans and the
Issuing Bank to issue Letters of Credit and Acceptances. Section
7.15 of Security Agreement provides that additional Subsidiary
Loan Party that was not in existence on the date of the Credit
Agreement or was an Inactive Subsidiary that ceased to be an
Inactive Subsidiary may become Grantors under the Security
Agreement by execution and delivery of an instrument in the form
of this Supplement. The undersigned Subsidiary (the "New
Grantor") is executing this Supplement in accordance with the
requirements of the Credit Agreement to become a Grantor under
the Security Agreement in order to induce the Lenders to make
additional Loans and the Issuing Bank to issue additional Letters
of Credit and Acceptances and as consideration for Loans
previously made and Letters of Credit and Acceptances previously
issued.
Accordingly, the Collateral Agent and the New Grantor
agree as follows:
SECTION 1. In accordance with Section 7.15 of the
Security Agreement, the New Grantor by its signature below
becomes a Grantor under the Security Agreement with effect from
and after the date of execution and delivery of this Supplement
in accordance with Section 3 hereof and the New Grantor hereby
(a) agrees to all the terms and provisions of the Security
Agreement applicable to it as a Grantor thereunder and (b)
represents and warrants that the representations and warranties
made by it as a Grantor thereunder are true and correct on and
as of the date hereof. In furtherance of the foregoing,
the New Grantor, as security for the payment and performance in
full of the Obligations (as defined in the Security Agreement),
does hereby create and grant to the Collateral Agent, its
successors and assigns, for the benefit of the Secured Parties,
their successors and assigns, a security interest in and lien on
all of the New Grantor's right, title and interest in and to the
Collateral (as defined in the Security Agreement) of the New
Grantor. Each reference to a "Grantor" in the Security Agreement
shall be deemed to include the New Grantor. The Security
Agreement is hereby incorporated herein by reference.
SECTION 2. The New Grantor represents and warrants to
the Collateral Agent and the other Secured Parties that this
Supplement has been duly authorized, executed and delivered by it
and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in
counterparts (and by different parties hereto on different
counterparts), each of which shall constitute an original, but
all of which when taken together shall constitute a single
contract. This Supplement shall become effective when the
Collateral Agent shall have received counterparts of this
Supplement that, when taken together, bear the signatures of the
New Grantor and the Collateral Agent. Delivery of an executed
signature page to this Supplement by facsimile transmission shall
be as effective as delivery of a manually signed counterpart of
this Supplement.
SECTION 4. The New Grantor hereby represents and
warrants that (a) set forth on Schedule I attached hereto is a
true and correct schedule of the location of any and all
Collateral of the New Grantor and (b) set forth under its
signature hereto, is the true and correct location of the chief
executive office of the New Grantor.
SECTION 5. Except as expressly supplemented hereby, the
Security Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
SECTION 7. In case any one or more of the provisions
contained in this Supplement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and
in the Security Agreement shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in
and of itself affect the validity of such provision in any other
jurisdiction). The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or
unenforceable provisions.
SECTION 8. All communications and notices hereunder
shall be in writing and given as provided in Section 7.01 of the
Security Agreement. All communications and notices
2
hereunder to the New Grantor shall be given to it at the address
set forth under its signature below.
SECTION 9. The New Grantor agrees to reimburse the
Collateral Agent for its reasonable out-of-pocket expenses in
connection with this Supplement, including the reasonable fees,
other charges and disbursements of counsel for the Collateral
Agent.
IN WITNESS WHEREOF, the New Grantor and the Collateral
Agent have duly executed this Supplement to the Security
Agreement as of the day and year first above written.
[Name Of New Grantor],
by_____________________________
Name:
Title:
Address:
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by_____________________________
Name:
Title:
3
SCHEDULE I
to Supplement No.___ to the
Security Agreement
LOCATION OF COLLATERAL
----------------------
Description Location
- ----------- --------
======================================================================
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
Dated as of October 17, 1997
by and among
J. Crew Group, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
Chase Securities Inc.
======================================================================
This Registration Rights Agreement (this "Agreement") is
made and entered into as of October 17, 1997 by and among J. Crew
Group, Inc., a New York corporation (the "Company") and
Donaldson, Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. (each an "Initial Purchaser" and, collectively,
the "Initial Purchasers"), each of whom has agreed to purchase
the Company's 13 1/8% Series A Senior Discount Debentures due 2008
(the "Series A Debentures") pursuant to the Purchase Agreement
(as defined below).
This Agreement is made pursuant to the Purchase
Agreement, dated October 14, 1997 (the "Purchase Agreement"), by
and between the Company and the Initial Purchasers. In order to
induce the Initial Purchasers to purchase the Series A
Debentures, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 3 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized
terms shall have the following meanings:
Act: The Securities Act of 1933, as amended.
Business Day: Any day except a Saturday, Sunday or other
day in the City of New York, or in the city of the corporate
trust office of the Trustee, on which banks are authorized to
close.
Broker-Dealer: Any broker or dealer registered under
the Exchange Act.
Broker-Dealer Transfer Restricted Securities: Series B
Debentures that are acquired by a Broker-Dealer in the Exchange
Offer in exchange for Series A Debentures that such Broker-
Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A
Debentures acquired directly from the Company or any of its
affiliates).
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (a) the
filing and effectiveness under the Act of the Exchange Offer
Registration Statement relating to the Series B Debentures to be
issued in the Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of
the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof and (c) the
delivery by the Company to the Registrar under the Indenture of
Series B Debentures in the same aggregate principal amount as the
aggregate principal amount of Series A Debentures tendered by
Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A
Debentures, each Interest Payment Date.
Debentures: The Series A Debentures and the Series B
Debentures.
1
Exchange Act: The Securities Exchange Act of 1934,
as amended.
Exchange Offer: The registration by the Company under
the Act of the Series B Debentures pursuant to the Exchange Offer
Registration Statement pursuant to which the Company shall offer
the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Debentures in an aggregate principal
amount equal to the aggregate principal amount of the Transfer
Restricted Securities tendered in such exchange offer by such
Holders.
Exchange Offer Registration Statement: The Registration
Statement relating to the Exchange Offer, including the related
Prospectus.
Exempt Resales: The transactions in which the Initial
Purchasers propose to sell the Series A Debentures to certain
"qualified institutional buyers," as such term is defined in Rule
144A under the Act, and outside the United States pursuant to
Regulation S under the Act.
Global Noteholder: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date,
between the Company and State Street Bank and Trust Company, as
trustee (the "Trustee"), pursuant to which the Debentures are to
be issued, as such Indenture is amended or supplemented from time
to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and
the Debentures.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration
Statement at the time such Registration Statement is declared
effective, as amended or supplemented by any prospectus
supplement and by all other amendments thereto, including
post-effective amendments, and all material incorporated by
reference into such Prospectus.
Record Holder: With respect to any Damages Payment Date,
each Person who is a Holder of Debentures on the record date with
respect to the Interest Payment Date on which such Damages
Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of
the Company relating to (a) an offering of Series B Debentures
pursuant to an Exchange Offer or (b) the registration for resale
of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, in each case, (i) which is filed pursuant
to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits
and material incorporated by reference therein.
2
Restricted Broker-Dealer: Any Broker-Dealer which holds
Broker-Dealer Transfer Restricted Securities.
Series B Debentures: The Company's 13 1/8% Series B Senior
Discount Debentures due 2008 to be issued pursuant to the
Indenture (i) in the Exchange Offer or (ii) upon the request of
any Holder of Series A Debentures covered by a Shelf Registration
Statement, in exchange for such Series A Debentures.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Debenture, until
the earliest to occur of (a) the date on which such Debenture is
exchanged in the Exchange Offer and entitled to be resold to the
public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, the date on which
such Debenture has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such Debenture is
disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration
Statement (including delivery of the Prospectus contained
therein) or (d) the date on which such Debenture is distributed
to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "Holder") whenever such Person owns Transfer
Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law (after the procedures set forth in Section
6(a)(i) below have been complied with), the Company shall (i)
cause to be filed with the Commission as soon as practicable
after the Closing Date, but in no event later than 60 days after
the Closing Date, the Exchange Offer Registration Statement, (ii)
use its best efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but
in no event later than 135 days after the Closing Date, (iii) in
connection with the foregoing, (A) file all pre-effective
amendments to such Exchange Offer Registration Statement as may
be necessary in order to cause such Exchange Offer Registration
Statement to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration
Statement pursuant to Rule 430A under the Act and (C) cause all
necessary filings, if any, in connection with the registration
and qualification of the Series B Debentures to be made under the
Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the
effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer
shall be on the appropriate form permitting registration of the
Series B Debentures to be offered in exchange for the Series A
Debentures that are Transfer Restricted Securities and to permit
sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers as contemplated by Section 3(c) below.
3
(b) The Company shall use its best efforts to cause the
Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period
of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange
Offer; provided, however, that in no event shall such period be
less than 20 Business Days. The Company shall cause the Exchange
Offer to comply with all applicable federal and state securities
laws. No securities other than the Debentures shall be included
in the Exchange Offer Registration Statement. The Company shall
use its best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange
Offer Registration Statement has become effective, but in no
event later than 30 Business Days thereafter.
(c) The Company shall include a "Plan of Distribution"
section in the Prospectus contained in the Exchange Offer
Registration Statement and indicate therein that any Restricted
Broker-Dealer who holds Series A Debentures that are Transfer
Restricted Securities and that were acquired for the account of
such Broker-Dealer as a result of market-making activities or
other trading activities, may exchange such Series A Debentures
(other than Transfer Restricted Securities acquired directly from
the Company or any Affiliate of the Company) pursuant to the
Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the
Act in connection with its initial sale of each Series B Debenture
received by such Broker-Dealer in the Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery
by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section
shall also contain all other information with respect to such
sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers that the Commission may require in
order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose
the amount of Debentures held by any such Broker-Dealer, except
to the extent required by the Commission as a result of a change
in policy after the date of this Agreement.
The Company shall use its best efforts to keep the
Exchange Offer Registration Statement continuously effective,
supplemented and amended as required by the provisions of Section
6(c) below to the extent necessary to ensure that it is available
for sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers, and to ensure that such Registration
Statement conforms with the requirements of this Agreement, the
Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of one year from the
date on which the Exchange Offer is Consummated.
The Company shall promptly provide sufficient copies of
the latest version of such Prospectus to such Restricted
Broker-Dealers promptly upon request, and in no event later than
one day after such request, at any time during such one-year
period in order to facilitate such sales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not
required to file an Exchange Offer Registration Statement with
respect to the Series B Debentures because the Exchange Offer is
not permitted by applicable law (after the procedures set forth
in Section 6(a)(i) below have been complied with) or (ii) if any
Holder of Transfer Restricted Securities shall notify the Company
within 20 Business Days following the Consummation of the
Exchange Offer that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B)
such Holder may not resell the Series B Debentures acquired by it
in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available
4
for such resales by such Holder or (C) such Holder is a
Broker-Dealer and holds Series A Debentures acquired directly
from the Company or one of its affiliates, then the Company shall
(x) cause to be filed on or prior to 30 days after the date on
which the Company determines that it is not required to file the
Exchange Offer Registration Statement pursuant to clause (i)
above or 60 days after the date on which the Company receives the
notice specified in clause (ii) above a shelf registration
statement pursuant to Rule 415 under the Act (which may be an
amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement"), relating to all
Transfer Restricted Securities the Holders of which shall have
provided the information required pursuant to Section 4(B)
hereof, and shall (y) use its best efforts to cause such Shelf
Registration Statement to become effective on or prior to 135
days after the date on which the Company becomes obligated to
file such Shelf Registration Statement. If, after the Company has
filed an Exchange Offer Registration Statement which satisfies
the requirements of Section 3(a) above, the Company is required
to file and make effective a Shelf Registration Statement solely
because the Exchange Offer shall not be permitted under
applicable federal law, then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the
requirements of clause (x) above. Such an event shall have no
effect on the requirements of clause (y) above. The Company shall
use its best efforts to keep the Shelf Registration Statement
discussed in this Section 4(a) continuously effective,
supplemented and amended as required by and subject to the
provisions of Sections 6(b) and (c) hereof to the extent
necessary to ensure that it is available for sales of Transfer
Restricted Securities by the Holders thereof entitled to the
benefit of this Section 4(a), and to ensure that it conforms with
the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to
time, for a period of at least two years (as extended pursuant to
Section 6(c)(i)) following the date on which such Shelf
Registration Statement first becomes effective under the Act.
(b) Provision by Holders of Certain Information in
Connection with the Shelf Registration Statement. No Holder of
Transfer Restricted Securities may include any of its Transfer
Restricted Securities in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes
to the Company in writing, within 20 days after receipt of a
request therefor, such information specified in item 507 of
Regulation S-K under the Act for use in connection with any Shelf
Registration Statement or Prospectus or preliminary Prospectus
included therein. No Holder of Transfer Restricted Securities
shall be entitled to Liquidated Damages pursuant to Section 5
hereof unless and until such Holder shall have used its best
efforts to provide all such information. Each Holder as to which
any Shelf Registration Statement is being effected agrees to
furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this
Agreement is not filed with the Commission on or prior to the
date specified for such filing in this Agreement, (ii) any such
Registration Statement has not been declared effective by the
Commission on or prior to the date specified for such
effectiveness in this Agreement, (iii) the Exchange Offer has not
been Consummated within 180 days after the Closing Date or (iv)
any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective
or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such
Registration Statement that cures such failure and that is itself
declared effective immediately (each such event referred to in
clauses (i) through (iv), a "Registration Default"), then the
Company hereby agrees to pay liquidated damages to each Holder of
Transfer Restricted Securities with respect to the first 90-day
period immediately following the occurrence of such Registration
Default, in an amount equal to $.05 per week per $1,000 principal
amount of Transfer Restricted Securities held by such Holder for
each week or portion thereof that the Registration
5
Default continues. The amount of the liquidated damages shall
increase by an additional $.05 per week per $1,000 in principal
amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have
been cured, up to a maximum amount of liquidated damages of $.25
per week per $1,000 principal amount of Transfer Restricted
Securities. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness
of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of
(ii) above, (3) upon Consummation of the Exchange Offer, in the
case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf
Registration Statement) to again be declared effective or made
usable in the case of (iv) above, the liquidated damages payable
with respect to the Transfer Restricted Securities as a result of
such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the
Global Note Holder by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated
Securities by mailing checks to their registered addresses on
each Damages Payment Date. All obligations of the Company set
forth in the preceding paragraph that are outstanding with
respect to any Transfer Restricted Security at the time such
security ceases to be a Transfer Restricted Security shall
survive until such time as all such obligations with respect to
such security shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection
with the Exchange Offer, the Company shall comply with all
applicable provisions of Section 6(c) below, shall use its best
efforts to effect such exchange and to permit the sale of
Broker-Dealer Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution
thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof there has been
published a change in Commission policy with respect to
exchange offers such as the Exchange Offer, such that in the
reasonable opinion of counsel to the Company there is a
substantial question as to whether the Exchange Offer is
permitted by applicable federal law, the Company hereby
agrees to seek a no-action letter or other favorable decision
from the Commission allowing the Company to Consummate an
Exchange Offer for such Series A Debentures. The Company
hereby agrees to pursue the issuance of such a decision to
the Commission staff level. In connection with the foregoing,
the Company hereby agrees to take all such other actions as
are requested by the Commission or otherwise required in
connection with the issuance of such decision, including
without limitation (A) participating in telephonic
conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the
Company setting forth the legal bases, if any, upon which
such counsel has concluded that such an Exchange Offer should
be permitted and (C) diligently pursuing a resolution (which
need not be favorable) by the Commission staff of such
submission.
(ii) As a condition to its participation in the
Exchange Offer pursuant to the terms of this Agreement, each
Holder of Transfer Restricted Securities shall furnish, upon
the request of the Company, prior to the Consummation of the
Exchange Offer, a written representation to the Company
(which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to
the effect that (A) it is not an affiliate of the Company,
(B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any
6
person to participate in, a distribution of the Series B Debentures
to be issued in the Exchange Offer and (C) it is acquiring the
Series B Debentures in its ordinary course of business. Each
Holder hereby acknowledges and agrees that any Broker-Dealer
and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in
effect on the date of this Agreement rely on the position of
the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2,
1993, and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause
(i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection
with a secondary resale transaction and that such a secondary
resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of
Regulation S-K if the resales are of Series B Debentures
obtained by such Holder in exchange for Series A Debentures
acquired by such Holder directly from the Company or an
affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company shall provide a
supplemental letter to the Commission (A) stating that the
Company is registering the Exchange Offer in reliance on the
position of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley
and Co., Inc. (available June 5, 1991) and, if applicable,
any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that the Company has not entered
into any arrangement or understanding with any Person to distribute
the Series B Debentures to be received in the Exchange Offer
and that, to the best of the Company's information and
belief, each Holder participating in the Exchange Offer is
acquiring the Series B Debentures in its ordinary course of
business and has no arrangement or understanding with any
Person to participate in the distribution of the Series B
Debentures received in the Exchange Offer and (C) any other
undertaking or representation required by the Commission as
set forth in any no-action letter obtained pursuant to clause
(i) above.
(b) Shelf Registration Statement. In connection with the
Shelf Registration Statement, the Company shall comply with all
the provisions of Section 6(c) below and shall use its best
efforts to effect such registration to permit the sale of the
Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof (as indicated
in the information furnished to the Company pursuant to Section
4(b) hereof), and pursuant thereto the Company will prepare and
file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in
accordance with the provisions hereof.
(c) General Provisions. In connection with any
Registration Statement and any related Prospectus required by
this Agreement to permit the sale or resale of Transfer
Restricted Securities (including, without limitation, any
Exchange Offer Registration Statement and the related Prospectus,
to the extent that the same are required to be available to
permit sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration
Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or
4 of this Agreement, as applicable. Upon the occurrence of
any event that would cause any such Registration Statement or
the Prospectus contained therein (A) to contain a material
misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during
the period required by this Agreement, the Company shall file
promptly an appropriate amendment to such Registration
7
Statement, (1) in the case of clause (A), correcting any such
misstatement or omission, and (2) in the case of clauses (A)
and (B), use its best efforts to cause such amendment to be
declared effective and such Registration Statement and the
related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter. Notwithstanding
anything to the contrary set forth in this Agreement, the
Company's obligation to use its best efforts to keep the
Shelf Registration Statement continuously effective,
supplemented and amended shall be suspended in the event
continued effectiveness of the Shelf Registration Statement
would, in the opinion of counsel to the Company, require the
Company to disclose a material financing, acquisition or
other corporate transaction, and the Board of Directors shall
have determined in good faith that such disclosure is not in
the best interests of the Company, but in no event will any
such suspension, individually or in the aggregate, exceed
ninety (90) days since the Closing Date.
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the Registration
Statement as may be necessary to keep the Registration
Statement effective for the applicable period set forth in
Section 3 or 4 hereof, or such shorter period as will
terminate upon the earlier of the following (A) when all
Transfer Restricted Securities covered by such Registration
Statement have been sold and (B) when, in the written opinion
of counsel to the Company, all outstanding Transfer
Restricted Securities held by persons that are not affiliates
of the Company may be resold without registration under the
Act pursuant to Rule 144(k) under the Act or any successor
provision thereto; cause the Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to
be filed pursuant to Rule 424 under the Act, and to comply
fully with Rules 424, 430A and 462, as applicable, under the
Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered
by such Registration Statement during the applicable period
in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling
Holders promptly and, if requested by such Persons, confirm
such advice in writing, (A) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with
respect to any Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request
by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any
state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction,
or the initiation of any proceeding for any of the preceding
purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or
supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to
or changes in the Registration Statement in order to make the
statements therein not misleading, or that requires the making of
any additions to or changes in the Prospectus in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state
securities or Blue Sky laws, the Company shall use its best
efforts to obtain the withdrawal or lifting of such order at the
earliest possible time;
8
(iv) furnish to the Initial Purchaser(s), each selling
Holder named in any Registration Statement or Prospectus and
each of the underwriter(s) in connection with such sale, if
any, before filing with the Commission, copies of any
Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated
by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and
comment of such Holders and underwriter(s) in connection with
such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration
Statement or Prospectus or any amendment or supplement to any
such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which the selling
Holders of the Transfer Restricted Securities covered by such
Registration Statement or the underwriter(s) in connection
with such sale, if any, shall reasonably object within five
Business Days after the receipt thereof. A selling Holder or
underwriter, if any, shall be deemed to have reasonably
objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or
omission or fails to comply with the applicable requirements
of the Act;
(v) promptly prior to the filing of any document that
is to be incorporated by reference into a Registration
Statement or Prospectus, provide copies of such document to
the selling Holders and to the underwriter(s) in connection
with such sale, if any, make the Company's representatives
available for discussion of such document and other customary
due diligence matters, and include such information in such
document prior to the filing thereof as such selling Holders
or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by
the selling Holders, any managing underwriter participating in
any disposition pursuant to such Registration Statement and
any attorney or accountant retained by such selling Holders
or any of such underwriter(s), all financial and other
records, pertinent corporate documents and properties of the
Company and cause the Company's officers, directors and
employees to supply all information reasonably requested by
any such Holder, underwriter, attorney or accountant in
connection with such Registration Statement or any
post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly
include in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary,
such information as such selling Holders and underwriter(s),
if any, may reasonably request to have included therein,
including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the
purchase price being paid therefor and any other terms of the
offering of the Transfer Restricted Securities to be sold in
such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to
be included in such Prospectus supplement or post-effective
amendment;
(viii) furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without
charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated
therein by reference);
(ix) deliver to each selling Holder and each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons reasonably
may request; the Company hereby consents to the
9
use (in accordance with law) of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering
and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto;
(x) enter into such agreements (including an
underwriting agreement) and make such representations and
warranties and take all such other actions in connection
therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any
Registration Statement contemplated by this Agreement as may
be reasonably requested by any Holder of Transfer Restricted
Securities or underwriter in connection with any sale or
resale pursuant to any Registration Statement contemplated by
this Agreement, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the
registration is an Underwritten Registration, the Company
shall:
(A) furnish (or in the case of paragraphs (2) and (3),
use its best efforts to furnish) to each selling Holder and
each underwriter, if any, upon the effectiveness of the
Shelf Registration Statement and to each Restricted
Broker-Dealer upon Consummation of the Exchange Offer:
(1) a certificate, dated the date of Consummation
of the Exchange Offer or the date of effectiveness of
the Shelf Registration Statement, as the case may be,
signed on behalf of the Company by (x) the President
or any Vice President and (y) a principal financial or
accounting officer of the Company, confirming, as of
the date thereof, the matters set forth in paragraphs
(a) through (d) of Section 9 of the Purchase Agreement
and such other similar matters as the Holders,
underwriter(s) and/or Restricted Broker Dealers may
reasonably request;
(2) an opinion, dated the date of Consummation of
the Exchange Offer or the date of effectiveness of the
Shelf Registration Statement, as the case may be, of
counsel for the Company covering matters similar to
those set forth in paragraph (e) of Section 9 of the
Purchase Agreement and such other matter as the
Holders, underwriters and/or Restricted Broker Dealers
may reasonably request, and in any event including a
statement to the effect that such counsel has
participated in conferences with officers and other
representatives of the Company, representatives of the
independent public accountants for the Company and
have considered the matters required to be stated
therein and the statements contained therein, although
such counsel has not independently verified the
accuracy, completeness or fairness of such statements;
and that such counsel advises that, on the basis of
the foregoing (relying as to materiality to a large
extent upon facts provided to such counsel by officers
and other representatives of the Company and without
independent check or verification), no facts came to
such counsel's attention that caused such counsel to
believe that the applicable Registration Statement, at
the time such Registration Statement or any
post-effective amendment thereto became effective and,
in the case of the Exchange Offer Registration
Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of a
material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the
Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the
date of Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue statement of
a material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel
assumes no responsibility for,
10
and has not independently verified, the accuracy, complete-
ness or fairness of the financial statements, notes and
schedules and other financial and statistical data
included in any Registration Statement contemplated by
this Agreement or the related Prospectus; and
(3) a customary comfort letter, dated as of the date
of effectiveness of the Shelf Registration Statement
or the date of Consummation of the Exchange Offer, as
the case may be, from the Company's independent
accountants, in the customary form and covering
matters of the type customarily covered in comfort
letters to underwriters in connection with primary
underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to
Section 9 of the Purchase Agreement, without
exception;
(B) set forth in full or incorporate by reference in
the underwriting agreement, if any, in connection with any
sale or resale pursuant to any Shelf Registration Statement
the indemnification provisions and procedures of Section 8
hereof with respect to all parties to be indemnified
pursuant to said Section; and
(C) deliver such other documents and certificates as
may be reasonably requested by the selling Holders, the
underwriter(s), if any, and Restricted Broker Dealers, if
any, to evidence compliance with clause (A) above and with
any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company
pursuant to this clause (x).
The above shall be done at each closing under such
underwriting or similar agreement, as and to the extent required
thereunder, and if at any time the representations and warranties
of the Company contemplated in (A)(1) above cease to be true and
correct, the Company shall so advise the underwriter(s), if any,
the selling Holders and each Restricted Broker-Dealer promptly
and if requested by such Persons, shall confirm such advice in
writing;
(xi) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders,
the underwriter(s), if any, and their respective counsel in
connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue
Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all other
acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not
now so qualified or to take any action that would subject it
to the service of process in suits or to taxation, other than
as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so
subject;
(xii) issue, upon the request of any Holder of Series
A Debentures covered by any Shelf Registration Statement
contemplated by this Agreement, Series B Debentures having an
aggregate principal amount equal to the aggregate principal
amount of Series A Debentures surrendered to the Company by
such Holder in exchange therefor or being sold by such
Holder; such Series B Debentures to be registered in the name
of such Holder or in the name of the purchaser(s) of such
Debentures, as the case may be; in return, the Series A
Debentures held by such Holder shall be surrendered to the
Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer
being Transfer Restricted Securities, cooperate with the
selling Holders and the underwriter(s), if any, to facilitate
the timely preparation and delivery of certificates
11
representing Transfer Restricted Securities to be sold and
not bearing any restrictive legends; and to register such
Transfer Restricted Securities in such denominations and such
names as the Holders or the underwriter(s), if any, may
request at least two Business Days prior to such sale of
Transfer Restricted Securities;
(xiv) use its best efforts to cause the disposition of
the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso
contained in clause (xi) above;
(xv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or
have occurred, prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus
or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to
the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of a
Registration Statement covering such Transfer Restricted
Securities and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Securities
which are in a form eligible for deposit with the Depository
Trust Company;
(xvii) cooperate and assist in any filings required to
be made with the NASD and in the performance of any due
diligence investigation by any underwriter (including any
"qualified independent underwriter") that is required to be
retained in accordance with the rules and regulations of the
NASD, and use its best efforts to cause such Registration
Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to
enable the Holders selling Transfer Restricted Securities to
consummate the disposition of such Transfer Restricted
Securities;
(xviii) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make generally available to its security holders with regard
to any applicable Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) covering
a twelve-month period beginning after the effective date of
the Registration Statement (as such term is defined in
paragraph (c) of Rule 158 under the Act);
(xix) cause the Indenture to be qualified under the
TIA not later than the effective date of the first Registration
Statement required by this Agreement and, in connection
therewith, cooperate with the Trustee and the Holders of
Debentures to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that
may be required to effect such changes and all other forms
and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner;
and
(xx) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange
Act.
12
(d) Restrictions on Holders. Each Holder agrees by
acquisition of a Transfer Restricted Security that, upon receipt
of the notice referred to in Section 6(c)(i) or any notice from
the Company of the existence of any fact of the kind described in
Section 6(c)(iii)(D) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(xv) hereof, or until it
is advised in writing by the Company that the use of the
Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by
reference in the Prospectus (the "Advice"). If so directed by the
Company, each Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such
Transfer Restricted Securities that was current at the time of
receipt of either such notice. In the event the Company shall
give any such notice, the time period regarding the effectiveness
of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days
during the period from and including the date of the giving of
such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D)
hereof to and including the date when each selling Holder covered
by such Registration Statement shall have received the copies of
the supplemented or amended Prospectus contemplated by Section
6(c)(xv) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance
of or compliance with this Agreement will be borne by the
Company, regardless of whether a Registration Statement becomes
effective, including without limitation: (i) all registration and
filing fees and expenses (including filings made by any Purchaser
or Holder with the NASD (and, if applicable, the fees and
expenses of any "qualified independent underwriter") and its
counsel that may be required by the rules and regulations of the
NASD); (ii) all fees and expenses of compliance with federal
securities and state Blue Sky or securities laws; (iii) all
expenses of printing (including printing certificates for the
Series B Debentures to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and
telephone; (iv) all fees and disbursements of counsel for the
Company and the Holders of Transfer Restricted Securities; and
(v) all fees and disbursements of independent certified public
accountants of the Company (including the expenses of any special
audit and comfort letters required by or incident to such
performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties),
the expenses of any annual audit and the fees and expenses of any
Person, including special experts, retained by the Company.
(b) In connection with any Registration Statement
required by this Agreement (including, without limitation, the
Exchange Offer Registration Statement and the Shelf Registration
Statement), the Company will reimburse the Initial Purchasers and
the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration
Statement or registered pursuant to the Shelf Registration
Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be chosen
by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration
Statement is being prepared.
13
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless
(i) each Holder and (ii) each person, if any, who controls (within
the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this
clause (ii) being hereinafter referred to as a "controlling
person") and (iii) the respective officers, directors, partners,
employees, representatives and agents of any Holder or any
controlling person (any person referred to in clause (i), (ii) or
(iii) may hereinafter be referred to as an "Indemnified Holder"),
to the fullest extent lawful, from and against any and all
losses, claims, damages, liabilities, judgments, actions and
expenses (including without limitation and as incurred,
reimbursement of all reasonable costs of investigating,
preparing, pursuing or defending any claim or action, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and
expenses of counsel to any Indemnified Holder) directly or
indirectly caused by, related to, based upon, arising out of or
in connection with any untrue statement or alleged untrue
statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment
or supplement thereto), or any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages, liabilities or expenses
are caused by an untrue statement or omission or alleged untrue
statement or omission that is made in reliance upon and in
conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders
expressly for use therein; provided, however, that the foregoing
indemnification with respect to any untrue statement or alleged
untrue statement or omission or alleged omission in any
preliminary prospectus or Prospectus, shall not inure to the
benefit of any Indemnified Holder from whom the person asserting
such loss, claim, damage, liability or expense purchased any of
the Debentures if a copy of the Prospectus (or any amendment or
supplement thereto) was not sent or given on behalf of such
Indemnified Holder to such person at or prior to the written
confirmation of the sale of such Debentures to such person and if
the Prospectus (or the Prospectus, as so amended or supplemented)
would have cured the defect giving rise to such loss, claim,
damage, liability or expense.
In case any action or proceeding (including any
governmental or regulatory investigation or proceeding) shall be
brought or asserted against any of the Indemnified Holders with
respect to which indemnity may be sought against the Company,
such Indemnified Holder (or the Indemnified Holder controlled by
such controlling person) shall promptly notify the Company in
writing (provided, that the failure to give such notice shall not
relieve the Company of their obligations pursuant to this
Agreement). Such Indemnified Holder shall have the right to
employ its own counsel in any such action and the fees and
expenses of such counsel shall be paid, as incurred, by the
Company (regardless of whether it is ultimately determined that
an Indemnified Holder is not entitled to indemnification
hereunder). The Company shall not, in connection with any one
such action or proceeding or separate but substantially similar
or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at
any time for such Indemnified Holders, which firm shall be
designated by the Holders. The Company shall be liable for any
settlement of any such action or proceeding effected with the
Company's prior written consent, which consent shall not be
withheld unreasonably, and the Company agrees to indemnify and
hold harmless each Indemnified Holder from and against any loss,
claim, damage, liability or expense by reason of any settlement
of any action effected with the written consent of the Company.
The Company shall not, without the prior written consent of each
Indemnified Holder, settle or compromise or consent to the entry
of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of
which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Holder is a party thereto),
unless such settlement, compromise, consent or termination
includes an
14
unconditional release of each Indemnified Holder from all
liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Transfer Restricted Securities
agrees, severally and not jointly, to indemnify and hold harmless
the Company, and its directors, officers, and any person
controlling (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) the Company, and the respective
officers, directors, partners, employees, representatives and
agents of each such person, to the same extent as the foregoing
indemnity from the Company to each of the Indemnified Holders,
but only with respect to claims and actions based on information
relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any
action or proceeding shall be brought against the Company or its
directors or officers or any such controlling person in respect
of which indemnity may be sought against a Holder of Transfer
Restricted Securities, such Holder shall have the rights and
duties given the Company, and the Company, such directors or
officers or such controlling person shall have the rights and
duties given to each Holder by the preceding paragraph. In no
event shall any Holder be liable or responsible for any amount in
excess of the amount by which the total received by such Holder
with respect to its sale of Transfer Restricted Securities
pursuant to a Registration Statement exceeds (i) the amount paid
by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission.
(c) If the indemnification provided for in this Section
8 is unavailable to an indemnified party under Section 8(a) or
Section 8(b) hereof (other than by reason of exceptions
provided in those Sections) in respect of any losses, claims,
damages, liabilities or expenses referred to therein, then each
applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Holders, on the other hand,
from the issuance and sale of the Debentures by the Company or if
such allocation is not permitted by applicable law, the relative
fault of the Company, on the one hand, and of the Indemnified
Holder, on the other hand, in connection with the statements or
omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of the Company, on the one
hand, and of the Indemnified Holder, on the other hand, shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Indemnified Holder
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other
fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim.
The Company and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if
contribution pursuant to this Section 8(c) were determined by pro
rata allocation (even if the Holders were treated as one entity
for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in
the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Holder or
its related Indemnified Holders shall be required to contribute,
in the aggregate, any amount in excess of the amount by which the
total received by such Holder with respect
15
to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by
such Holder for such Transfer Restricted Securities plus (B) the
amount of any damages which such Holder has otherwise been
required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)
of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are
several in proportion to the respective principal amount of
Series A Debentures held by each of the Holders hereunder and not
joint.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long
as any Transfer Restricted Securities remain outstanding and
during any period in which the Company is not subject to
Section 13 or 15(d) of the Securities Exchange Act, to make
available, upon request of any Holder of Transfer Restricted
Securities, to any Holder or beneficial owner of Transfer
Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities
designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit
resales of such Transfer Restricted Securities pursuant to Rule
144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten
Registration hereunder unless such Holder (a) agrees to sell such
Holder's Transfer Restricted Securities on the basis provided in
customary underwriting arrangements entered into in connection
therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required
under the terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or
investment bankers and manager or managers for any Underwritten
Offering that will administer such offering will be selected by
the Holders of a majority in aggregate principal amount of the
Transfer Restricted Securities included in such offering. Such
investment bankers and managers are referred to herein as the
"underwriters."
SECTION 12. MISCELLANEOUS
(a) Remedies. Each Holder, in addition to being entitled
to exercise all rights provided herein, in the Indenture, the
Purchase Agreement or granted by law, including recovery of
liquidated or other damages, will be entitled to specific
performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by them of the
provisions of this Agreement and hereby agree to waive the
defense in any action for specific performance that a remedy at
law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on
or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. The rights
16
granted to the Holders hereunder do not in any way conflict with
and are not inconsistent with the rights granted to the holders
of the Company's securities under any agreement in effect on the
date hereof.
(c) Adjustments Affecting the Debentures. The Company
will not take any action, or voluntarily permit any change to
occur, with respect to the Debentures that would materially and
adversely affect the ability of the Holders to Consummate any
Exchange Offer.
(d) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers
or consents to or departures from the provisions hereof may not be
given unless (i) in the case of Section 5 hereof and this Section
12(d)(i), the Company has obtained the written consent of Holders
of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the
written consent of Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities.
Notwithstanding the foregoing, a waiver or consent to departure
from the provisions hereof that relates exclusively to the rights
of Holders whose securities are being tendered pursuant to the
Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being
tendered pursuant to such Exchange Offer may be given by the
Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities subject to such Exchange Offer.
(e) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by
hand-delivery, first-class mail (registered or certified, return
receipt requested), telex, telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company:
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
Telecopier No.: (212) 209-2666
Attention: Chief Financial Officer
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Telecopier No.: (212) 225-3999
Attention: Paul J. Shim, Esq.
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when receipt acknowledged,
if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
17
Copies of all such notices, demands or other
communications shall be concurrently delivered by the Person
giving the same to the Trustee at the address specified in the
Indenture.
(f) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns
of each of the parties, including without limitation and without
the need for an express assignment, subsequent Holders of
Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a
successor or assign of a Holder unless and to the extent such
successor or assign acquired Transfer Restricted Securities
directly from such Holder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute
one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in
any circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or
referred to herein with respect to the registration rights
granted with respect to the Transfer Restricted Securities. This
Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
J. Crew Group, Inc.
By: /s/ Michael P. McHugh
----------------------------
Name:
Title:
Donaldson, Lufkin & Jenrette
Securities Corporation
By: /s/ Pauline Boghosian
----------------------------
Name: Pauline Boghosian
Title: Vice President
Chase Securities Inc.
By: /s/ Christopher M. Linneman
------------------------------
Name:
Title:
Exhibit 5.1
Conformed Copy
Writer's Direct Dial: (212) 225-2930
December 16, 1997
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
Ladies and Gentlemen:
We have acted as your counsel in connection with a
Registration Statement on Form S-4 (the "Registration Statement")
filed today with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Act"), in respect
of the Series B 13-1/8% Senior Discount Debentures due 2008 (the
"New Debentures") of J. Crew Group, Inc., a New York corporation
(the "Issuer"), to be offered in exchange for all outstanding
Series A 13-1/8% Senior Discount Debentures (the "Old
Debentures") of the Issuer. The New Debentures will be issued
pursuant to an indenture (the "Indenture"), dated as of October
17, 1997, between the Issuer and State Street Bank and Trust
Company, as trustee (the "Trustee").
We have participated in the preparation of the
Registration Statement and have reviewed originals or copies,
certified or otherwise identified to our satisfaction, of such
documents and records of the Issuer and such other instruments
and other certificates of public officials, officers and
representatives of the Issuer and such other persons, and we have
made such investigations of law, as we have deemed appropriate as
a basis for the opinions expressed below.
In rendering the opinions expressed below, we have
assumed the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents
submitted to us as copies. In addition, we have assumed and have
not verified (i) the accuracy as
J. Crew Group, Inc., p. 2
to factual matters of each document we have reviewed and (ii)
that the Old Debentures and the New Debentures conform or will
conform to the forms thereof that we have reviewed and have been
or will be duly authenticated in accordance with their terms and
the terms of the Indenture.
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is our opinion
that:
1. When the New Debentures have been duly executed and
authenticated in accordance with their terms and the terms of the
Indenture, and duly issued and delivered by the Issuer in
exchange for an equal principal amount at maturity of Old
Debentures pursuant to the terms of the Registration Rights
Agreement (in the form filed as an exhibit to the Registration
Statement), the New Debentures will constitute the valid, binding
and enforceable obligation of the Issuer, entitled to the
benefits of the Indenture.
2. The Indenture has been duly executed and delivered
by the Issuer under the law of the State of New York.
Insofar as the foregoing opinions relate to the
validity, binding effect or enforceability of any agreement or
obligation of the Issuer, (a) we have assumed that the Issuer and
each other party to such agreement or obligation has satisfied
those legal requirements that are applicable to it to the extent
necessary to make such agreement or obligation enforceable
against it (except that no such assumption is made as to the
Issuer regarding matters of the law of the State of New York);
and (b) such opinions are subject to applicable bankruptcy,
insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally and to general principles of equity.
The foregoing opinion is limited to the law of the
State of New York.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to
this firm under the heading "Legal Matters" in the Prospectus
included in the Registration Statement. In giving such consent,
we do not thereby admit that we are "experts" within the meaning
of the Act or the rules and regulations of the Securities and
Exchange Commission issued thereunder with respect to any part of
the Registration Statement, including this exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ Paul J. Shim
--------------------------------
Paul J. Shim, a Partner
EMPLOYMENT AGREEMENT
AGREEMENT, dated this 17th day of October, 1997 (the
"Agreement"), among J. Crew Group, Inc., a New York Corporation
(the "Parent") and its operating subsidiary J. Crew Operating
Corp. (the "Subsidiary" and collectively with the Parent, the
"Employer"), with offices at 625 Sixth Avenue, New York, New
York, TPG Partners II, L.P. ("TPG II") (only with respect to
Section 2(c) herein) and Emily Woods (the "Employee").
1. Employment, Duties and Agreements.
(a) The Employer hereby agrees to cause the Employee to
be elected as Chairman of the Board of Directors of the Parent and
to employ the Employee as Chief Executive Officer of the Parent
and the Subsidiary and the Employee hereby accepts such positions
and agrees to serve the Parent and the Subsidiary in such
capacities during the employment period fixed by Section 3 hereof
(the "Employment Period"). The Employee acknowledges that the
title of Chief Executive Officer of the Parent and the Subsidiary
may be given to another officer assuming a business/operations
role if the Board of Directors of the Parent (the "Board")
determines in its sole discretion that such action is necessary
to recruit such other officer; provided that such other officer,
as Chief Executive Officer, shall report to a committee of the
Board consisting of no more than three members of which the
Employee is the chairman, and the Employee and the Board shall
from time to time mutually agree on the reporting relationships
of any other senior officer of the Employer or any of its
subsidiaries. The Employee shall report solely and directly to
the Board. The Employee's duties and responsibilities shall be
such duties and responsibilities as the Board may reasonably
determine from time to time that are consistent with the above
job titles. During the Employment Period, the Employee shall be
subject to, and shall act in accordance with, all reasonable
instructions and directions of the Board and all applicable
policies and rules thereof as are consistent with the above job
titles.
(b) During the Employment Period and as long as the
Employer shall not be in default of a material obligation
hereunder, excluding any periods of vacation and sick leave to
which the Employee is entitled, the Employee shall devote
substantially all of her working time, energy and attention to
the performance of her duties and responsibilities hereunder and
shall faithfully and diligently endeavor to promote the business
and best interests of the Employer.
(c) During the Employment Period and so long as the
Employer shall not be in default of a material obligation
hereunder, the Employee may not, without the prior written
consent of the Employer, operate, participate in the management,
operations or control of, or act as an employee, officer,
consultant, agent or representative of, any type of business or
service (other than as an employee of the Employer), provided
that it shall not be a violation of the foregoing for the
Employee to (i) act or serve as a director, trustee, committee
member or principal of any type of business or civic or
charitable organization (including, without limitation, acting as
a producer or executive producer of motion picture productions)
and (ii) manage her personal, financial and legal affairs, so
long as such activities (described in clauses
(i) and (ii)) do not interfere with the performance of her duties
and responsibilities to the Employer as provided hereunder.
2. Compensation.
(a) As compensation for the agreements made by the
Employee herein and the performance by the Employee of her
obligations hereunder, during the Employment Period, the Employer
shall pay the Employee, not less than once a month pursuant to
the Employer's normal and customary payroll procedures, a base
salary at the rate of $1,000,000 per annum (the "Base Salary").
The amount of the Base Salary shall be increased on each
anniversary of the Effective Date during the Employment Period,
to reflect the year-to-year increase, if any, as of the July 1
immediately preceding such Effective Date in the U.S. Consumer
Price Index for All Urban Consumers, U.S. City Average, All
Items, Unadjusted, as published by the U.S. Department of Labor,
or in the absence of that index, the most comparable index then
published and may be increased further in the absolute discretion
of the Compensation Committee of the Board.
(b) In addition to the Base Salary, during the Employment
Period the Employee shall have an opportunity to earn an annual
bonus (the "Bonus") in accordance with the terms of the J. Crew
Operating Corp. Senior Executive Bonus Plan attached hereto as
Exhibit A.
(c) As of the Effective Date (as defined in Section 3
below), TPG II hereby grants to the Employee the option to
purchase from TPG II shares of common stock of J. Crew Group,
Inc. (the "Common Stock") equal to ten percent (10%) (the "10%
Option") of the total outstanding shares of Common Stock
determined immediately after the closing (the "Closing") of the
transactions contemplated by the Recapitalization Agreement,
dated July 22, 1997, among TPG II, J. Crew Group, Inc. and
certain other persons (the "Recapitalization") at the same price
per share of Common Stock as TPG II paid per share of Common
Stock pursuant to the Recapitalization (the "TPG II Price"). Upon
the exercise by the Employee of the 10% Option, the Employee
shall be required to purchase from TPG II an amount of preferred
stock of the Parent, at the same price and on the same terms as
TPG II's purchase of preferred stock, the aggregate purchase
price for which bears the same ratio to the aggregate purchase
price paid by the Employee for Common Stock pursuant to the
exercise of the 10% Option as the ratio of the aggregate purchase
price paid by TPG II for the purchase of preferred stock bears to
the aggregate purchase price paid by TPG II for the Common Stock
in connection with the Recapitalization. The 10% Option provided
in this Section 3(c) shall expire at the close of business on the
thirtieth day after the Closing.
(d) On January 1, 1998, the Employer shall grant the
Employee 2915 restricted shares of Common Stock (the "Restricted
Shares") and 393 shares of Common Stock (the "Additional
Shares"). Such Additional Shares shall not be subject to the
restrictions provided in this Section 2(d). The Restricted Shares
shall vest as follows: 972 Restricted Shares on each of the third
and fourth anniversaries of the Closing and 971 on the fifth
anniversary of the Closing, provided that the Employee is still
employed by the Employer on such date. Notwithstanding the
2
foregoing, to the extent not yet granted, the Employer shall
immediately grant the Restricted Shares and the Additional
Shares, and all or any portion of the Restricted Shares not
previously forfeited shall vest immediately upon the occurrence
of a Change in Control (as defined in the J. Crew Group, Inc.
1997 Stock Option Plan) or the termination of the Employment
Period by the Employer without Cause, by the Employee for Good
Reason, or by reason of the Employee's death or Disability. If
the Employment Period terminates for any other reason, the
Restricted Shares which have not vested on such date of
termination shall be forfeited by the Employee and returned to
the Employer. Notwithstanding anything to the contrary in the
Stockholders' Agreement, the certificates representing the
Restricted Shares shall be held in custody by the Employer until
the vesting thereof and shall not be transferred until such
shares become vested as provided herein. All cash, securities and
other property paid or otherwise distributed with respect to the
Restricted Shares which have not vested shall be held in custody
by the Employer and shall be subject to the same vesting,
forfeiture and distribution rules described above with respect to
the Restricted Shares related thereto. In addition, the Employee
shall be entitled to direct the Employer as to the manner in
which the Restricted Shares held in custody by the Employer shall
be voted.
(e) In connection with the grant of the Restricted
Shares, the Employee shall make an election prior to January 30,
1998 to include in gross income on the date of the grant the
value of the Restricted Shares on such date pursuant to Section
83(b) (the "Section 83(b) Election") of the Internal Revenue Code
of 1986, as amended. Upon notification from the Employee that the
Section 83(b) Election has been made, the Employer shall pay the
appropriate depository an amount equal to the Employee's federal,
state and local income and payroll tax withholding obligations
with respect to (i) the value of the Restricted Shares (the
"Restricted Share Value"), which value shall be equal to the TPG
II Price unless otherwise mutually agreed by the parties, (ii)
the value of the Additional Shares (the "Additional Share
Value"), which value shall be equal to the TPG II Price unless
otherwise mutually agreed by the parties and (iii) the income
required to be recognized by the Employee as a result of the
payment by the Employer of such withholding obligations, in each
case based on withholding rates determined by the Employer in its
discretion and in compliance with applicable law (such sum paid
by the Employer hereinafter referred to as the "Withholding
Amount"). At least thirty days before the Employee's due date for
1998 Federal income taxes, the Employee shall provide a
certificate to the Employer in which the Employee shall represent
to the Employer the Employee's highest marginal income tax rate
applicable to her actual income with respect to each of her
federal, state and local income taxes for 1998. The "Stock
Gross-Up Payment" shall be determined by an accounting firm
mutually agreed upon by the parties (whose expenses will be paid
by the Employer) and shall equal an amount such that, after
payment of all federal, state and local income and payroll taxes
("Taxes") on the Stock Gross-Up Payment, the Employee will retain
an amount sufficient to pay all Taxes that she is required to pay
as a result of the grant of the Restricted Shares, the Section
83(b) Election and the grant of Additional Shares. The
calculation of the amount of the Stock Gross-Up Payment shall (i)
take into account any marginal deduction with respect to the
Employee's Federal income tax liability for state and local
income taxes paid with respect to the grant of Restricted Shares,
Additional Shares and the Stock Gross-Up
3
Payment to which the Employee will be entitled, and (ii)
notwithstanding the time of year in which any payments are made
hereunder by the Employer, be based on payroll taxes on income in
excess of $100,000. The determination of the accounting firm
shall be final and binding upon the Employee and the Employer.
After the accounting firm notifies the Employer of the amount of
the Stock Gross-Up Payment and no later than fifteen days prior
to the Employee's due date for her 1998 Federal income taxes, the
Employer shall pay the Employee the excess, if any, of the Stock
Gross-Up Payment over the Withholding Amount or the Employee
shall pay the Employer the excess, if any, of the Withholding
Amount over the Stock Gross-Up Payment, as applicable. The
Withholding Amount and the Stock Gross-Up Payment, if any, shall
be paid by the Employer notwithstanding any termination of the
Employee's employment hereunder.
(f) All shares of Common Stock and preferred stock of
J. Crew Group, Inc. and all other securities issued in connection
with the Recapitalization and acquired by the Employee under this
Agreement or otherwise shall be subject to the Stockholders'
Agreement attached hereto as Exhibit B.
(g) During the Employment Period, the Employee shall
be entitled to the following expense reimbursement and additional
benefits and perquisites:
(i) reimbursement of travel expenses (with regard
to air travel, on the Concorde where available or otherwise in
first class), including with spouse where appropriate and as
reasonably agreed between the Employer and the Employee;
(ii) cellular and home business telephone lines;
(iii) a leased car, including a driver as needed
by the Employee;
(iv) reimbursement of reasonable tax, investment
management and legal services fees;
(v) reimbursement of entertainment expenses which
are reasonably expected to benefit the Employer;
(vi) the provision of J. Crew Brand clothing
(including for the Employee's spouse); and
(vii) an additional payment (a "Reimbursement
Gross-Up Payment") relating to the federal, state and local
income and payroll taxes incurred by the Employee with respect to
amounts required to be recognized as income for Federal income
tax purposes by the Employee as a result of reimbursements
provided in clauses (i) through (vi) of this Section 2(g) (the
"Gross-Up Expenses"). The amount of Gross-Up Expenses shall be
determined by an accounting firm mutually agreed upon by the
Employee and the Employer (and whose expenses will be paid by the
Employer) and shall reflect that firm's determination of the
amount that should be includible in income by the Employee with
respect to clauses (i) through (vi) of this
4
Section 2(g). At least thirty days before the Employee's due date
for her Federal income taxes with respect to each calendar year,
the Employee shall provide a certificate to the Employer in which
the Employee shall represent to the Employer the highest marginal
income tax rate applicable to her actual income with respect to
each of her federal, state and local income taxes for such year.
The "Reimbursement Gross-Up Payment" for each calendar year shall
be determined by an accounting firm mutually agreed upon by the
parties (whose expenses will be paid by the Employer) and shall
equal an amount such that, after payment of all Taxes on the
Reimbursement Gross-Up Payment, the Employee will retain an
amount sufficient to pay all Taxes that she is required to pay as
a result of the reimbursement of the Gross-Up Expenses. The
calculation of the amount of the Reimbursement Gross-Up Payment
shall (i) take into account any marginal deduction with respect
to the Employee's Federal income tax liability for state and
local income taxes paid with respect to the Gross-Up Expenses to
which the Employee will be entitled, and (ii) notwithstanding the
time of year in which any payments are made hereunder by the
Employer, be based on payroll taxes on income in excess of
$100,000. The determination of the accounting firm shall be final
and binding upon the Employee and the Employer. After the
accounting firm notifies the Employer of the amount of the
Reimbursement Gross-Up Payment and no later than fifteen days
prior to the Employee's due date for paying her Federal income
taxes for such year, the Employer shall pay the Employee the
Reimbursement Gross-Up Payment. The Reimbursement Gross-Up
Payment shall be paid by the Employer notwithstanding any
termination of the Employee's employment hereunder.
(h) During the Employment Period: (i) the Employee
shall be entitled to participate in all savings and retirement
plans, practices, policies and programs of the Employer and its
affiliated companies which are made available generally to other
executive officers of the Employer and its affiliated companies
(for the avoidance of doubt, such savings and retirement plans,
practices, policies and programs shall exclude any incentive
compensation plan, practice, policy or program, including without
limitation equity-based compensation and cash bonus plans); and
(ii) the Employee and/or the Employee's family, as the case may
be, shall be eligible for participation in, and shall receive all
benefits under, all welfare benefit plans, practices, policies
and programs provided by the Employer and its affiliated
companies (including, without limitation, medical, prescription,
dental, disability, the Employee life insurance, group life
insurance, accidental death and travel accident insurance plans
and programs) which are made available generally to other
executive officers of the Employer and its affiliated companies
(for the avoidance of doubt, such plans, practices, policies or
programs shall not include any plan, practice, policy or program
which provides benefits in the nature of severance or
continuation pay). Without limiting the generality of the
foregoing, the Employer shall review its executive disability
insurance program with the Employee, with the goal of providing
the Employee with a long-term disability benefit equal to
two-thirds of the Employee's base salary in the event of
permanent disability to the extent such insurance is reasonably
available in the market (it being understood that the Employer
will use its reasonable efforts to purchase such a disability
policy). The term "affiliated companies" means all companies
controlled by, controlling or under common control with the
Employer.
5
(i) During the Employment Period, the Employee shall
be entitled to paid vacation of at least five weeks per year. The
ability to carry forward vacation time shall be subject to the
Employer's vacation policy applicable generally to executive
officers of the Employer as in effect from time to time.
(j) The Employer shall promptly reimburse the Employee
for all reasonable business expenses upon the presentation of
statements of such expenses in accordance with the Employer's
policies and procedures now in force or as such policies and
procedures may be modified with respect to all senior executive
officers of the Employer.
(k) During the Employment Period, the Employer shall
furnish the Employee with office space, stenographic and
secretarial assistance and such other incidental facilities and
services as provided to the Employee immediately prior to the
date hereof, provided that such services are substantially
related to the Employee's employment hereunder.
3. Employment Period.
The Employment Period shall commence on the date of
the Closing (the "Effective Date") and shall terminate on the day
preceding the fifth anniversary of the Effective Date (the
"Scheduled Termination Date"); provided, however, that the
Employee's employment hereunder may be terminated during the
Employment Period prior to the Scheduled Termination Date upon
the earliest to occur of the following events (at which time the
Employment Period shall be terminated):
(a) Death. The Employee's employment hereunder shall
terminate upon her death.
(b) Disability. The Employer shall be entitled to
terminate the Employee's employment hereunder for "Disability"
if, as a result of the Employee's incapacity due to physical or
mental illness, the Employee shall have been unable to perform
her duties hereunder for a period of six (6) consecutive months
or for 180 days within any 365-day period, and within 30 days
after written Notice of Termination for Disability is given
following such 6-month or 180-day period, as the case may be, the
Employee shall not have returned to the performance of her duties
on a full-time basis.
(c) Cause. The Employer may terminate the Employee's
employment hereunder for Cause. For purposes of this Agreement,
the term "Cause" shall mean: (1) the willful and continued
failure of the Employee substantially to perform the Employee's
duties under this Agreement (other than as a result of physical
or mental illness or injury), after the Board delivers to the
Employee a written demand for substantial performance that
specifically identifies the manner in which the Board believes
that the Employee has not substantially performed the Employee's
duties; and (2) the willful engaging by the Employee in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Employer. Any act or failure to act that is
based upon authority given pursuant to a resolution duly adopted
by the Board, or
6
the advice of counsel for the Employer, shall not constitute
Cause. Cause shall not exist unless and until the Employer has
delivered to the Employee a copy of a resolution duly adopted by
a majority of the Board at a meeting of the Board called and held
for such purpose (after reasonable but in no event less than
thirty (30) days' notice to the Employee and an opportunity for
the Employee, together with her counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Employee was guilty of the conduct set forth above and specifying
the particulars thereof in detail. This Section 3(c) shall not
prevent the Employee from challenging in any court of competent
jurisdiction the Board's determination that Cause exists or that
the Employee has failed to cure any act (or failure to act) that
purportedly formed the basis for the Board's determination.
(d) Good Reason. The Employee may terminate her
employment hereunder for "Good Reason," for any of the following
reasons enumerated in this Section 3(d) (and such termination
shall be treated as if it were a termination by the Employer
without Cause, and not a voluntary termination by the Employee):
(1) the assignment to the Employee of any duties inconsistent
with paragraph (a) of Section 1 of this Agreement, or any other
action by the Employer that results in a diminution in the
Employee's position, authority, duties or responsibilities; (2)
any purported termination of the Employee's employment by the
Employer for a reason or in a manner not expressly permitted by
this Agreement; or (3) any failure by the Employer to comply with
Sections 2(a) through 2(e) and Section 12(d)(ii) of this
Agreement, or any other material breach of this Agreement.
Termination by the Employee pursuant to this Section 3(d) shall
not be effective until the Employee delivers to the Board a
written notice specifically identifying the conduct of the
Employer which the Employee believes constitutes a reason
enumerated in this Section 3(d) and the Employee provides the
Board at least thirty (30) days to remedy such conduct.
(e) Without Cause. The Employer may terminate the
Employee's employment hereunder without Cause.
(f) Without Good Reason. The Employee may terminate
her employment hereunder without Good Reason, provided that the
Employee provides the Employer with notice of her intent to
terminate without Good Reason at least three months in advance of
the Date of Termination (as defined in Section 4 below). The
Employee and the Employer shall mutually agree on the time,
method and content of any public announcement regarding the
Employee's termination of employment hereunder and neither the
Employee nor the Employer shall make any public statements which
are inconsistent with the information mutually agreed upon by the
Employer and the Employee and the parties hereto shall cooperate
with each other in refuting any public statements made by other
persons, which are inconsistent with the information mutually
agreed upon between the Employee and Employer as described above.
7
4. Termination Procedure.
(a) Notice of Termination. Any termination of the
Employee's employment by the Employer or by the Employee during
the Employment Period (other than termination pursuant to Section
3(a)) shall be communicated by written "Notice of Termination" to
the other party hereto in accordance with Section 12(a). For
purposes of this Agreement, a Notice of Termination shall mean a
notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of the Employee's employment under the provision so
indicated and shall attach any prior notices required under
Section 3.
(b) Date of Termination. "Date of Termination" shall
mean (i) if the Employee's employment is terminated by her death,
the date of her death, (ii) if the Employee's employment is
terminated pursuant to Section 3(b), thirty (30) days after
Notice of Termination (provided that the Employee shall not have
returned to the substantial performance of her duties on a
full-time basis during such thirty (30) day period), (iii) if the
Employee's employment is terminated pursuant to Section 3(f), a
date specified in the Notice of Termination which is at least
three months from the date of such notice as specified in such
Section 3(f); and if the Employee's employment is terminated for
any other reason, the date on which a Notice of Termination is
given or any later date (within thirty (30) days (or any
alternative time period agreed upon by the parties) after the
giving of such notice) set forth in such Notice of Termination.
5. Termination Payments.
(a) Without Cause or for Good Reason. In the event of
the termination of the Employee's employment during the
Employment Period, by the Employer without Cause or by the
Employee for Good Reason, the Employee shall be entitled to a
payment, within ten (10) days following the Date of Termination,
of the Employee's Base Salary through the Date of Termination (to
the extent not theretofore paid), any accrued vacation pay, and
any unreimbursed expenses under Section 2(h) (the "Accrued
Obligations"), and to the continued payment of the Employee's
Base Salary through the Scheduled Termination Date. The Employee
shall also be entitled to payment of any earned but unpaid Bonus
in respect of a Bonus Period ending prior to or coincident with
the Date of Termination and a pro-rata Bonus determined pursuant
to Section 3 of the Senior Executive Bonus Plan attached hereto
as Exhibit A, and paid in accordance with such Bonus Plan. In
addition, the Employee (and her spouse and dependents) shall be
entitled to continued health and welfare insurance coverage at
the levels provided in Section 2(h)(ii) until the earlier to
occur of (i) the Scheduled Termination Date or (ii) the date the
Employee becomes eligible for substantially similar benefits from
a subsequent employer. The Employer shall have no additional
obligations under this Agreement (other than as may be provided
under Sections 9 or 10 hereof).
(b) Cause, Death, Disability or Without Good Reason.
If the Employee's employment is terminated during the Employment
Period by the Employer for Cause, by the
8
Employee without Good Reason, or as a result of the Employee's
death or Disability, the Employer shall pay the Accrued
Obligations to the Employee or the Employee's estate or legal
representative in the event of her death within thirty (30) days
following the Date of Termination. The Employee shall also be
entitled to any earned but unpaid Bonus in respect of a Bonus
Period ending prior to or coincident with the Date of Termination
determined pursuant to section 3 of the Senior Executive Bonus
Plan attached hereto as Exhibit A, and paid in accordance with
such Bonus Plan. The Employer shall have no additional
obligations under this Agreement (other than as may be provided
under Sections 9 or 10 hereof).
6. Non-exclusivity of Rights.
Any vested benefits and other amounts that the
Employee is otherwise entitled to receive under any employee
benefit plan, policy, practice or program of the Employer or any
of its affiliated companies shall be payable in accordance with
such employee benefit plan, policy, practice or program as the
case may be, except as explicitly modified by this Agreement.
7. Full Settlement; No Duty to Mitigate.
The Employer's obligation to make the payments
provided for in, and otherwise to perform its obligations under,
this Agreement shall not be affected by any set off,
counterclaim, recoupment, defense or other claim, right or action
that the Employer may have against the Employee or others;
provided that this provision shall not apply with respect to any
debt owed by the Employee to the Employer or any of its
affiliates and shall not apply in the event the Employee's
employment is terminated by the Employer for Cause under
circumstances which may reasonably be expected to result in an
economic loss to the Employer.
In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of
the amounts payable to the Employee under any of the provisions
of this Agreement, and such amounts shall not be reduced,
regardless of whether the Employee obtains other employment,
except as provided in Section 5(a) herein.
8. Transactions with Affiliates.
During the Employment Period, the Employer shall not
engage in any transaction with an affiliate of TPG II without the
consent of the Employee. The Employee's consent shall not be
unreasonably withheld with respect to any proposed transaction
which is on a commercially reasonable arm's length basis.
9. Legal Fees.
(a) The Employer shall reimburse the Employee for
reasonable attorneys' fees and expenses and other reasonable fees
incurred in connection with the preparation of this Agreement not
to exceed $200,000.
9
(b) In the event of any contest or dispute between the
Employer and the Employee with respect to this Agreement or the
Employee's employment hereunder, each of the parties shall be
responsible for their respective legal fees and expenses.
10. Indemnification.
(a) General. The Employer agrees that if the Employee
is made a party or threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), other than any Proceeding related
to any contest or dispute between the Employee and the Employer
or any of its affiliates with respect to this Agreement or the
Employee's employment hereunder, by reason of the fact that the
Employee is or was a director or officer of the Employer, or any
subsidiary of the Employer or is or was serving at the request of
the Employer, as a director, officer, member, employee or agent
of another corporation or a partnership, joint venture, trust or
other enterprise, the Employee shall be indemnified and held
harmless by the Employer to the fullest extent authorized by New
York law. This Section 10(a) shall survive the termination of the
Employment Period.
(b) Expenses. As used in this Section 10 the term
"Expenses" shall include, without limitation, damages, losses,
judgments, liabilities, fines, penalties, excise taxes,
settlements, and costs, attorneys' fees, accountant's fees, and
disbursements and costs of attachment or similar bonds,
investigations, and any expenses of establishing a right to
indemnification under this Agreement.
11. Non-Solicitation.
(a) So long as the Employer is not in default of a
material obligation hereunder, the Employee agrees not to offer
employment to any employee of the Employer or any of its
affiliates or attempt to induce any such employee to leave the
employ of the Employer or any subsidiaries of the Employer prior
to the second anniversary of the Date of Termination.
(b) The parties hereto hereby declare that it is
impossible to measure in money the damages which will accrue to
the Employer by reason of a failure by the Employee to perform
any of her obligations under this Section 11. Accordingly, if the
Employer institutes any action or proceeding to enforce the
provisions hereof, to the extent permitted by applicable law, the
Employee hereby waives the claim or defense that the Employer has
an adequate remedy at law, and the Employee shall not urge in any
such action or proceeding the defense that any such remedy exists
at law. This Section 11 shall survive the termination of the
Employment Period.
10
12. Miscellaneous.
(a) Any notice or other communication required or
permitted under this Agreement shall be effective only if it is
in writing and delivered personally or sent by registered or
certified mail, postage prepaid, addressed as follows (or if it
is sent through any other method agreed upon by the parties):
If to the Employer:
J. Crew Group, Inc.
625 Sixth Avenue
Third Floor
New York, NY 10011
Attention: Board of Directors and Secretary
with a copy to:
Paul Shim, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
If to the Employee:
Ms. Emily Woods
227 West 17th Street
8th Floor
New York, NY 10013
with a copy to:
Adam O. Emmerich, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd St.
New York, NY 10019
or to such other address as any party hereto may designate by
notice to the others, and shall be deemed to have been given upon
receipt.
(b) This Agreement, along with the Stock Option Grant
Agreements dated as of October 17, 1997 by and between the
Employee and the Parent and the Stockholders' Agreement dated as
of October 17, 1997 by and between the Employee and the Parent,
constitute the entire agreement among the parties hereto with
respect to the Employee's Employment, and supersedes
11
and is in full substitution for any and all prior understandings
or agreements with respect to the Employee's Employment.
(c) This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in writing
signed by the party or parties against whom or which enforcement
of such waiver is sought. The failure of any party hereto at any
time to require the performance by any other party hereto of any
provision hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the waiver by
any party hereto of a breach of any provision hereof be taken or
held to be a waiver of any succeeding breach of such provision or
a waiver of the provision itself or a waiver of any other
provision of this Agreement.
(d) (i) This Agreement is binding on and is for the
benefit of the parties hereto and their respective successors,
heirs, executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may
be assigned by the Employer or by the Employee.
(ii) The Employer shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Employer expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the
Employer would have been required to perform it if no such
succession had taken place. As used in the Agreement, "the
Employer" shall mean both the Employer as defined above and any
such successor that assumes and agrees to perform this Agreement,
by operation of law or otherwise.
(e) If any provision of this Agreement or portion
thereof is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
(f) The Employer may withhold from any amounts payable
to the Employee hereunder all federal, state, city or other taxes
that the Employer may reasonably determine are required to be
withheld pursuant to any applicable law or regulation.
(g) This Agreement shall be governed by and construed
in accordance with the laws of the State of NEW YORK, without
reference to its principles of conflicts of law.
(h) This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all
of which shall constitute one and the same instrument.
(i) The headings in this Agreement are inserted for
convenience of reference only and shall not be a part of or
control or affect the meaning of any provision hereof.
(j) Exhibit A hereto shall be subject to the provision
of paragraphs (a), (c), (d), (f), (g) and (i) of this Section 12.
12
IN WITNESS WHEREOF, the parties have executed this
Agreement, except that TPG II is only a party to this Agreement
with respect to its obligations under Section 2(c) hereof, as of
the date first written above.
J. CREW GROUP, INC.
-------------------------------
Name:
Title:
J. CREW OPERATING CORP.
-------------------------------
Name:
Title:
TPG Partners II, L.P.
-------------------------------
Name:
Title:
-------------------------------
Emily Woods
13
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 17th day of October,
1997 between J. CREW GROUP INC. (the "Company") and Emily Woods (the
"Participant").
WHEREAS, the Company has adopted and maintains the J.
Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company;
WHEREAS, the Plan provides for the grant to
Participants in the Plan of Non-qualified Stock Options to
purchase the Securities (as such term is hereinafter defined).
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows.
1. Grant of Options. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to the Securities.
2. Grant Date. The Grant Date of the Option hereby
granted is October 17, 1997.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein, except as specifically stated herein
and except that references to the interpretation and findings of
the Committee being final and binding, including such reference
in Section 3.2 of the Plan, shall not apply to this Stock Option
Grant Agreement. If there is any conflict between the terms and
conditions of the Plan or this Agreement, the terms and
conditions of this Agreement shall govern except as specifically
provided herein. All capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in
the Plan unless it is specified that such term shall have the
meaning given such term in the Employment Agreement between the
Participant, J. Crew Group Inc. and J. Crew Operating Corp.,
dated October 17, 1997. Sections 3.4, 4.12(a) and 4.13 of the
Plan shall not apply to the Option granted hereunder.
4. Exercise Price and Vesting Date. The Option shall be
divided into five equal tranches, each of which shall relate to a
pro rata portion of each separately identifiable security
constituting the Securities, as set forth in the table below. The
exercise of any portion of the Option shall require the purchase
of a pro rata portion of each separately identifiable security
constituting the Securities subject to the Option.
Tranche Date First
Number % of Grant Exercisable Exercise Price
- ------ ---------- ----------- --------------
1 20% of Securities October 17, 1998 125% of TPG II's Price
subject to the Option
2 20% of Securities October 17, 1999 156.25% of TPG II's Price
subject to the Option
3 20% of Securities October 17, 2000 195.31% of TPG II's Price
subject to the Option
4 20% of Securities October 17, 2001 244.14% of TPG II's Price
subject to the Option
5 20% of Securities October 17, 2002 305.18% of TPG II's Price
subject to the Option
Notwithstanding the foregoing, the Option shall become
immediately exercisable upon the occurrence of any of the
following: (i) the Participant's employment is terminated by the
Company without Cause or by the Participant for Good Reason, (ii)
the Participant's employment is terminated by reason of death or
Disability, or (iii) a Change in Control of the Company. The
terms "Cause," "Good Reason," and "Disability" shall have the
meaning set forth in the Employment Agreement.
5. Definition of Securities. For purposes of this Stock
Option Grant Agreement, the term "Securities" shall mean (i) 820
shares of Common Stock and (ii) a number of shares of preferred
stock ("Preferred Stock") of the Company the purchase price for
which (at TPG II's Price) bears the same ratio to the aggregate
purchase price for such number of shares of Common Stock (at TPG
II's Price) as the ratio of the aggregate purchase price paid by
TPG II for the purchase of Preferred Stock at the Closing bears
to the aggregate purchase price paid by TPG II for Common Stock
at the Closing. If, subsequent to the Closing, TPG II sells all
or any portion of the Preferred Stock acquired by it at the
Closing, the amount of Preferred Stock included in the definition
of Securities shall thereafter be reduced by replacing in clause
(ii) above, (I) the aggregate purchase price paid by TPG II for
the purchase of the Preferred Stock at the Closing with (II) the
aggregate purchase price paid by TPG II for the purchase of such
reduced amount of Preferred Stock as is held by TPG II after such
sale; provided, that no such sale shall have any retroactive
effect with respect to or related to any portion of the Option
exercised by the Participant prior to such sale. For purposes of
this Stock Option Grant Agreement, "TPG II's Price" shall mean
the per share price paid for the Securities at the Closing
multiplied by the number of shares or units of the applicable
Security and the term "Closing" shall have the meaning set forth
in the Employment Agreement.
6. Exercise of the Option. The Participant may exercise
the Option, or any portion thereof, to the extent exercisable
pursuant to Section 4 herein, by complying with the method of
exercise procedures described in Section 4.10 of the Plan;
provided, that prior to the existence of a Public Market, the
term "Fair Market Value" under the Plan shall be replaced with
the term "Appraised Value" within the meaning of, and as
determined pursuant to, the Stockholders' Agreement; and provided,
further that, if at the time of exercise the Participant
2
also exercises her put right pursuant to Section 3(b) of the
Stockholders' Agreement between the Company, the Participant and
TPG Partners II, L.P. ("TPG II"), dated October 17, 1997 (the
"Stockholders' Agreement"), the Participant may make such
exercise contingent upon the Appraised Value (as determined under
the Stockholders' Agreement) for each share of Common Stock being
greater than the per share Exercise Price provided herein. Upon
the Participant's request, the Company shall withhold a portion
of the shares of Common Stock underlying the Option that would
otherwise be distributed to the Participant to satisfy the
applicable federal, state and local withholding taxes incurred by
the Participant as a result of the exercise of the Option.
7. Option Expiration Date. Subject to the provisions of
the Plan, the Option shall expire and be canceled on the tenth
anniversary of the Grant Date; provided, that the Option shall
expire prior to the tenth anniversary of the Grant Date as
follows: (i) to the extent the Option is not exercisable on the
date the Participant's Employment terminates for any reason
(taking into account any acceleration event occurring on such
date of termination), such Option shall expire and be canceled on
the date the Employment terminates; and (ii) to the extent the
Option is exercisable on the date the Participant's Employment
terminates, the Option shall expire and be canceled (A) two years
after termination of the Participant's Employment by reason of
death or Disability (but not later than the tenth anniversary of
the Grant Date), (B) on the commencement of business on the date
the Participant's Employment is, or is deemed to have been,
terminated by the Company for Cause or by the Participant without
Good Reason, or (C) the end of the full ten-year term upon any
other termination of Employment. The terms "Cause", "Good Reason"
and "Disability" shall have the meaning set forth in the
Employment Agreement. If, within one year after the date of the
Participant's termination of Employment, it is discovered that
the Participant's Employment could have been terminated for
Cause, the Participant's Employment shall, at the election of the
Committee, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause
occurred.
8. Adjustment to Option. In the event of a merger,
consolidation, liquidation, stock split, reverse stock split,
stock dividend or distribution, spin-off, recapitalization, share
exchange, reorganization, extraordinary dividend, non-arm's
length transaction with TPG II or its affiliates other than
customary management and advisory fees or any other similar
corporate transaction, the Company shall adjust the number of
shares of Common Stock and/or kind of securities subject to the
Option, the Exercise Price per share of Common Stock or the terms
of the Option to prevent the enlargement or dilution of the
value, rights and benefits of the Option and it shall be a
condition to any such transaction that adequate provision shall
have been so made.
9. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or
3
default under this Agreement, or any waiver on the part of any
party or any provisions or conditions of this Agreement, shall be
in writing and shall be effective only to the extent specifically
set forth in such writing.
10. Limitation on Transfer. During the lifetime of
the Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
assign her rights with respect to the Option granted herein to a
trust, partnership, LLC or custodianship the beneficiaries,
partners or members of which may include only the Participant,
the Participant's spouse, or the Participant's lineal descendants
(by blood or adoption). In the event of any such assignment, such
trust or custodianship shall be subject to all the restrictions,
obligations and responsibilities as apply to the Participant
under the Plan and this Stock Option Grant Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
Securities obtained pursuant to the Option granted herein shall
be subject to any limitations on transfer provided in the
Stockholders' Agreement.
11. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
12. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
13. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without regard to the provisions governing
conflict of laws.
14. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan.
4
IN WITNESS WHEREOF, the Company has caused this Agreement
to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on her own behalf,
thereby representing that she has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By:
------------------------------
------------------------------
Emily Woods
5
Performance Based Grant
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this 17th day of October,
1997 between J. CREW GROUP INC. (the "Company") and Emily Woods
(the "Participant").
WHEREAS, the Company has adopted and maintains the J.
Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company;
WHEREAS, the Plan provides for the grant to
Participants in the Plan of Non-qualified Stock Options to
purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows.
1. Grant of Options. Pursuant to, and subject to,
the terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to 1641 shares of Common Stock
of the Company.
2. Grant Date. The Grant Date of the Option hereby granted
is October 17, 1997.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein, except as specifically stated herein
and except that references to the interpretation and findings of
the Committee being final and binding, including such reference
in Section 3.2 of the Plan, shall not apply to this Stock Option
Grant Agreement. If there is any conflict between the terms and
conditions of the Plan or this Agreement, the terms and
conditions of this Agreement shall govern except as specifically
provided herein. All capitalized terms used herein and not
otherwise defined shall have the meaning given to such terms in
the Plan unless it is specified that such term shall have the
meaning given such term in the Employment Agreement between the
Participant, J. Crew Group Inc. and J. Crew Operating Corp.,
dated October 17, 1997. Sections 3.4, 4.12(a) and 4.13 of the
Plan shall not apply to the Option granted hereunder.
4. Exercise Price. The exercise price of each share
underlying the Option hereby granted is the TPG II Price as
defined in Section 2(c) of the Employment Agreement.
5. Vesting Date. On the last day of each of fiscal years
1998 through 2002, (each an "Anniversary Date"), the Option will
become exercisable with respect to up to twenty percent of the
shares of Common Stock underlying the (the "Eligible Portion") in
accordance with the following: (i) if less than 90% of the Annual
EBITDA Target is achieved in the fiscal year ending on the
respective Anniversary Date, 0% of the Eligible Portion shall become
exercisable; (ii) if 90% of the Annual EBITDA Target is achieved
in the fiscal year ending on the respective Anniversary Date, 50%
of the Eligible Portion will become exercisable; (iii) if 95% of
the Annual EBITDA Target is achieved in the fiscal year ending on
the respective Anniversary Date, 100% of the Eligible Portion
shall become exercisable, and (iv) if between 90% and 95% of the
Annual EBITDA Target is achieved in the fiscal year ending on the
respective Anniversary Date, the percentage of the Eligible
Portion which shall become exercisable shall be determined on the
basis of straight line interpolation based on the amounts set
forth in (ii) and (iii) above. Notwithstanding the foregoing, the
Option shall become immediately exercisable upon the occurrence
of any of the following: (i) the Participant's employment is
terminated by the Company without Cause or by the Participant for
Good Reason, (ii) the Participant's employment is terminated by
reason of death or Disability, or (iii) a Change in Control of
the Company. In addition, the Option shall become exercisable
with respect to all shares of Common Stock subject thereto on the
seventh anniversary of the Grant Date. The terms "Cause," "Good
Reason" and "Disability" shall have the meaning set forth in the
Employment Agreement.
6. EBITDA Target. Annual EBITDA Targets for each applicable
fiscal year are as follows:
Fiscal Year Annual EBITDA Target
----------- --------------------
1998 $ 69,500,000
1999 $ 86,300,000
2000 $102,500,000
2001 $117,600,000
2002 $130,600,000
7. Exercise of the Option. The Participant may exercise
the Option, or any portion thereof, to the extent exercisable
pursuant to Section 5 herein, by complying with the method of
exercise procedures described in Section 4.10 of the Plan;
provided, that prior to the existence of a Public Market, the
term "Fair Market Value" under the Plan shall be replaced with
the term "Appraised Value" within the meaning of, and as
determined pursuant to, the Stockholders' Agreement; and
provided, further that, if at the time of exercise the
Participant also exercises her put right pursuant to Section 3(b)
of the Stockholders' Agreement between the Company, the
Participant and TPG Partners II, L.P. ("TPG II"), dated October
17, 1997 (the "Stockholders' Agreement"), the Participant may
make such exercise contingent upon the Appraised Value (as
determined under the Stockholders' Agreement) for each share of
Common Stock being greater than the per share Exercise Price
provided herein. Upon the Participant's request, the Company
shall withhold a portion of the shares of Common Stock underlying
the Option that would otherwise be distributed to the
2
Participant to satisfy the applicable federal, state and local
withholding taxes incurred by the Participant as a result of the
exercise of the Option.
8. Option Expiration Date. Subject to the provisions
of the Plan, the Option shall expire and be canceled on the tenth
anniversary of the Grant Date; provided, that the Option shall
expire prior to the tenth anniversary of the Grant Date as
follows: (i) to the extent the Option is not exercisable on the
date the Participant's Employment terminates for any reason
(taking into account any acceleration event occurring on such
date of termination), such Option shall expire and be canceled on
the date the Employment terminates; and (ii) to the extent the
Option is exercisable on the date the Participant's Employment
terminates, the Option shall expire and be canceled (A) two years
after termination of the Participant's Employment by reason of
death or Disability (but not later than the tenth anniversary of
the Grant Date), (B) on the commencement of business on the date
the Participant's Employment is, or is deemed to have been,
terminated by the Company for Cause or by the Participant without
Good Reason, or (C) the end of the full ten-year term upon any
other termination of Employment. The terms "Cause", "Good Reason"
and "Disability" shall have the meaning set forth in the
Employment Agreement. If, within one year after the date of the
Participant's termination of Employment, it is discovered that
the Participant's Employment could have been terminated for
Cause, the Participant's Employment shall, at the election of the
Committee, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause
occurred.
9. Adjustment to Option. In the event of a merger,
consolidation, liquidation, stock split, reverse stock split,
stock dividend or distribution, spin-off, recapitalization, share
exchange, reorganization, extraordinary dividend, non-arm's
length transaction with TPG II or its affiliates other than
customary management and advisory fees, or other similar
corporate transaction, the Company shall adjust the number of
shares of Common Stock and/or kind of securities subject to the
Option, the Exercise Price per share of Common Stock or the terms
of the Option to prevent the enlargement or dilution of the
value, rights and benefits of the Option and it shall be a
condition to any such transaction that adequate provision shall
have been so made.
10. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party or any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
11. Limitation on Transfer. During the lifetime of
the Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
3
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
assign her rights with respect to the Option granted herein to a
trust, partnership, LLC or custodianship the beneficiaries,
partners or members of which may include only the Participant,
the Participant's spouse, or the Participant's lineal descendants
(by blood or adoption). In the event of any such assignment, such
trust or custodianship shall be subject to all the restrictions,
obligations and responsibilities as apply to the Participant
under the Plan and this Stock Option Grant Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
shares of Common Stock obtained pursuant to the Option granted
herein shall be subject to any limitations on transfer provided
in the Stockholders' Agreement.
12. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
13. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of New York, without regard to the provisions governing
conflict of laws.
15. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan.
4
IN WITNESS WHEREOF, the Company has caused this Agreement
to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on her own behalf,
thereby representing that she has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By:
-------------------------
-------------------------
Emily Woods
5
J. CREW
UPS INCENTIVE PROGRAM
CONTRACT CARRIER AGREEMENT
J. Crew, including all of its subsidiaries, (Customer) and United
Parcel Service, Inc. (UPS) have entered into the following
Agreement.
UPS is authorized to provide contract carrier service between all
points in the 48 contiguous United States. The terms of this
Agreement are based on the distinct needs of the Customer and are
not to be disclosed to any third party. Customer agrees that the
terms of this Agreement are that UPS will be the Customer's
preferred carrier of choice. Accordingly:
1) UPS agrees to transport packages tendered by the Customer
at all shipping locations, as listed on Attachment A to
destination ZIP Codes listed in the Ground ZIP Codes Served
Chart, and to provide such transportation and additional
services as described in the currently effective tariffs of
UPS. Any additions or deletions of shipper numbers will be
by mutual consent of both parties.
2) Customer agrees to use a UPS Pickup Record book or, as
applicable, either (a) to use a register for registering
gross charges associated with ground packages shipped, or
(b) to provide UPS daily with a separate computer-generated
manifest detail summary showing gross charges for ground
packages.
3) Customer agrees to place an address label on each package
tendered to UPS.
4) UPS agrees to grant the Customer a discount as listed in
the tiers listed below from the published UPS Ground
Service Rate Chart in effect at the time of shipping for
commercial and residential ground packages tendered to UPS.
Customer further agrees that no discount applies to
additional or other charges.
September 1, 1995 27 cents off Commercial
to February 4, 1996 and Residential Rates
February 5, 1996 31 cents off Commercial
to February 2, 1997 and Residential Rates
February 3, 1997 35 cents off Commercial
to January 30, 1998 and Residential Rates
If no shipping activity is recorded by the Customer during a
given week, a minimum charge of fifty (50) dollars will apply to
the Customer.
5) UPS will calculate the discount for all locations once per
week and will bill the Customer net after discount. The
discount applied each week will be calculated using the
average weekly ground volume from all previous weeks (up to
52 weeks) as they are accumulated.
6) UPS agrees to transport such shipments as Customer may
tender to UPS and to provide Customer such transportation
and additional services in accordance with the rules of UPS
Hundredweight Service in effect at the time of shipping.
(Attachment 8 signed 8/28/95)
UPS agrees to grant the Customer the following discounts
from the published UPS Hundredweight service rates in
effect at the time of shipping: Tier 06 less thirteen
percent (13%) for shipments weighing 500 pounds or less and
Tier 06 less thirteen percent (13%) for shipments weighing
greater than 500 pounds. Customer further agrees that no
discount applies to additional or other charges.
A minimum charge for a ground UPS Hundredweight Service
shipment will be based on an average weight of 15 pounds
per package or $40 per shipment, whichever is greater.
A package measuring over 84 inches in length and girth
combined and weighing less than 30 pounds will be
considered a 30 pound package in calculating the billed
aggregate weight used to determine total charges.
7) UPS will provide the following rate adjustment for the
duration of the Agreement:
February 5, 1996 until February 2, 1997, rates will
increase with a maximum cap of 6% from the previous year or
the UPS rate increase whichever is less.
February 3, 1997 until January 30, 1998, rates will
increase with a maximum cap of 6% from the previous year or
the UPS rate increase whichever is less.
8) UPS will provide the following services to Customer during
the life of this Agreement:
- Dedicated Customer Service telephone contact
- EDI capability for tracing and tracking
- Dedicated National Accounts Manager
- Dedicated Delivery Information personnel
for tracing and claims
9) With the exception of UPS's right to assign some or all of
this Agreement to its affiliate or subsidiary, this
Agreement and the Customer's rights and obligations
hereunder are not assignable or transferable. Any
assignment or attempt to assign, transfer or subcontract
hereof without the prior written consent of UPS shall be
void and without force or effect.
10) This Agreement will remain in effect from September 1, 1995
until January 30, 1998, unless terminated at any time by
either party by written notice to the other given at least
thirty (30) days prior to any termination date.
11) This contract cancels all previous Contract Carrier Ground
(excluding Contract Carrier Call Tag Agreement dated June ,
1991). Agreements between UPS and the Customer and the
Customer's affiliates and subsidiaries.
12) J. Crew agrees to promote UPS as its "Carrier of Choice" in
all catalogs, flyers, magazines and on incoming customer
order calls.
2
13) If not accepted by September 29, 1995, this proposal is
withdrawn as of that date.
(Customer) J. CREW
By: /s/
------------------------------
(An Authorized Representative)
Title: ______________________________
Date Signed: ______________________________
Address: ______________________________
______________________________
(Carrier) UNITED PARCEL SERVICE, INC.
By: /s/
------------------------------
(An Authorized Representative)
Title: ______________________________
Date Signed: ______________________________
Address: ______________________________
______________________________
Effective Date:______________________________
3
J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
1 $2.94 $3.13 $3.37 $3.45 $3.52 $3.62 $3.66
2 $3.00 $3.19 $3.62 $3.74 $3.94 $4.05 $4.26
3 $3.08 $3.34 $3.82 $3.98 $4.25 $4.39 $4.72
4 $3.19 $3.47 $3.98 $4.17 $4.48 $4.67 $5.06
5 $3.33 $3.61 $4.08 $4.29 $4.65 $4.87 $5.31
6 $3.45 $3.69 $4.13 $4.36 $4.78 $5.05 $5.53
7 $3.57 $3.76 $4.19 $4.43 $4.94 $5.26 $5.79
8 $3.68 $3.83 $4.24 $4.49 $5.08 $5.51 $6.11
9 $3.81 $3.91 $4.32 $4.59 $5.26 $5.82 $6.53
10 $3.93 $4.02 $4.40 $4.71 $5.45 $6.18 $7.00
11 $4.05 $4.13 $4.50 $4.90 $5.71 $6.55 $7.48
12 $4.14 $4.25 $4.60 $5.11 $6.00 $6.95 $7.98
13 $4.22 $4.38 $4.73 $5.36 $6.32 $7.37 $8.48
14 $4.29 $4.54 $4.88 $5.63 $6.66 $7.80 $8.99
15 $4.37 $4.70 $5.06 $5.90 $7.01 $8.25 $9.51
16 $4.46 $4.88 $5.27 $6.17 $7.38 $8.70 $10.05
17 $4.54 $5.06 $5.49 $6.45 $7.75 $9.16 $10.57
18 $4.64 $5.22 $5.68 $6.70 $8.12 $9.61 $11.09
19 $4.74 $5.37 $5.88 $6.95 $8.46 $10.02 $11.59
20 $4.85 $5.53 $6.06 $7.18 $8.81 $10.43 $12.08
21 $4.96 $5.66 $6.23 $7.41 $9.11 $10.80 $12.56
22 $5.08 $5.82 $6.41 $7.65 $9.44 $11.20 $13.04
23 $5.21 $5.97 $6.60 $7.88 $9.76 $11.59 $13.53
24 $5.35 $6.14 $6.81 $8.15 $10.11 $12.02 $14.04
25 $5.49 $6.30 $7.01 $8.40 $10.44 $12.44 $14.55
26 $5.61 $6.48 $7.21 $8.67 $10.78 $12.85 $15.05
27 $5.74 $6.64 $7.41 $8.93 $11.11 $13.28 $15.56
28 $5.85 $6.81 $7.63 $9.19 $11.46 $13.70 $16.07
29 $5.95 $6.96 $7.84 $9.46 $11.81 $14.13 $16.60
30 $6.05 $7.12 $8.07 $9.74 $12.17 $14.55 $17.12
31 $6.15 $7.27 $8.29 $10.02 $12.55 $14.99 $17.66
32 $6.27 $7.42 $8.51 $10.31 $12.91 $15.43 $18.19
33 $6.38 $7.58 $8.73 $10.58 $13.27 $15.89 $18.73
34 $6.48 $7.75 $8.95 $10.86 $13.60 $16.33 $19.27
35 $6.59 $7.93 $9.18 $11.13 $13.94 $16.78 $19.79
36 $6.68 $8.12 $9.38 $11.39 $14.28 $17.21 $20.32
37 $6.77 $8.30 $9.59 $11.66 $14.62 $17.64 $20.83
38 $6.87 $8.46 $9.79 $11.92 $14.96 $18.08 $21.34
39 $6.96 $8.61 $9.99 $12.18 $15.31 $18.49 $21.85
40 $7.06 $8.77 $10.21 $12.45 $15.65 $18.93 $22.36
41 $7.15 $8.92 $10.42 $12.71 $15.99 $19.36 $22.88
42 $7.26 $9.08 $10.63 $12.98 $16.33 $19.79 $23.40
43 $7.36 $9.24 $10.84 $13.24 $16.69 $20.22 $23.91
Page 1
J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
44 $7.46 $9.42 $11.05 $13.51 $17.04 $20.65 $24.44
45 $7.57 $9.58 $11.26 $13.77 $17.38 $21.09 $24.95
46 $7.67 $9.74 $11.48 $14.04 $17.72 $21.50 $25.46
47 $7.76 $9.88 $11.69 $14.31 $18.03 $21.91 $25.95
48 $7.83 $10.01 $11.89 $14.56 $18.32 $22.29 $26.42
49 $7.91 $10.11 $12.09 $14.81 $18.63 $22.67 $26.90
50 $7.97 $10.22 $12.27 $15.02 $18.91 $23.02 $27.33
51 $8.05 $10.34 $12.43 $15.25 $19.22 $23.40 $27.79
52 $8.12 $10.44 $12.56 $15.40 $19.45 $23.67 $28.11
53 $8.18 $10.52 $12.65 $15.52 $19.64 $23.90 $28.37
54 $8.22 $10.56 $12.71 $15.58 $19.71 $24.01 $28.49
55 $8.27 $10.61 $12.77 $15.66 $19.80 $24.12 $28.63
56 $8.33 $10.66 $12.83 $15.73 $19.89 $24.23 $28.76
57 $8.39 $10.73 $12.88 $15.81 $19.98 $24.34 $28.89
58 $8.45 $10.79 $12.94 $15.88 $20.06 $24.46 $29.02
59 $8.51 $10.85 $12.99 $15.96 $20.15 $24.56 $29.15
60 $8.58 $10.91 $13.05 $16.03 $20.23 $24.68 $29.28
61 $8.63 $10.97 $13.11 $16.11 $20.32 $24.78 $29.41
62 $8.68 $11.02 $13.16 $16.19 $20.40 $24.89 $29.55
63 $8.75 $11.08 $13.22 $16.26 $20.50 $24.99 $29.69
64 $8.80 $11.13 $13.28 $16.34 $20.59 $25.10 $29.83
65 $8.86 $11.20 $13.33 $16.42 $20.69 $25.21 $29.98
66 $8.91 $11.26 $13.39 $16.48 $20.78 $25.35 $30.11
67 $8.96 $11.32 $13.44 $16.55 $20.87 $25.45 $30.25
68 $9.02 $11.38 $13.49 $16.61 $20.97 $25.58 $30.38
69 $9.09 $11.47 $13.59 $16.72 $21.12 $25.78 $30.55
70 $9.15 $11.52 $13.65 $16.76 $21.20 $25.94 $30.72
71 $13.79 $15.51 $17.31 $19.26 $23.08 $27.15 $31.26
72 $17.60 $18.57 $20.21 $21.69 $24.99 $28.51 $31.93
73 $20.42 $21.91 $23.42 $24.33 $27.11 $29.95 $32.79
74 $22.50 $24.19 $25.56 $26.59 $29.01 $31.37 $33.65
75 $24.00 $25.56 $26.93 $27.86 $30.15 $32.07 $34.28
76 $24.66 $26.27 $27.82 $28.79 $30.94 $32.58 $34.70
77 $25.13 $26.72 $28.27 $29.15 $31.28 $32.75 $34.90
78 $25.59 $27.20 $28.75 $29.65 $31.72 $33.14 $35.17
79 $26.03 $27.65 $29.18 $30.06 $32.13 $33.57 $35.41
80 $26.44 $28.09 $29.60 $30.48 $32.54 $33.99 $35.75
81 $26.82 $28.48 $30.01 $30.87 $32.93 $34.39 $36.13
82 $27.17 $28.84 $30.38 $31.25 $33.32 $34.79 $36.56
83 $27.48 $29.18 $30.73 $31.61 $33.69 $35.17 $36.96
84 $27.80 $29.51 $31.08 $31.96 $34.07 $35.56 $37.37
85 $28.11 $29.84 $31.42 $32.32 $34.44 $35.94 $37.77
86 $28.43 $30.17 $31.76 $32.67 $34.81 $36.34 $38.17
Page 3
J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
87 $28.74 $30.49 $32.11 $33.02 $35.18 $36.72 $38.57
88 $29.05 $30.82 $32.45 $33.38 $35.55 $37.11 $38.97
89 $29.36 $31.14 $32.79 $33.73 $35.92 $37.49 $39.38
90 $29.67 $31.48 $33.14 $34.08 $36.29 $37.88 $39.78
91 $29.99 $31.80 $33.48 $34.44 $36.66 $38.26 $40.18
92 $30.31 $32.13 $33.83 $34.79 $37.03 $38.65 $40.58
93 $30.62 $32.45 $34.17 $35.14 $37.40 $39.02 $40.98
94 $30.92 $32.79 $34.50 $35.50 $37.76 $39.39 $41.38
95 $31.24 $33.12 $34.83 $35.85 $38.12 $39.76 $41.79
96 $31.55 $33.45 $35.14 $36.20 $38.45 $40.14 $42.19
97 $31.87 $33.77 $35.47 $36.56 $38.81 $40.53 $42.60
98 $32.18 $34.10 $35.79 $36.91 $39.16 $40.91 $43.00
99 $32.50 $34.42 $36.15 $37.26 $39.54 $41.29 $43.40
100 $32.81 $34.76 $36.49 $37.62 $39.91 $41.66 $43.79
101 $33.12 $35.09 $36.84 $37.97 $40.28 $42.04 $44.19
102 $33.43 $35.41 $37.18 $38.32 $40.66 $42.41 $44.58
103 $33.74 $35.75 $37.52 $38.68 $41.02 $42.79 $44.97
104 $34.06 $36.06 $37.87 $39.03 $41.39 $43.16 $45.36
105 $34.38 $36.41 $38.21 $39.39 $41.75 $43.55 $45.75
106 $34.69 $36.72 $38.56 $39.74 $42.13 $43.93 $46.13
107 $35.00 $37.06 $38.90 $40.10 $42.49 $44.30 $46.53
108 $35.32 $37.39 $39.24 $40.46 $42.86 $44.68 $46.90
109 $35.62 $37.71 $39.58 $40.81 $43.22 $45.05 $47.31
110 $35.94 $38.04 $39.93 $41.16 $43.59 $45.43 $47.68
111 $36.25 $38.36 $40.27 $41.52 $43.96 $45.80 $48.09
112 $36.57 $38.70 $40.61 $41.87 $44.34 $46.18 $48.46
113 $36.88 $39.01 $40.96 $42.22 $44.70 $46.56 $48.87
114 $37.20 $39.36 $41.30 $42.58 $45.07 $46.93 $49.24
115 $37.51 $39.67 $41.65 $42.93 $45.43 $47.31 $49.64
116 $37.82 $40.01 $41.99 $43.28 $45.80 $47.68 $50.03
117 $38.13 $40.34 $42.34 $43.64 $46.17 $48.06 $50.42
118 $38.44 $40.66 $42.68 $43.99 $46.53 $48.44 $50.81
119 $38.76 $40.99 $43.02 $44.34 $46.91 $48.81 $51.20
120 $39.07 $41.31 $43.36 $44.70 $47.28 $49.20 $51.59
121 $39.39 $41.65 $43.71 $45.05 $47.65 $49.58 $51.98
122 $39.69 $41.98 $44.05 $45.40 $48.02 $49.95 $52.37
123 $40.01 $42.31 $44.40 $45.76 $48.38 $50.33 $52.76
124 $40.32 $42.63 $44.74 $46.11 $48.75 $50.70 $53.15
125 $40.64 $42.96 $45.09 $46.46 $49.11 $51.08 $53.54
126 $40.95 $43.28 $45.43 $46.82 $49.48 $51.45 $53.93
127 $41.27 $43.61 $45.77 $47.17 $49.85 $51.84 $54.32
128 $41.58 $43.93 $46.12 $47.52 $50.21 $52.21 $54.71
129 $41.89 $44.27 $46.46 $47.88 $50.59 $52.59 $55.10
Page 3
J Crew 1996
1996 Residential Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
130 $42.20 $44.60 $46.80 $48.23 $50.96 $52.96 $55.48
131 $42.51 $44.93 $47.15 $48.58 $51.33 $53.34 $55.87
132 $42.83 $45.26 $47.49 $48.94 $51.69 $53.71 $56.25
133 $43.14 $45.59 $47.83 $49.29 $52.06 $54.10 $56.65
134 $43.46 $45.91 $48.17 $49.65 $52.42 $54.47 $57.04
135 $43.77 $46.24 $48.51 $50.00 $52.79 $54.85 $57.43
136 $44.08 $46.56 $48.86 $50.36 $53.16 $55.22 $57.82
137 $44.39 $46.90 $49.21 $50.72 $53.52 $55.60 $58.21
138 $44.71 $47.23 $49.55 $51.07 $53.90 $55.97 $58.60
139 $45.02 $47.56 $49.89 $51.42 $54.26 $56.36 $58.98
140 $45.34 $47.88 $50.23 $51.78 $54.64 $56.74 $59.38
141 $45.65 $48.21 $50.57 $52.13 $55.01 $57.11 $59.76
142 $45.96 $48.53 $50.91 $52.48 $55.37 $57.49 $60.16
143 $46.27 $48.87 $51.25 $52.84 $55.74 $57.86 $60.55
144 $46.58 $49.19 $51.59 $53.19 $56.10 $58.24 $60.93
145 $46.90 $49.52 $51.93 $53.54 $56.47 $58.61 $61.32
146 $47.21 $49.84 $52.27 $53.89 $56.84 $58.97 $61.69
147 $47.53 $50.17 $52.61 $54.22 $57.20 $59.33 $62.05
148 $47.83 $50.50 $52.94 $54.56 $57.55 $59.69 $62.42
149 $48.14 $50.81 $53.28 $54.89 $57.91 $60.05 $62.77
150 $48.42 $51.13 $53.61 $55.23 $58.26 $60.42 $63.13
Page 4
J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
1 $2.21 $2.39 $2.63 $2.72 $2.79 $2.88 $2.93
2 $2.26 $2.45 $2.89 $3.01 $3.20 $3.31 $3.52
3 $2.34 $2.60 $3.09 $3.24 $3.51 $3.65 $3.97
4 $2.45 $2.73 $3.25 $3.43 $3.74 $3.92 $4.32
5 $2.59 $2.88 $3.34 $3.55 $3.91 $4.13 $4.56
6 $2.72 $2.97 $3.41 $3.63 $4.04 $4.30 $4.78
7 $2.83 $3.04 $3.46 $3.70 $4.20 $4.51 $5.04
8 $2.95 $3.11 $3.52 $3.76 $4.34 $4.77 $5.37
9 $3.07 $3.19 $3.59 $3.85 $4.52 $5.06 $5.77
10 $3.19 $3.30 $3.68 $3.98 $4.71 $5.43 $6.24
11 $3.30 $3.41 $3.77 $4.16 $4.97 $5.80 $6.72
12 $3.39 $3.53 $3.88 $4.37 $5.25 $6.20 $7.20
13 $3.47 $3.66 $4.00 $4.63 $5.57 $6.62 $7.71
14 $3.55 $3.81 $4.15 $4.88 $5.91 $7.04 $8.22
15 $3.63 $3.97 $4.34 $5.15 $6.25 $7.48 $8.74
16 $3.71 $4.15 $4.53 $5.42 $6.62 $7.93 $9.26
17 $3.80 $4.33 $4.75 $5.68 $6.98 $8.38 $9.78
18 $3.89 $4.49 $4.94 $5.94 $7.34 $8.82 $10.29
19 $3.99 $4.65 $5.14 $6.18 $7.68 $9.23 $10.79
20 $4.12 $4.80 $5.33 $6.43 $8.03 $9.63 $11.28
21 $4.25 $4.97 $5.52 $6.67 $8.36 $10.04 $11.78
22 $4.38 $5.13 $5.72 $6.93 $8.69 $10.44 $12.27
23 $4.52 $5.29 $5.91 $7.18 $9.02 $10.85 $12.77
24 $4.66 $5.45 $6.11 $7.43 $9.36 $11.26 $13.26
25 $4.79 $5.61 $6.32 $7.69 $9.70 $11.68 $13.77
26 $4.91 $5.79 $6.51 $7.94 $10.03 $12.09 $14.27
27 $5.04 $5.95 $6.72 $8.20 $10.36 $12.52 $14.77
28 $5.15 $6.12 $6.92 $8.47 $10.70 $12.93 $15.28
29 $5.25 $6.27 $7.14 $8.72 $11.05 $13.36 $15.79
30 $5.35 $6.42 $7.36 $9.00 $11.41 $13.78 $16.32
31 $5.45 $6.57 $7.58 $9.29 $11.78 $14.21 $16.85
32 $5.56 $6.72 $7.81 $9.57 $12.14 $14.65 $17.38
33 $5.66 $6.89 $8.03 $9.84 $12.49 $15.09 $17.92
34 $5.77 $7.05 $8.24 $10.12 $12.83 $15.54 $18.44
35 $5.88 $7.23 $8.46 $10.38 $13.16 $15.97 $18.97
36 $5.97 $7.42 $8.67 $10.64 $13.50 $16.41 $19.48
37 $6.07 $7.59 $8.87 $10.91 $13.84 $16.83 $19.99
38 $6.16 $7.76 $9.08 $11.17 $14.18 $17.26 $20.49
39 $6.25 $7.91 $9.28 $11.43 $14.53 $17.68 $21.00
40 $6.35 $8.06 $9.48 $11.69 $14.86 $18.11 $21.51
41 $6.44 $8.21 $9.70 $11.95 $15.19 $18.53 $22.02
42 $6.55 $8.36 $9.91 $12.22 $15.54 $18.96 $22.54
43 $6.65 $8.53 $10.12 $12.48 $15.88 $19.38 $23.05
Page 1
J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
44 $6.75 $8.69 $10.33 $12.74 $16.23 $19.82 $23.56
45 $6.86 $8.87 $10.54 $13.00 $16.58 $20.24 $24.07
46 $6.95 $9.02 $10.75 $13.27 $16.90 $20.66 $24.57
47 $7.05 $9.17 $10.96 $13.52 $17.22 $21.05 $25.05
48 $7.12 $9.29 $11.16 $13.78 $17.51 $21.43 $25.53
49 $7.19 $9.40 $11.36 $14.01 $17.79 $21.80 $25.97
50 $7.24 $9.49 $11.51 $14.22 $18.06 $22.12 $26.39
51 $7.32 $9.60 $11.67 $14.39 $18.31 $22.43 $26.75
52 $7.37 $9.68 $11.77 $14.51 $18.51 $22.66 $27.03
53 $7.43 $9.75 $11.86 $14.60 $18.65 $22.84 $27.24
54 $7.47 $9.79 $11.91 $14.68 $18.74 $22.96 $27.37
55 $7.52 $9.84 $11.98 $14.75 $18.83 $23.08 $27.52
56 $7.58 $9.90 $12.04 $14.82 $18.91 $23.19 $27.64
57 $7.63 $9.95 $12.09 $14.90 $18.99 $23.30 $27.76
58 $7.70 $10.02 $12.15 $14.97 $19.08 $23.40 $27.89
59 $7.76 $10.08 $12.20 $15:04 $19.17 $23.51 $28.01
60 $7.82 $10.14 $12.25 $15.12 $19.25 $23.61 $28.15
61 $7.88 $10.20 $12.32 $15.20 $19.34 $23.72 $28.28
62 $7.94 $10.25 $12.37 $15.27 $19.42 $23.83 $28.42
63 $7.99 $10.31 $12.43 $15.35 $19.52 $23.93 $28.55
64 $8.05 $10.36 $12.48 $15.42 $19.61 $24.04 $28.70
65 $8.10 $10.42 $12.53 $15.50 $19.70 $24.15 $28.84
66 $8.15 $10.47 $12.59 $15.56 $19.79 $24.28 $28.97
67 $8.21 $10.54 $12.65 $15.63 $19.88 $24.40 $29.11
68 $8.26 $10.60 $12.70 $15.68 $19.97 $24.52 $29.23
69 $8.35 $10.70 $12.81 $15.90 $20.26 $24.77 $29.43
70 $8.40 $10.75 $12.86 $15.95 $20.34 $25.04 $29.68
71 $13.11 $14.78 $16.57 $18.38 $22.16 $26.16 $30.23
72 $16.78 $18.21 $19.73 $20.80 $24.08 $27.55 $30.93
73 $19.59 $21.10 $22.78 $23.44 $26.20 $29.02 $31.82
74 $21.65 $23.24 $24.81 $25.68 $28.07 $30.39 $32.67
75 $23.17 $24.80 $26.13 $26.92 $29.19 $31.10 $33.27
76 $23.77 $25.36 $26.86 $27.85 $29.98 $31.59 $33.69
77 $24.24 $25.85 $27.37 $28.19 $30.31 $31.76 $33.89
78 $24.69 $26.33 $27.85 $28.68 $30.73 $32.14 $34.14
79 $25.14 $26.80 $28.31 $29.08 $31.13 $32.57 $34.40
80 $25.54 $27.23 $28.73 $29.50 $31.54 $32.98 $34.72
81 $25.91 $27.61 $29.13 $29.89 $31.93 $33.37 $35.10
82 $26.25 $27.97 $29.50 $30.27 $32.32 $33.77 $35.51
83 $26.56 $28.30 $29.84 $30.63 $32.69 $34.15 $35.92
84 $26.88 $28.62 $30.18 $30.98 $33.05 $34.54 $36.32
85 $27.19 $28.95 $30.52 $31.33 $33.41 $34.92 $36.72
86 $27.50 $29.28 $30.87 $31.68 $33.79 $35.30 $37.12
Page 2
J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
87 $27.81 $29.60 $31.21 $32.03 $34.16 $35.69 $37.51
88 $28.11 $29.92 $31.55 $32.38 $34.52 $36.07 $37.91
89 $28.42 $30.25 $31.88 $32.73 $34.89 $36.45 $38.30
90 $28.74 $30.57 $32.22 $33.07 $35.25 $36.83 $38.70
91 $29.05 $30.90 $32.57 $33.42 $35.62 $37.21 $39.10
92 $29.36 $31.23 $32.91 $33.76 $35.98 $37.58 $39.49
93 $29.67 $31.55 $33.23 $34.12 $36.35 $37.96 $39.90
94 $29.97 $31.88 $33.57 $34.47 $36.71 $38.32 $40.30
95 $30.28 $32.21 $33.91 $34.82 $37.06 $38.69 $40.70
96 $30.60 $32.53 $34.19 $35.17 $37.40 $39.06 $41.10
97 $30.91 $32.86 $34.51 $35.52 $37.74 $39.44 $41.49
98 $31.22 $33.18 $34.88 $35.87 $38.09 $39.82 $41.89
99 $31.53 $33.50 $35.22 $36.22 $38.46 $40.19 $42.28
100 $31.84 $33.83 $35.55 $36.57 $38.84 $40.57 $42.68
101 $32.14 $34.16 $35.89 $36.92 $39.21 $40.94 $43.06
102 $32.45 $34.48 $36.24 $37.27 $39.58 $41.31 $43.45
103 $32.77 $34.81 $36.58 $37.62 $39.94 $41.68 $43.83
104 $33.08 $35.14 $36.92 $37.97 $40.31 $42.06 $44.22
105 $33.39 $35.46 $37.27 $38.32 $40.67 $42.43 $44.60
106 $33.70 $35.79 $37.61 $38.67 $41.03 $42.81 $45.00
107 $34.01 $36.11 $37.94 $39.03 $41.40 $43.18 $45.38
108 $34.32 $36.44 $38.28 $39.38 $41.76 $43.56 $45.77
109 $34.63 $36.77 $38.63 $39.73 $42.12 $43.93 $46.15
110 $34.93 $37.09 $38.97 $40.08 $42.48 $44.30 $46.54
111 $35.25 $37.41 $39.30 $40.43 $42.86 $44.68 $46.92
112 $35.56 $37.74 $39.64 $40.78 $43.22 $45.05 $47.31
113 $35.87 $38.07 $39.99 $41.13 $43.59 $45.42 $47.69
114 $36.19 $38.39 $40.33 $41.48 $43.95 $45.79 $48.08
115 $36.49 $38.72 $40.67 $41.83 $44.31 $46.16 $48.46
116 $36.80 $39.04 $41.02 $42.18 $44.67 $46.53 $48.84
117 $37.11 $39.37 $41.36 $42.53 $45.03 $46.91 $49.23
118 $37.42 $39.70 $41.69 $42.88 $45.40 $47.28 $49.61
119 $37.73 $40.02 $42.03 $43.23 $45.76 $47.65 $50.00
120 $38.04 $40.34 $42.38 $43.58 $46.12 $48.02 $50.39
121 $38.35 $40.67 $42.72 $43.93 $46.50 $48.40 $50.77
122 $38.66 $41.00 $43.06 $44.28 $46.86 $48.77 $51.16
123 $38.97 $41.32 $43.40 $44.62 $47.23 $49.15 $51.55
124 $39.28 $41.65 $43.74 $44.97 $47.59 $49.52 $51.93
125 $39.59 $41.97 $44.08 $45.31 $47.95 $49.89 $52.32
126 $39.90 $42.29 $44.42 $45.67 $48.31 $50.26 $52.70
127 $40.22 $42.62 $44.77 $46.02 $48.67 $50.63 $53.09
128 $40.53 $42.95 $45.11 $46.37 $49.04 $51.01 $53.47
129 $40.84 $43.27 $45.45 $46.72 $49.40 $51.38 $53.85
Page 3
J Crew 1996 Rates
1996 Commercial Ground Rates
Weight Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Zone 8
- ------ ------ ------ ------ ------ ------ ------ ------
130 $41.14 $43.60 $45.79 $47.07 $49.76 $51.75 $54.24
131 $41.45 $43.93 $46.12 $47.42 $50.13 $52.12 $54.63
132 $41.76 $44.25 $46.47 $47.77 $50.50 $52.50 $55.01
133 $42.08 $44.58 $46.80 $48.12 $50.86 $52.87 $55.39
134 $42.39 $44.90 $47.14 $48.47 $51.22 $53.24 $55.78
135 $42.70 $45.23 $47.49 $48.83 $51.59 $53.61 $56.17
136 $43.00 $45.56 $47.83 $49.18 $51.95 $53.99 $56.55
137 $43.31 $45.88 $48.17 $49.53 $52.31 $54.36 $56.94
138 $43.62 $46.20 $48.51 $49.88 $52.67 $54.74 $57.33
139 $43.94 $46.53 $48.84 $50.23 $53.03 $55.11 $57.71
140 $44.25 $46.86 $49.18 $50.58 $53.41 $55.49 $58.09
141 $44.56 $47.18 $49.52 $50.93 $53.77 $55.86 $58.48
142 $44.87 $47.51 $49.86 $51.28 $54.14 $56.23 $58.86
143 $45.17 $47.83 $50.19 $51.63 $54.50 $56.61 $59.25
144 $45.48 $48.16 $50.53 $51.98 $54.86 $56.97 $59.64
145 $45.80 $48.49 $50.87 $52.32 $55.23 $57.34 $60.01
146 $46.11 $48.81 $51.21 $52.67 $55.58 $57.69 $60.39
147 $46.42 $49.13 $51.54 $53.00 $55.94 $58.05 $60.75
148 $46.72 $49.46 $51.88 $53.34 $56.29 $58.41 $61.10
149 $47.02 $49.75 $52.22 $53.67 $56.65 $58.77 $61.45
150 $47.30 $50.06 $52.55 $54.00 $57.00 $59.13 $61.80
Page 4
Custom Pricing Agreement
J CREW
1 Ivy Cresent
Lynchburg, VA 24502
Attention: Andrew Boguszewski
This Custom Pricing Agreement ("Agreement") is made the 15 day of
November, 1996 between Federal Express Corporation ("FedEx") and
J CREW ("Company").
1. In this Agreement, "FedEx" refers to Federal Express
Corporation, its employees and agents. "Company" refers to J
CREW and any divisions, subsidiaries and affiliates, a
majority of whose voting stock (defined as 51%) is directly or
indirectly owned by Company.
"Program" refers to the Custom Pricing Program.
2. The prices and other terms and conditions provided to Company
are for Company's exclusive use and benefit. Such prices and
terms (or any portion thereof) may not be extended to any
other party without FedEx's consent. Under this Agreement, you
will receive discounts as shown on rate sheets provided by
FedEx which are incorporated herein by reference.
3. Your participation in the Program will supersede all other
Pricing agreement between FedEx and Company.
4. Each shipment made under this Agreement is subject to the
terms and conditions of the FedEx Service Guide in effect at
the time of shipment, which terms are incorporated into this
agreement by reference. FedEx reserves the right to modify the
FedEx Service Guide at anytime without notice. In the event
such a modification results in a rate increase, you will
receive thirty (30) days prior written notice.
5. Discounts are based upon Company's committed activity level
during the period of the Program. In order to remain eligible
for continued participation in the Program, Company commits to
and shall maintain the Shipping Objectives provided on
Attachment A within 90 days of the effective date of this
Agreement.
Company's deviation from the Shipping Objectives listed on
Attachment A may result in a rate change. In such event, FedEx
may provide Company with rates which more accurately reflect
its actual shipping patterns. FedEx will provide thirty (30)
days written notice of any such rate change. Audits of
Company's activity level may be performed at FedEx's
discretion.
As long as Shipping Objectives are met, the Program will be
effective for 12 months, unless earlier terminated as provided
herein.
1
6. All locations and account numbers to be included in the
Program shall be designated by Company and FedEx's National
Account Master report will verify ALL locations and account
numbers. To add a location to the Program, Company shall
notify FedEx's Sales Executive in writing at least seven (7)
working days in advance. Only the billed account number will
receive the applicable discounts and revenue credit.
7. Payment on all accounts is due fifteen (15) days from the
invoice date. Company agrees that remaining current on all
payables is a condition to the extension of credit and
discounts under this Agreement. When you use a freight payment
firm, the same payment terms apply.
8. Either party may terminate this Agreement for the other
party's noncompliance with the terms of this Agreement.
Notwithstanding, FedEx and Company agree that either party may
terminate this Agreement at anytime upon thirty (30) days
written notice to the other.
9. Company agrees to use automated shipping devices provided by
FedEx at each U.S. location shipping three (3) or more
packages per day OR, one (1) FedEx International Priority
package per day. A Federal Express POWERSHIP Placement
Agreement for the placement of any such shipping device shall
be signed prior to placement.
10.The terms of this Agreement shall be held in strict confidence
and the contents of this Agreement may not be disclosed to
anyone other than those Company employees who have a need to
know, provided, however, that nothing herein shall restrict
you from disclosing any portion of such information on a
restricted basis pursuant to a judicial or other lawful
governmental order, but only to the extent of such order and
only after you provide us with immediate notice of such order
so that we may contest the order or obtain a protective order,
if we deem necessary.
11.For all shipments made under the Program, Company waives any
right to receive adjustments, refunds or credits under the
Money Back Guarantee Policy as defined in the FedEx Service
Guide in effect at the time of shipment.
12.Company agrees to ship all packages with Signature Release
Authorization.
13.The Services provided by FedEx in accordance with this
Agreement are designed to meet the distinct needs of Company.
Return of this Agreement with Company's signature will
constitute Company's endorsement of FedEx as its primary
carrier.
J CREW FEDERAL EXPRESS CORPORATION
By: ________________________ By: __________________________
Title: _____________________ Title: _______________________
Date: ______________________ Date: ________________________
2
This offer will expire if not accepted by Company within thirty
(30) days of the date of this offer. This Agreement shall become
effective when executed by FedEx and Company.
3
ATTACHMENT A
The term "Average Daily Net Revenue" and "Average Revenue Per
Package" shall be collectively referred to as the "Shipping
Objectives". Pursuant to the terms of the Agreement between
Company and FedEx, Company agrees to maintain the Shipping
Objectives which are defined and listed below.
1) "Average Daily Net Revenue" refers to the total revenue
since the effective date of the Agreement ("Effective
Date") divided by the total number of business days since
the Effective Date [FedEx has twenty-two (22) business days
per month].
2) "Average Revenue Per Package" ("Yield") refers to Average
Daily Net Revenue divided by the average number of packages
shipped per business days since the Effective Date.
1) $15,000___ Average Daily Net Revenue
2) $11.11____ Average Revenue Per Package
4
AMENDMENT TO CUSTOM PRICING PROGRAM
This Amendment ("Amendment"), effective the 16th day of December,
1996 is entered into by J CREW ("Company") and Federal Express
Corporation ("Federal") (the "Parties") and modifies the Custom
Pricing Agreement ("Agreement") between the Parties dated
November 15, 1996.
RECITALS
FOR AND IN CONSIDERATION of the mutual covenants contained in
the Amendment, the Parties agree as follows:
1. The term of the Agreement shall be extended to expire
on January 31, 1999.
2. A 5% rate increase will be implemented on January 1,
1998.
3. Saturday Delivery Charge shall be $5.00.
4. DIM factor shall be 250.
5. Notwithstanding any other provision of this Amendment,
this Program may be terminated at any time by either
party on thirty (30) days' written notice to the
other.
6. Except as otherwise provided in this Amendment, all
terms and conditions of the Agreement shall remain in
full force and effect, and are hereby ratified and
confirmed.
7. The services provided by Federal pursuant to this
Amendment are designed to meet the distinct needs of J
CREW.
J CREW FEDERAL EXPRESS CORPORATION
BY: ______________________ BY: __________________________
TITLE: ___________________ TITLE: _______________________
DATE: ____________________ DATE: ________________________
("Company") ("Federal")
5
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
17-1675-4
J. CREW GROUP INC
1 IVY CRESCENT
LYNCHBURG VA 24502
INDEX LETTER RATES FEDEX PAK RATES
Priority Overnight $ 6.00 1 LB $ 7.00
Standard Overnight $ 5.50 2 LB $ 7.50
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVER- OVER- TWO-DAYS LBS. OVER- OVER- TWO-DAY
NIGHT NIGHT NIGHT NIGHT
1 $ 7.00 $ 6.75 $ 5.00 39 $ 44.27 $ 40.65 $ 38.00
2 7.50 7.25 5.00 40 45.10 41.55 38.00
3 9.50 9.25 5.25 41 45.92 42.45 39.60
4 11.50 10.50 5.75 42 46.75 43.35 40.40
5 13.50 12.00 6.50 43 47.57 44.25 41.20
6 14.85 13.05 7.50 44 48.40 45.15 42.00
7 15.95 14.10 8.60 45 49.22 46.05 42.80
8 17.05 15.15 9.60 46 50.05 46.95 43.60
9 18.15 16.20 10.60 47 50.87 47.85 44.40
10 19.25 17.25 11.60 48 51.70 48.75 45.20
11 19.94 18.00 12.40 49 52.52 49.65 46.00
12 20.62 18.75 13.40 50 53.35 50.55 46.80
13 21.31 19.35 14.40 51 54.17 51.45 47.60
14 22.00 19.95 15.40 52 55.00 52.35 48.40
15 22.69 20.55 16.20 53 55.82 53.25 49.20
16 23.37 21.15 17.20 54 56.65 54.15 50.00
17 24.06 21.75 18.20 55 57.47 55.05 50.60
18 24.75 22.35 19.00 56 58.30 55.95 51.20
19 25.44 22.95 20.00 57 59.12 56.85 51.80
20 26.12 23.55 21.00 58 60.22 57.75 52.40
21 27.22 24.45 21.80 59 61.32 58.65 53.00
22 28.32 25.35 22.80 60 62.42 59.55 53.60
23 29.42 26.25 23.80 61 63.52 60.45 54.20
24 30.52 27.15 24.60 62 64.62 61.35 54.80
25 31.62 28.05 25.40 63 65.72 62.25 55.40
26 32.72 28.95 26.20 64 66.82 63.15 56.00
27 33.82 29.85 27.00 65 67.92 64.05 56.60
28 34.92 30.75 27.80 66 69.02 64.95 57.20
29 36.02 31.65 28.60 67 70.12 65.85 57.80
30 36.85 32.55 29.60 68 71.22 66.75 58.40
31 37.67 33.45 30.60 69 72.32 67.65 59.00
6
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVER- OVER- TWO-DAYS LBS. OVER- OVER- TWO-DAY
NIGHT NIGHT NIGHT NIGHT
32 38.50 34.35 31.60 70 73.42 68.55 59.60
33 39.32 35.25 32.60 71 74.52 69.45 60.20
34 40.15 36.15 33.60 72 75.62 70.35 61.00
35 40.97 37.05 34.60 73 76.72 71.25 61.80
36 41.80 37.95 35.60 74 77.82 72.15 62.60
37 42.62 38.85 36.40 75 78.92 73.05 63.40
38 43.45 39.75 37.20 76 80.02 73.95 64.20
7
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
17-1675-4
CREW GROUP INC
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVERNIGHT OVERNIGHT TWO-DAYS LBS. OVERNIGHT OVERNIGHT TWO-DAY
77 $ 81.12 $ 74.85 $ 65.00 114 $108.30 $102.60 $ 96.28
78 82.22 75.75 65.80 115 109.25 103.50 97.20
79 83.32 76.65 66.60 116 110.20 104.40 98.12
80 84.42 77.55 67.40 117 111.15 105.30 99.04
81 85.52 78.45 68.20 118 112.10 106.20 99.96
82 86.62 79.35 69.00 119 113.05 107.10 100.88
83 87.72 80.25 69.80 120 114.00 108.00 101.80
84 88.82 81.15 70.60 121 114.95 108.90 102.72
85 89.92 82.05 71.40 122 115.90 109.80 103.64
86 91.02 82.95 72.20 123 116.85 110.70 104.56
87 92.12 83.85 73.00 124 117.80 111.60 105.48
88 93.22 84.75 73.80 125 118.75 112.50 106.40
89 94.32 85.65 74.60 126 119.70 113.40 107.32
90 95.00 86.55 75.40 127 120.65 114.30 108.24
91 95.00 87.45 76.20 128 121.60 115.20 109.16
92 95.00 88.35 77.00 129 122.55 116.10 110.08
93 95.00 89.25 77.80 130 123.50 117.00 111.00
94 95.00 90.00 78.60 131 124.45 117.90 111.92
95 95.00 90.00 79.40 132 125.40 118.80 112.84
96 95.00 90.00 80.2 133 126.35 119.70 113.76
97 95.00 90.00 81.00 134 127.30 120.60 114.68
98 95.00 90.00 81.80 135 128.25 121.50 115.60
99 95.00 90.00 82.60 136 129.20 122.40 116.52
100 95.00 90.00 83.40 137 130.15 123.30 117.44
101 95.95 90.90 84.32 138 131.10 124.20 118.36
102 96.90 91.80 85.24 139 132.05 125.10 119.28
103 97.85 92.70 86.16 140 133.00 126.00 120.20
104 98.80 93.60 87.08 141 133.95 126.90 121.12
105 99.75 94.50 88.00 142 134.90 127.80 122.04
106 100.70 95.40 88.92 143 135.85 128.70 122.96
107 101.65 96.30 89.84 144 136.80 129.60 123.88
108 102.60 97.20 90.76 145 137.75 130.50 124.80
109 103.55 98.10 91.68 146 138.70 131.40 125.72
110 104.50 99.00 92.60 147 139.65 132.30 126.64
111 105.45 99.90 93.52 148 140.60 133.20 127.56
112 106.40 100.80 94.44 149 141.55 134.10 128.48
113 107.35 101.70 95.36 150 142.50 135.00 129.40
8
`FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
1817-1675-4
J CREW GROUP INC
SPECIAL HANDLING FEES
ADDITIONAL PER-PACKAGE CHARGE*
COLLECT ON DELIVERY (C.O.D.)........... $ 5.00 PER PACKAGE
SATURDAY PICK-UP SERVICE............... $10.00
SATURDAY DELIVERY SERVICE.............. $10.00
DECLARED VALUE - FOR SHIPMENTS EXCEEDING
$100.00 IN VALUE+ ($50,000 MAXIMUM PER
PACKAGE)............................. $ .50 PER $100.00
$2.50 MINIMUM CHARGE UP TO $500
DANGEROUS GOODS SERVICE................ $10.00
ACCESSIBLE DANGEROUS GOODS SERVICE..... $35.00
INTL. DANGEROUS GOODS.................. $40.00
ADDRESS CORRECTION..................... $10.00
PAYOR REBILL........................... $10.00
NON-ACCOUNT............................ $10.00
INVALID ACCOUNT........................ $10.00
FEDEX INTL. MAIL SERVICE............... $ .25 PER ITEM
THE GREATER OF PER SHPMNT/PER LB APPLIES
ALASKA HAWAII ALASKA HAWAII
(PER SHIPMENT) (PER LB.) (PER LB.)
METRO RURAL METRO RURAL
PRIORITY OVERNIGHT/
STANDARD OVERNIGHT SERVICE-
FEDEX LETTER ............... 5.00 5.00
PRIORITY OVERNIGHT SERVICE
FEDEX PAK (1 AND 2 LBS.) ... 5.00 5.00
FEDEX PAK (3 + LBS.),
FEDEX BOX AND FEDEX TUBE ... 10.00 10.00 .50 .75 .50 .75
PRIORITY OVERNIGHT SERVICE . 10.00 10.00 .50 .75 .50 .75
ECONOMY TWO-DAY SERVICE .... 10.00 10.00 .50 .75 .50 .75
* WHEN HUNDREDWEIGHT RATES APPLY, THE SPECIAL HANDLING FEES
ABOVE WILL BE ASSESSED ONE TIME PER SHIPMENT.
+ MAXIMUM DECLARED VALUE FOR ANY FEDEX LETTER OR FEDEX PAK IN
A SHIPMENT IS $500.00
9
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
17-1675-4
J. CREW GROUP INC
FREIGHT SPECIAL HANDLING FEES
RESIDENTIAL PICKUP SERVICE..... $ 33.50 PER SHIPMENT
RESIDENTIAL DELIVERY SERVICE... $ 33.50 PER SHIPMENT
H3 PICKUP SERVICE.............. $ 50.00 PER SHIPMENT
H3 DELIVERY SERVICE............ $ 50.00 PER SHIPMENT
EXTRA LABOR CHARGE SERVICE..... $ 49.00 PER HOUR (OR ANY FRACTION
THEREOF/1 HR MIN)
THE GREATER OF THESE APPLIES
(MINIMUM ) (PER LB)
INSIDER PICKUP SERVICE.......... 52.00 .0412
INSIDE DELIVERY SERVICE......... 52.00 .0412
DELIVERY REATTEMPT CHARGE....... 25.00 .0333
10
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 11/18/96
(excluding Puerto Rico)
1817-1675-4
J. CREW GROUP INC
DISCOUNTS **
REVENUE BAND ---> 14954 ---DOLLAR--- --PERCENT--
RATE SCALE P/A DISC REBATE DISC REBATE
FEDEX LTR 1 A 9.50
FEDEX Pak 307 A 11.50
Prty Ovnt 307 A 11.50 45.00
Stnd Ovnt 380 A 8.00 40.00
SOS LTR 1 A 8.00
Economy 434 A 2.00
Ovnt Frgt 184 A 11.50 45.00
2Day Frgt 285 A 2.00
REVENUE BAND ---> 14954 -HW/FREIGHT- ADDITIONAL
RATE SCALE P/A DISC REBATE DISC REB MIN
FEDEX LTR 1 A
FEDEX Pak 307 A 7.00
Prty Ovnt 307 A 50.00 7.00
Stnd Ovnt 380 A 6.00
SOS LTR 1 A
Economy 434 A 20.00 5.00
Ovnt Frgt 184 A
2Day Frgt 285 A
11/18/96 14:47:04 0000072778 MARIA RIVERA
YOU ARE RESPONSIBLE FOR VERIFYING THAT THIS RATE SHEET IS
RATIONAL AND THAT THE RATES ARE BILLABLE BEFORE GIVING TO A
CUSTOMER.
11
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
1808-7918-8
J. CREW/C & W STORES
1 CLIFFORD WAY
ASHEVILLE NC 28810
FEDEX LETTER RATES FEDEX PAK RATES
Priority Overnight $ 8.00 1 LB $10.75
Standard Overnight $ 7.75 2 LB $12.50
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVERNIGHT OVERNIGHT TWO-DAY LBS. OVERNIGHT OVERNIGHT TWO-DAY
1 $10.75 $10.50 $5.95 39 $47.85 $47.60 $29.40
2 12.50 11.60 6.00 40 52.75 49.00 30.00
3 14.00 12.50 6.25 41 53.50 49.90 30.60
4 15.20 13.40 7.00 42 54.25 50.80 31.20
5 16.60 14.45 8.00 43 55.00 51.70 31.80
6 18.20 15.65 9.00 44 55.80 52.60 32.40
7 19.80 16.85 10.00 45 56.55 53.50 33.00
8 21.20 17.90 11.00 46 57.30 54.40 33.60
9 22.80 19.10 12.00 47 58.05 55.30 34.35
10 24.20 20.15 12.75 48 58.85 56.20 35.10
11 24.70 20.90 12.95 49 59.60 56.90 35.85
12 25.70 21.65 13.00 50 60.35 57.60 36.60
13 26.65 22.40 13.10 51 61.30 58.50 37.35
14 27.45 23.00 13.15 52 62.20 59.40 37.95
15 28.20 23.60 13.20 53 63.10 60.30 38.55
16 29.00 25.80 14.10 54 64.00 61.20 39.15
17 29.80 28.30 14.85 55 64.95 62.10 39.60
18 30.60 29.00 15.45 56 65.85 63.00 40.05
19 31.35 29.70 16.35 57 66.75 63.90 40.50
20 32.15 30.40 17.10 58 67.70 64.80 40.95
21 32.95 31.10 17.70 59 68.60 65.70 41.40
22 33.70 31.80 18.30 60 69.50 66.80 41.85
23 34.50 32.50 18.90 61 70.70 67.90 42.30
24 35.30 33.20 19.50 62 71.90 69.00 42.75
25 36.25 34.10 20.10 63 73.10 70.10 43.20
26 37.25 34.95 20.70 64 74.30 71.20 43.65
27 38.20 35.85 21.30 65 75.50 72.30 44.10
28 39.20 36.70 21.90 66 76.70 73.40 44.55
29 40.20 37.60 22.50 67 77.90 74.50 45.00
30 41.30 38.45 23.10 68 79.10 75.60 45.45
31 42.05 39.50 23.85 69 80.30 76.70 45.90
12
32 42.75 40.35 24.60 70 81.50 78.00 46.35
33 43.50 41.25 25.35 71 82.70 80.50 46.80
34 44.20 43.30 26.10 72 83.90 81.65 47.70
35 44.95 44.20 26.85 73 85.10 82.80 48.30
36 45.65 45.10 27.45 74 86.30 83.95 49.75
37 46.40 46.00 28.20 75 87.50 85.10 49.20
38 47.10 46.85 28.80 76 88.70 86.25 49.80
13
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
1808-7918-8
J. CREW/C & W STORES
PRIORITY STANDARD ECONOMY PRIORITY STANDARD ECONOMY
LBS. OVERNIGHT OVERNIGHT TWO-DAY LBS. OVERNIGHT OVERNIGHT TWO-DAY
77 $89.90 $87.40 $50.40 114 $133.38 $126.54 $74.10
78 91.10 88.55 51.00 115 134.55 127.65 74.75
79 92.30 89.70 51.60 116 135.72 128.76 75.40
80 93.50 90.95 52.20 117 136.89 129.87 76.05
81 94.70 91.85 52.80 118 138.06 130.98 76.70
82 95.90 93.30 53.40 119 139.23 132.09 77.35
83 97.10 94.45 54.15 120 140.40 133.20 78.00
84 98.30 95.50 54.75 121 141.57 134.31 78.65
85 99.50 96.80 55.35 122 142.74 135.42 79.30
86 100.70 97.90 55.95 123 143.91 136.53 79.95
87 101.90 99.15 56.55 124 145.08 137.64 80.60
88 103.10 100.10 57.15 125 146.25 138.75 81.25
89 104.30 101.55 57.75 126 147.42 139.86 81.90
90 105.50 102.25 58.35 127 148.59 140.97 82.55
91 106.70 103.75 58.95 128 149.76 142.08 83.20
92 107.90 104.45 59.55 129 150.93 143.19 83.85
93 109.10 105.90 60.15 130 152.10 144.30 84.50
94 110.30 106.45 60.75 131 153.27 145.41 85.15
95 111.50 107.20 61.35 132 154.44 146.52 85.80
96 112.70 107.95 61.95 133 155.61 147.63 86.45
97 113.90 108.65 62.55 134 156.78 148.74 87.10
98 115.10 109.40 63.30 135 157.95 149.85 87.75
99 116.30 110.10 63.90 136 159.12 150.96 88.40
100 117.00 111.00 65.00 137 160.29 152.07 89.05
101 118.17 112.11 65.65 138 161.46 153.18 89.70
102 119.34 113.22 66.30 139 162.63 154.29 90.35
103 120.51 114.33 66.95 140 163.80 155.40 91.00
104 121.68 115.44 67.60 141 164.97 156.51 91.65
105 122.85 116.55 68.25 142 166.14 157.62 92.30
106 124.02 117.66 68.90 143 167.31 158.73 92.95
107 125.19 118.77 69.55 144 168.48 159.84 93.60
108 126.36 119.88 70.20 145 169.65 160.95 94.25
109 127.53 120.99 70.85 146 170.82 162.06 94.90
110 128.70 122.10 71.50 147 171.99 163.17 95.55
111 129.87 123.21 72.15 148 173.16 164.28 96.20
112 131.04 124.32 72.80 149 174.33 165.39 96.85
113 132.21 125.43 73.45 150 175.50 166.50 97.50
14
- -------------------HUNDREDWEIGHT/FREIGHT PER POUND RATES*----------------
PRIORITY STANDARD ECONOMY OVERNIGHT TWO-DAY
OVERNIGHT OVERNIGHT TWO-DAY FREIGHT FREIGHT
100 - 150 LBS $1.17 $1.11 $.65 $1.17 $ .65
151 - 299 LBS 1.17 1.11 .65 1.35 1.10
300 - 499 LBS 1.17 1.11 .65 1.35 1.10
500 - 999 LBS 1.13 1.07 .64 1.35 1.10
- 1000+ LBS 1.10 1.03 .63 1.35 1.10
* SUBJECT TO 5LB MIN WHEN CUT PRICING APPLIES
15
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
1808-7918-8
J. CREW/C & W STORES
SPECIAL HANDLING FEES
ADDITIONAL PER-PACKAGE CHARGE*
COLLECT ON DELIVERY (C.O.D.)........... $ 5.00 PER PACKAGE
SATURDAY PICK-UP SERVICE............... $10.00
SATURDAY DELIVERY SERVICE.............. $10.00
DECLARED VALUE - FOR SHIPMENTS EXCEEDING
$100,00 IN VALUE+ ($50,000 MAXIMUM PER
PACKAGE)............................. $ .50 PER $100.00
($2.50 MINIMUM CHARGE UP TO $500
DANGEROUS GOODS SERVICE................ $10.00
ACCESSIBLE DANGEROUS GOODS SERVICE..... $35.00
INTL. DANGEROUS GOODS.................. $40.00
ADDRESS CORRECTION..................... $10.00
PAYOR REBILL........................... $10.00
NON-ACCOUNT............................ $10.00
INVALID ACCOUNT........................ $10.00
FEDEX INTL. MAIL SERVICE............... $ .25 PER ITEM
THE GREATER OF PER SHPMNT/PER LB APPLIES
ALASKA HAWAII ALASKA HAWAII
(PER SHIPMENT) (PER LB.) (PER LB.)
METRO RURAL METRO RURAL
PRIORITY OVERNIGHT/
STANDARD OVERNIGHT SERVICE-
FEDEX LETTER............... 5.00 5.00
PRIORITY OVERNIGHT SERVICE
FEDEX PAK (1 AND 2 LBS.)... 5.00 5.00
FEDEX PAK (3 + LBS.),
FEDEX BOX AND FEDEX TUBE... 10.00 10.00 .50 .75 .50 .75
PRIORITY OVERNIGHT SERVICE. 10.00 10.00 .50 .75 .50 .75
ECONOMY TWO-DAY SERVICE.... 10.00 10.00 .50 .75 .50 .75
* WHEN HUNDREDWEIGHT RATES APPLY, THE SPECIAL HANDLING FEES
ABOVE WILL BE ASSESSED ONE TIME PER SHIPMENT.
* MAXIMUM DECLARED VALUE FOR ANY FEDEX LETTER OR FEDEX PAK IN
A SHIPMENT IS $500.00
16
FEDERAL EXPRESS CORPORATION
U.S. DOMESTIC RATES
PER-PACKAGE RATES EFFECTIVE 12/03/96
(excluding Puerto Rico)
108-7918-8
CREW/C & W STORES
FREIGHT SPECIAL HANDLING FEES
RESIDENTIAL PICKUP SERVICE..... $ 33.50 PER SHIPMENT
RESIDENTIAL DELIVERY SERVICE... $ 33.50 PER SHIPMENT
H3 PICKUP SERVICE.............. $ 50.00 PER SHIPMENT
H3 DELIVERY SERVICE............ $ 50.00 PER SHIPMENT
EXTRA LABOR CHARGE SERVICE..... $ 49.00 PER HOUR (OR ANY FRACTION
THEREOF/1 HR MIN)
THE GREATER OF THESE APPLIES
(MINIMUM ) (PER LB)
INSIDE PICKUP SERVICE........... 52.00 .0412
INSIDE DELIVERY SERVICE......... 52.00 .0412
DELIVERY REATTEMPT CHARGE....... 25.00 .0333
17
10/17/81 G
LEASE dated as of October 21, 1981 between Vornado,
Inc., as Landlord, and Popular Services, Inc., as Tenant.
Landlord hereby leases to Tenant premises situated in
Garfield, New Jersey.
The parties agree with each other as follows:
ARTICLE I
THE PARTIES, THE PREMISES, DEFINED TERMS
Section 1.01. The Parties.
(a) Vornado, Inc. is a Delaware corporation. Its address is
174 Passaic Street, Garfield, New Jersey 07026. It is referred to
as "Landlord".
(b) Popular Services, Inc., is a New York corporation.
It has an address at 128 Dayton Avenue, Passaic, New Jersey 07055.
It is referred to as "Tenant".
Section 1.02. The Premises and Other Defined Terms.
(a) The Premises consists of a parcel of land and
building and other site improvements located upon that land. The
Premises are shown on Exhibit A. The building is referred to in
this Lease as the "Building". The portion of the Premises not
occupied by the Building is designated on Exhibit A and is
referred to in this Lease as the "Building Lot".
(b) Capitalized words and various phrases used in this
Lease which are capitalized may be defined terms. These terms are
defined in the body of the Lease.
(c) The following capitalized terms are defined in
various Sections and subsections of this Lease as set forth in
the following table:
Additional Rent................................4.03
Award..........................................5.14
Basic Rent.....................................4.01
Building.......................................1.02(a)
Building Lot...................................1.02
Cancellation Date..............................3.06
Claims.........................................5.02(b)
Commencement Date..............................3.02(a)
Delivery of Possession.........................2.05
Expiration Date................................3.02(b)
Impositions....................................4.02(c)
Insurance......................................5.11
Insurance Contributions........................5.11
Insurance Requirements.........................5.10
Lease Year.....................................3.02(c)
Lien...........................................5.03(b)
Master Lease...................................8.03(b)
Master Lessor..................................8.03(b)
Mortgage.......................................8.03(b)
Mortgagee......................................8.03(b)
Premises.......................................1.02(a)
Rent...........................................4.03
Supplementary Parking Area.....................7.01
Supplementary Parking Area Contributions.......7.03
Taking.........................................5.14
Taking Date....................................5.14
Tax Contributions..............................4.02
Tenant's Agents................................5.02
Tenant's Equipment.............................5.09
Tenant's Work..................................2.03
ARTICLE II
MAKING THE PREMISES READY FOR OCCUPANCY
Section 2.01. Condition of Premises.
The Premises shall be delivered in broom clean
condition. At the time of delivery of possession, the roof shall
be free of leaks and the plumbing, electrical, heating,
ventilation and air-conditioning (if any) systems shall be in
good working order. Landlord shall also remove all signs from the
Premises and shall repair the canopy over the front door of the
Building.
Section 2.02. Approvals.
(a) Promptly after the execution of this Lease,
Landlord and Tenant shall apply for any zoning variance or change
which may be required for the change of use of the Building to a
general office building with an auxiliary retail store of no more
than 15,000 square feet, for Tenant's occupancy. If required,
Landlord and Tenant shall join in the application. Landlord and
Tenant shall cooperate with each other in prosecuting the
application. The cost of the application, including any
attorneys' fees, shall be paid by Tenant. Any attorney selected
shall be subject to the reasonable approval of both parties.
(b) (i) If the variance or change has not been granted
within sixty (60) days following the date the initial application
for it is submitted, then, subject to subsection 2.02(c), either
party shall have the right to cancel this Lease by giving notice
to the other within ten (10) days following the expiration of
that sixty (60) day period.
(ii) If as a condition to the granting of the
variance or change Tenant shall be required to perform additional
alterations not otherwise required by other applicable legal
requirements or contemplated by Tenant as part of Tenant's Work
and the cost of the additional alterations shall exceed
$200,000.00, Tenant may cancel this Lease by giving notice to
Landlord within thirty days after the need for any such
alterations is imposed. Within thirty days after receipt of
Tenant's notice, Landlord may nullify the cancellation by
notifying Tenant that Landlord shall bear the cost of such
additional alterations in excess of $200,000.00.
(iii) If a variance or change is granted which
shall permit the Building to be used as an office building but
such variance or approval shall impose limitations upon the use
of the Building for office purposes which shall materially
adversely impair the use of the Building for Tenant's corporate
headquarters (as presently constituted), Tenant may cancel this
lease by giving Landlord notice within 30 days after the variance
is granted.
(c) If a party shall elect to cancel this Lease in
accordance with subsection 2.02(b), part (i) the other may
nullify that cancellation if at the time the cancellation notice
is given
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an application for the zoning variance or change is pending. The
right to nullify the cancellation shall be exercisable by giving
notice to the other party within ten (10) days after receipt of
the cancellation notice. If neither party elects to cancel this
Lease in accordance with subsection 2.02(b), part (i) or if a
cancellation notice is nullified in accordance with this
subsection (c) but the variance or change has not been granted
within one hundred and twenty (120) days following the date the
initial application is submitted, then either party may elect to
cancel this Lease by giving notice within ten (10) days following
the expiration of that one hundred and twenty (120) day period.
(d) Upon a cancellation of this Lease in accordance
with this Section 2.02, both parties shall be relieved of all
further obligations under this Lease.
Section 2.03. Tenant's Work.
(a) The alterations and improvements described in
Exhibit B are referred to in this Lease as "Tenant's Work". Within a
reasonable time after the date of this Lease Tenant shall submit
plans and specifications for Tenant's Work to Landlord for
Landlord's approval. Landlord shall not unreasonably withhold or
delay its approval.
(b) Promptly after the zoning variance or change referred
to in section 2.02 is approved, or, if none is required, promptly
after the date of this Lease, Tenant shall apply for all other
permits and approvals which shall be necessary with respect to
Tenant's Work and Tenant's occupancy of the Premises for office
purposes and incidental retail use. Promptly after the necessary
permits and approvals are issued, Tenant shall commence and
diligently prosecute such portions of Tenant's Work as shall be
necessary for the issuance of a certificate of occupancy for the
Premises. Tenant agrees to deliver all required copies of
permits, certificates and approvals to Landlord.
(c) Tenant's Work shall be performed in accordance
with all applicable legal requirements, the approved plans and
specifications, any building permit, all insurance requirements
and in a good and workmanlike manner.
Section 2.04. Insurance Covering Tenant's Work.
Tenant shall not commence to perform Tenant's Work,
repairs, or any alterations unless prior to the commencement of
the work, Tenant shall obtain and, during the performance of the
work, keep in force public liability and workmens' compensation
insurance to cover every contractor to be employed. The policies
shall be non-cancellable without ten days notice to Landlord and
shall be in amounts and by companies reasonably satisfactory to
Landlord. Prior to the commencement of Tenant's Work, Tenant
shall deliver duplicate originals or certificates of insurance
policies to Landlord.
Section 2.05. Delivery of Possession.
Delivery of Possession shall occur upon the later to
occur of (i) the date Landlord tenders possession of the Premises
to Tenant, or (ii) the date the variance or change referred to in
Section 2.02 shall have been granted. If the event referred to in
part (ii) shall occur on or before February 1, 1982, Landlord
agrees to tender possession of the Premises to Tenant on or
before February 1, 1982. If the event referred to in part (ii)
shall occur after February 1, 1982, Landlord agrees to tender
possession of the Premises to Tenant no later than the occurrence
of that event.
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ARTICLE III
TERM
Section 3.01. The Term Defined.
(a) The Term shall commence on the Commencement Date
and shall expire on the Expiration Date, as defined in Section
3.02.
(b) At any time after the Commencement Date, at the
request of either party, the other party shall execute a
certificate in recordable form setting forth the exact
Commencement Date and the originally fixed Expiration Date.
Section 3.02. Commencement Date and Expiration Date.
(a) The Commencement Date shall be the later to occur
of (i) Delivery of Possession or (ii) February 1, 1982.
(b) The Expiration Date shall be the tenth anniversary
of the last day of the first Lease Year. If this Lease is
cancelled or terminated prior to the fixed Expiration Date, the
Expiration Date shall be the date on which this Lease is
cancelled or terminated.
(c) The first Lease Year shall commence on the
Commencement Date and shall continue for four months. Each
subsequent Lease Year shall commence on the day following the end
of the preceding Lease Year and shall continue for one full year.
The last Lease Year shall end on the Expiration Date.
Section 3.03. Holdover.
If Tenant shall continue its occupancy of the Premises
after the Expiration Date, the occupancy shall not be deemed to
extend or renew the Term and the tenancy shall constitute a
tenancy from month to month on all of the terms of the Lease but
at the Rent in effect at the expiration of the Term.
Section 3.04. Short form Lease.
At any time during or prior to the Term, at the
request of either party, the other party shall execute a short
form lease or memorandum of lease in proper form for recording as
may be required by law, excluding any portion of Article IV.
Section 3.05. Right of First Refusal.
(a) If Landlord shall desire to lease the Premises for
a term which shall commence after the originally fixed Expiration
Date, provided that Tenant shall not be in Default under this
Lease and this Lease is in full force and effect, Landlord may
notify Tenant of the terms and conditions which shall be
satisfactory to Landlord and Tenant shall have fifteen days after
Landlord's notice to accept the terms and conditions submitted by
Landlord. If Tenant shall fail to do so within that fifteen day
period, Landlord shall have the right to enter into a lease with
any other party for the same or greater annual rate of rental
than the rental set forth in Landlord's notice and Tenant's
rights under this section shall not apply to that new lease.
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(b) Subject to the conditions of subsection (a), if on
or before the originally fixed Expiration Date Landlord shall have
received a bona fide offer to Lease the Premises from an
unaffiliated third party and that offer is acceptable to Landlord
(the "Offer"), provided that Tenant shall not be in Default under
this Lease and that this Lease is in full force and effect,
Tenant shall have the right to accept a lease for that Premises.
The terms of that lease shall be the same terms and conditions as
the Offer except as provided in this subsection. Landlord's
notice shall be accompanied by the proposed lease (the "New
Lease"). Tenant's right shall be only exercisable by Tenant by
giving notice to Landlord within fifteen days after Landlord's
notice that Tenant accepts the Offer accompanied by counterparts
of the New Lease executed by Tenant. The form of the New Lease
shall be substantially similar to the form of this lease, to the
extent practicable, and must otherwise be satisfactory to
Landlord. The term of the New Lease shall commence on the date
succeeding the Expiration Date and shall, at Landlord's election,
continue for the term provided for in the Offer or five years.
(c) Tenant's rights under this Section shall expire if
the lease shall be assigned by Tenant to any other party. The
expiration shall be effective whether or not Landlord had
previously consented to the assignment. If Tenant shall fail to
exercise its rights under this section within any applicable
fifteen day period, Tenant's rights under this section shall
expire. Time shall be of the essence with respect to Tenant's
exercise of its rights under this section.
Section 3.06. Tenant's Right of Cancellation.
(a) At any time following the third anniversary of the
Commencement Date, provided that Tenant shall not be in Default
of a material obligation under this Lease, Tenant shall have the
right to cancel this Lease by notifying Landlord of Tenant's
election. If Tenant shall elect to cancel this Lease, this Lease
shall be cancelled on the "Cancellation Date". The "Cancellation
Date" shall be the later to occur of (i) the first anniversary of
Tenant's notice of cancellation or (ii) the date of cancellation
set forth in Tenant's notice. In consideration for the right to
cancel this Lease, at the time Tenant shall exercise its right,
Tenant shall pay to Landlord an amount equal to the Rent which
would otherwise be payable during the full year following the
Cancellation Date.
(b) If this Lease is validly cancelled in accordance
with the provisions of subsection 3.06(a), except for liabilities
which have accrued prior to the Cancellation Date: Landlord shall
be relieved of all further obligations under the Lease; and upon
surrender of the Premises on or before the Cancellation Date in
accordance with Section 5.07, Tenant shall be relieved of all
further obligations under this Lease.
ARTICLE IV
RENT AND SECURITY
Section 4.01. Basic Rent.
(a) From and after the Commencement Date, Tenant shall
pay Basic Rent to Landlord at the annual rates set forth in the
following table:
Annual Rate
Applicable Period of Basic Rent
First Lease Year $ 102,009.38
Second and Third Lease Years $ 272,025.00
Fourth and Fifth Lease Years $ 321,408.00
Sixth and Seventh Lease Years $ 371,628.00
Eighth and Ninth Lease Years $ 421,848.00
Tenth and Eleventh Lease Years $ 472,068.00
(b) Basic Rent shall be payable in equal monthly
installments. Each installment shall be due in advance on the
first day of each month. If the Commencement Date occurs on a day
other than the first day of any month, Basic Rent for the period
which commences on the Commencement Date and ends on the last day
of the month in which the Commencement Date occurs shall be paid
on the Commencement Date and shall be apportioned equitably.
Section 4.02. Tax Contributions.
Tenant shall pay Tax Contributions to Landlord in
accordance with the following:
(a) Tax Contributions shall be payable from and after
the Commencement Date within thirty (30) days after Landlord
renders a bill to Tenant. Landlord shall not render bills more
than four times each calendar year. Landlord's failure to render
a bill shall not be construed as a waiver by Landlord of any
amount due. Tenant shall not be obligated to pay a quarterly
installment more than 45 days in advance of the date the
applicable installment of Impositions shall be due and payable to
the taxing authority.
(b) Tax Contributions means all Impositions if the
Premises is assessed as a separate, single tax lot. If the
Premises is not assessed as a separate tax lot, Tax Contributions
shall be calculated in accordance with subsection 4.02(e).
(c) (i) "Impositions" means all taxes, assessments,
and governmental charges which shall be assessed, levied, or
imposed against the Premises, the Building, the land underlying
the Premises, all improvements located upon the Premises and the
use of the Premises, Building and Building Lot, for each tax
fiscal year occurring during the Term. "Impositions" includes
taxes, assessments and other governmental charges which are
special, extraordinary and unforeseen and assessments for public
improvements to the extent provided in part (iii). "Impositions"
also includes all substitutes for the taxes and charges referred
to in this part (i) including a tax on rent. However, a
substitute tax shall be an Imposition only to the extent that the
tax would be payable under the assumption that the Premises were
the sole asset of the Landlord and the income from the Premises
were the sole revenue of the Landlord.
(ii) Assessments shall be included or excluded from
Impositions as follows:
(x) The word "Impositions" excludes any
assessment for public improvements which is a Lien
against the Premises as of the date of this Lease.
(y) If an assessment for public improvements
not excluded by clause (x) is payable in installments
and Landlord elects the installment method of payment,
only the installments which come due during the Term
shall be included in Impositions. If an assessment not
excluded by clause (x) is payable in installments, and
Landlord does not elect the installment method of payment,
then Impositions shall include only the installments
which would have come due during the Term had Landlord
elected the installment method of payment.
(iii) Impositions for any tax fiscal year
occurring partially within the term shall be equitably pro-rated
so that Tenant shall bear only such portion of Impositions
attributable to periods occurring within the Term.
(iv) Provided that Tenant shall pay all
Impositions when due, Landlord shall pay all Impositions to the
taxing authorities on or before the date the Impositions are
payable without accruing penalties or interest.
(d) If the Premises is not assessed as a separate,
single tax lot, the tax lot of which the Premises is a part is
referred to in this Lease as the "Entire Tax Lot". The parties
agree to cooperate with each other to cause the appropriate
taxing authority to assess the Premises as a single tax lot
separate from the balance of the Entire Tax Lot.
(e) If the Premises is not assessed as a separate,
single tax lot, the amount of Impositions with respect to the
Premises shall be determined in accordance with the following:
(i) Tax Contributions shall be equal to a
fraction of all taxes, assessments and governmental charges
(including any governmental charges levied in whole or in part in
lieu of real estate taxes) which shall be assessed, levied or
imposed against the Entire Tax Lot, including all improvements
upon the Entire Tax Lot, for each tax fiscal year occurring
during the Term. The numerator of the fraction shall be the fair
market value of the Premises, including the Building, as of the
tax assessment date. The denominator of the fraction shall be the
fair market value of the Entire Tax Lot, including all
improvements located upon the Entire Tax Lot, as of the tax
assessment date.
(ii) If the parties are unable to agree upon the
fair market value of the Premises and the Entire Tax Lot
respectively, the fair market values shall be determined by an
appraiser who is a member of the American Institute of Real
Estate Appraisers. If the parties are unable to agree upon the
appointment of an appraiser, then Landlord shall select an
appraiser and Tenant shall select an appraiser. The two
appraisers shall select a third appraiser. The fair market values
shall be determined by the third appraiser.
(iii) If the two appraisers selected by Landlord
and Tenant can not agree upon a third appraiser to be selected,
than either party may apply to a court of competent jurisdiction
to have the third appraiser selected.
(iv) The determination of the third appraiser
shall be conclusive evidence of the respective fair market values
of the Premises and the Entire Premises.
(v) In determining the respective fair market
values of the Premises, the existence of this Lease may not be
taken into consideration by the appraiser.
(vi) Until the appraisal process is completed,
Tenant shall make payments on account of Impositions in amounts
reasonably estimated by Landlord.
(f) Tenant shall have the right to conduct a tax
appeal with respect to the premises. Prior to commencing an
appeal, Tenant shall notify Landlord of Tenant's intention.
Within ten days after receipt of Tenant's notice, Landlord shall
have the right to conduct the appeal. Both parties shall
cooperate with each other with respect to a tax appeal conducted
by either party. If an appeal shall be conducted, after deducting
the cost of the attorney's and appraisal fees any remaining
refund shall be paid as follows:
(i) entirely to Tenant if Premises is assessed
as a separate, single tax lot; or
(ii) to be divided equitably between Landlord and
Tenant in the proportion that the refunded imposition was borne
by the parties, if the Premises is not assessed as part of a
separate, single tax lot.
Section 4.03. Payments of Rent.
(a) "Additional Rent" means Tax Contributions, and any
other charges Tenant is required to pay to Landlord, other than
Basic Rent.
(b) "Rent" means Basic Rent, Additional Rent and any
other charges Tenant is required to pay to Landlord.
(c) Except as otherwise provided, Rent shall be paid by
good check made to the order of Landlord. Except as otherwise
provided, Rent payments shall be placed in the United States mail
addressed to Landlord at the place where notices to Landlord may
be given. Rent shall be paid without setoff or deduction.
ARTICLE V
THE PREMISES
Section 5.01. Use of the Premises.
(a) The Premises shall be used for general and
executive offices purposes, including all uses incidental to
those purposes, and for no other purpose. Landlord agrees that
Tenant may use up to 15,000 square feet of the floor area of the
Building for the conduct of retail sales.
(b) The Premises shall be used solely in accordance
with all applicable legal requirements.
Section 5.02. Indemnification.
(a) Tenant hereby indemnifies Landlord against all
liability arising from any and all Claims which:
(i) arise from or are in connection with possession,
use, occupation, management, repair, maintenance or control of
the Premises;
(ii) arise from or are in connection with the
negligence or omission of Tenant or Tenant's agents in or about
the Premises, Building Lot, or elsewhere;
(iii) result from any Default, breach, violation or
non-performance of a provision of this lease; or
(iv) result in injury to person or property or
loss of life sustained in or about the Premises.
(b) "Claims" means any claims, suits, proceedings,
actions, causes of action, responsibility, liability, demands,
judgments and executions.
(c) "Tenant's Agents" includes Tenant's employees,
servants, licensees, tenants, subtenants, assignees, contractors
and invitees.
Section 5.03. Liens.
(a) If any Lien encumbers Landlord's interest in the
Premises as a result of work done or authorized by Tenant or any
other act or omission by Tenant, Tenant shall discharge the Lien,
by bonding it or otherwise, within forty-five (45) days after the
creation of the Lien.
(b) "Lien" means: any interest, lien, charge, claim or
encumbrance against the Premises, Tenant's leasehold interest in
the Premises, the Building, or the Building Lot.
Section 5.04. Repairs and Compliance with Laws.
(a) Upon reasonable notice from Tenant, Landlord shall
make necessary structural repairs to the foundation and exterior
walls of the Building, excluding all windows, plate glass, doors
and any fixtures and appurtenances composed of glass and any
damage caused by any act, omission or negligence of Tenant, or
Tenant's Agents, employees, invitees and contractors. Until the
first anniversary of the Commencement Date, Landlord shall
maintain and repair the roof of the Building.
(b) Except for the repairs Landlord is required to make in
accordance with subsection 5.04(a), Tenant shall make all repairs
necessary to maintain the Building and Building Lot in good order
and repair and in a safe and dry condition. Tenant's obligation
to perform repairs includes repairs to any heating or air
conditioning equipment located within or servicing the Building
exclusively; any sign installed by Tenant; the floor; to windows,
plate glass and any other fixtures composed of glass; and to the
Premises when the repairs are necessitated by any act or omission
of Tenant or Tenant's Agents. From and after the first
anniversary of the Commencement Date, Tenant shall maintain and
repair the roof of the Building. Tenant's repairs shall comply
with the following:
(i) all applicable legal requirements which
accrue from the date of this Lease and which are applicable to
the performance of Tenant's Work; and
(ii) all Insurance Requirements with respect to
the Premises.
(c) Tenant shall be solely responsible for cleaning
the Premises.
Section 5.05. Compliance.
Tenant shall observe and comply promptly with all
present and future legal requirements and Insurance Requirements
relating to or affecting the Premises or Tenant's use and
occupancy of it. If any legal requirement or Insurance
Requirement requires a repair, addition or alteration, Tenant's
obligation shall be limited to those portions of the Premises
which Tenant is required to repair in accordance with Section
5.04.
Section 5.06. Emergency Repairs.
If, in an emergency, it shall become necessary to make
promptly any repairs or replacements to the Premises, Landlord
may re-enter the Premises and proceed to perform repairs. If
repairs performed by Landlord were required to be made by Tenant,
within thirty (30) days after Landlord renders a bill therefor,
Tenant shall reimburse Landlord for the reasonable cost of making
those repairs.
Section 5.07. Surrender of Premises.
On the Expiration Date, Tenant shall quit and
surrender the Premises broom clean, and in the state of repair in
existence after the performance of Tenant's Work, reasonable wear
and tear excepted, together with all alterations, installations,
additions and improvements which may have been made in or
attached on or to the Premises. Upon surrender, Tenant shall
remove its personal property from the Premises, and Landlord may
require Tenant to remove any installation or alteration made by
Tenant, and restore the affected portion of the Premises to the
condition delivered. Tenant shall not be required to remove
partitioning, paneling, wall coverings or floor coverings.
Section 5.08. Alterations.
(a) Except as provided for in subsection 5.08(b), Tenant
may not make any alterations to the Premises without the prior
written consent of Landlord. If Landlord grants its consent to
any alterations, the alterations shall be performed in a good and
workmanlike manner. Landlord hereby agrees not to unreasonably
withhold its consent to interior non-structural alterations
proposed to be made to the Building. All alterations made by
Tenant shall comply with all applicable legal requirements and
all Insurance Requirements. Upon completion of any alteration,
Tenant shall deliver a set of as-built plans for that alteration
to Landlord.
(b) Provided that the alterations do not reduce the
value of the Premises, Landlord's consent shall not be required
for any set or combination of interior non-structural alterations
to the Building costing less than Twenty-Five Thousand
($25,000.00) Dollars. Tenant shall advise Landlord prior to
commencing any such alterations. Notwithstanding the foregoing,
if the consent of any Mortgagee is required for any alteration
proposed by Tenant, Tenant shall not commence that alteration
until the Mortgagee consents. Landlord shall cooperate with
Tenant in seeking any such consent.
(c) Alterations shall be considered part of the
Premises.
Section 5.09. Tenant's Equipment.
(a) "Tenant's Equipment" means: racks and other movable
trade fixtures, equipment, furniture and decorations installed in
the Building by Tenant. However, heating, ventilating, air
conditioning, plumbing, electrical, fire prevention, smoke and
fire detection, burglar alarm and illumination equipment,
installed by Tenant shall not be considered to be a part of
Tenant's Equipment and shall be considered part of the Premises.
(b) Tenant shall be entitled to affix Tenant's
Equipment to, to install Tenant's Equipment in, and to remove
Tenant's Equipment from, the Premises. Tenant's Equipment shall
be the property of Tenant and shall not be deemed to be part of
the Premises or subject to this Lease.
(c) Upon the Expiration Date, Tenant shall remove
Tenant's Equipment. Upon removal of Tenant's Equipment, Tenant
shall repair any damage to the Premises which shall have resulted
from affixing, installing, or removing Tenant's Equipment.
Section 5.10. Insurance.
(a) Tenant shall maintain comprehensive general
liability insurance with respect to the Premises in amounts not
less than Three Million ($3,000,000.00) Dollars for each
occurrence or person as to personal injury and One Million
($1,000,000.00) Dollars for each occurrence as to property
damage.
(b) Tenant's insurance policy shall be issued by an
insurer of recognized responsibility and shall be reasonably
satisfactory to Landlord in form and substance. Landlord, and
upon request of Landlord, any Mortgagee, Master Lessor or other
designee of Landlord shall be named as additional insureds.
(c) Upon the execution of this Lease by Tenant,
Tenant's insurance policy shall be delivered to Landlord.
(d) Tenant's insurance policy shall provide, in
effect, that the policy may not be cancelled, reduced in amount,
or modified by the insurer until at least twenty days after the
insurer shall have notified Landlord and Tenant in writing.
(e) Tenant may carry this insurance under a blanket
insurance policy. If Tenant elects to do so, in lieu of the
delivery of a copy of the actual insurance policy, Tenant may
deliver a certificate of the insurance company evidencing the
policy and required endorsements, and, upon the request of
Landlord, a copy of a specimen policy which sets forth the terms
and conditions of the coverage of the blanket policy.
(f) "Insurance Requirements" means the applicable
provisions of the insurance policy carried by Landlord covering
the Premises; all requirements of the insurer of any such policy;
and all orders, rules, regulations and other requirements of any
insurance service office which serves the community in which the
Premises are situated.
Section 5.11. Insurance Contributions.
Tenant shall pay Insurance Contributions to Landlord
in accordance with the following:
(a) "Insurance Contributions" means Tenant's Pro Rata
Share of the cost of insurance maintained by Landlord with
respect to the Building and Building Lot. Insurance Contributions
shall be payable from and after the Commencement Date.
(b) (i) "Insurance" includes fire insurance with
extended coverage, rental insurance, and public liability
insurance.
(ii) Tenant shall pay monthly installments on
account of Insurance Contributions to Landlord. Until changed
in accordance with part (iii), the installments shall be
an amount reasonably estimated by Landlord. Installments shall be
due in advance. If the Commencement Date is not the first day of
a month, Tenant shall pay a partial installment to Landlord on
the Commencement Date. The partial installment shall be an
equitable share of a full month's installment. If the
Commencement Date is the first day of a month, a full installment
shall be paid on the Commencement Date. Each subsequent
installment shall be due on the first day of each succeeding
month.
(iii) For each Lease Year after the first Lease
Year, monthly installments payable on account of Insurance
Contributions for a Lease Year shall be the Insurance
Contributions for the preceding Lease Year divided by the number
of months in the preceding Lease Year.
(iv) If the monthly payments made by Tenant on
account of the Insurance Contributions for any Lease Year are not
sufficient to fully pay the Insurance Contributions for that
Lease Year, Tenant shall pay the deficiency to Landlord. Tenant
shall pay the deficiency within ten days after the Landlord
renders its bill for the deficiency. If monthly payments on
account of Insurance Contributions are in excess of Insurance
Contributions for that Lease Year, Landlord shall reimburse Tenant
for the excess payments at the end of that Lease Year.
Section 5.12. Destruction.
(a) If the whole or any portion of the Building is
damaged by fire or insurable casualty and this Lease is not
terminated pursuant to subsection 5.12(b), rent shall abate from
the date of such occurrence in the proportion that the portion of
the Building rendered unusable bears to the entire floor area
contained within the Building until the Building, or damaged
portion of it, shall be rebuilt or repaired as provided in this
Section. If Landlord shall carry full rental insurance for a
period of at least one year, the extent to which rent shall abate
shall be equal to the amount of rental insurance proceeds
actually paid to Landlord.
(b) If the Building shall be damaged by fire or other
insurable casualty this Lease shall not be terminated except as
set forth in this subsection. If the damage is not substantially
repaired by Landlord in accordance with subsection 5.12(c) within
one year after its occurrence, the rental abatement shall continue
and Tenant may cancel this Lease by giving notice to Landlord
within thirty days after the end of that year. If the Building
shall be damaged by fire or other casualty to the extent of
thirty percent or more of its replacement value during the last
two years of the Term, either party shall have the right to
cancel this Lease by giving notice to the other within ninety
days following the casualty. Tenant hereby waives all other
rights to terminate this Lease it may have by reason of damage to
the Building or other portions of the Premises as a result of fire
or other casualty pursuant to any presently existing or hereafter
enacted statute or other law.
(c) If all or any portion of the Building is damaged
by fire or other casualty insurable under a standard fire
insurance policy with standard extended coverage endorsements and
this Lease is not terminated, Landlord shall, within a reasonable
time after the occurrence, repair or rebuild the Building or the
damaged portion to its condition immediately prior to the
occurrence, except for leasehold improvements and alterations
made by Tenant. Tenant shall be required to repair any damage to
leasehold improvements and alterations made by Tenant.
(d) If this Lease is cancelled in accordance with this
section, Rent shall be equitably pro-rated as of the date of
cancellation.
Section 5.13. Subrogation.
(a) Landlord and Tenant hereby release each other and
each other's officers, directors, employees and agents from
liability or responsibility for any loss or damage to
property covered by valid and collectable fire insurance with
standard extended coverage endorsement.
(b) This release shall apply not only to liability and
responsibility of the parties to each other but shall also extend
to liability and responsibility for anyone claiming through or
under the parties by way of subrogation or otherwise. This
release shall apply even if the fire or other casualty shall have
been caused by the fault or negligence of a party or anyone for
whom a party may be responsible.
(c) This release shall not apply to loss or damage of
property of a party unless the loss or damage occurs when the
fire or extended coverage insurance policies of the party contain
a clause or endorsement to the effect that any release shall not
adversely affect or impair the policies or prejudice the right of
the party to recover under it. Landlord and Tenant each agree that
fire and extended coverage insurance policies covering the
Building, Premises or their contents shall include this clause or
endorsement as long as it shall be obtainable without extra cost,
or, if extra cost shall be charged, so long as the other party
pays the extra cost. If extra cost shall be chargeable, the
party whose policy is subject to the extra cost shall advise the
other, and of the amount of the extra cost.
Section 5.14. Taking of the Premises.
(a) (i) "Taking" means: The Taking of, or damage to,
all or part of the Premises as a result of the exercise of any
power of eminent domain or purchase under threat thereof.
(ii) "Taking Date" means: the date on which the
condemning authority shall have the right to possession of all or
part of the Premises.
(iii) "Award" means the Award for, or proceeds
of, any Taking less the expenses of collecting the Award,
including fees of attorneys and appraisers.
(b) (i) Landlord shall be entitled to the entire Award
for any Taking of all or any part of the Premises. Tenant hereby
assigns to Landlord any share of such Award which may be awarded
to it. However, Tenant shall have a right to prosecute Tenant's
separate claim for loss of its personal property, if any,
relocation and moving expenses, and the unamortized value of the
initial Tenant's leasehold improvements made by Tenant.
(ii) For the purposes of this subsection (b), the
unamortized value of Tenant's leasehold improvements shall be
equal to the lesser of $500,000.00 or the cost of the initial
leasehold improvements included as part of Tenant's Work,
amortized on a straight line basis over ten years commencing on
the Commencement Date.
(iii) Tenant hereby waives and assigns to
Landlord any right to any portion of the Award for the loss of
its leasehold interest in the Premises.
(c) (i) If there is a permanent Taking of more than
twenty-five percent of the Building, either party shall have the
option to cancel this Lease by giving notice to the other within
ninety days after the Taking Date.
(ii) If there is a permanent Taking of more than
twenty-five percent of the parking spaces located within the
Building Lot and Landlord does not agree to provide up to
seventy-five percent of the previously available parking spaces
in a location or locations reasonably satisfactory to Tenant,
Tenant may cancel this Lease by giving Landlord notice within
ninety days after the Taking. Landlord shall make all reasonable
efforts to replace all Taken parking spaces with an equal number
of ground level parking spaces in an area which shall be in
compliance with applicable zoning laws, if any.
(d) If this Lease is not cancelled, the following shall
apply:
(i) Landlord shall restore the Premises to the
extent practical to render them reasonably suitable for the use
as set forth in Section 5.01.
(ii) The annual rate of Basic Rent shall be
reduced in accordance with the following:
(x) The applicable per square foot annual
rate or rates of Basic Rent shall be reduced by an
amount. The amount by which Basic Rent shall be
reduced shall be the product of the applicable per
square foot annual rate or rates of Basic Rent
multiplied by the number of square feet of the
Building Taken; and
(y) Any reduction in the annual rate of
Basic Rent shall be effective as of the Taking Date.
(iii) For the purposes of this subsection (d),
the floor area of the Building shall be deemed to be 83,764
square feet.
(e) If this Lease is cancelled in accordance with this
section, Rent shall be equitably pro-rated as of the date of
cancellation.
Section 5.15. Insurance Requirements.
Tenant agrees to comply with all of Insurance
Requirements relating to or affecting the Premises. If, as a
result of Tenant's failure to do so or as a result of or in
connection with the use to which the Premises is put by Tenant,
the insurance rates applicable to the Premises shall be
increased, Tenant shall pay to Landlord, on demand, the portion
of the premiums for all insurance policies that shall be
attributable to the increase caused by Tenant. If any such
requirement requires a repair, addition or alteration to the
Premises, Tenant's obligations shall be limited to those portions
of the Premises which Tenant is required to repair in accordance
with Section 5.04.
Section 5.16. Access to Premises, Easement for Pipes.
(a) Landlord and any Mortgagee of the Premises shall each be
entitled to:
(i) inspect the Premises at reasonable times and
upon reasonable notice; and
(ii) access to the Premises for the purpose of
exercising Landlord's rights under this Lease.
(b) Landlord hereby reserves the following rights and
privileges:
(i) an easement for all existing wires, pipes,
lines, conduits and related installations now running in, on,
under or over the Premises to remain in the locations in which
they are situated;
(ii) an easement to install new wires and new
pipes, wires, conduits and related installations in, on, over,
and under the Premises, as long as such new installations do not
unreasonably interfere with Tenant's use of the Premises,
Landlord shall repair any damage caused by the Premises by any
such action. The work shall be performed at reasonable times and
upon reasonable advance notice; and
(iii) a non-exclusive easement for persons and
vehicles to pass over the existing roadways at the Building Lot
to and from the entrance and exitways at the Premises and the
other premises presently owned by Landlord which is adjacent to
the Premises, including but not limited to the right to use all
existing driveways.
(c) Tenant shall not erect any barriers or other
installations which shall interfere with Landlord's rights under
this Section.
(d) In exercising Landlord's rights of entry under
this Section, Landlord shall give Tenant such oral or written
notice as shall be reasonable under the circumstances.
Section 5.17. Signs on the Premises.
Tenant may install signs at the Premises. Tenant's
signs must comply with all applicable legal requirements. Tenant
shall apply for and pay the cost of all permits and approvals
required in connection with Tenant's signs. Landlord shall join
in those applications, if necessary.
ARTICLE VI
UTILITIES
Section 6.01. Electricity.
Landlord is presently supplying electricity service to
the Premises. That service is measured by an existing check meter
or meters. Tenant shall maintain those meters and shall pay to
Landlord the cost of electricity service measured by those
meters. The payment shall be due within ten days after Landlord
renders its bill. The amount of the payment shall be equal to the
amount of consumption during the period in question as measured
by the meter(s) multiplied by a rate which shall not exceed the rate,
including any surcharge or fuel adjustment, which Tenant would
otherwise be obligated to pay to the utility company if
electricity were supplied to the Premises directly by the utility
company. Upon sufficient advance notice, Landlord may elect to
discontinue supplying electricity service to the Premises. If
Landlord does so, Tenant shall be obligated to arrange with the
utility company servicing the Premises for electricity service on
Tenant's account.
Section 6.02. Gas.
Tenant shall arrange with the utility company
servicing the Premises for gas service (if applicable), on
Tenant's account, to be provided to the Premises. If necessary,
Tenant shall install a gas meter or meters. Tenant shall maintain
any meter. Tenant shall pay for all gas service used at the
Premises.
Section 6.03. Water.
Tenant shall arrange with utility company servicing
the Premises for water, on Tenant's account, to be provided to
the Premises. If necessary, Tenant shall install a water meter or
meters. Tenant shall maintain any meter. Tenant shall pay for all
water used at the Premises.
Section 6.04. Frontage of Other Charges.
If any sewer rent, frontage charge or any similar
charge is imposed in connection with Tenant's consumption of
water or usage of the water system or sewerage system servicing
the Premises, Tenant shall promptly pay those charges directly to
the governmental authority or utility company imposing those
charges.
Section 6.05. Heat, Air Conditioning and Hot Water.
(a) Tenant shall pay for its own for heat, air conditioning,
if any, and hot water at the Building.
(b) Tenant agrees to maintain heat at the Building at
all times at a level reasonably estimated by Landlord to keep
waterpipes and sprinklers, if any, in the Building from freezing
and to otherwise prevent damage to the Building.
(c) Tenant shall be permitted to use all existing
utility lines and conduits located within the Premises and
servicing the Building.
ARTICLE VII.
PARKING AREAS AND BUILDING LOT
Section 7.01. Supplementary Parking Area.
The Supplementary Parking Area is a portion of a
parking area located within the premises adjacent to the
Premises. The Supplementary Parking Area is located as shown on
Exhibit A. Landlord shall have the right to relocate the
Supplementary Parking Area from time to time to other locations
within that adjacent Premises. Tenant shall have the right to use
up to 209 exclusive parking places with respect to the Premises.
If the Premises does not contain 209 spaces, then Tenant shall
have the exclusive use of a number of parking places located
within the
Supplementary Parking Area equal to the difference between 209
and the number of parking place located upon the Premises. Tenant
shall also have the right to use 141 non-exclusive parking places
within the Supplementary Parking Area. Tenant shall have 24 hour
access to the Supplemental Parking Area.
Section 7.02. Maintenance of Building Lot.
Tenant shall maintain, repair and clean the Building
Lot in order to keep the Building Lot in good order and repair
throughout the Term.
Section 7.03. Supplementary Parking Area Contributions.
(a) Tenant shall pay to Landlord within 30 days after
Landlord renders a bill therefor, Tenant's share of the
reasonable costs incurred by Landlord in operating, repairing and
maintaining the Supplementary Parking Area, including the cost of
cleaning, real estate taxes, patching, striping, lighting, and
snow removal. Except for repaving, Tenant shall not be obligated
to contribute towards the cost of improvements of a capital
nature. Tenant's share of the cost shall be in proportion to a
fraction. The numerator of the fraction shall be the number of
spaces, exclusive and non-exclusive, which Tenant has the right
to use at the Supplementary Parking Area. The denominator of the
fraction shall be the number of parking places located within the
Supplementary Parking Area which Tenant and other tenants at the
premises adjacent to the Premises have the right to use. Landlord
shall render no more than 12 bills each year.
(b) Landlord shall maintain records of the expenses
incurred by Landlord with respect to the Supplementary Parking
Area. The records shall be kept at Landlord's principal office.
Upon reasonable notice, from time to time, Tenant shall have the
right to inspect and audit those records. The records shall be
maintained until the first anniversary of the date Landlord
renders a bill with respect to those expenses.
(c) Landlord's failure to render a bill for any period
occurring during the Term shall not be construed as a waiver of
Landlord's right to any payment due under this Section.
(d) Tenant shall only be required to bear its share of
those expenses incurred during the Term. This provision and
Tenant's liability under this Section shall survive the
expiration or termination of this Lease.
(e) Landlord agrees to repair and maintain the
Supplementary Parking Area in a reasonable manner and to commence
to remove snow from it within a reasonable time after the end of
a snow fall.
ARTICLE VIII
INTERESTS IN THE PREMISES
AND TRANSFER OF INTEREST
Section 8.01. Assignment of Tenant's Interest.
(a) Tenant shall not assign its leasehold interest
under this Lease or sublet all or any part of the Premises
without Landlord's prior written consent. Subject to Landlord's
rights under subsection 8.01(b), Landlord's consent to an
assignment of this Lease or a subletting of the entire Premises
shall not be unreasonably withheld. No assignment or subletting
shall relieve Tenant of any obligations under this Lease. A
transfer of a controlling interest in Tenant's stock shall be
regarded as an assignment in the context of this Section 8.01.
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(b) (i) Prior to listing the Premises with a broker,
offering the Premises to others, or advertising the availability
of the Premises, Tenant agrees to notify Landlord if Tenant
desires to assign this Lease or sublet the entire Premises to any
party other than a party referred to in subsection 8.01(e).
(ii) If Tenant shall seek to assign this Lease or
sublet the whole of the Premises to an unaffiliated party, Tenant
shall notify Landlord of the identity of the proposed assignee or
sublessee and deliver to Landlord an executed counterpart of the
assignment agreement or sublease. Upon receipt by Landlord of
Tenant's notice given in accordance with this part (ii), Landlord
shall have the option to terminate this Lease. Landlord may
exercise its option to terminate this Lease by giving Tenant
written notice not later than sixty days after receipt of that
notice. If Landlord shall exercise its option to terminate this
Lease, the Lease shall terminate on the date rent under the
proposed sublease shall be scheduled to commence or the
effective date of the assignment. Any sublease or assignment
shall be entered into expressly subject to Landlord's rights
under this part (ii).
(iii) Upon termination, Landlord shall be
relieved of all obligations or liabilities set forth in this
Lease, except for accrued liabilities and except for those
liabilities which specifically are to survive a termination or
cancellation of this Lease. Upon termination and surrender of
possession of the Premises in accordance with Section 5.07,
Tenant shall be relieved of all obligations or liabilities set
forth in this Lease, except for accrued liabilities and except
for those liabilities which specifically are to survive a
termination or cancellation of this Lease.
(c) An assignment of Tenant's leasehold interest shall
not be effective unless and until assignor shall give notice of
the assignment to Landlord and the assignee assumes all of
Tenant's obligations under this Lease. A sublease shall not be
effective unless and until Tenant shall deliver to Landlord an
originally executed counterpart of the sublease agreement.
(d) The provisions of this Section shall apply to
Tenant, its sublessees, successors or assigns.
(e) Landlord hereby consents that Tenant may assign
this Lease or sublet the entire Premises to Tenant's parent, any
subsidiary or affiliate of Tenant, to any corporation which
merges with Tenant or to any party which purchases all or a
substantial portion of the assets or stock of Tenant. The
provisions of subsection 8.01(b) shall not apply to any such
assignment or subletting.
Section 8.02. Estoppel Certificates.
(a) Within ten days after request therefor, either
party shall deliver an Estoppel Certificate to the other party.
(b) An Estoppel Certificate shall set forth the
following statements to the best of the knowledge of the party
certifying:
(i) that this Lease has not been supplemented or
amended; or if it is alleged that this Lease shall have been
supplemented or amended, the manner in which it has been
supplemented or amended shall be specified;
(ii) that this Lease is not in full force and
effect, or if it is alleged that this Lease is not in full force
and effect, the reasons for the allegations shall be specified;
(iii) the date to which Basic Rent and Additional
Rent have been paid; and
(iv) that there exists no condition which
constitutes an Event of Default; or if it is alleged that such
condition exists, the nature of the condition shall be specified.
(c) An Estoppel Certificate may be relied upon by the
party requesting it or any other person to whom the Estoppel
Certificate may be exhibited or delivered. The contents of each
Estoppel Certificate shall be binding on the party which executed
it.
Section 8.03. Subordination.
(a) Tenant shall subordinate the lien of this Lease to
each Mortgage or Master Lease which may encumber the Premises
from time to time, and Tenant hereby agrees to attorn to any
Mortgagee or Master Lessor upon the request of either.
(b) (i) "Mortgage" means: any mortgage, deed of
trust or deed to secure debt which encumbers all or part of the
Premises, any modification, consolidation or extension of any
of the foregoing instruments; and any spreading agreements.
(ii) "Mortgagee" means: the holder of a Mortgage.
(iii) "Master Lease" means a lease of the
Premises or a lease of the ground underlying the Premises between
the owner thereof, as lessor, and Landlord, as lessee, giving
rise to Landlord's rights and privileges in the Premises or the
underlying land as the case may be.
(iv) "Master Lessor" means: the owner from time to
time of the lessor's interest under a Master Lease.
(c) Notwithstanding the provisions of subsection
8.03.(a), this Lease shall not be subordinate to any Master Lease
or Mortgage, unless the Master Lessor or Mortgagee shall agree in
writing to the effect that this Lease and Tenant's rights under
it in the event of a termination of the Master Lease or a
foreclosure of the Mortgage, respectively shall not be
terminated.
(d) If the agreements referred to in subsection
8.03(c) are not executed by the existing Mortgagee and Master
Lessor within 60 days after fully executed counterparts of this
Lease are exchanged by Landlord and Tenant then, Tenant shall
have the right to cancel this Lease by notifying Landlord within
ten days following that 60 day period. Tenant's sole remedy for
the failure of a Mortgagee of Master Lessor to execute such an
agreement shall be the right to cancel this Lease. If Tenant
elects to cancel this Lease, both parties shall be relieved of
all further liability under it.
Section 8.04. Transfer of Landlord's Interest.
(a) The following shall apply if Landlord's interest in
the Premises is a leasehold interest: "Landlord" means: the
owner of the Premises or the Mortgagee in possession of the
Premises for the time being. Each time the Premises is sold, the
Seller shall be entirely relieved of all obligations and
liability as Landlord under this Lease, accruing after the date
of the transfer. If a person who owns the Premises leases its
reversionary interest in the Premises to another person subject
to the lien of this Lease, the lessor shall be relieved of all of
its liability as Landlord under this Lease, accruing after the
date of the transfer.
(b) The following shall apply if the Landlord's interest in
the Premises is a leasehold interest: "Landlord" means: only the
owner of the leasehold estate in the Premises under a lease of
the reversionary interest in the Premises. Each time that
leasehold interest is assigned, the assignor shall be entirely
relieved of any obligations or liability under this Lease,
accruing after the date of the transfer. If the owner of the
leasehold estate also becomes the owner of the fee interest,
subsection (a) of this Section 8.04 shall apply instead of this
subsection.
Section 8.05. Brokerage.
Tenant represents that there was no broker or other
party, instrumental in consummating this Lease and no
conversations or prior negotiations were had with any broker or
other party concerning the renting of the Premises. Tenant agrees
to hold Landlord harmless against any claims for brokerage
commission or compensation arising out of any conversation or
negotiation had by Tenant with any broker or other party.
Section 8.06. Financial Statements.
On or before June 1st of each year, Tenant shall
deliver a complete financial statement of Tenant for Tenant's
fiscal year ending immediately prior to that June 1st. The
statement shall be certified as correct by an independent
certified public accountant.
Section 8.07. Landlord's Representation.
Landlord hereby represents as follows:
(i) Landlord is the holder of a leasehold estate
in the Premises and premises adjacent to the Premises.
(ii) Landlord's leasehold estate extends beyond
the Expiration Date of this Lease.
(iii) The Premises is encumbered by a Mortgage
granted to John Hancock Life Insurance Company to insure a debt
having an initial principal amount of $5,500,000.00.
(iv) No other Mortgage encumbers the Premises.
(v) Annexed as Exhibit C is a photocopy of a
title policy issued as of August 15, 1973.
(vi) The unrecorded sidetrack agreement referred
to in the deed recorded in Book 4036, Page 580 does not
materially adversely offset Tenant's use of the Premises and
shall not require Tenant to pay for the use of it (unless
Landlord shall hereafter permit Tenant to use it).
(vii) There have been no changes in the state of
title to the Premises or state of facts shown on the survey dated
March 5, 1973 by John A. Doolittle & Co. since August 15, 1973 which
would materially adversely affect Tenant's use of the Premises.
Tenant agrees to order a title report for the Premises
If the title report shall reveal any condition or title defect
which renders Landlord's representation set forth in part (vi)
incorrect, Tenant's sole remedy shall be to cancel this Lease by
giving notice to Landlord within 45 days after the date of this
Lease. Tenant's notice must set forth the contended defect.
ARTICLE IX
DEFAULTS, DISPUTES AND REMEDIES
Section 9.01 Events of Default of Tenant.
(a) Each of the following events shall constitute an
"Event of Default" by Tenant under this Lease:
(i) If Tenant fails to pay any Rent when due, and
Tenant does not cure the failure within ten days after Landlord
shall have given notice to Tenant of such failure.
(ii) If Tenant fails to comply with any of its
other obligations of this Lease, and Tenant does not cure the
failure within twenty days after Landlord shall have given notice
to Tenant of such failure. However, if the obligations is of such
a nature that it can not be performed within that twenty day
period, Tenant shall not be deemed to be in default if Tenant
commences to perform the obligations within that twenty day
period and diligently prosecutes the performance to completion.
Section 9.02. Rights and Remedies Upon Default.
If an Event of Default occurs with respect to Tenant,
Landlord shall be entitled to take any action it deems advisable,
from time to time, under any one or more of the provision of this
Section 9.02 or Section 9.03.
(a) Landlord may proceed as it deems advisable, at law
or in equity, to enforce the provisions of this Lease.
(b) Landlord may notify Tenant that this Lease shall
terminate on a date specified in the notice, and this Lease shall
terminate on the date so specified. Notwithstanding such
termination, Tenant's liability under this Lease shall survive.
(c) Landlord may reenter the Premises and may
repossess the Premises by summary proceedings, ejectment or
otherwise. Landlord may dispossess Tenant and may remove Tenant
from the Premises without further notice to Tenant.
Notwithstanding any such repossession, re-entry or ejectment,
Tenant's liability under this Lease shall survive.
(d) Landlord may relet the Premises as a whole or in
part and for such term and extensions as Landlord determines. The
term and extensions may be greater or less than the period which
would have constituted the balance of the Term if this Lease had
not been terminated.
(d) Tenant shall pay the following amounts to
Landlord, as liquidated and agreed current damages, on each date
when an installment of Rent would have been payable if this Lease
had not been terminated:
(i) The installment of Rent which would have been
payable on that date, minus the rent (if any) received by
Landlord with respect to the reletting of the Premises during the
period with respect to which such installment of Rent would have
been payable, plus
(ii) All amounts paid by Landlord during such
period representing (x) other charges that would have been
payable by Tenant if this Lease had not been terminated; and (y)
Landlord's out-of-pocket expenses of reentering, repossessing and
reletting the Premises including attorneys' reasonable fees and
disbursements, commissions of brokers, fees of architects and
engineers in connection with any renovation or alteration, and
the cost of painting, altering or dividing the Premises.
(f) (i) At Landlord's option, Tenant shall pay
liquidated and agreed final damages to Landlord in the amounts
set forth as follows: liquidated and agreed final damages shall
be all Basic Rent and a reasonable estimate of Additional Rent
payable by Tenant under this Lease, for the balance of what would
have been the Term had Landlord not exercised its option under
subsection (b), discounted at present worth at the annual rate
of ten percent minus the fair rental value of the Premises for
the same period discounted to present worth at the same rate.
(ii) If Landlord exercises its option under part
(i) and Tenant pays the amount required to be paid under part
(i), Tenant shall be discharged from all obligations under this
Lease except for any obligations which shall have accrued prior
to the date of the termination under subsection (b).
(g) If this Lease is cancelled pursuant to this Article
IX, or if the Premises is repossessed pursuant to this Article
IX, Tenant waives any right of redemption, reentry or
repossession and any right to a trial by jury in the event of
summary proceedings.
Section 9.03. Landlord's Right to Cure Potential Defaults.
If Tenant shall fail to perform any of its obligations
under this Lease, after notice which is reasonable under the
circumstances is given to Tenant, Landlord shall have the right
to perform the obligation for the account and at the expense of
Tenant whether or not an Event of Default shall have occurred. In
connection therewith, Landlord may pay any reasonable expenses
necessary for such performance. If Tenant fails or refuses to
reimburse Landlord for the expenses, any fees of attorneys or
other professionals incurred in connection with such performance,
and interest at the highest rate legally allowable under the
circumstances, that amount shall be added to the next
installment of Basic Rent.
Section 9.04. Exculpation.
Landlord shall have absolutely no personal liability
with respect to any provision, of this Lease. In case Landlord
shall be a joint venture, partnership, tenancy in common,
association or other type of joint ownership, the members of the
venture, partnership, association or other form of joint
ownership shall have absolutely no personal liability with
respect to any provision of this Lease. If Tenant shall contend
that Landlord shall have any liability to Tenant, Tenant shall
look solely to the equity of the owner of the Premises at the
time the liability arose for the satisfaction of any remedies of
Tenant. If Landlord's interest is a leasehold interest, Tenant
shall look solely to the leasehold interest for the satisfaction
of any remedies. This exculpation of liability shall be absolute
and without exception.
Section 9.05. Waiver of Right of Redemption.
Tenant hereby expressly waives (to the extent legally
permissible), for itself and for all persons claiming by,
through, or under it, any right of redemption or for the
restoration of the operation of this Lease under any present or
future law in case Tenant shall be dispossessed for any cause, or
in case Landlord shall obtain possession of the Premises as
provided for in this Lease.
Section 9.06. Waiver of Trial By Jury.
Tenant hereby waive all right to trial by jury in any
claim, action, proceeding or counterclaim by Landlord against
Tenant on any matters arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant, or Tenant's
use or occupancy of the Premises.
ARTICLE X
INTERPRETATION AND NOTICE
Section 10.01. Interpretation.
Captions and headings used in this Lease are for
reference only. They shall not affect the interpretation of any
portion of this Lease. The use of the word "it" or "its" in
reference to a party shall be a proper reference even if that
party is a partnership, an individual or two or more individuals.
A provision that requires a party to perform an action shall be
construed as requiring the party to perform the action or to
cause the action to be performed, at that party's sole cost and
expense except when expressly provided to the contrary. A
provision that prohibits a party from performing an action shall
be construed as prohibiting such party from performing the action
and requiring the party to take all practical and legal steps to
prevent others from performing the action. "Including" means:
"including but not limited to". "Repair" includes the words
"replacement and restoration", "replacement or restoration",
"replace and restore", "replace or restore", as the case may be.
The singular includes the plural; the plural includes the
singular. "Any" means: "any and all". The term "reentry" shall
not be restricted to its technical legal meaning. If any
provision of this Lease shall be held to be invalid or
unenforceable to any extent, the remainder of this Lease shall
not be affected, and each provision of this Lease shall be valid
and shall be enforced to the fullest extent permitted by Law.
Section 10.02. Communications.
(a) Notices, requests, consents, approvals and other
communications under this Lease shall be effective only if in
writing, if mailed by registered or certified mail, return
receipt requested, postage prepaid, and if properly addressed.
(b) Communications shall be properly addressed only
if addressed as follows:
(i) if intended for Landlord, the communication
shall be addressed as set forth on page 1, Attention: Real Estate
Department, or such other address as Landlord designates by
giving notice thereof to Tenant, with a copy thereof to Zissu
Berman Halper Barron & Gumbinger, 450 Park Avenue, New York, New
York 10022.
(ii) if intended for Tenant, the communication
shall be addressed as set forth on page 1, Attention: Vice
President, Finance or to such other address as Tenant designates
by giving notice thereto to Landlord with a copy thereof to
Rosenman Colin Freund Lewis & Cohen, 575 Madison Avenue, New
York, New York 10022.
(c) All notices shall be effective when received.
Section 10.03. Covenant of Quiet Enjoyment.
Landlord covenants that if Tenant pays the rent and
all other charges provided for in this Lease, performs all of its
other obligations, and observes all of the other provisions of
this Lease, Tenant shall at all times during the Term peaceably
and quietly have, hold and enjoy the Premises, without any
interruption or disturbance from Landlord, subject to the terms
of this Lease.
Section 10.04. Heirs, Successors and Assigns. This
Lease may not be changed or cancelled orally. This Lease shall be
binding upon the heirs, executors, administrators, personal
representatives, assigns and successors of the parties hereto.
Section 10.05. Counterparts and Exhibits. All exhibits
attached to this Lease are intended to be part of this Lease.
More than one counterpart of this Lease has been executed, but
each such counterpart shall constitute but one and the same
instrument.
Section 10.06. Execution. Notwithstanding anything to
the contrary, this Lease shall not be in force and effect and
shall not be binding upon any party unless and until actual and
complete counterparts of this Lease are properly executed by
Landlord and Tenant or by their respective duly authorized
officers, and such fully executed counterparts are exchanged by,
or delivered to each party.
Section 10.07. Com????????.
(a) Notices, requests, consents, approvals and other
communications ??? this Lease shall be effective only if in
writing, if mailed by registered or certified mail, return
receipt requested, postage prepaid, and if properly addressed.
(b) ??????? shall be ???????? addressed only if
???????? ?????? ?????????.
To signify its agreement to this instrument, Landlord
and Tenant have each caused this instrument to be executed and
attested to by their respective duly authorized officers.
ATTEST: LANDLORD:
VORNADO, INC.
/s/ Thomas Seiler By: /s/ Frederick Zissu
- ---------------------------- -------------------------
THOMAS SEILER FREDERICK ZISSU
SECRETARY CHAIRMAN OF THE BOARD
ATTEST: TENANT:
POPULAR SERVICES, INC.
By: /s/ James D. Rose
- ---------------------------- -------------------------
Assistant Secretary Vice President
AGREEMENT OF SUBLEASE
between
REVLON HOLDINGS INC. a Delaware Corporation, as Sublessor
and
POPULAR CLUB PLAN, INC. a New Jersey Corporation, as Sublessee
Dated: November 4, 1993
GREENBAUM, ROWE, SMITH, RAVIN & DAVIS
Metro Corporate Campus One
P.O. Box 5600
Woodbridge, New Jersey 07095-0988
TABLE OF CONTENTS
ARTICLE I....................................................... 1
Demise, Premises and Terms of Prime Lease................. 1
Section 1.1 Demise and Premises....................... 1
Section 1.2. The Prime Lease........................... 1
ARTICLE II...................................................... 3
Term, Commencement, Right of Renewal...................... 3
Section 2.1 Term and Commencement for IDP............. 3
Section 2.2 Occupancy Prior to Commencement........... 4
Section 2.3 Pro-Rata Rent During Pre-Commencement
Occupancy................................. 4
Section 2.4 Right of Renewal.......................... 4
Section 2.5 Certain Provisions Applicable to
All Extensions of the Sublease............ 5
ARTICLE III..................................................... 5
Expansion Options of Sublessee............................ 5
Section 3.1 Expansion #1 Option....................... 5
Section 3.2 Expansion #2 Option....................... 6
Section 3.3 Sublessor Cooperation..................... 7
Section 3.4 When Construction Funded and Performed
By Sublessee.............................. 7
Section 3.5 Funding of Construction
Costs by Sublessor-Procedure.............. 7
Section 3.6 Covenants of General
Application for Expansions................13
ARTICLE IV......................................................13
Covenants.................................................13
Section 4.1 Covenants Regarding
Condition of Demised Premises
and other Matters.........................14
ARTICLE V.......................................................14
Rent and Payment..........................................14
Section 5.1 Basic Rent During the Period
February 1, 1994 to
January 31, 1999..........................14
Section 5.2 Basic Rent For The IDP
During the Period February 1,
1999 to April 30, 2004....................14
Section 5.3 Basic Rent Concession.....................14
Section 5.4 Payment of Rent...........................15
Section 5.5 Additional Rent...........................15
Section 5.6 Basic Rent For the Balance of the Term....15
Section 5.7 Rent for Expansion #1 Space...............15
Section 5.8 Determination of the
Notice Date Interest Rate.................16
Section 5.9 Determination of the Completion Date
Interest Rate.............................16
Section 5.10 Rental for Expansion #1 Space
Following the Ten Year Expansion #1
Rent Period...............................16
Section 5.11 Rental for Expansion Space if
Sublessee Pays Construction Costs.........16
Section 5.12 Timing of Completion of Expansion
#1 Space..................................16
Section 5.13 Calculation of Aggregate Construction
Cost of Expansion #1......................17
Section 5.14 Sublessee to Complete Construction
Work and Use of CBA.......................17
Section 5.15 Overcharge or Deficiency in Completion
Budget Amount.............................17
ARTICLE VI......................................................17
Construction Or Other Work................................17
Section 6.1 Conditions As To Construction Work,
Expansion Space, and as to Repairs,
Alterations, Replacements or Other Work...17
ARTICLE VII.....................................................19
Mechanic's Liens..........................................19
Section 7.1 Mechanic's Liens Prohibited...............19
Section 7.2 Sublessor's Remedy for Sublessee's
Breach....................................19
Section 7.3 Non-Consent of Sublessor to Filing
of Liens..................................19
ARTICLE VIII....................................................19
Notices...................................................19
Section 8.1 Notices...................................19
ARTICLE IX......................................................20
Memorandum of Sublease....................................20
Section 9.1 Memorandum of Sublease....................20
ARTICLE X.......................................................20
Use.......................................................20
Section 10.1 Use.......................................20
ARTICLE XI......................................................20
Defaults and Remedies.....................................20
Section 11.1 Sublessee's Defaults......................20
Section 11.2 Sublessor's Remedies......................21
Section 11.3 Sublessor's Damages.......................22
Section 11.4 Waiver of Redemption......................22
Section 11.5 Provisions of Prime Lease as to
Defaults and Remedies Cumulative
with the Provisions of Sublease...........22
ARTICLE XII.....................................................22
General Provisions........................................22
Section 12.1 No Waste..................................22
Section 12.2 Limitation of Sublessor's Liability.......22
Section 12.3 Partial Invalidity........................23
Section 12.4 No Waiver.................................23
Section 12.5 Number and Gender.........................23
Section 12.6 Successors and Assigns....................23
Section 12.7 Article and Marginal Headings.............23
Section 12.8 Entire Agreement..........................23
Section 12.9 Obligations also Covenants................23
Section 12.10 Cost of Performing Obligations............23
Section 12.11 Remedies Cumulative.......................23
Section 12.12 Holding Over..............................23
Section 12.13 Signs.....................................24
Section 12.14 Property Insurance-Special Provision......24
Section 12.15 Brokerage.................................24
Section 12.16 Notice by Sublessee to Mortgagee..........24
Section 12.17 Sublessee Electric........................24
Section 12.18 Conduct of Sublessee's Work...............24
Section 12.19 Interest and Late Payment
Service Charge............................25
Section 12.20 Definitions...............................25
Section 12.21 Governing Law.............................28
ARTICLE XIII....................................................28
Assignment, Subletting, Etc...............................28
Section 13.1 Assignment, Subletting, Etc...............28
ii
ARTICLE XIV.....................................................29
Compliance with Laws, Rules and Regulations...............29
Section 14.1 Environmental Compliance..................29
EXHIBITS
Site Plan..................................................A
Legal Description..........................................B
Prime Lease................................................C
Schedule of Basic Rent.....................................D
Preliminary Expansion #1 Plans.............................E
Construction Criteria for Expansion #1 and Expansion #2....F
Sublessee Demolition Plan..................................G
iii
THIS Sublease, dated the 4th day of November, 1993,
between REVLON HOLDINGS INC. (formerly known as Revlon, Inc.), a
corporation of the State of Delaware, having an office at 625
Madison Avenue, New York, New York 10022 (hereinafter designated
as "Sublessor"), and POPULAR CLUB PLAN, INC., a corporation of
the State of New Jersey, having an office at 22 Lincoln Place,
Garfield, New Jersey 07026 ("Sublessee").
W I T N E S S E T H:
ARTICLE I
Demise, Premises and Terms of Prime Lease
Section 1.1 Demise and Premises. Sublessor does hereby
demise and lease to Sublessee and Sublessee does hereby take and
hire from Sublessor all that certain tract or parcel of land,
including the building and improvements erected thereon,
consisting of 369,313 gross rentable square feet (hereinafter
designated as the "Building") as provided herein, situate, lying
and being in the Township of Edison, Middlesex County, New
Jersey, commonly known as 1 Truman Drive, Edison, New Jersey and
shown on the plot plan designated Exhibit A, annexed hereto and
made a part hereof. The lands aforesaid being more particularly
described in Exhibit B annexed hereto and made a part hereof,
together with the rights and privileges, fixtures and equipment
therein and the easements, improvements, tenements, hereditaments
and appurtenances now or hereafter belonging or pertaining
thereto (all referred to hereinafter as the "Demised Premises" or
the "Premises"). The land and improvements demised hereunder
exclusive of any expansion are herein referred to as the Initial
Demised Premises (the "IDP"). If the Sublessor Funded Expansion
#1 Term, Sublessee Funded Expansion #1 Term, and/or Expansion #2
Term, as hereinafter defined, commences, then "Demised Premises"
or "Premises" shall thereafter be deemed to refer to the IDP as
well as the Expansion #1 Space and/or Expansion #2 Space, as
hereinafter defined in Article III. The Sublessee shall have
possession of the Premises for the term and at the rents as
herein provided, subject to the terms, covenants and conditions
herein contained which each of the parties hereto expressly
covenants and agrees to keep, perform and observe.
Section 1.2 The Prime Lease
(a) Except as otherwise expressly provided herein or
in a certain TriParty Agreement among the parties hereto and the
Prime Landlord ("Tri-Party Agreement") incorporated herein by
reference, all of the terms of that certain Lease Agreement dated
as of June 21, 1989 (the "Prime Lease") between SJDH Truman Drive
Trust (the "Prime Landlord") and Revlon, Inc. (the "Prime
Tenant") as they pertain to the Premises are hereby incorporated
into and made a part of this Sublease as if stated at length
herein, and Sublessee accepts this Sublease subject to, and
hereby agrees to be bound by all of the terms, covenants.
conditions and agreements contained in the Prime Lease to be
performed by Sublessor thereunder with respect to the Premises.
The Sublessor is the Prime Tenant under the Prime Lease. The
Sublessor's interest in the Prime Lease was assigned by Sublessor
to Revlon Consumer Products Corporation ("RCPC") by instrument of
assignment dated June 24, 1992 pursuant to which assignment
Sublessor remained primarily and directly liable under the Prime
Lease; the name of Revlon, Inc. was changed by a Certificate of
Amendment to the Certificate of Incorporation dated June 24, 1992
to Revlon Holdings Inc. By Reassignment and Release Agreement of
even date herewith, RCPC has reassigned to Sublessor all of the
tenant's right, title and interest and obligations under the
Prime Lease and RCPC is released from all obligations and
liabilities under the Prime Lease.
(b) Sublessor has heretofore provided Sublessee with a
true and accurate copy of the Prime Lease, a copy of which is
attached hereto as Exhibit C, which Prime Lease, as provided to
Sublessee, has not since been modified or amended, except as
provided in the Tri-
Party Agreement, and there is no other agreement or
understanding, other than the Tri-Party Agreement, to which
either Sublessor or Prime Landlord is a party varying the
provisions of the Prime Lease or otherwise affecting Sublessee's
rights or obligations under this Sublease. Sublessor further
represents that, as of the date of execution hereof, Sublessor
knows of no default and has not given notice to Prime Landlord of
any default and has not received any written notice of default
under the Prime Lease and the Prime Lease is in full force and
effect.
(c) Sublessee acknowledges that it has read and
examined the Prime Lease and is fully familiar with all of the
provisions thereof on the Prime Tenant's part to be performed,
and, subject to the express provisions of this Sublease, those
provisions applying to the Prime Landlord therein shall apply to
Sublessor and those applying to Prime Tenant therein shall apply
to Sublessee except that the following articles, portions and
provisions of the Prime Lease shall not be deemed a part of this
Sublease: the preface and paragraphs 2, 3, 5, 13 and 42. The
parties intend and agree that the payment of Basic Rent and
Additional Rent shall be absolutely net to the Sublessor and that
the Sublessee shall assume responsibility for any charge, cost or
expense relative to the Demised Premises during the Term, as the
same may be extended or renewed. Sublessee's obligation shall
include responsibility for all obligations for which Sublessor
may be liable under the Prime Lease except as may be expressly
provided in this Sublease.
(d) The parties hereto agree that subject to the
provisions of this Sublease, wherever the words "Demised
Premises" or words of similar import appear in the Prime Lease,
the same shall be deemed to mean the Premises subject to this
Sublease and wherever the words "Landlord" and "Tenant" appear in
the Prime Lease, the words shall be deemed to refer to Sublessor
and Sublessee respectively, so that, subject to the provisions of
this Sublease and the Tri-Party Agreement, Sublessor shall have
the rights and powers of Prime Landlord under the Prime Lease,
and Sublessee shall have and does hereby agree to be bound by and
accepts all the rights, powers, duties and obligations of the
Prime Tenant under the Prime Lease provided, however, that
notwithstanding the foregoing, Sublessor shall have no obligation
to perform or furnish any of the work, services, repairs or
maintenance undertaken to be made by Prime Landlord under the
Prime Lease, or any other term, covenant or condition required to
be performed by Prime Landlord under the Prime Lease. As provided
in Article 6 of the Prime Lease, Sublessee expressly assumes the
entire responsibility for maintenance and repair of the Demised
Premises.
(e) To the extent applicable to the Premises,
Sublessee shall have the benefit of each and every covenant and
agreement made by Prime Landlord to Sublessor under the Prime
Lease. In the event that Prime Landlord shall fail or refuse to
comply with any of the respective provisions of the Prime Lease,
Sublessor shall have no liability on account of any such failure
or refusal, provided that the Sublessee shall have the right to
exercise in the name of the Sublessor all the rights to enforce
compliance on the part of Prime Landlord as are available to the
Sublessor with respect to the Premises. Sublessor hereby agrees
to cooperate with and execute, all instruments and supply
information reasonably required by Sublessee in order to enforce
such compliance. Sublessee hereby agrees to indemnify and hold
Sublessor harmless of and from any and all damages, liabilities,
obligations, costs, losses, demands, expenses and injuries,
including reasonable attorneys' fees and expenses which may be
incurred by Sublessor in or as a result of such cooperation and
execution.
(f) In the event Sublessee shall default in the full
performance of any of the terms, covenants and conditions on its
part to be performed under this Sublease, then Sublessor shall
have, without limitation, all of those rights and remedies as
against the Sublessee as are held by the Prime Landlord under the
Prime Lease with respect to defaults by the Prime Tenant.
Notwithstanding the foregoing, this Sublease is separate from and
subordinate to the Prime Lease.
(g) If Sublessor shall default in the payment of any
rent due under the Prime Lease, Prime Landlord is hereby
authorized to collect any rents due or accruing under the
Sublease directly from the Sublessee and to apply the net amounts
so collected to the fixed annual rent and additional rent
reserved under the Prime Lease, and Sublessee shall be entitled
to apply the net amount so paid to the Prime Landlord to the
Basic Rent and/or the Expansion Rent as the case may be and
Additional Rent as such term is hereinafter defined which may be
due
2
hereunder. The receipt by Prime Landlord of any amounts from
Sublessee shall not be deemed or construed as releasing Sublessor
from its obligations under the Prime Lease or the acceptance of
Sublessee as a direct tenant.
(h) Sublessee shall not do or suffer or permit
anything to be done which would cause the Prime Lease to be
terminated or forfeited by virtue of any rights of termination or
forfeiture reserved or vested in Prime Landlord. If Sublessee
shall default in the performance of any of its obligations under
this Sublease or under the Prime Lease as incorporated by
reference pursuant to Section 1.2(a), after notice and the
opportunity to cure, Sublessor, without being under any
obligation to do so and without thereby waiving such default, may
remedy such default for the account and at the expense of
Sublessee. If Sublessor makes any expenditures or incurs any
obligation for the payment of money in connection therewith, such
sums paid or obligations incurred shall be deemed to be
Additional Rent hereunder and shall be paid to Sublessor by
Sublessee on demand together with interest at the Sublease
Interest Rate as such term is defined in Paragraph 12.20(av),
from the period that the funds are due until received by
Sublessor.
(i) Sublessor agrees that it shall not through action
or inaction cause a termination of the Prime Lease.
ARTICLE II
Term, Commencement, Right of Renewal
Section 2.1 Term and Commencement for IDP.
(a) Term. The term of this Sublease for the IDP is ten
(10) years and three (3) months plus the fractional month, if
any, referred to herein (the "Initial Term"). The Initial Term
shall commence on February 1, 1994 (the "Commencement Date"), and
shall terminate at 5:00 p.m. on the 30th day of April, 2004.
Notwithstanding the intention that the Commencement Date shall be
February 1, 1994, if due to circumstances not foreseen at the
time of execution hereof the Commencement Date is not the first
day of a calendar month (the period between the Commencement Date
and the end of the month in which it falls being herein called
"Fractional Month"), this Sublease shall terminate on the last
day of the third month after the tenth anniversary of the
Commencement Date.
(b) Modification of the Initial Term Upon Expansion.
Following exercise by Sublessee of the Expansion #1 Option,
and/or Expansion #2 Option, as such term(s) are hereinafter
defined and more particularly set forth in Article III below, (i)
in the event Sublessor pays Construction Costs for the Expansion
#1 Space, as such term is hereinafter defined, then on the date
of the earlier of (a) the issuance of a temporary or permanent
certificate of occupancy for the Expansion #1 Space, or (b) one
year from the date notice is received by Sublessor that Sublessee
has exercised its Expansion #1 Option, such earlier date being
defined herein as ("the #1 Measuring Date"), the Initial Term
shall thereupon be modified, and shall provide by virtue hereof a
ten year combined term from the said #1 Measuring Date for the
combined Demised Premises of the IDP and the Expansion #1 Space,
which combined term shall expire on the tenth anniversary of the
#1 Measuring Date, the said ten year term is hereinafter referred
to as the "Sublessor Funded Expansion #1 Term"; (ii) in the event
Sublessee elects to pay the Construction Costs for the Expansion
#1 Space, the Initial Term shall be modified and shall provide by
virtue hereof for a 17-year combined term from said #1 Measuring
Date for the combined Demised Premises of the IDP and the
Expansion #1 Space subject to a limit of duration upon such
tenancy as will not extend beyond April 30, 2019 (the "Sublessee
Funded Expansion #1 Term"); (iii) on the date of the earlier of
(a) the issuance of a temporary or permanent certificate of
occupancy for the Expansion #2 Space, or (b) one year from the
date notice is received by Sublessor that Sublessee has exercised
its option to construct Expansion #2, such earlier date being
defined herein as (the "#2 Measuring Date"); the Initial Term or
the Sublessor Funded Expansion #1 Term or the Sublessee Funded
Expansion #1 Term, as the case may be, shall be deemed modified
and shall provide by virtue hereof a 15-year combined Term from
said #2 Measuring Date for the combined Demised Premises of the
IDP, the Expansion #1 Space and the Expansion #2 Space, as the
case may be. which combined term shall expire on the
3
15th anniversary of the #2 Measuring Date subject to a limit as
to duration thereof which shall not extend beyond April 30, 2019.
The said term is hereinafter referred to as the "Expansion #2
Term".
(c) Term After Expansion(s). Upon modification of the
Initial Term as provided in subsection (b) immediately above,
reference to term shall relate to the combined Demised Premises
and shall mean the modified combined term commencing on the #1
Measuring Date or #2 Measuring Date, and thereafter the Demised
Premises consisting of the IDP and the Expansion #1 Space and/or
the Expansion #2 Space, as the case may be, shall be inseparable,
and as combined, shall become the Demised Premises, although the
aggregate rental shall then have two components, Basic Rent and
Expansion Rent provided that Expansion Rent shall only be paid if
the Sublessor funds the Construction Work of Expansion Space #1.
In the event Sublessee funds the Construction Work of Expansion
Space #1, no Expansion Rent shall be paid by the Sublessee for
Expansion #1 Space during the Sublessee Funded Expansion #1 Term.
Basic Rent for the IDP shall either be at a fixed rate per square
foot or shall be established by determination of Fair Market
Rent, hereinafter defined, determined as more particularly
provided in Exhibit D and described in Article V hereof and keyed
to fixed calendar dates set forth on such Exhibit D regardless of
the date of the commencement of the modified terms.
Section 2.2 Occupancy Prior to Commencement. Subject
to all provisions of this Sublease relating to occupancy prior to
the Commencement Date, Sublessee shall have the right to occupy
and use the IDP prior to the commencement of the Initial Term,
but not prior to November 1, 1993 (the "Initial Occupancy Date"),
provided that the Demised Premises can then, under applicable
law, be legally occupied and used for the uses described in
Article X below.
Section 2.3 Pro-Rata Rent During Pre-Commencement
Occupancy. If Sublessee occupies the Demised Premises, as
aforesaid, (i) it shall commence to pay utilities and all other
charges payable under the Sublease, except Basic Rent, from and
after the Initial Occupancy Date, (ii) all of the other
provisions of this Sublease shall become operative with respect
to the Premises as if the Commencement Date had occurred. During
the pre-Commencement occupancy Sublessee shall at its cost and
expense as a condition precedent to such occupancy, obtain and
keep in force during such occupancy, insurance coverage in
amounts as required in the Prime Lease with respect to the entire
Demised Premises.
Section 2.4 Right of Renewal. Provided that the
Sublessee is not in material default of any of the provisions
hereof (including any event which with notice or passage of time
or both would be a material default) at the time of the exercise
of any renewal option or at the commencement of the then
applicable renewal term and subject to the terms of the Prime
Lease and the Tri-Party Agreement, Sublessor grants to Sublessee
rights of renewal as follows:
At the option of the Sublessee, the Term may be
extended for two (2) renewal periods of five years each by
written notice to the Sublessor at least three hundred and sixty
five (365) days prior to the expiration of the Initial Term or
the Sublessor Funded Expansion #1 Term, the Sublessee Funded
Expansion #1 Term or Expansion #2 Term, as the case may be, or
the first renewal term thereof, as the case may be. Upon valid
exercise of any of such right(s) of renewal, the term of this
Sublease shall remain in full force and effect except that the
rent both Basic Rent and Expansion Rent, shall be directly
related to the occurrence of the calendar periods shown on
Exhibit D and as stipulated in Article V hereof. Notwithstanding
rights granted to the Sublessee pursuant to this Article II
relating to the Sublessor Funded Expansion (#1) Term, the
Sublessee Funded Expansion #1 Term or the Expansion #2 Term and
the Expansion (#1 or #2) Space or any renewal rights granted
herein, the Sublessee's right to occupy the Premises shall not
extend beyond April 30, 2019. If Sublessee shall have exercised
the expansion option(s) and is not otherwise in material default
(including any event which with notice or passage of time or both
would be a material default) after notice and failure to cure as
contemplated in Section 11.1 below, of its obligations under this
Sublease, then any option to renew the Initial Term as set forth
herein shall be deemed to commence upon the expiration of the
applicable expansion term. However, regardless of the exercise of
any Expansion #1 Option or Expansion #2 Option, the Term and
right of possession of the Sublessee hereunder shall expire (if
not sooner terminated pursuant hereto) not later than April 30,
2019.
4
Section 2.5 Certain Provisions Applicable to All
Extensions of the Sublease. It is agreed by the parties hereto
that in the event the Sublessee shall become entitled to extend
the Term pursuant to the provisions hereof, such that the Term of
this Sublease would extend beyond the then pending term of the
Prime Lease, then and in such event, the Sublessor shall promptly
request the Prime Landlord to enter into an extension of the term
of the Prime Lease with the Sublessor. Pursuant to the provisions
of the Tri-Party Agreement among Sublessor, Sublessee and the
Prime Landlord, Prime Landlord shall have the option to either
extend the term of the Prime Lease to be co-terminous with the
Term of the Sublease, as extended in any instance, or to permit
Sublessee to remain in possession of the Demised Premises after
the expiration of the term of the Prime Lease pursuant to Section
3 of the Tri-Party Agreement. If the Prime Landlord elects not to
extend the term of the Prime Lease, Sublessor shall, upon
expiration of the Prime Lease, be thereupon released by Sublessee
from all obligations and liability under the Sublease (other than
with respect to any breach or non-performance occurring by the
Sublessor prior to the expiration or termination of the Term of
the Sublease).
ARTICLE III
Expansion Options of Sublessee
Section 3.1 Expansion #1 Option.
(a) Subject to all provisions hereof, and provided the
Sublessee is not in material default, including any event which
with notice or passage of time or both would be a material
default, the Sublessee is granted an option ("Expansion #1
Option") to be exercised as hereafter provided, to expand the
Premises by approximately fifty-eight thousand (58,000) gross
rentable square feet of building area as more particularly
described in subparagraph (b) below. Sublessee's right to
exercise the Expansion #1 Option will then be subject to the
obligation of Sublessee to demonstrate to Sublessor's reasonable
satisfaction, acting in good faith, that there shall not have
occurred any material adverse change to the Sublessee's financial
condition or to the financial condition of the Guarantor of this
Sublease, J. Crew Group Inc., a New York corporation
("Guarantor"), between the date of the execution of this Sublease
and Guaranty and the date upon which Sublessee exercises the
Expansion Option #1 aforesaid. The said Building addition is
hereafter referred to as (the "Expansion #1 Space").
At the time that Sublessee notifies Sublessor that
Sublessee is exercising its Expansion #1 Option, Sublessee shall
elect either to require the Expansion #1 Construction Costs to be
funded by the Sublessor or by the Sublessee. The right of the
Sublessee to require Sublessor to fund the Construction Costs
shall expire if notice of Sublessee's election as to funding of
Construction Costs by the Sublessor shall not have been received
by the Sublessor on or before January 1, 1996, time being of the
essence. Sublessor's obligation to fund the Expansion #1
Construction Costs is limited to Two Million ($2,000,000.00)
Dollars and any Construction Costs in excess of Two Million
($2,000,000.00) Dollars shall be paid solely by Sublessee. If
Sublessee fails to notify Sublessor on or before January 1, 1996
of Sublessee's exercise of its Expansion #1 Option and election
to require Sublessor to fund the Construction Costs for the
Expansion #1 Space, then Sublessor shall thereupon and thereby be
released from any obligation to fund the said Expansion;
nevertheless, Sublessee may exercise its Expansion #1 Option
after January 1, 1996 provided, however, that Sublessee is not
then in material default (including any event which with notice
or passage of time or both would be a material default) and that
Sublessee shall be responsible to fund the entire Expansion #1
Construction Costs. Regardless of whether Sublessee requires
Sublessor to fund the Expansion #1 Construction Costs, Sublessor
shall have the right to engage a certifying architect to inspect
the construction of the Expansion and to monitor the Construction
Work in order to certify the completion of Construction Work
during the course thereof in accordance with the plans and
specifications. The said certifying architect shall hereafter be
referred to as "Sublessor's Architect." The costs, fees and
expenses of the Sublessor's Architect shall be included in the
Expansion #1 Construction Costs. The Sublessor's Architect shall
be licensed and qualified in the State of New Jersey, said
Sublessor's Architect shall have access to the Demised Premises
as he deems necessary to inspect the Construction Work for the
purpose of certifying completion of the Construction Work and
compliance with the plans and specifications for the Expansion.
Sublessee shall provide at its own cost to the Sublessor's
Architect a complete set of plans and
5
specifications for the Construction Work together with any
addenda or change orders with respect thereto as they are issued.
(b) Preliminary and Final Plans. The parties hereto
have approved for purposes of identification general plans
locating and generally describing the Expansion #1 Space
identified as Expansion A on the Concept Sketch dated August 23,
1993 and attached hereto as Exhibit E along with certain
construction criteria as outlined in Exhibit F and taken together
with Exhibit E hereinafter called "Preliminary Expansion #1
Plans". In conjunction with Sublessee's exercise of the Expansion
#1 Option, Sublessee shall, either prior to or subsequent to the
formal exercise of the option, cause an architect, which
architect shall be selected by Sublessee, subject to the approval
of Sublessor which approval shall not be unreasonably withheld
(hereinafter designated as "Architect"), to prepare final plans
and specifications (herein designated as "Final Plans") which
shall be consistent with and shall substantially develop and
carry out the concept of the Preliminary Plans for the
Construction Work and which Final Plans shall comply with the
then existing requirements of the Edison Township Zoning
Ordinance without the need to obtain any variances or exceptions.
The Final Plans shall be subject to the Sublessor's approval,
which approval shall be forthcoming and shall not be unreasonably
withheld or delayed or conditioned, if they are consistent with
and substantially develop the Preliminary Expansion #1 Plans and
otherwise comply with all applicable zoning and building
ordinances, statutes and regulations. If not approved within
thirty (30) days after the receipt by Sublessor, Sublessor shall
notify Sublessee of the specific reasons for disapproval and
Sublessee shall be allowed a 30-day period for response to
Sublessor's disapproval objections and upon receipt of such
response, Sublessor- shall have an additional 30 days to review
the response.
Section 3.2 Expansion #2 Option.
Subject to all provisions hereof, including but not
limited to Sublessor's consent which shall not be unreasonably
withheld, delayed or conditioned, if the Sublessee provides to
the Sublessor the covenants, representations and assurances
described below, and provided further that the Sublessee is not
in material default, including any event which with notice or
passage of time or both would be a material default, Sublessee is
hereby granted the option ("Expansion #2 Option") to construct an
addition to the Building not to exceed two hundred thousand
(200,000) gross rentable square feet of building area that will
be designed to be consistent and compatible with the Building and
with the zoning classification then applicable, said addition to
be erected at Sublessee's own cost and expense for all items of
Construction Costs within the scope of Construction Work for such
addition ("Expansion #2 Space"). The notice of Sublessee's
exercise of the Expansion #2 Option shall be delivered to the
Sublessor with covenants, representations and assurances for the
consideration of the Sublessor in the exercise of its reasonable
and good faith judgment as to whether or not to give its consent
for the construction of the Expansion #2 Space. The covenants,
representations and assurances to be relied upon by Sublessor
shall consist of: (i) general plans prepared by a New Jersey
licensed architect, reasonably satisfactory to Sublessor,
locating and describing the addition desired and the general
specifications thereof which are consistent with the general plan
of Expansion #2 Space identified as B and C on Exhibit E and the
construction criteria outlined in Exhibit F; (ii) a satisfactory
commitment from a surety reasonably acceptable to the Sublessor
confirming its agreement to issue its indemnity, performance and
completion bond to the Sublessor which will assure proper
completion of the project in a good and workmanlike manner and
payment for all work, labor and materials furnished to the
project; (iii) satisfactory reasonable evidence of Sublessee's
financial capacity to complete the project and that there has not
occurred any material adverse change in the financial condition
of the Sublessee or the Guarantor since the date of the execution
of this Sublease and the Guaranty; (iv) agreement by the
Sublessee to pay to Sublessor such Construction Costs in the
nature of application fees or fees for permits and costs and
expenses of approvals as may be incurred by the Sublessor in
conjunction with Sublessee's performance of Construction Work;
(v) the proposed improvements to comprise Expansion #2 Space
shall be in full compliance with all statutes, ordinances and
regulations governing land use and construction without the
necessity for any variances or exceptions. Sublessee agrees that
in conjunction with the planning and construction of Expansion #2
Space, any existing parking spaces which are removed shall be
replaced on-site at a ratio of two (2) new spaces for every three
(3) spaces removed in locations as shown on Exhibit E. If (a)
within the period May 1, 2004 to April 30, 2010 the applicable
zoning and land use statutes and/or
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ordinances are amended after the date hereof in a manner which
does not permit the construction or use of the Expansion #2 Space
for light industrial use, as at present, as a permitted use
("Zoning Change"), and (b) Sublessee in good faith desires to
construct the Expansion #2 Space but is unable to commence
construction because of the Zoning Change, then Sublessee shall
notify Sublessor of its inability to commence construction due to
the Zoning Change. Sublessee shall then proceed promptly at its
own cost, diligently and in good faith to seek a use variance
under applicable law to permit the expansion. Sublessor agrees to
cooperate with Sublessee, provided Sublessee shall pay reasonable
expenses incurred by Sublessor in providing such cooperation. If
the variance sought by Sublessee is not obtained within six (6)
months of the filing of the variance application, then the
Sublessee shall have the right to terminate this Sublease by
written notice of such termination to Sublessor, which
termination shall be effective as of eighteen (18) months after
Sublessor's receipt of Sublessee's notice of its inability to
commence said construction due to the Zoning Change. The parties
expressly acknowledge their mutual intention and agreement that
Sublessor shall have no obligation or responsibility whatsoever
with respect to costs or charges for Expansion #2 excepting such
costs and expenses as Sublessor may incur in its review of
Sublessee's covenants, representations and assurances. Upon
exercise of the Expansion #2 Option and upon Sublessee's
compliance with the conditions for the implementation thereof as
provided in this Sublease, Sublessee shall have the right at its
own cost, to perform Construction Work to erect an addition to
the Building for use in Sublessee's business which addition shall
become incorporated in and a part of the Demised Premises.
Section 3.3 Sublessor Cooperation. Sublessor agrees to
cooperate with Sublessee in connection with Sublessee's exercise
of Expansion #1 and #2 Options and to promptly review preliminary
plans and sign permit applications of approved plans, if
required, at the request of Sublessee in order to facilitate
exercise of Expansion #1 and Expansion #2 Options. Sublessee
shall pay all Sublessor's costs and expenses incurred in
connection with such cooperation.
Section 3.4 When Construction Funded and Performed By
Sublessee.
(a) This Lease provides in Article III, Sections 3.1
and 3.2 for the Sublessee to perform the Construction Work in
conjunction with the implementation of the Expansion #1 Option
and/or the Expansion #2 Option at Sublessee's own cost and
expense.
(b) Upon the exercise of (i) the Expansion #1 Option
where Sublessee does not require Sublessor to fund the Expansion
#1 Construction Costs, and after Sublessor's consent to the
implementation of Expansion #1 as provided herein; or (ii) upon
the exercise of the Expansion #2 Option and after Sublessor's
consent to the implementation of Expansion #2 as provided herein,
Sublessee shall thereby assume the obligation to pay all
Construction Costs for the Construction Work and to engage a
Qualified Contractor, defined in Section 12.20(as), as a general
contractor for the Construction Work. Sublessor shall have the
right to engage Sublessor's Architect.
(c) As a condition precedent to commencement of the
Construction Work by Sublessee, upon implementation of either
expansion option, Sublessee shall post an indemnity, performance
and completion bond issued by a surety acceptable to Sublessor
with Sublessor as joint obligee to guarantee the completion of
and payment for the Construction Work in an amount at least equal
to the Sublessee's Construction Costs as estimated by Sublessor's
Architect.
Section 3.5 Funding of Construction Costs by Sublessor
- -Procedure. Upon the Sublessee's exercise of the Expansion #1
Option with an election to require Sublessor to fund Construction
Costs as more particularly provided in this Article III, Section
3.1 above, to a limit of Two Million ($2,000,000.00) Dollars
("Funding Limit"), the respective rights and obligations of the
parties and the procedure for such funding shall be as follows:
(a) Sublessor shall not be obligated to make the first
(1st) disbursement of the funding provided herein until Sublessor
shall have received, in each case, in form, manner and substance
reasonably satisfactory to Sublessor and its counsel:
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(i) evidence that the past and current taxes and
assessments which are paid or payable by the Sublessor
in accordance with the Sublease applicable to the
Premises to be paid by Sublessee have been paid in
full;
(ii) a detailed budget of the overall cost of the
Expansion, including construction cost of the
Expansion, building equipment, on-site improvements,
the cost of fixtures and equipment, "soft" costs
directly attributable to the Expansion, including
financing costs, engineering, architectural and legal
expenses;
(iii) a proposed construction progress and draw
schedule and schedule of payments to tradesmen
prepared by the General Contractor and subject to work
orders;
(iv) a leasehold title insurance policy or binder
expressly issued to cover the prospect of $2,000,000
in funding to be advanced by the Sublessor issued by a
company reasonably satisfactory to the Sublessor,
insuring or committing to insure the fee simple
interest of the Prime Landlord and the leasehold
interest of the Sublessor in the Expansion, free and
clear of all defects and encumbrances except as
described in Section 4.1 (iii), which policy or binder
shall include a UCC search, shall set forth a revised
description of the Demised Premises, shall have
attached thereto clear copies of all instruments which
will appear as exceptions in the policy, shall provide
full coverage against all mechanics' and materialmen's
liens, shall have read into it the survey of the
Demised Premises, and shall contain such reasonable
endorsements as may be reasonably requested by the
Sublessor;
(v) Foundations and Completion surveys of the Demised
Premises prepared and certified by a professional land
surveyor of the State of New Jersey, certified to
Sublessor and the title company, on which survey there
shall be indicated all buildings, structures and
improvements located on or over the Demised Premises,
all roadways, paths, and driveways running across the
Demised Premises, and all easements affecting or
appurtenant to the Demised Premises with deed book and
page references;
(vi) a certification from the Sublessor Architect that
upon completion of the Expansion in accordance with
the Plans and Specifications, the same will comply
with all applicable zoning, environmental protection,
land use, and building laws, ordinances and
regulations, and that the Plans and Specifications, in
his opinion, provide a functional layout and a
completed Expansion which, in the Sublessor's
Architect's opinion, at the time of such
certification, can be constructed within the amount of
the construction budget;
(vii) agreements of the Qualified Contractor and
Architect that they will perform their respective
contracts for the account of the Sublessor in the
event of a default by Sublessee hereunder or
thereunder and permitting the Sublessor to use the
Plans and Specifications without any cost or expense;
(viii) the policies (or certificates relating thereto)
of insurance required by this Sublease, accompanied by
evidence of the payment of the premiums therefor;
(ix) all applicable authorizations, consents,
licenses, approvals, and permits of governmental
authorities for the construction of the Expansion;
(x) if requested by the Sublessor within a reasonable
time prior to the first disbursement, a soils and
geological report issued by a professional engineer
satisfactory to the Sublessor, certifying as to the
adequacy of the subsoils and the foundations of the
Expansion as designed;
(xi) all required payment and performance bonds naming
the Sublessor as a joint obligee;
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(xii) such other documents, agreements,
certifications, affidavits, reports, and other
instruments as shall be required by this Sublease.
(b) Sublessor's obligation to make any disbursement
after the first disbursement shall be subject to the continuing
satisfaction of the conditions referred to in the immediately
preceding subsection 3.5(a) and its subparagraphs, as well as
satisfaction of the following conditions, all in form, manner and
substance reasonably satisfactory to Sublessor and its counsel:
(i) there shall be no Default under this Sublease,
provided, however, Sublessor may in its sole
discretion make disbursements notwithstanding the
existence of such a Default, and any disbursement so
made shall be deemed to have been made pursuant to
this Sublease;
(ii) all materials, equipment and fixtures
incorporated in the construction of the Expansion
shall have been purchased or will thereafter be
purchased so that the absolute ownership thereof shall
have vested or will vest in Sublessee immediately upon
payment of advances disbursed by the Sublessor or upon
Sublessor's receipt of a waiver of lien for the amount
disbursed upon delivery of said materials, equipment
and fixtures to the Premises, and Sublessee shall have
produced and furnished, if required by the Sublessor,
the contracts, bills of sale or other agreements under
which title thereto has vested;
(iii) the Sublessor shall be furnished with affidavits
from the Sublessee and the Qualified Contractor that,
except as otherwise indicated, all money previously
disbursed has been applied to the satisfaction of
Construction Costs for the Expansion, and that there
are presently no amounts owing to subcontractors,
materialmen or laborers, other than the holdbacks or
retainages provided for under existing contractual
arrangements between the various parties;
(iv) Sublessor shall have been furnished with a
certificate of in place value certified by Sublessor's
Architect and the Qualified Contractor drawn in
accordance with the budget furnished, and indicating
the amount of work completed by trade and the
percentage thereof, and also indicating that, to the
date of the certification, the Expansion has been
completed in accordance with the plans and
specifications;
(v) Sublessor shall have been furnished with copies of
all reports of any architects, engineers, managers or
any other person or entity consulted by Sublessee in
connection with the Expansion;
(vi) Sublessor shall have been furnished with a
written estimate by Sublessee of the cost of
completing the construction of the Expansion;
(vii) Sublessor shall have been furnished with a
notice of title continuation or an endorsement to the
title insurance policy, indicating that since the last
preceding disbursement, there has been no change in
the state of title;
(viii) Sublessor shall have been furnished with an
application for disbursement accompanied by a
certificate signed by the Sublessee certifying that
the work for which payment is sought has been
completed and has been fully paid for or will be fully
paid for with the proceeds of the disbursement. Each
application for a disbursement shall constitute an
affirmation by Sublessee that all of the
representations and warranties set forth in this
Sublease remain true and correct as of the date
thereof and, unless the Sublessor is notified to the
contrary prior to the disbursement of the requested
disbursement, will be true and correct on the date
thereof.
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(c) Applications for disbursements shall be made by
Sublessee to the Sublessor on or about the first day of
each month, after commencement of construction of the
Expansion, for work done and materials and labor supplied
during the preceding month or a part thereof with
disbursements to be made by Sublessor on or about the
twentieth day of each month, except that the Sublessor may,
at its option, upon request therefor by the Sublessee, make
advances at more frequent intervals. All applications for
disbursements shall be made in accordance with the American
Institute of Architects Form G #702 and #703, or in such
other form acceptable to Sublessor. Each such application
shall certify in detail acceptable to Sublessor the
expenditures made or expenses incurred by or for Sublessee
as to which the disbursement is requested, and shall be
accompanied with such supporting data, vouchers, invoices
and requisitions as Sublessor may reasonably require. With
each application for disbursement, the Sublessee shall
certify that the amount requested represents sums actually
spent or indebtedness actually incurred. The proceeds of
each disbursement shall be used by Sublessee solely to pay
or as reimbursement for the obligations for which the
disbursement is sought.
(d) Disbursements during construction shall be
limited to ninety percent (90%) of the value of work in
place and acceptably completed, all as determined by
Sublessor's Architect. At no time shall the aggregate
disbursements by the Sublessor pursuant hereto exceed the
Funding Limit. If the Sublessor shall, at any time,
determine that the Funding Limit proceeds remaining to be
disbursed are insufficient to pay the cost of completing
the Expansion, Sublessor and Sublessor's architect shall
have the right to require Sublessee to furnish sufficient
additional funds from some other source to cover the
resulting deficit before advancing any additional
disbursements. Limitations on the amounts advanced shall,
in the discretion of the Sublessor, be made to conform with
any restrictions or requirements of the Bank of New York,
first mortgagee. The Sublessor shall have no obligation to
make disbursement for the cost of materials not in place,
whether stored on- or off-site.
(e) All disbursements shall be subject to prior
inspection and approval of the construction by Sublessor,
which approval shall not be unreasonably withheld,
conditioned or delayed. All such inspections and approvals
shall be solely for Sublessor's benefit and no person or
party shall be entitled to rely thereon or to draw any
inference or conclusion therefrom. Sublessee acknowledges
that:
(i) Sublessor shall have the right to designate
a substitute Sublessor Architect to inspect the
Expansion, upon notice to Sublessee; and
(ii) the duties of the Sublessor's Architect run
solely to Sublessor and that the Sublessor's
representative shall have no obligations or
responsibilities to Sublessee or any of
Sublessee's agents, employees or contractors.
(f) The Sublessor shall not be required to make any
disbursement hereunder if at the time of the requested
disbursement:
(i) a Default, including any event which with notice
or passage of time or both would be a Default exists
hereunder; or
(ii) the amount of the requested advance is
inconsistent in any material respect with the budget
and the breakdown by trades provided to Sublessor by
Sublessee except when Construction Work is ahead of
plans and schedule; or
(iii) the Sublessor shall have determined in its
reasonable judgment that the Expansion cannot or will
not be constructed in accordance with the Plans and
Specifications; or
(iv) the Building and/or the Expansion has been
materially damaged or destroyed by fire or any other
casualty; or
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(v) any insolvency or bankruptcy proceedings shall be
instituted with respect to the Qualified Contractor,
Sublessee or Guarantor; or
(vi) any legal action is pending which may have a
material adverse affect upon the ability of Sublessee,
the Guarantor, the Qualified Contractor, or the
Sublessor's Architect to complete their respective
undertakings in connection with (i) the Expansion (ii)
the Demised Premises, or (iii) the transactions
contemplated by or in this Sublease; or
(vii) the Sublessor shall have determined, in its
reasonable judgment, there has been a material
deviation from the Plans and Specifications or that
there are material defects in workmanship or
materials.
(g) Sublessee shall commence construction of the
Expansion not later than four (4) months after the date Sublessor
receives notice from Sublessee that Sublessee is exercising the
Expansion #1 Option. Sublessee shall complete the Construction
Work and the fitting out and equipping of the Expansion Space
with due diligence on or before one (1) year from the date
Sublessor receives notice that Sublessee is exercising the
Expansion #1 Option, Construction Work shall be performed in a
good and workmanlike manner, in strict accordance with the Plans
and Specifications and this Sublease. A master set of Plans and
Specifications, together with all amendments thereto, shall be
deposited and held by the Sublessor, and when so filed shall
govern on all matters that may arise with respect thereto. If
construction of the expansion is not commenced within the four
month period aforesaid, Sublessor shall be thereupon
automatically released from any obligation to fund the
Construction Costs for Expansion #1.
(h) The Expansion shall be constructed and equipped
strictly in accordance with all applicable ordinances and
statutes and in accordance and compliance with the requirements
of all governmental authorities having jurisdiction and in
conformity with the requirements of the Board of Fire
Underwriters or similar body. The Expansion shall be constructed
entirely on the Demised Premises and shall not encroach upon or
overhang any easement or right of way nor upon the land of
others, and the buildings when erected shall be wholly within the
building restriction lines, however established, and shall not
violate applicable use or other restrictions contained in prior
conveyances, zoning ordinances or regulations; and Sublessee will
furnish, from time to time, satisfactory evidence with respect
thereto, together with a survey certified by a licensed surveyor
of the State of New Jersey showing the Expansion to be entirely
on the Demised Premises and free from such violations as
aforesaid.
(i) Sublessee shall, upon demand of the Sublessor,
correct any structural defect in the Expansion or any departure
from the Plans and Specifications not approved by the Sublessor
but that was required to have been approved by the Sublessor, and
the disbursement of any advances shall not constitute a waiver of
the right of the Sublessor to require compliance with this
covenant with respect to any defects or departures from the Plans
and Specifications not theretofore discovered by or called to the
attention of the Sublessor.
(j) Sublessee shall notify Sublessor of any cessation,
stoppage or delay in the construction of the Expansion. Except
for delays and cessations caused by factors that are beyond the
control of Sublessee, the Sublessee shall not permit cessation of
the work of construction for a period in excess of ten (10) days
without the prior written consent of Sublessor. Sublessee shall
not permit construction to fall behind schedule to the extent
that the Expansion cannot reasonably be expected to be completed
on or within one (1) year from the date Sublessor receives notice
from Sublessee that Sublessee is exercising the Expansion #1
Option. Sublessee shall promptly notify Sublessor of any event
which it has reasonable basis to believe may cause construction
to be delayed or to fall behind schedule and any cost overrun
which will or may cause the total cost of construction to exceed
the amount set forth in the budget.
(k) Sublessee shall promptly advise Sublessor in
writing of (i) all litigation, regardless of amount, affecting
any part of the Premises and of all material litigation affecting
Sublessee, and (ii) all complaints and charges made by any
governmental authority affecting the Premises or affecting
Sublessee or its business which may delay or require changes in
the
11
construction of the Expansion or impair the fee simple title of
the Prime Landlord or the leasehold interest of the Sublessor.
(l) Aside from any brokerage commissions due or to
become due based upon the Expansion Rent, there is no brokerage
or other fee, commission or compensation which is to be paid by
the Sublessor, and Sublessee agrees to indemnify Sublessor
against any claims for brokerage fees or commissions and to pay
all expenses incurred by the Sublessor (including reasonable
attorneys' fees) in connection with the defense of any action or
proceeding brought to collect any such brokerage fees or
commissions.
(m) Sublessee will pay all expenses as set forth
herein incurred with respect to any and all transactions
contemplated herein and the preparation of any document
reasonably required hereunder and the prosecution or defense of
any action or proceeding or other litigation affecting Sublessor
or the Demised Premises related to or arising out of the
Construction Work, including (without limiting the generality of
the foregoing) all title insurance company premiums and charges,
taxes, insurance premiums, brokerage commissions, finders' fees,
placement fees, court costs, surveyors', photographers',
appraisers', architects', and engineers' fees, accountants' fees,
and attorneys' fees, and will reimburse to the Sublessor all
expenses paid to third parties of the nature described in this
paragraph which have been or may be incurred by the Sublessor
with respect to the Construction Work contemplated herein. The
Sublessor may, upon notice, pay or deduct from the disbursements
by Sublessor any of such expenses and any such funding so applied
shall be deemed to be disbursements under this Sublease.
(n) Sublessee agrees that it will receive all
disbursements hereunder as a trust fund to be applied solely for
the purpose of paying for the costs of the Expansion.
(o) Sublessee shall provide and maintain, or cause to
be provided and maintained, at all times insurance in such forms
and covering such risks and hazards and in such amounts and with
companies as are reasonably satisfactory to the Sublessor. While
the Expansion is under construction, said insurance shall
include, but not be limited to, workers' compensation insurance,
public liability insurance, and hazard insurance policies
including fire insurance with extended coverage on the standard
Builders Risk Completed Value form (non-reporting frill coverage)
with "all risk" insurance including collapse. Losses payable
thereunder shall be payable in accordance with the provisions
contained in such policies shall contain endorsement providing to
owner the protections of a standard mortgagee clause endorsement.
All such policies shall provide for at least thirty (30) days'
notice of cancellation or amendment to the Sublessor.
(p) The Sublessor shall, at all times until the
Sublessor's Architect has certified completion of the Expansion
in accordance with the plans and specifications, have the right
of entry and free access to the Demised Premises and the right to
inspect all work done, labor performed and materials furnished in
or about the Expansion and to inspect subcontracts and all books
and records of the Sublessee regarding the construction of the
Expansion.
(q) Sublessee shall protect and preserve the Demised
Premises, and all equipment and materials stored thereon or
incorporated into the Expansion, from loss, theft,
vandalism, removal, destruction and damage, will maintain the
same in good order and repair, and will not do or suffer to be
done any act whereby the value of any part of the Demised
Premises will or may be reduced or impaired.
(r) Sublessee agrees that no changes, modifications of
or amendments to the Plans and Specifications shall be made
without first obtaining the written approval of the Sublessor and
all governmental authorities with jurisdiction.
(s) Sublessee shall not create, assume, or suffer to
exist any mortgage, pledge, encumbrance, lien or security
interest, whether superior or subordinate to the Prime Landlord's
fee simple interest and the Sublessor's leasehold interest in the
Demised Premises or any part thereof.
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(t) No acceptance or approval (if any) of the Plans
and Specifications or any changes thereto by the Sublessor or
Sublessor's Architect nor any acknowledgment by the Sublessor or
Sublessor's Architect that the Expansion has been constructed in
accordance with the Plans and Specifications shall in any way be
deemed an express or implied warranty or representation or
approval by Sublessor or Sublessor's Architect that such
improvements: (a) are or will be structurally sound, (b) are in
good or workmanlike condition, repair or state of maintenance,
(c) have any particular use or purpose, or (d) have any
particular value.
(u) The rights and remedies herein expressed to be
vested in or conferred upon the Sublessor shall be cumulative and
shall be in addition to and not in substitution for or in
derogation of the rights and remedies conferred by any applicable
law or elsewhere in this Sublease.
(v) Nothing herein contained shall impose upon the
Sublessor any obligation to enforce any terms, covenants or
conditions contained herein. Failure of the Sublessor, in any one
or more instances, to insist upon strict performance by the
Sublessee of any terms, covenants or conditions of this Sublease
shall not be deemed to be a waiver or relinquishment of any such
terms, covenants and conditions.
(w) All conditions of the obligation of the Sublessor
to make advances hereunder are imposed solely and exclusively for
the benefit of the Sublessor and its assigns and no other person
or persons shall have standing to require satisfaction of such
conditions in accordance with their terms or be entitled to
assume that Sublessor will refuse to make advances in the absence
of strict compliance with any or all thereof and no other person
or persons shall, under any circumstances, be deemed to be a
beneficiary or beneficiaries of such conditions, any and all of
which may be waived in whole or in part by the Sublessor if in
its sole discretion it deems advisable to do so.
Section 3.6 Covenants of General Application for Expansions
If Sublessee timely and properly exercises its option
for the Expansion #1 Space without requiring funding by Sublessor
of the Construction Costs for the Expansion #1 space or, in any
event, if Sublessee timely and properly exercises its option for
the Expansion #2 Space, the Sublessee shall, nevertheless, in the
performance of Construction Work for Expansion #1 Space or
Expansion #2 Space, comply with the procedures and requirements
of Article III, Section 3.5, specifically, the following sections
which are acknowledged by the parties to be of general
application to the Expansion(s) whether or not the Construction
Costs are funded by the Sublessor or Sublessee: Article II,
Section 3.5(a)v, vi, ix, x; (h); (i); (j); (k); (1); (m); (o);
(p); (q); (r); (s); (t); (u).
ARTICLE IV
Covenants
Section 4.1 Covenants Regarding Condition of Demised
Premises and Other Matters. The parties agree that:
(i) Sublessee accepts the Demised Premises in their
"as is" and "where is" condition and assumes tenant's
responsibility for all maintenance and repair thereof
as is more particularly provided in the Prime Lease in
Article 6 thereof.
(ii) Sublessor represents:
(a) The intended use of the Demised Premises as
set forth in Article X below is a permitted use
under the zoning classification and laws and
ordinances applicable to the Demised Premises.
(b) All utilities serving the Demised Premises
will have been installed and paid for.
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(c) The Premises are in compliance with all
applicable laws with regard to buildings or
improvements of the same type and character.
(d) Sublessor has paid all real estate taxes
required to be paid to date with respect to the
Demised Premises.
(iii) The Sublessee's interest in the Demised Premises
is subordinate to and only subordinate to the
following liens:
(a) the effect of any restrictions and easements
recorded in the public records of Middlesex
County;
(b) the Prime Lease;
(c) the Mortgage held by The Bank of New York,
recorded in Mortgage Book 3841 at Page 451 in the
Middlesex County Clerk's Office;
(d) Collateral Assignment of Lease recorded in
Mortgage Book 3841, Page 501; and
(e) Rent Security Agreement of even date herewith.
ARTICLE V
Rent and Payment
Section 5.1 Basic Rent During the Period February 1,
1994 to January 31, 1999. Sublessor reserves and Sublessee
covenants to pay to Sublessor as and for rental of the IDP, aside
from Expansion Rent, during the Initial Term or any expansion
term, as the case may be, without demand or notice, and without
any setoff or deduction, a net basic rental herein called Basic
Rent in addition to Expansion Rent, if any, in the amount of Nine
Hundred Sixty Thousand Two Hundred Thirteen and 80/100
($960,213.80) DOLLARS per annum, in sixty (60) equal monthly
installments of Eighty Thousand and Seventeen and 82/100
($80,017.82) DOLLARS each, in advance, on the first day of each
and every month beginning on February 1, 1994, subject to the
Basic Rent Concession set forth in Section 5.3 and monthly
thereafter through January 31 1999. The Basic Rent for the
Fractional Month, if any, shall be prorated and due and payable
by Sublessee on the Commencement Date.
Section 5.2 Basic Rent For The IDP During the Period
February 1, 1999 to April 30, 2004. Sublessor reserves and
Sublessee covenants to pay to Sublessor as and for Basic Rent for
the IDP during the period February 1, 1999 through April 30,
2004, aside from Expansion Rent during the Initial Term or any
expansion term, as the case may be, without demand or notice, and
without any setoff or deduction in the amount of One Million, One
Hundred Forty-Four Thousand Eight Hundred Seventy and 30/100
($1,144,870.30) DOLLARS per annum, in 63 (sixty-three) equal
monthly installments of Ninety-Five Thousand Four Hundred and
Five and 86/100 ($95,405.86) DOLLARS each, in advance, on the
first day of each and every month beginning on February 1, 1999
and monthly thereafter through April 30, 2004.
Section 5.3 Basic Rent Concession. Notwithstanding the
foregoing and provided that Sublessee is not then in breach or
default under any of the provisions of this Sublease, Sublessor
grants to Sublessee a rent concession applicable solely to the
IDP in Basic Rent equal to Two Hundred Forty Thousand and Fifty
Three and 46/100 ($240,053.46) DOLLARS for the three (3) month
period beginning on February 1,1994 and ending April 30, 1994.
Sublessee shall thereafter pay the Basic Rent set forth in
Section 5.1 hereof and any and all other charges due hereunder.
In the event Sublessee is in breach or default under any of the
terms, covenants and conditions in this Sublease at any time
during this Sublease, the rent concession shall be deemed to be
void ab initio and Sublessee shall be responsible to pay all of
the Basic Rent reserved hereunder. Nothing herein shall affect
Sublessee's liability for the payment of any Additional Rent
payable under this Sublease for the period of the rent
concession.
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Section 5.4 Payment of Rent. The Basic Rent, Expansion
Rent and the Additional Rent as such term is defined in Section
5.5 payable to the Sublessor under this Sublease shall be paid at
the above address of Sublessor or at such other address as may be
specified by Sublessor from time to time by notice given to
Sublessee.
Section 5.5 Additional Rent. All charges and costs
which Sublessee is required to pay pursuant to this Sublease,
including but not limited to Real Estate Taxes and Expansion
Rent, shall be deemed to be "Additional Rent" and in the event of
non-payment by Sublessee, the Sublessor shall have all the rights
and remedies with respect thereto as Sublessor has for the
non-payment of the Basic Rent.
Section 5.6 Basic Rent For the Balance of the Term.
(a) The Basic Rent for the IDP during the period May
1, 2004 to April 30, 2009 shall be equal to the Fair Market
Rental as herein defined for the Premises based on the Middlesex
County market area as of May 1, 2004, but in any event not
greater than $1,569,580.20 per annum based upon a rental of $4.25
per square foot and shall not be less than $1,144,870.30 per
annum based upon a rental of $3.10 per square foot. "Fair Market
Rental" shall be determined as follows: In the event Sublessee
has extended the Term pursuant to this Sublease, the Sublessor
shall on or about January 1, 2004 deliver to Sublessee a notice
in writing stating the Fair Market Rental for the Demised
Premises during the period May 1, 2004 through April 30, 2009. In
the event that the Sublessee shall object to the Fair Market
Rental quoted by Sublessor, the Fair Market Rental shall be
negotiated between Sublessor and Sublessee. If the parties are
unable to come to agreement on the issue of Fair Market Rental
within thirty (30) days after the Sublessor's notice to Sublessee
of the then Fair Market Rental, the parties agree jointly appoint
as arbitrator, a member of the American Institute of Real Estate
Appraisers who has no less than ten (10) years experience leasing
and/or appraising industrial and warehouse space in the Middlesex
County area rental market to determine Fair Market Rental. The
appointment of the arbitrator and determination of Fair Market
Rental shall be made within forty-five (45) days after
Sublessor's notice. The cost of the arbitrator shall be shared
equally by Sublessor and Sublessee. In the event the parties
cannot agree on the appointment of such arbitrator, they shall
request the President of the State Chapter of the American
Institute of Real Estate Appraisers to designate a member of the
Appraisal Institute (M.A.I.) who has been so designated for not
less than ten (10) years with the substantial experience in
industrial real estate in Middlesex County, New Jersey, as the
arbitrator. If the question of Fair Market Rental shall have been
submitted to arbitration according to the provisions of this
Section 5.6 paragraph (a), then the arbitrator's determinations
as to procedure and Fair Market Rental shall be final, binding
and conclusive upon the parties. The question of Fair Market
Rental shall be the sole substantive issue over which the
designated arbitrator shall have jurisdiction. The cost of the
arbitration shall be shared equally by Sublessor and Sublessee.
The parties agree that the decision of the arbitrator shall be
subject to entry as a final judgment upon application of either
party in the Superior Court of New Jersey. The parties jointly
confer jurisdiction on such court for such purpose.
(b) The Basic Rent for the period May 1, 2009 through
April 30, 2014 for the IDP shall be equal to the Fair Market
Rental for the Premises based on the Middlesex County market area
as of May 1, 2009, but in no event less than the Basic Rent for
the period of May 1, 2004 through April 30, 2009. Fair Market
Rental for the period May 1, 2009 through April 30, 2014 shall be
determined in the same manner as described in subparagraph (a)
above. However, Sublessor shall provide written notice of Fair
Market Rental on or about January 1, 2009.
(c) The Basic Rent for the period May 1, 2014 to April
30, 2019 for the IDP shall be equal to the Fair Market Rental for
the Premises based on the Middlesex County market area as of May
1, 2014 but in no event less the Basic Rent for the period May 1,
2009 to April 30, 2014. Fair Market Rental for the period May 1,
2014 through April 30, 2019 shall be determined in the same
manner as described in subparagraph (a) above. However, Sublessor
shall provide written notice of Fair Market Rental on or about
January 1, 2014.
Section 5.7 Rent for Expansion #1 Space. In addition
to the payment of Basic Rent for the IDP, if Sublessee in the
exercise of the Expansion #1 Option requires Sublessor to fund
the Expansion #1 Construction Costs, Sublessee shall pay to
Sublessor, as rent for the
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Expansion Space ("Expansion Rent") in equal monthly installments
during the Sublessor Funded Expansion #1 Term, an amount
calculated as sufficient to fully amortize the Construction
Costs, defined in Section l2.20(j) below, over a ten (10) year
term with interest on the unpaid balance of such Construction
Costs at a fixed rate (the "Fixed Rate") as hereinafter defined.
The Fixed Rate shall be the average of the Notice Date Interest
Rate (as defined below) and the Completion Date Interest Rate (as
defined below). Interest at the Fixed Rate shall be calculated on
the basis of a 360-day year, 30-day month.
Section 5.8 Determination of the Notice Date Interest
Rate. On the date Sublessor receives notice that Sublessee is
exercising the Expansion #1 Option and requires Sublessor to fund
the Expansion #1 Construction Costs, the Notice Date Interest
Rate shall be determined as the higher of (i) the sum of the
Prime Spread (as defined below) plus the Prime Index (as defined
below); or (ii) the sum of the Treasury Spread (as defined below)
plus the Treasury Index (as defined below). The Prime Spread
shall be equal to five percent (5 %) per annum. The Prime Index
shall be "the base rate" or "prime rate" announced by Chemical
Bank (the "Prime Rate") on the first business day prior to
Sublessor's receipt of the Expansion #1 Notice from Sublessee,
whether or not such rate has actually been charged by such bank
provided, if Chemical Bank discontinues the practice of
announcing a "prime rate" or "base rate, " the Prime Index shall
mean the prime rate (or base rate) reported in the money column
or section of The Wall Street Journal as being the base rate on
corporate loans at large U.S. Money Center Banks (whether or not
such rate has actually been charged by any such bank) on the
first business day prior to Sublessor's receipt of the Expansion
#1 Notice from Sublessee. The Treasury Spread shall be five and
thirty-six one hundredths percent (5.36%) per annum. The Treasury
Index shall be the interest rate on the current coupon ten year
U.S. Government Treasury Note as published by The Wall Street
Journal (or such similar financial publication reporting such
data) on the first business day prior to Sublessor's receipt of
the Expansion #1 Option from data provided by the Federal Reserve
Bank of New York.
Section 5.9 Determination of the Completion Date
Interest Rate. On the earlier of: (i) the issuance of a temporary
or permanent certificate of occupancy for the Expansion #1 Space;
or (ii) one (1) year from the date notice is received by
Sublessor that Subtenant has exercised the Expansion #1 Option
and has required Sublessor to fund Expansion #1 Construction
Costs, the Notice Date Interest Rate shall be adjusted upwards or
downwards to reflect any change in the Prime Index or the
Treasury Index, as the case may be. The adjusted Notice Date
Interest Rate shall be referred to herein as the "Completion Date
Interest Rate".
Section 5.10 Rental for Expansion #1 Space Following
the Ten Year Expansion #1 Rent Period. The Expansion Rent for the
first ten (10) years for the Expansion #1 Space is a function
solely of the amortization of Construction Costs, plus applicable
interest on the outstanding balance. The per square foot rent for
the Expansion #1 Space after the first ten (10) years of the
Sublessor Funded Expansion #1 Term will be identical to the per
square foot rent for the IDP applicable for the same time periods
as outlined in Exhibit D and Section 5.6 (a), (b) and (c).
Section 5.11 Rental for Expansion Space if Sublessee
Pays Construction Costs. (a) If Sublessee exercises its option to
construct Expansion #1 Space and Sublessee funds the Construction
Work with respect to the said Expansion #1 Space, Sublessee shall
not be obligated to pay Expansion Rent with respect to Expansion
#1 Space during the Sublessee Funded Expansion #1 Term.
(b) If Sublessee exercises its option to construction
Expansion #2 Space in accordance with the provisions of this
Sublease, Sublessee will not be obligated to pay Expansion Rent
for the Expansion #2 Space during the Expansion #2 Term.
Notwithstanding anything herein, all of Sublessee's right to
possession of any and all portions of the Demised Premises shall
expire and terminate not later than April 30, 2019.
Section 5.12 Timing of Completion of Expansion #1
Space. If the Expansion #1 Space Construction Work is not
certified by the Sublessor's Architect to be completed, less
punchlist items, within one year from Sublessor's receipt of
notice of Sublessee's exercise of the Expansion #1 Option, then
the Expansion Rent shall be determined as provided in Section
5.13
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below, and the Sublessee shall commence payment of Expansion Rent
along with the installment of Basic Rent which is due and payable
on the first day of the twelfth month after the month in which
Sublessor received notice of Sublessee's exercise of the
Expansion #1 Option.
Section 5.13 Calculation of Aggregate Construction
Cost of Expansion #1. During the 11th month following the month
in which Sublessee provided notice of its exercise of the
Expansion #1 Option, Sublessor's Architect, in consultation with
the Architect, shall make a determination of the aggregate
Construction Costs for the Expansion #1 Space by calculating the
sum of: (i) advances disbursed by Sublessor pursuant to the
provisions of Section 3.5 hereof against certified value of work
in place; and (ii) the aggregate retainage withheld by the
Sublessor; and (iii) interest on the aggregate advances made by
the Sublessor pursuant to Section 3.5, said interest being
calculated at the Notice Date Interest Rate; and (iv) the amount
estimated by the Sublessor's Architect, in consultation with the
Architect, which is required to be expended for Construction
Costs to complete the Expansion #1 Space ("Completion Budget
Amount") or ("CBA"). The amount of the CBA is limited by
Sublessor's maximum obligation to fund no more than $2,000,000 of
the Expansion #1 Construction Costs. The CBA shall be used for
determination of Expansion Rent pursuant to Section 5.7.
Section 5.14 Sublessee to Complete Construction Work
and Use of CBA. The Sublessor shall deposit the CBA in a
Federally regulated banking institution money fund (the
"Completion Account") and the interest earned and paid thereon
shall be credited to such account. Sublessee shall cause the
Construction Work to proceed to completion and shall be entitled
to draw advances monthly for completed work in place from the CBA
pursuant to the procedures and requirements of Article II.
Section 5.15 Overcharge or Deficiency in Completion
Budget Amount. If the Construction Work is completed before
depletion of the CBA, the Sublessor shall cause any balance of
the CBA to be paid over to the Sublessee. If the CBA is depleted
prior to completion of the Construction Work, then Sublessee
shall replenish the CBA, which amount shall be deposited into the
Completion Account to the extent necessary to fund in full the
final completion of the Construction Work. Completion of
Construction Work under Sections 5.12, 5.13, 5.14 and 5.15 shall
be evidenced by the issuance of a Permanent Certificate of
Occupancy by municipal authorities of the Township of Edison and
the Sublessor's Architect's certification of completion.
ARTICLE VI
Construction Or Other Work
Section 6.1 Conditions As To Construction Work,
Expansion Space, and as to Repairs, Alterations, Replacements or
Other Work. Whenever any Construction Work, repairs, alterations,
replacements or other work in, on, to or about the Premises shall
be made by the Sublessee as provided in this Sublease:
(i) The work shall be done in a good and workmanlike
manner and in compliance with all applicable laws,
ordinances and codes, and all applicable governmental
rules, regulations and requirements, and in accordance
with the standards, if any, of the Board of Fire
Underwriters, or other organizations exercising the
functions of a board of fire underwriters whose
jurisdiction includes the Demised Premises.
(ii) All materials and workmanship shall be of good
quality, and in case of repairs, restoration, changes,
additions, alterations, replacements or improvements,
shall be at least equal to the original;
(iii) All said work shall be paid for as promptly as
is practicable and consistent with good business
practices under the then existing circumstances;
(iv) Such work shall be done as promptly as is
possible and practicable under the existing
circumstances;
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(v) Sublessee shall provide and maintain, or cause to
be provided and maintained, at all times, insurance in
such forms and covering such risks and hazards and in
such amounts and with companies as are reasonably
satisfactory to the Sublessor. While the Expansion is
under construction said insurance shall include. but
not be limited to, workers' compensation insurance,
public liability insurance, and hazard insurance
policies including fire insurance with extended
coverage on the standard Builders Risk Completed Value
form (non-reporting frill coverage) with "all risk
insurance including collapse." Losses payable
thereunder shall be payable in accordance with the
provisions contained in such policies shall contain
endorsement providing to owner the protections of a
standard mortgagee clause endorsement. All such
policies shall provide for at least thirty (30) days'
notice of cancellation or amendment to the Sublessor.
The comprehensive general liability insurance provided
by Sublessor, as Tenant under the Prime Lease in
Section 9.3 thereof shall be provided by Sublessee.
Sublessee agrees to provide insurance coverage for
hazards and with limits in compliance with Section 9
of the Prime Lease to apply to any Construction Work,
and evidence thereof shall be delivered to the
Sublessor prior to commencement of such work;
(vi) The Sublessee shall carry or cause its
contractors, if any, to carry worker's compensation
insurance as required by law in connection with such
work, and evidence thereof shall be delivered to the
Sublessor prior to commencement of such work;
(vii) Title to all buildings, building mixtures and
improvements erected and installed by Sublessee (but
not Sublessee's racking system, conveyor belts,
sorting system or other trade fixtures, however the
same may be attached to the realty) shall become the
property of Sublessor upon the expiration or earlier
termination of this Sublease;
(viii) The Sublessee shall procure a certificate of
occupancy or amended certificate of occupancy upon
completion of the work in each instance if under local
practice such certificates of occupancy are issued or
required in connection with such work. The Sublessee
shall also obtain the certificate from the Board of
Fire Underwriters, or other organization exercising
the same functions, whose jurisdiction includes the
Demised Premises, in each instance, certifying that
the electrical work has been properly completed
whenever the work done involves any electrical work
for which such a certificate is issued under local
practice. If, under local practice, official
certificates of occupancy are not issued or required
by a governmental officer or department, or if the
Board of Fire Underwriters, or other such organization
does not issue certificates on proper completion of
electrical work, this covenant shall be satisfied upon
issuance of such certifications by an architect or
engineer selected by Sublessee with approval of the
Sublessor. Upon the acceptance of the Certificates of
Occupancy or the alternative certifications from the
Architect or engineer as described and provided above,
the Sublessee will provide to the Sublessor the total
value of the new construction, and the Sublessor will
include this additional value in the Building
Insurance as provided in Article XII, Section 12.14;
(ix) Sublessee and/or Sublessor agree to join in the
applications for all permits and authorizations
whenever necessary;
(x) Construction Work on Expansion #1 and Expansion #2
shall also conform to the criteria stipulated in
Exhibit F.
18
ARTICLE VII
Mechanic's Liens
Section 7.1 Mechanic's Liens Prohibited. Sublessee
shall not suffer any mechanics's lien or construction contract to
be filed against the Demised Premises by reason of work, labor,
services or materials performed or furnished to Sublessee or to
anyone holding the Demised Premises, or any part thereof, through
or under Sublessee. If any construction contract, mechanics's
lien or any notice of intention to file a mechanic's lien shall
at any time be filed against the Demised Premises, (unless the
labor or materials were actually performed for or furnished to
Sublessor in connection with its obligations under this Sublease)
Sublessee shall at Sublessee's cost, within thirty (30) days
after knowledge or notice of the filing of any mechanic's lien
cause the same to be removed or discharged of record by payment,
bond, order of a court of competent jurisdiction, or otherwise.
Section 7.2 Sublessor's Remedy for Sublessee's Breach.
If Sublessee shall fail to remove or discharge any construction
contract or mechanic's lien or any notice of intention to file a
mechanic's lien within the prescribed time, then in addition to
any other right or remedy of Sublessor, Sublessor may, at its
option, procure the removal or discharge of the same by payment
or bond or otherwise. Any amount paid by Sublessor for such
purpose, together with all reasonable legal and other expenses of
Sublessor in procuring the removal or discharge of such
construction contract, lien or notice of intention and together
with interest thereon at the Sublease Interest Rate (as
hereinafter defined), shall be and become due and payable by
Sublessee to Sublessor as Additional Rent, and in the event of
Sublessee's failure to pay therefor within fifteen (15) days
after demand. the same shall be added to and be due and payable
with the next month's rent as Additional Rent.
Section 7.3 Non-Consent of Sublessor to Filing of
Liens. Nothing contained in this Sublease shall be construed as a
consent on the part of Sublessor to subject Sublessor's estate in
the Demised Premises to any lien or liability arising out of
Sublessee's use or occupancy of the Premises.
ARTICLE VIII
Notices
Section 8.1 Notices. Every notice required or
permitted under this Sublease shall, unless otherwise
specifically provided herein, be given in writing and shall be
sent by United States certified mail, return receipt requested,
or by a recognized overnight carrier which provides proof of
delivery, addressed by the party giving, making or sending the
same to the other at the other's address first above given, or to
such other address as either party may designate from time to
time by a notice given to the other party. Copies of all notices
sent hereunder shall be sent by facsimile. As to the Sublessor,
any notices shall be sent to the attention of Harry K. Rosenblum,
Senior Vice President, Real Estate, with a copy to Senior Vice
President/General Counsel at the address first above given, the
Fax number at the date of execution hereof, for Mr. Harry
Rosenblum being 212-527-4455 and for the Office of the Second
Vice President and General Counsel being 212-527-5693. As to the
Sublessee, any notices shall be sent to the attention of
President, Popular Club Plan, Inc., 22 Lincoln Place, Garfield,
New Jersey 07026, the Fax Number at the time of execution hereof
being (201) 773-7957, with copies to President, J. Crew Group,
Inc., 625 Sixth Avenue, New York, New York 10011, the Fax number
at the time of execution hereof being (212) 472-9688, and
Herzfeld & Rubin, Esqs., 40 Wall Street, New York, New York
10005, Attention: Leonard P. Polisar, Esq., the Fax number on the
date hereof is 212-344-3433. During any postal strike or similar
interruption with the mails, personal delivery shall be
substituted for certified mail. Notice shall be deemed to be
given upon receipt, provided, however that in the event a party
shall refuse to accept delivery of said certified mail, the
notice shall nevertheless be deemed to be given upon the date of
refusal to accept delivery and further provided that if the
postal service is unable to deliver said certified mail, the
notice shall nevertheless be deemed to be given as of the date of
the Postal Service's second notice of attempted delivery. The
telephone facsimile numbers incorporated above are
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stated for convenience only. The facsimile shall be used by the
parties as an ancillary method of, but shall not take the place
of, the formal notice communication by certified mail return
receipt requested or overnight carrier required herein.
ARTICLE IX
Memorandum of Sublease
Section 9.1 Memorandum of Sublease. Sublessee shall
not record this Sublease, but if either party should desire to
record a short form Memorandum of Sublease setting forth only the
parties, the Demised Premises and the Initial Term, expansion
term(s) and the renewal term(s), such Memorandum of Sublease
shall be executed, acknowledged and delivered by both parties
upon notice from either party.
ARTICLE X
Use
Section 10.1 Use. The Demised Premises shall be used
and occupied by Sublessee as executive offices and warehouse for
light assembly, packaging, marketing and distribution and for no
other purposes. Sublessee shall not use the Premises for
manufacturing or the handling of Hazardous Substances as defined
in Article XIV.
ARTICLE XI
Defaults and Remedies
Section 11.1 Sublessee's Defaults. "Default" shall
mean occurrence of any of the following: (a) failure to pay Basic
Rent, Expansion Rent or any Additional Rent or any other amounts
required to be paid by it hereunder and fails to cure the default
within five (5) days after receipt of notice specifying the
default, or (b) failure to comply with or failure to perform any
of the other covenants or conditions of this Sublease, and falls
to cure the same within thirty (30) days after the receipt of
notice specifying the default, or provided Sublessee proceeds
diligently if the default cannot be cured within thirty (30)
days, within such additional period of time beyond said thirty
(30) days as shall be required by reason of strikes, lockouts.
acts of God, governmental restrictions or prohibitions. or other
causes beyond Sublessee's control, whether similar or dissimilar
to the foregoing (each of which notices specifying a default is
referred to in this Sublease as "First Notice"), then at the
expiration of said five (5) days in the case of a default
described in (a), or at the expiration of said thirty (30) days
(or longer period as aforesaid) in the case of a default
described in (b), Sublessor may (1) cancel and terminate this
Sublease on not less than five (5) days' notice (hereinafter
called "Second Notice") to Sublessee, and on the date specified
in the Second Notice, the Initial Term, the Expansion Term or the
renewal term(s), as applicable, of this Sublease shall terminate
and expire, and Sublessee shall then quit and surrender the
Premises to Sublessor, but Sublessee shall remain liable as
hereinafter provided and or (2) Sublessor may at any time
thereafter re-enter and resume possession of the Premises by
summary proceedings, an action in ejectment or otherwise and
dispossess or remove Sublessee and other occupants and their
effects and hold the Premises as if this Sublease had not been
made; and Sublessee waives the service of any additional notice
of intention to re-enter or to institute legal proceedings to
that end.
Section 11.2 Sublessor's Remedies. If this Sublease
shall be terminated or if Sublessor shall be entitled to re-enter
the Demised Premises and dispossess or remove Sublessee under the
provisions of Article XI, the Sublessor, or Sublessor's agents or
servants, may immediately or at any time thereafter re-enter the
Demised Premises and remove therefrom the Sublessee, its agents,
employees, servants, licensees, and any subtenants and other
persons, firms or corporations, and all or any of its or their
property therefrom, either by summary dispossess proceedings or
by any suitable action or proceeding at law or otherwise, without
being liable to
20
indictment, prosecution or damages therefor, and repossess and
enjoy said premises together with all additions, alterations and
improvements thereto.
Section 11.3 Sublessor's Damages. In case of any
Default and termination, re-entry, or dispossess or removal by
summary proceedings or otherwise, the annual rent and all other
charges required to be paid by the Sublessee hereunder shall
thereupon become due and be paid up to the time of such
termination, re-entry, or dispossess or removal, and the
Sublessee shall also pay to the Sublessor all reasonable expenses
which the Sublessor may then or thereafter incur for necessary
legal expenses, attorneys' fees, brokerage commissions, and all
other necessary costs paid or incurred by the Sublessor for
restoring the Demised Premises to good order and condition and
for altering and otherwise preparing the same for re-letting. The
Sublessor may, at any time and from time to time, re-let the
Demised Premises, in whole or in part, either in its own name or
as agent of the Sublessee, for a term or terms which, at the
Sublessor's option, may be for the remainder of the then current
Initial Term, expansion term or renewal term(s), as the case may
be, of this Sublease, or for any longer or shorter period, and
(unless the statute or rule of law which governs the proceeding
in which such damages are to be proved, limits or shall limit the
amount of such claim capable of being so proved and allowed, in
which case the Sublessor shall be entitled to prove as and for
liquidated damages and have allowed an amount equal to the
maximum allowed by or under any such statute or rule of law) the
Sublessee shall be obligated to, and shall pay to the Sublessor
as damages, upon demand, and the Sublessor shall be entitled to
recover of and from the Sublessee, at the election of the
Sublessor, either:
(a) liquidated damages, in an amount which, at the
time of such termination, re-entry or dispossess or removal by
the Sublessor, as the case may be, is equal to the excess, if
any, of the then present value of the installments of Basic Rent,
Expansion Rent and Additional Rent reserved hereunder, for the
period which would otherwise have constituted the unexpired
portion of the then current applicable term of this Sublease,
over the then present value of the rental value of the Demised
Premises for such unexpired portion of the then current Term of
this Sublease, discounted at the rate of five (5 %) percent per
annum; or
(b) damages (payable in monthly installments, in
advance, on the first day of each calendar month following such
termination, re-entry or dispossess, and continuing until the
date originally fixed herein for the expiration of the then
current Term of this Sublease) in any amount or amounts equal to
the excess, if any, of (x) over (y) with (x) being the sums of
the aggregate expenses paid by the Sublessor during the month
immediately preceding such calendar month for all such items as,
by the terms of this Sublease, are required to be paid by the
Sublessee, plus an amount equal to the amount of Basic Rent,
Expansion Rent and Additional Rent which would have been payable
by the Sublessee hereunder in respect to such calendar month, had
this Sublease and the applicable term of this Sublease not been
so terminated, and had the Sublessor not so re-entered, plus the
amount of the rental value of any portion of the Demised Premises
occupied by the Sublessee or any agent of the Sublessee and (y)
being the sum of rents, if any, collected by or accruing to the
Sublessor in respect to such calendar month pursuant to such
re-letting or any holding over by any subtenants of the
Sublessee. Any suit for any month shall not prejudice in any way
the rights of the Sublessor to collect the deficiency for any
subsequent month by a similar proceeding. The Sublessor, at its
option and at its expense, may make such alterations, repairs
and/or decorations in the Demised Premises as in its reasonable
judgment the Sublessor considers advisable and necessary, and the
making of such alterations, repairs and/or decorations shall not
operate or be construed to release the Sublessee from liability
hereunder. Sublessor shall use reasonable efforts to mitigate
damages, but otherwise Sublessor shall in no event be liable in
any way whatsoever for failure to re-let the Demised Premises, or
in the event that the Demised Premises are re-let, for failure to
collect rent thereof under such re-letting; and in no event shall
the Sublessee be entitled to receive any excess of such rents
over the sums payable by the Sublessee to the Sublessor hereunder
but such excess shall be credited to the unpaid rentals due
thereunder, and to the expenses of re-letting and preparing for
re-letting as provided in subparagraph (a) hereof. Suit or suits
for the recovery of such damages, or any installments thereof,
may be brought by the Sublessor from time to time at its
election, and nothing herein contained shall be deemed to require
the Sublessor to postpone suit until the date when the Term of
this Sublease would have expired if it has not been terminated
under the
21
provisions of this Sublease, or under any provision of law, or
had the Sublessor not re-entered into or upon the Demised
Premises.
Section 11.4 Waiver of Redemption. Sublessee hereby
waives all rights of redemption to which Sublessee or any person
claiming under Sublessee might be entitled, after an abandonment
of the Premises, or after a surrender and acceptance of the
Premises and the Sublessee's subleasehold estate, or after a
dispossession of Sublessee from the Demised Premises, or after a
termination of this Sublease, or after a judgment against
Sublessee in an action in ejectment, or after the issuance of a
final order or warrant of dispossess in a summary proceeding, or
any other proceeding or action authorized by any rule of law or
statute now or hereafter in force or effect.
Section 11.5 Provisions of Prime Lease as to Defaults
and Remedies Cumulative with the Provisions of Sublease.
Notwithstanding anything herein, the provisions of Article XVII
of the Prime Lease provides cumulative rights and remedies for
the Sublessor supplementing the provisions of this Sublease. It
is intended that the Sublessor shall have the benefit of the
provisions of the Sublease and the Prime Lease with respect to
defaults and remedies which provide the greatest rights and
remedies, to Sublessor. The Sublessor may elect the applicable
clause stipulating defaults and remedies, but failure to make
such election shall not abrogate the cumulative benefit to the
Sublessor intended by this provision.
ARTICLE XII
General Provisions
Section 12.1 No Waste. The Sublessee covenants not to
do or suffer any waste or damage or injury to any building or
improvement now or hereafter on the Demised Premises, or the
fixtures and equipment thereof, or permit or suffer any
overloading of the floors thereon.
Section 12.2 Limitation of Sublessor's Liability. If
Sublessor shall breach any of the provisions hereof, Sublessor
shall only be liable to Sublessee for actual monetary damages and
not for consequential damages and Sublessor's liability shall in
no event exceed the Sublessor's interest in the Demised Premises
as of the date of Sublessor's breach except for (a) liabilities
relating to representations, covenants and warranties made by
Sublessor herein in Section 4. l(iii) concerning liens prior to
the lien of this Sublease or (b) representations, covenants and
warranties made by Sublessor as to the environmental matters and
compliance with applicable laws as set forth in Article XIV. In
any instance where Sublessor's disapproval or withholding of
consent is challenged under the provisions of this Sublease, the
sole remedy available to Sublessee shall be an order directing
that such consent or approval be given, without assessment of any
damages as a consequence of the withholding of such consent or
approval. Sublessee expressly agrees that any judgment which it
may obtain against Sublessor shall be recoverable and satisfied
solely out of the right, title and interest of Sublessor in the
Demised Premises and there shall be no liability beyond such
interest in the Demised Premises except for (a) liabilities
relating to representations, covenants and warranties made by
Sublessor herein in Section 4.1 (iii) concerning liens prior to
the lien of this Sublease or (b) representations, covenants and
warranties made by Sublessor as to the environmental matters and
compliance with applicable laws as set forth in Article XIV.
Sublessee shall not hold any shareholder, officer or director of
the Sublessor personally liable for any breach of representations
or warranties or any other default under any circumstances.
Sublessee shall have no rights of lien or levy against any other
property of Sublessor, nor shall any other property or assets of
the Sublessor be subject to levy, execution or other enforcement
proceedings for the collection of any such sums or satisfaction
of any such judgment or award and Sublessee expressly agrees that
any judgment which it may obtain against Sublessor shall be
recoverable and satisfied solely out of the right, title and
interest of Sublessor in the Demised Premises except for (a)
liabilities relating to representations, covenants and warranties
made by Sublessor herein in Section 4.1 (iii) concerning liens
prior to the lien of this Sublease or (b) representations,
covenants and warranties made by Sublessor as to the
environmental matters and compliance with applicable laws as set
forth in Article XIV.
22
Section 12.3 Partial Invalidity. If any term or
provision of this Sublease or the application thereof to any
party or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Sublease or the application
of such term or provision to parties or circumstances other than
those to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Sublease
shall be valid and enforced to the fullest extent permitted by
law.
Section 12.4 No Waiver. One or more waivers by either
party of the obligation of the other to perform any covenant or
condition shall not be construed as a waiver of a subsequent
breach of the same or any other covenant or condition.
The receipt of rent by the Sublessor, with knowledge
of any breach of this Sublease by the Sublessee or of any default
on the part of the Sublessee in the observance or performance of
any of the conditions or covenants of this Sublease, shall not be
deemed to be a waiver of any provision of this Sublease. Neither
the acceptance of the keys nor any other act or thing done by the
Sublessor or any agent or employee during the Term herein demised
shall be deemed to be an acceptance of a surrender of said
Premises, excepting only an agreement, in writing, signed by the
Sublessor accepting or agreeing to accept such a surrender.
Section 12.5 Number and Gender. Wherever herein the
singular number is used, the same shall include the plural and
the masculine gender shall include the feminine and neuter
genders.
Section 12.6 Successors and Assigns. Subject to the
provisions of Article XIII, the terms, covenants and conditions
herein contained shall be binding upon and inure to the benefit
of the respective parties and their successors and assigns.
Section 12.7 Article and Marginal Headings. The
article and marginal headings herein are intended for convenience
in finding the subject matters, and are not to be used in
determining the intent of the parties to this Sublease.
Section 12.8 Entire Agreement. This instrument, the
Tri-Party Agreement and the Subordination, Non-Disturbance and
Attornment Agreement among the Prime Landlord, Sublessor,
Sublessee, Guarantor and The Bank of New York, all of even date,
contain the entire and only agreement among the parties, and no
oral statements or representations or prior written matter not
contained in this instrument shall have any force or effect. This
Sublease shall not be modified in any way or terminated except by
a writing executed by Sublessor and Sublessee.
Section 12.9 Obligations also Covenants. Whenever in
this Sublease any words of obligation or duty are used, such
words or expressions shall have the same force and effect as
though made in the form of covenants.
Section 12.10 Cost of Performing Obligations. The
respective obligations of the parties to keep, perform and
observe any terms, covenants or conditions of this Sublease shall
be at the sole cost and expense of the party so obligated.
Section 12.11 Remedies Cumulative. The specified
remedies to which the Sublessor may resort under the terms of
this Sublease are cumulative and are not intended to be exclusive
of any other remedies or means of redress to which the Sublessor
or Sublessee may be lawfully entitled in case of any breach or
threatened breach of any provision of this Sublease.
Section 12.12 Holding Over. If Sublessee holds over
after the expiration or earlier termination of this Sublease
("Holdover"), and if Sublessee is not otherwise in default
hereunder such holding over shall not be deemed to create an
extension of the term, but such occupancy shall be deemed to
create a month-to-month tenancy at the rate of one hundred
twenty-five (125 %) percent of the then current Basic Rent,
Additional Rent and the Expansion Rent for the first sixty (60)
days of the Holdover; and one hundred fifty (150%) percent of the
then current Basic Rent, Additional Rent and the Expansion Rent
for the next thirty (30) days or a portion thereof; and two
hundred (200%) percent of the then current Basic Rent, Additional
Rent and the Expansion Rent as the case may be thereafter during
such Holdover and on the
23
same terms and conditions (except as the same may be then
inapplicable in the then context of circumstances) as are in
effect on the date of said expiration or earlier termination.
Section 12.13 Signs.
(a) Sublessee shall have the right and privilege of
erecting signs for advertising purposes in connection with its
business at the Demised Premises as long as such signs meet with
the prior written approval of Sublessor and Prime Landlord, which
approval shall not be unreasonably withheld. Sublessee expressly
agrees that the privilege to erect signs is not intended and
shall not be applicable to any installation on the roof of the
Building.
(b) Sublessee shall be responsible for any damage
caused by said signs and any damage so caused shall be repaired
forthwith at Sublessee's sole cost and expense. In the event any
sign erected by Sublessee is removed during the Term of this
Sublease or at the expiration or earlier termination thereof,
Sublessee shall repair any damage whatsoever caused by the
removal at Sublessee's sole cost and expense.
Section 12.14 Property Insurance-Special Provision.
Sublessor will provide "all risk" property insurance for the full
replacement cost of the Building and all improvements and
betterments, except Sublessee's racking system, conveyor belts,
sorting systems or other trade fixtures as referred to in Article
VI, Section 6. 1(vii). The cost of this insurance will be
reimbursed to Sublessor by the Sublessee as Additional Rent in an
amount equal to the annual premium of the policy or the premium
developed by the Sublessee's insurance Company, whichever is
less.
Sublessee and Sublessor will mutually cause their
respective insurance companies to waive any rights of subrogation
under such property insurance against the Sublessor or Sublessee,
respectively.
Section 12.15 Brokerage. Sublessor and Sublessee
mutually represent and covenant to each other that neither party
dealt with a real estate broker or salesperson other than
Aramanda Realty Corp. and Cushman & Wakefield of N.J. Sublessor
shall be responsible to pay to Aramanda Realty Corp. and to
Cushman & Wakefield of N.J. any commission due.
The parties hereto agree to indemnify each other and
hold each other harmless against any and all claims, liabilities,
losses, judgments and expenses including legal fees which one
party suffers if the representation of the other party set forth
herein proves to be untrue.
Section 12.16 Notice by Sublessee to Mortgagee. If
required by the holder of a mortgage lien to which this Sublease
is subordinate (provided Sublessee is furnished with written
notice of such requirement), Sublessee agrees (a) to notify such
mortgagee of any alleged default by Sublessor in any of the
provisions of this Sublease: and (b) to allow to the said
mortgagee a reasonable period time to cure such alleged default.
Section 12.17 Sublessee Electric. Sublessee's use of
electric energy in the Demised Premises shall not at any time
exceed the capacity of any of the electrical conductors and
equipment in or serving the Demised Premises.
Section 12.18 Conduct of Sublessee's Work.
(a) The parties mutually acknowledge that Sublessee
may determine to effect installation on the Premises which are
the subject of this Sublease certain subleasehold improvements
("Sublessee's Work") in the nature of fixtures, equipment and
personalty. Such Sublessee's Work is contemplated to be effected
subsequent to the execution hereof and prior to the Commencement
Date as herein defined. Sublessee agrees to permit Sublessor and
its agents and contractors to enter upon the Premises for such
purposes with the understanding by the parties that it is of the
essence that the progress of the Construction Work shall not be
delayed, interrupted, or impeded; nor shall the Construction Work
be affected in any manner whatsoever which will result in an
increase in the Sublessor's cost in completion of the
Construction Work prior to the Commencement Date.
24
(b) Labor used in the performance of Sublessee's Work
("Sublessee's Labor") shall be such as is compatible with the
labor used in the performance of the Construction Work; and use
of Sublessee's Labor shall not result in any stoppage, delay or
interruption whatsoever in the Construction Work.
(c) In the event of any stoppage, delay or
interruption in the Construction Work while Sublessee's Labor is
engaged on the premises, Sublessee shall forthwith cease and
desist use of Sublessee's Labor on the premises upon receipt of
written notice from Sublessor demanding cessation of Sublessor's
Work. Thereafter, Sublessee shall not engage Sublessee's Labor on
the premises until Sublessor shall have given written approval
therefor.
(d) Sublessee shall have the right to perform
Construction Work in order to demolish, at its sole cost and
expense and risk, certain existing improvements hereby referred
to as the Cafeteria Improvements and Locker Room Areas together
with the adjacent restroom facilities shown on Exhibit G.
Sublessee shall indemnify Sublessor and the first mortgagee of
the Demised Premises for any losses, damages, liabilities,
claims, costs, expenses (including reasonable fees and expenses
of counsel) for personal injury or property damage which results
from or arises out of the performance of such Demolition provided
that Sublessee will be under no obligation to replace these
improvements at the termination of this Sublease or anytime
during the Term of this Sublease or extensions thereof.
Section 12.19 Interest and Late Payment Service
Charge. Sublessee covenants and agrees to pay to Sublessor
interest at the Sublease Interest Rate and a late payment service
charge equal to five (5 %) percent of any Basic Rent, Additional
Rent and Expansion Rent payment or any other payment prescribed
herein which has not been paid in accordance with the provisions
of this Sublease Agreement, provided, however, that such interest
and late payment service charges shall not commence to accrue
until a delinquency by Sublessee exceeds five (5) business days.
Said interest and late payment service charge shall be both paid
by Sublessee to Sublessor promptly upon proper notice and demand
therefor.
Section 12.20 Definitions.
(a) "Additional Rent" shall have the meaning provided
in Article V, Section 5.5.
(b) "Architect" shall have the meaning provided in
Article III, Section 3.1(b).
(c) "Assignment" shall have the meaning provided in
Article XIII, Section 13.1.
(d) "Basic Rent" shall have the meaning provided in
Article V.
(e) "Building" shall have the meaning provided in
Article I, Section 1.1.
(f) "Commencement Date" shall mean February 1, 1994.
(g) "Completion Account" shall have the meaning
provided in Article V, Section 5.14.
(h) "Completion Budget Amount" or "CBA" shall have the
meaning described in Section 5.13.
(i) "Completion Date Interest Rate" shall have the
meaning provided in Article V, Section 5.9.
(j) Construction Costs. Construction Costs shall mean,
in each instance whether or not involving an expansion as herein
contemplated, the aggregate direct and indirect costs for
Construction Work including, but not limited to, the actual cost
of work, labor, materials and equipment, financing, brokers fees
or commissions for financing, brokerage fees or
25
commissions for Expansion Rent, if any, and any and all
reasonable professional fees for accountants, architects,
engineers, planners, attorneys and other consultants. including
the cost of the Sublessor's Architect retained by the Sublessor
to insure that the Construction Work of the Qualified Contractor
and others engaged by the Sublessee is in accord with the
provisions of this Sublease and to certify the value of work in
place in accordance with the plans and specifications for the
purpose of progress payments with respect to Expansion #1 and
interest at the Sublessee Interest Rate on Sublessor's advances
up to the Funding Limits of the Construction Costs for the
Expansion #1 Space. Such interest shall compound monthly and be
calculated on a 30 day month and a 360 day year. Construction
Costs do not include any costs incurred by Sublessor or Sublessee
in negotiating this Sublease, the Tri-Party Agreement of even
date or any other document in conjunction therewith. Sublessor
and Sublessee shall each bear their respective costs incurred in
the negotiation of this Sublease and all other collateral
agreements executed in conjunction herewith.
(k) "Construction Work". The term "Construction Work"
is a collective term meaning the totality of all services, work,
labor, materials and equipment necessary, in each instance, in
the performance by Sublessee of the repairs, alterations and
other work contemplated herein, whether or not involving
Expansion #1 or Expansion #2, including, but not limited to, the
design of the improvements to be erected, site preparation and
sub-soil footings and foundations, grading, surfacing of parking
area, paths and ways, installation of all utilities; and the
cleanup and removal of debris, the work of accountants,
architects, engineers, planners, attorneys, surveyors and other
consultants performing services in conjunction with the foregoing
or any permitting or approval process required under applicable
law. It is intended that Construction Work when complete shall
place the completed Building, as expanded, in full availability
for the conduct of the business activity at the site permitted
under applicable land use regulations.
(l) "Default" shall have the meaning provided in
Article XI, Section 11.1.
(m) "Demised Premises" shall have the meanings
described in Article I.
(n) "EPA" shall mean the United States Environmental
Protection Agency.
(o) "Expansion" shall mean Expansion #1 Space and/or
Expansion #2 Space.
(p) "Expansion #1 shall mean Expansion #1 Space.
(q) "Expansion #2" shall mean Expansion #2 Space.
(r) "Expansion #1 Option" shall mean the rights of the
Sublessee described in Article III, Section 3.1.
(s) "Expansion #2 Option" shall mean the rights of the
Sublessee described in Article II, Section 3.2.
(t) "Expansion #1 Space" shall have the meaning
described in Article III, Section 3.1 and identified as A on
Exhibit E.
(u) "Expansion #2 Space" shall have the meaning
described in Article III, Section 3.2 and identified as B and C
on Exhibit E.
(v) "Expansion #2 Term" shall have the meaning
provided in Article 2, Section 2.1(b).
(w) "Fair Market Rental" shall have the meaning
provided in Article V, Section 5.6.
(x) "Fax" shall have the meaning provided in Article
VIII, Section 8.1.
(y) "Fixed Rate" shall have the meaning provided in
Article V, Section 5.7.
26
(z) "Fractional Month" shall have-the meaning provided
in Article II, Section 2.1(a).
(aa) "Funding Limit" shall have the meaning provided
in Section 3.5
(ab) "Guarantor" shall mean the J. Crew Group, Inc.
(ac) "Guaranty" shall mean the Guaranty dated the date
hereof between J. Crew Group, Inc. and Revlon Holdings Inc.
(ad) "Hazardous Substances" shall have the meaning
defined in Article XIV, Section 14.1.
(ae) "IDP" shall have the meaning described in Article
I, Section 1.1.
(af) "Initial Occupancy Date" shall mean November 1,
1993 as provided in Article II, Section 2.2.
(ag) "Initial Term" shall have the meaning provided in
Article II, Section 2.1(a).
(ah) "ISRA" shall mean N.J.S.A. 13:lK--6 et seq.,
Industrial Site Recovery Act.
(ai) "NJDEPE" shall mean the New Jersey Department of
Environmental Protection and Energy.
(aj) "Notice Date Interest Rate" shall have the
meaning provided in Article V, Section 5.8.
(ak) "Preliminary Expansion #1 Plans" shall have the
meaning provided in Article III, Section 3.1(b).
(al) "Premises" shall have the meaning provided in
Article I, Section 1.1.
(am) "Prime Index" shall have the meaning provided in
Article V, Section 5.8.
(an) "Prime Landlord" shall have the meaning described
in Article I, Section 1.2(a).
(ao) "Prime Lease" shall have the meaning provided in
Article I, Section 1.2(a).
(ap) "Prime Rate" shall be the "base rate" or "prime
rate" announced by Chemical Bank, whether or not such rate has
actually been charged by such bank provided, if Chemical Bank
discontinues the practice of announcing a "prime rate" or "base
rate", the Prime Rate shall mean the "prime rate" or "base rate"
reported in the money column or section of the Wall Street
Journal as being the base rate on corporate loans at large U.S.
Money Center Banks (whether or not such rate has actually been
charged by any such bank).
(aq) "Prime Spread" shall have the meaning provided in
Article V, Section 5.8.
(ar) "Prime Tenant" shall have-the meaning described
in Article I, Section 1.2(a).
(as) Qualified Contractor. The term "Qualified
Contractor" means an organization with at least ten years
experience in the construction of industrial/commercial
structures which has been selected by the Sublessee to perform
the Construction Work after the Sublessee has requested at least
two bids for the completion of the Construction Work, provided
the contractor selected from the bids received by the Sublessor
has demonstrated to the Sublessor's satisfaction that the
contractor possesses the requisite experience and financial
resources to complete the Construction Work.
27
(at) "RCPC" shall have the meaning provided in Article
I, Section 1.2(a).
(au) "Re-enter and Re-entry". The terms "re-enter" and
"re-entry" as used in this Sublease are not restricted to their
technical legal meaning.
(av) "Sublease Interest Rate." The term "Sublease
Interest Rate," as used in this Lease, shall mean interest at the
rate which is three (3 %) percent in excess of the Prime Rate.
(aw) "Sublessee Funded Expansion #1 Term" shall have
the meaning provided in Article 2, Section 2.l(b).
(ax) "Sublessor." The term "Sublessor" as used in this
Sublease means only the holder, for the time being, of
Sublessor's interest under this Sublease so that in the event of
any transfer of title to the Demised Premises Sublessor shall be
and hereby is entirely freed and relieved of all obligations of
Sublessor hereunder accruing after such transfer, and it shall be
deemed without further agreement between the parties that such
grantee, transferee or assignee has assumed and agreed to observe
and perform all obligations of Sublessor hereunder arising during
the period it is the holder of Sublessor's interest hereunder.
(ay) "Sublessor Funded Expansion #1 Term" shall have
the meaning described in Article I, Section 1.1 and Article II,
Section 2.1(b).
(az) "Sublessor's Architect" shall have the meaning
provided in Article III, Section 3.1(a).
(ba) "Treasury Index" shall have the meaning provided
in Article V, Section 5.8.
(bb) "Treasury Spread" shall have the meaning provided
in Article V, Section 5.8.
(bc) "Tri-Party Agreement" shall have the meaning
provided in Article I, Section 1.2(a).
(bd) "#1 Measuring Date" shall have the meaning
provided in Article II, Section 2.1(b).
(be) "#2 Measuring Date" shall have the meaning
provided in Article II, Section 2.1(b).
(bf) "Zoning Change"' shall have the meaning provided
in Article III Section 3.2.
Section 12.21 Governing Law. The interpretation and
validity of this Sublease shall be governed by the laws of the
State of New Jersey applicable to contracts negotiated, executed
and to be performed in the State of New Jersey. Any controversy
arising out of the terms of this Sublease shall be resolved by
appropriate proceedings in either the United States District
Court for New Jersey or the Superior Court of New Jersey either
or which shall have sole and exclusive jurisdiction thereof.
ARTICLE XIII
Assignment, Subletting, Etc.
Section 13.1 Assignment. Subletting. Etc. Sublessee
shall not sell, assign, mortgage, pledge, or, in any manner,
transfer or encumber this Sublease or any estate or interest
hereunder, or sublet the Demised Premises or any part thereof
(any of the foregoing shall be referred to herein as
"Assignment") without the previous written consent of the
Sublessor which consent shall not be unreasonably withheld
provided that (i) Sublessee is not in material default
28
hereunder and no event has occurred which with notice or passage
of time, or both, would constitute a material default hereunder
(without regard to whether a notice of default has been served
pursuant to Article XI); (ii) Sublessee shall provide Sublessor
with access to the Demised Premises for inspection and testing
thereof; (iii) the use by the proposed assignee or sublessee does
not, in Sublessor's reasonable judgment, (a) adversely affect the
Demised Premises by virtue of environmentally related factors or
(b) lessen the value of the Premises; or (c) increase risk or
endanger the Building or the occupants thereof; and (iv)
Sublessee shall provide Sublessor with financial statements and
information demonstrating to Sublessor's reasonable satisfaction
that the prospective assignee or sublessee has the financial
capacity to perform the obligations of the Sublessee hereunder.
Any sale of stock or assets of the Sublessee or any merger,
consolidation or liquidation of the Sublessee shall be deemed to
be an Assignment for purposes of this Section 13.1 (other than an
initial public offering of not more than 19 % of the outstanding
common stock of Sublessee in an underwritten public offering
under the Securities Act of l933). Notwithstanding the foregoing,
in the case of any Assignment to a wholly owned subsidiary or
affiliate of Sublessee or J. Crew Group, Inc. (so long as
Sublessee or J. Crew Group, Inc. retains the controlling interest
in such affiliate) or to Sublessee's parent, such previous
written consent by Sublessor shall not be necessary, provided
that Sublessee shall provide thirty (30) days advance written
notice of any such Assignment to such a subsidiary or affiliate
and will provide Sublessor with any information reasonably
requested regarding the Assignee. In any of the events aforesaid
whether or not consent is required, Sublessee, nevertheless,
shall remain directly and primarily liable for the payment of the
Basic Rent, Additional Rent and Expansion Rent, and the
performance of Sublessee's other covenants and obligations
hereunder. Any amount received by Sublessee in connection with an
Assignment or to the extent such amount exceeds the amount
required to be paid by Sublessee to Sublessor under this Lease
(net of Sublessee's brokers fees, reasonable legal fees for
preparation of Assignment documents and reasonable cost of
alterations for the prospective assignee or sublessee) shall
belong to and be promptly remitted by Sublessee to Sublessor. No
consent to any Assignment of this Sublease shall be deemed or
construed to be a consent by Sublessor to any further or
additional Assignment. In the event of an Assignment , the
assignee or sublessee, as the case may be, shall (as condition to
Sublessor's consent thereto where consent is required, and in the
case of any assignment in which consent is not required) assume,
by written recordable instrument reasonably satisfactory to
Sublessor, the due performance of all of Sublessee's obligations
under this Lease. No Assignment shall be valid or effective in
the absence of such assumption. In connection with any
Assignment, the prospective Assignee shall not more than thirty
(30) days prior to the effective date of such Assignment, furnish
to the Sublessor in each case, its then current consolidated and
consolidating balance sheets as of the end of its most recent
fiscal year and the related statements of income, shareholders'
equity and changes in cash flow for such fiscal year, setting
forth in each, in comparative form the figures for the previous
fiscal year. All such consolidated statements reported on, shall
be without qualification, and by independent certified public
accountants satisfactory to the Sublessor. Each year thereafter,
within ninety (90) days of the end of each fiscal year, the
Assignee shall provide their respective financial statements in
the aforementioned form with the aforementioned required
certification of the respective independent certified public
accountants, to the Sublessor. A true copy of such Assignment and
the original assumption agreement or the sublease, as the case
may be, shall be delivered to Sublessor within ten (10) days of
the effective date thereof. Notwithstanding anything to the
contrary, Sublessor shall have the right, but not the obligation,
to notify Sublessee within thirty (30) days of receipt of
Sublessee's request for consent to an Assignment or subletting
that Sublessor has elected to terminate the Sublease which
termination shall become effective ninety (90) days after the
date Sublessee receives said notice of election from Sublessor.
ARTICLE XIV
Compliance with Laws, Rules and Regulations
Section 14.1 Environmental Compliance.
(a) The Sublessee shall at all times comply with
applicable municipal, state and federal laws, ordinances and
regulations relating to hazardous substances as defined in the
Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA")
and/or Spill Compensation and Control Act, N.J.S.A. 58:10-23.11,
et seq., or any other environmental law (the "Hazardous
29
Substances") from and after the signing of this Sublease. The
Sublessee shall at its own expense maintain in effect any
permits, licenses or other governmental approvals, if any,
required for the Sublessee's use of the Demised Premises. The
Sublessee shall make all disclosures required of the Sublessee by
any such laws, ordinances and regulations, and shall comply with
all orders, with respect to the Sublessee's use of the Demised
Premises, issued by any governmental authority having
jurisdiction over the Demised Premises, and take all action
required of such governmental authorities to bring the
Sublessee's activities on the Demised Premises into compliance
with all laws, rules, regulations and ordinances relating to
Hazardous Substances and affecting the Demised Premises except
arising from any compliance attributable to Sublessor or any
party in privity with Sublessor which responsibility for
compliance shall belong to Sublessor or any party in privity with
Sublessor.
(b) Sublessor shall, prior to the Initial Occupancy
Date, comply with Sublessor's obligations pursuant to ISRA and
any other environmental law, statute or ordinance, and such
compliance shall be a condition precedent to Sublessee's entry
and occupancy of the Premises.
(c) If at any time the Sublessee or Sublessor shall
become aware, or have reasonable cause to believe, that any
Hazardous Substance has been released or has otherwise come to be
located on or beneath the Premises, such party shall, immediately
upon discovering the release or the presence or suspected
presence of the Hazardous Substance, give written notice of that
condition to the other party. In addition, the party first
learning of the release or presence of a Hazardous Substance on
or beneath the Premises, shall immediately notify the other party
in writing of (i) any enforcement, cleanup, removal, or other
governmental or regulatory action instituted, completed, or
threatened pursuant to any Hazardous Substance laws, (ii) any
claim made or threatened by any person against Sublessor, the
Sublessee or the Premises arising out of or resulting from any
Hazardous Substances, and (iii) any reports made to any
municipal, state, or federal environmental agency arising out of
or in connection with any Hazardous Substance.
(d) Sublessee shall indemnify, defend (by counsel
acceptable to the Sublessor), protect, and hold harmless the
Sublessor and each of the Sublessor's partners, directors,
officers, employees, agents, attorneys, successors, and assigns,
from and against any and all claims, liabilities, penalties,
fines, judgments, forfeitures, losses, costs, or expenses
(including attorney's fees, consultants' fees, and expert fees)
for the death of or injury to any person or damage to any
property whatsoever, arising from or caused in whole or in part,
directly or indirectly, by (i) the presence in, or, under, or
about the Premises, or any discharge or release in or from the
Premises of any Hazardous Substance, which is caused by Sublessee
or anyone in privity with Sublessee, or (ii) Sublessee's failure
or the failure of anyone in privity with Sublessee to comply with
any Hazardous Substance law.
(e) Sublessor shall indemnify, defend (by counsel
acceptable to the Sublessee), protect, and hold harmless the
Sublessee and each of the Sublessee's partners, directors,
officers, employees, agents, attorneys, successors, and assigns
from and against any and all claims, liabilities, penalties,
fines, judgments, forfeitures, losses, costs or expenses
(including attorney's fees, consultants' fees, and experts' fees)
for the death of or injury to any person or damage to any
property whatsoever, arising from or caused in whole or in part,
directly or indirectly, by (i) the presence in, or, under, or
about the Premises, or any discharge or release in or from the
Premises of any Hazardous Substance, which is caused by the
Sublessor or any one in privity with Sublessor or (ii)
Sublessor's failure or the failure of anyone in privity with
Sublessor to comply with any Hazardous Substance law.
(f) The indemnity obligations created hereunder shall
include, without limitation, and whether foreseeable or
unforeseeable, any and all costs incurred in connection with any
site investigation of the Premises, and any and all costs for
repair, cleanup, detoxification or decontamination, or other
remedial action of the Premises. The obligations of the Sublessee
and Sublessor hereunder shall survive the expiration or earlier
termination of this Sublease, and any extensions thereof.
(g) Sublessee shall not engage in operations at the
Premises which involve the generation, manufacture, refining,
transportation, treatment, storage, handling or disposal of
30
"hazardous substance" or "hazardous wastes", as such terms are
defined under ISRA except these ordinarily used for general
office purposes or ordinarily used for warehousing, light
assembly, packaging, marketing and distribution operations in
accordance with Article X use. Sublessee further covenants that
it will not cause or permit to exist as a result of an
intentional or unintentional action or omission on its part, the
releasing, spilling, leaking, pumping, pouring, emitting,
emptying or dumping from, on or about the Premises or the land on
which it is located of any hazardous substances (as such term is
defined under N.J.S.A. 58:l0-12.ll(b)(d) and N.J.A.C. 7:1-3.3).
(h) If ISRA is triggered by Sublessee's actions or any
party in privity with Sublessee, Sublessee shall, at Sublessee's
own expense, comply with ISRA and the regulations promulgated
thereunder to the extent ISRA is applicable to Sublessee. If ISRA
is triggered by Sublessor's actions or the actions of any party
in privity with the Sublessor. Sublessor shall, at Sublessor's
own expense, comply with ISRA and the regulations promulgated
thereunder to the extent ISRA is applicable to the Sublessor.
Sublessee shall, at Sublessee's own expense, make all submissions
to provide all information to, and comply with all requirements
of the Bureau of Industrial Site Evaluation ("the Bureau") of the
New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Should the Bureau or any other division of NJDEPE
determine that a cleanup plan be prepared and that a cleanup be
undertaken because of any spills or discharges of hazardous
substances or wastes at the Premises which occur during the Term
of this Sublease, if caused by the Sublessee, then Sublessee
shall, at Sublessee's own expense, prepare and submit the
required plans and financial assurances, and carry out the
approved plans. If caused by Sublessor, then Sublessor shall, at
Sublessor's own expense, prepare and submit the required plans
and financial assurances, and carry out the approved plans.
Sublessee's obligations under this paragraph shall arise if there
is any closing, terminating or transferring of operations of an
industrial establishment at the Premises which triggers ISRA.
Upon Sublessee's request, Sublessor shall provide reasonable
cooperation at no expense to Sublessee unless ISRA is triggered
by Sublessee or someone in privity with Sublessee, in connection
with Sublessee's obligation to comply with ISRA. At no expense to
Sublessor, Sublessor shall promptly provide all information
reasonably required by Sublessee for preparation of
non-applicability affidavits and shall promptly review, revise as
necessary and sign such affidavits when requested by Sublessee.
Sublessee shall indemnify, defend and save harmless Sublessor
from all fines, suits, procedures, claims and actions of any kind
arising out of or in anyway connected with any spills or
discharges of hazardous substances or wastes at the Demised
Premises which occur during the Term of this Sublease and are
caused by Sublessee or any party in privity with the Sublessee;
and from all fines, suits, procedures, claims and actions of any
kind arising out of Sublessee's failure to provide all
information, make all submissions and take all actions required
by ISRA, the Bureau or any other division of NJDEPE. Sublessor
shall indemnify, defend and save harmless Sublessee from all
fines, suits, procedures, claims and actions of any kind arising
out of or in any way connected with any spills or discharges of
Hazardous Substances at the Demised Premises which occur prior to
the Term of this Sublease and are caused by Sublessor or any
party in privity with Sublessor; and from all fines, suits,
procedures, claims and actions of any kind arising out of
Sublessor's failure to provide all information, make all
submissions and take all actions required by ISRA, the Bureau or
any other division of NJDEPE. The obligations and liabilities
under this paragraph shall continue so long as Sublessee or
Sublessor remain responsible for any spills or discharges of
Hazardous Substances at the Premises . Sublessee's failure to
abide by the terms of this paragraph shall entitle Sublessor to
appropriate equitable relief.
(i) With respect to Sublessee's occupancy of the
Demised Premises, Sublessee shall promptly provide Sublessor with
any notices, correspondence and submissions made by Sublessee to
or to Sublessee from NJDEPE, the United States Environmental
Protection Agency (EPA), or any other local, state or federal
authority which requires submission (with respect to Sublessee's
occupancy of the Demised Premises) of any information concerning
environmental matters or Hazardous Substances. Similarly during
Sublessee's occupancy of the Demised Premises, Sublessor shall
promptly provide to Sublessee any notices, correspondence and
submissions made by Sublessor to or from NJDEPE, the United
States Environmental Protection Agency (EPA), or any of the
local, state or federal authority which requires submission (with
respect to the Demised Premises) of any information concerning
environmental matters or Hazardous Substances.
31
(j) Sublessee represents and warrants that its SIC
Number is 5961. Sublessee hereby agrees that it shall promptly
inform Sublessor of any change in the business to be conducted in
the Demised Premises, but the Demised Premises shall be used only
for the purposes described in Article X.
(k) In the event of Sublessee's failure to comply in
full with this paragraph, Sublessor may, at its option, perform
any and all of Sublessee's obligations as aforesaid and all costs
and expenses reasonably incurred by Sublessor in the exercise of
this right shall be added to the next month's rent and be due and
payable as such, or the Sublessor may deduct the same from the
balance of any sum remaining in the Sublessor's hands.
(1) Sublessee's obligations under this paragraph shall
survive the expiration or earlier termination of this Sublease.
IN WITNESS WHEREOF, Sublessor and Sublessee have
executed this Sublease as of the day and year first above
written.
Attest: SUBLESSOR:
REVLON HOLDINGS INC. a Delaware
____________________________ Corporation
By:____________________________________
Attest: SUBLESSEE:
POPULAR CLUB PLAN, INC. a New Jersey
____________________________ Corporation, a Division of J. CREW GROUP, INC.
By:____________________________________
32
WORLD COLOR Letterhead Thomas L. Groenings, Sr.
Vice President
Catalog Division
July 29, 1996
Ms. Trudy Sullivan
President
CLIFFORD & WILLS
11 East 19th Street
Sixth Floor
New York, NY 10011
Dear Ms. Sullivan:
In order to secure a contract extension of three years beyond the
current contract expiration of May 1997, World Color offers the
following:
1. World Color will grant a 7% price reduction beginning
with June 1996 production. The enclosed price schedule
reflects this same reduction on the new trim size
beginning Spring 1997. Those invoices from June until
the end of 1996 will show the 7% reduction in
manufacturing as a separate line item.
2. World Color will waive the 1997 labor increase. The
enclosed price schedule remains in effect until
January 1, 1998.
All other terms and conditions of the original contract dated
March 1991, will remain unchanged.
Best Regards,
/s/ Thomas L. Groenings
cc: Sam Kaplan
Approved: Acknowledged and Accepted:
/s/ /s/
- ------------------------- ----------------------------
Thomas L. Groenings Trudy Sullivan
Vice President, Eastern President
Catalog Sales
Clifford & Wills January 1, 1996
New York, NY 10003 Page One
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8 X 10" Trim Size - Rotogravure
- -----------------------------------
Cylinder and 1 Proofing
8- page form .......................... $9,315.59
12- page form .......................... 9,603.56
16- page form .......................... 9,891.55
20- page form .......................... 10,178.59
24- page form .......................... 10,466.58
28- page form .......................... 10,753.62
32- page form .......................... 11,040.66
36- page form .......................... 14,444.54
40- page form .......................... 11,615.68
48- page form .......................... 12,189.76
56- page form .......................... 12,764.79
60- page form .......................... 16,240.43
64- page form .......................... 13,339.82
72- page form .......................... 17,137.44
Additional for a second proofing,
per form .................................. 2,894.95
Additional for double cutting key cylinders,
per form .................................. 1,699.58
Production Makeready
8- page form .......................... $2,368.08
12- page form .......................... 2,368.08
16- page form .......................... 2,368.08
20- page form .......................... 2,202.84
24- page form .......................... 2,202.84
28- page form .......................... 2,202.84
32- page form .......................... 2,202.84
36- page form .......................... 3,476.58
40- page form .......................... 2,202.84
48- page form .......................... 2,202.84
56- page form .......................... 2,202.84
60- page form .......................... 3,476.58
64- page form .......................... 2,202.84
72- page form .......................... 3,476.58
Roll change from one grade of
paper to another (same roll size),
per form .................................... 117.27
Clifford & Wills January 1, 1996
New York, NY 10003 Page Two
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Rotogravure 32" or 33" 48"
- ------------------------------------ ---------- ---
Changeovers, per cylinder
Cylinders and 1 proofing....... $1,111.26 $1,506.95
Production press makeready............ 212.91 336.39
Furnished positives, per page,
per color............................. 17.99 17.99
Premium for runs under
1,000,000 impressions, per form....... 1,696.53 1,696.53
Press Running - Per Thousand Copies
- -----------------------------------
8- page form ....................................... $5.48
12- page form ....................................... 4.77
16- page form ....................................... 6.11
20- page form ....................................... 8.34
24- page form ....................................... 8.37
28- page form ....................................... 8.40
32- page form ....................................... 10.31
36- page form ....................................... 13.09
40- page form ....................................... 15.75
48- page form ....................................... 15.80
56- page form ....................................... 15.87
60- page form ....................................... 25.60
64- page form ....................................... 20.63
72- page form ....................................... 25.72
Slitting up to 1-7/8" of excess
width from furnished roll stock...................... 2.24
Ink (4-color page)
Per thousand copies..................................... 0.411
Ink is firm based on the coverage
in the "Clifford & Wills" 1991
Catalogs and current market prices.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Three
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Web Offset
- -----------------------------------
Printing Plates
4-page form........................ $575.97
6-page gatefold form............... 575.97
8-page form........................ 1,151.94
16-page form....................... 1,336.06
Production Press Makeready
4-page form........................ 1,681.64
6-page gatefold form............... 1,681.64
8-page form........................ 2,518.21
16-page form....................... 2,362.41
Changeovers
1 color change per
side of web (1 plate).............. 175.62
4 color change, per
side of web (4 plates)............. 702.49
Roll change from one grade of
paper to another (same roll size),
per form........................... 109.54
Clifford & Wills January 1, 1996
New York, NY 10003 Page Four
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Web Offset
- -----------------------------------
Press running - Per Thousand copies
4-page form........................ $4.79
6-page gatefold form............... 11.16
8-page form........................ 4.99
16-page form....................... 8.43
Pre-trim folded signatures at the
head to 0-14" head-to-foot
4- page................... 0.86
6- page................... 1.29
8- page................... 1.29
16- page................... 1.72
Clifford & Wills January 1, 1996
New York, NY 10003 Page Five
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Offset Prices
- --------------------------------------
U.V. Coat Cover (4-Page Press Form Only)
Per thousand copies................. $7.73
Ink (4-color page)
Per thousand copies................. 0.378
Special 5th Color On Cover
Plate, makeready and wash-up........ 733.66
Plate and makeready for overall
press varnish (metallic gold only).. 172.79
Ink, per page, per color,
per thousand copies (based on
5-3/4" x 3/4" of coverage........... 0.352
Varnish ink, per page, per
thousand copies (100% coverage)
Full page....................... 0.250
Gatefold........................ 0.120
Varnish ink, per page, per
thousand copies (spot.coverage)..... 0.091
Ink is firm based on the coverage
in the "Clifford & Wills" 1991
Catalogs and current market prices.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Five-A
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Rotogravure or Web Offset
- --------------------------------------------------
Paper Storage, per cwt.
1st month (includes in/out) ........ $0.238
Each additional month .............. 0.119
Per the contract, Clifford & Wills may
inventory without charge up to two (2)
months' consumption required to produce
catalogs or two (2) million pounds, which-
ever is less. Should this non-chargeable
contract allowance be exceeded, paper
storage will be invoiced as required.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Six
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Saddle Stitch Binding,
loose our floor,
per thousand copies:
Basic, No Units $11.52
4- page (cover or body).......................... 1.50
6- page (gatefold) ............................ 1.79
8- page ....................................... 1.65
12- page ....................................... 1.68
16- page ....................................... 1.79
20- page ....................................... 1.93
24- page ....................................... 2.06
28- page ....................................... 2.18
32- page ....................................... 2.28
36- page ....................................... 2.41
40- page ....................................... 2.55
48- page ....................................... 3.67
56- page ....................................... 3.92
64- page ....................................... 4.40
72- page ....................................... 4.67
Furnished 4-page order form ...................... 1.66
Card insert ....................................... 1.66
Furnished 12-page catalog, approximate
size 6-1/8" low folio x 5-3/4" high folio
x 7-1/8" head-to-foot on Basis 25 x 38 -
45# Machine Coated including 1/8" foot
trim and 3/8" low folio binding lap.................. 1.95
Furnished 12-page catalog, approximate size
6" x 7-18" head-to-foot, folded corner-to-
corner with closed foot for suction feeding
on the binder, on Basis 25 x 38 - 50#
Machine Coated including 1/8" foot trim.............. 2.73
Reverse cam set-up, per box, per machine............. 100.37
Inserts are to be furnished f.o.b. our
designated plant, ready for 1-up binding per
our specifications, including a 3.0% binding
waste allowance.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Seven
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Ink jet mail using magnetic tapes furnished
to our specifications, per thousand....................... $7.33
Ink for messages, per message,
per thousand.............................................. 0.75
Binder/mailer changes
First unit changed.................................. 56.37
Each unit changed at same time...................... 38.33
Binder/mailer run cost for postnet barcoding,
per thousand copies................................. 1.42
Selective Binding - maximum 16 boxes
Makeready
1-3 variable boxes............................. 399.40
4 or more variable boxes, per box.............. 39.79
Per thousand copies
1-2 variable boxes............................. 2.99
3-6 variable boxes............................. 4.89
7 or more variable boxes....................... 6.23
All furnished inserts for selective binding must
be the same size or smaller than body units and
must be approved by our manufacturing
department.
Pack in convenient size cartons not to
exceed 40# each, per carton............................... 1.33
Pack in convenient size bundles not to exceed
40# each, plastic tie 2 ways, per bundle.................. 0.54
Packing on disposable pallets, per pallet................. 25.35
Preparation for any special packing of pallets,
bundles or cartons, addressing of labels,
preparing for various shipments or other
miscellaneous traffic services will be invoiced
additional.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Eight
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Cheshire Mail Off-Line (7 digit carrier route
or 5 digit presort) using paper labels furnished
to our specifications,
Makeready, per machine.............................. $264.38
Running, per thousand copies........................ 16.49
Cheshire labels and bag tags are to
be furnished in accordance with our
specifications and postal regulations
regarding code separations.
Polybag paper labeled copies using
1.5 mil clear film, subject to
availability of equipment.
Makeready, per machine.............................. 168.07
Running, per thousand copies........................ 20.26
Poly film is subject to adjustment based
on actual usage and invoice cost plus ten
(10%) percent handling charge.
Additional for a furnished insert with
polybag (maximum 3), per thousand copies.................. 2.36
Dot whacking using labels furnished
to our specifications,
Makeready, per machine.............................. 144.46
per thousand........................................ 3.87
Labels are to be furnished in rolls
from a minimum of 1" x 1" square
or 1" diameter round to a maximum
of 2-1/2" x 2-1/2" square or 2-12"
diameter round.
Traffic services, per hour................................ 37.40
Clifford & Wills January 1, 1996
New York, NY 10003 Page Nine
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Bind and Distribution
- ----------------------------------------------
Polybag Japanese mail copies using
1.5 mil clear film, subject to
availability of equipment.
Makeready, per machine............................ $128.32
Running, per thousand copies...................... 123.58
Postal drop shipping administrative fee,
per drop
Stand alone....................................... 25.40
Merged............................................ 35.54
Mailing list preparatory,
per thousand records processed:
Copy and reformat list............................ 0.44
Apply carrier route codes......................... 1.47
Qualify for mail discount......................... 1.39
Ink Jet........................................... 1.09
Selective binding................................. 1.09
Mail tracking..................................... 1.18
Paper label....................................... 1.59
Additional pass to qualify for
bar coding........................................ 0.85
Ink Jet Message set-up, each...................... 102.37
Mailing list preparatory prices are based
on you furnishing names and addresses in
zip code sequence on magnetic nine
track 6250 or 1600 B.P.I. tape or 18 track
cartridge tape. We will qualify mailing
lists to maximize postal discounts for
mailing as well as direct entry discount
where applicable.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Ten
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Canadian Mail
- --------------------------------------
Saddle Stitch Binding,
loose our floor,
per thousand copies:
Basic, No Units $23.70
4- page (cover) ............................ 1.95
6- page (gatefold) ............................ 2.34
8- page ....................................... 2.14
12- page ....................................... 2.18
16- page ....................................... 2.32
20- page ....................................... 2.52
24- page ....................................... 2.66
28- page ....................................... 2.82
32- page ....................................... 2.98
36- page ....................................... 3.13
40- page ....................................... 3.31
48- page ....................................... 4.78
56- page ....................................... 5.11
64- page ....................................... 5.71
72- page ....................................... 6.07
Furnished 4-page order form......................... 2.17
Card insert ........................................ 2.17
Furnished 12-page catalog,
approximate size 6-1/8" low
folio x 5-3/4" high folio
x 7-1/8" head-to-foot on
Basis 25 x 38 - 45# Machine
Coated including 1/8" foot
trim and 3/8" low folio
binding lap......................................... 2.56
Furnished 12-page catalog,
approximate size 6" x 7-1/8"
head-to-foot, folded corner-
to-corner with closed foot
for suction feeding on the
binder, on Basis 25 x 38 -
50# Machine Coated
including 1/8" foot trim............................ 3.55
Clifford & Wills January 1, 1996
New York, NY 10003 Page Eleven
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Canadian Mail
- --------------------------------------
Binder/mailer changeover
to Canadian format........................................ $436.24
Canadian mail broker charges.............................. 279.00
Selective Binding - maximum 16 boxes
Makeready
1-3 variable boxes............................. 519.41
4 or more variable boxes....................... 51.76
Per thousand copies
1-2 variable boxes............................. 3.89
3-6 variable boxes............................. 6.35
7 or more variable boxes....................... 8.10
Mailing list preparatory,
per thousand records processed:
Pre-sort less than 50,000........................... 10.38
Pre-sort over 50,000................................ 9.85
Pre-sort with postal code
correction less than 50,000......................... 15.10
Pre-sort with postal code
correction over 50,000.............................. 14.55
Clifford & Wills January 1, 1996
New York, NY 10003 Page Twelve
Revised June 26, 1996
EXHIBIT "A"
SCHEDULE OF PRICES
------------------
7-5/8" x 10" Trim Size - Additional Prices
- ------------------------------------------
Time Work Rates, per
hour
Pre-press handwork.......................... $63.14
Helio....................................... 205.86
Proof press................................. 218.95
Bindery Handwork............................ 21.23
Rotogravure press
standing time, per hour........................... 510.94
Web offset press standing
time, per hour.................................... 453.08
Binder/mailer standing 551.62
time, per hour....................................
Overtime Rates Time and Double
One-Half Time
-------- -----
Pre-Press
Film Prep....................... 13.11 26.22
Helio........................... 14.28 28.56
Cylinder Making................. 14.28 28.56
Proof Press..................... 36.54 73.08
Rotogravure Presswork 70.89 141.78
Web Offset Presswork 62.03 124.06
Binder/Mailer........................ 72.34 144.68
Shipping............................. 19.60 39.20
Mail List Preparatory................ 15.04 30.08
Clifford & Wills January 1, 1996
New York, NY 10003 Page Thirteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
One
Proofing Running Cylinder
and Second Per M Change,
Makeready Proofing Copies Per Cylinder
--------- -------- ------ ------------
Rotogravure Paper Requirements
Basis 25 x 38 - 40#
8 page in 41" rolls............ 3,095# 774# 30.53# 317#
12 page in 61-1/2" rolls........ 4,643# 1,163# 45.79 480#
16 page in 61-1/2" rolls........ 4,643# 1,163# 61.06 480#
20 page in 51-1/4" rolls........ 3,870# 969# 76.33# 399#
24 page in 61-1/2" rolls........ 4,643# 1,163# 91.58# 480#
28 page in 71-3/4" rolls........ 5,417# 1,353# 106.85# 562#
32 page in 82" rolls............ 6,384# 1,596# 124.80# 664#
36 page in 61-1/2" rolls........ 6,960# 1,742# 137.38# 725#
40 page in 51-1/4" rolls........ 3,870# 969# 151.27# 399#
48 page in 61-1/2" rolls........ 4,643# 1,163# 181.52# 480#
56 page in 71-3/4" rolls........ 5,417# 1,353# 211.78# 562#
60 page in 51-1/4" rolls........ 5,749# 1,437# 226.90# 603#
64 page in 82" rolls............ 6,384# 1,596# 249.59# 664#
72 page in 61-1/2" rolls........ 6,960# 1,742# 272.27# 725#
All roll stock is to be suitable for printing on our rotogravure
presses and should be approved by us for printing and binding at
our normal production rates.
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 80#
- -------------------
4 pages in 31-5/8" rolls.................. 968# 34.84#
1 color plate change, per side of web..... 243#
4 color plate change, per side of web..... 486#
Basis 25 x 38 - 80#
- -------------------
6 pages in 20-5/8" rolls.................. 697# 46.9#
5th color on page one..................... 233#
1-color plate change, per side of web..... 159#
4-color plate change, per side of web..... 318#
Clifford & Wills January 1, 1996
New York, NY 10003 Page Fourteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 100#
- --------------------
4 pages in 31-5/8" rolls.......... 1,211# 43.55#
1-color plate change,
per side of web................... 304#
4-color plate change,
per side of web................... 608#
Basis 25 x 38 - 40#
4 pages in 31-5/8" rolls.. 485# 17.42#
8 pages in 31-5/8" rolls.. 968# 34.84#
16 pages in 31-5/8" rolls. 968# 69.68#
1-color plate change,
per side of web........... 121#
4-color plate change,
per side of web........... 242#
All roll stock is to be suitable for printing on our offset
presses and should be approved by us for printing and binding at
our normal production rates.
Clifford & Wills January 1, 1996
New York, NY 10003 Page Fifteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
One
Proofing Running Cylinder
and Second Per M Change,
Makeready Proofing Copies Per Cylinder
--------- -------- ------- ------------
Rotogravure Paper Requirements
- ------------------------------
Basis 25 x 38 - 38#
- -------------------
8 page in 41" rolls............ 2,940# 735# 29.00# 301#
12 page in 61-1/2" rolls........ 4,411# 1,105# 43.50# 456#
16 page in 61-1/2" rolls........ 4,411# 1,105# 58.01# 456#
20 page in 51-1/4" rolls........ 3,677# 921# 72.51# 379#
24 page in 61-1/2" rolls........ 4,411# 1,105# 87.00# 456#
28 page in 71-3/4" rolls........ 5,146# 1,285# 101.51# 534#
32 page in 82" rolls............ 6,065# 1,516# 118.56# 631#
36 page in 61-1/2" rolls........ 6,612# 1,655# 130.51# 689#
40 page in 51-1/4" rolls........ 3,677# 921# 143.71# 379#
48 page in 61-1/2" rolls........ 4,411# 1,105# 172.44# 456#
56 page in 71-3/4" rolls........ 5,146# 1,285# 201.19# 534#
60 page in 51-1/4" rolls........ 5,462# 1,365# 215.61# 573#
64 page in 82" rolls............ 6,065# 1,516# 237.11# 631#
72 page in 61-1/2" rolls........ 6,612# 1,655# 258.66# 689#
All roll stock is to be suitable for printing on our rotogravure
presses and should be approved by us for printing and binding at
our normal production rates.
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 70#
- -------------------
4 pages in 31-5/8" rolls................ 847# 30.48#
1-color plate change, per side of web... 212#
4-color plate change, per side of web... 448#
Basis 25 x 38 - 70#
- -------------------
6 pages in 20-5/8" rolls................ 610# 41.04#
5th color on page one................... 204#
1-color plate change, per side of web... 139#
4-color plate change, per side of web... 278#
Clifford & Wills January 1, 1996
New York, NY 10003 Page Sixteen
Revised June 26, 1996
EXHIBIT "B"
PAPER REQUIREMENTS
------------------
7-5/8 X 10" Trim Size
- ---------------------
Proofing Running
and per M
Makeready Copies
--------- -------
Offset Paper Requirements
- -------------------------
Basis 25 x 38 - 38#
- -------------------
4 pages in 31-5/8" rolls.. 461# 16.55#
8 pages in 31-5/8" rolls.. 922# 33.10#
16 pages in 31-5/8" rolls. 922# 66.20#
1-color plate change,
per side of web........... 115#
4-color plate change,
per side of web........... 230#
All roll stock is to be suitable for printing on our offset
presses and should be approved by us for printing and binding at
our normal production rates.
J. Crew, Inc.
770 Broadway
New York, New York 10003
CATALOG August 14, 1997
DESCRIPTION
This proposal covers the production of your Fall/Winter and
Spring/Summer Catalogs as described in the clause entitled
QUANTITY AND NUMBER OF PAGES, for a period of 4 years commencing
with production of your 1997 Fall/Winter Edition 1 Catalog and
continuing through completion of your 2001 Spring Final Edition
Printed by 6/30/01.
Subject to the provisions set forth herein, you engage us, and we
shall be obligated and entitled to do or arrange for all cylinder
making and/or plate making, printing, binding, loading and
mailing, required for the production of the catalogs and all
preliminary work as set forth in the PRELIMINARY MANUFACTURING
PROCESS clause. We agree to perform the work as provided herein
and to furnish all necessary materials and supplies therefor
except such as you, pursuant to the terms hereof, agree to
furnish. We will give you prior notice if we subcontract any of
your work and furnish you with the name and location of the
subcontractor at the time we give you prior notice.
In consideration for your awarding us a four year agreement, we
agree to issue a credit equal to $500,000 on an invoice issued
within thirty (30) days of your written request, but in no event
earlier than the date of signing and no later than December 31,
1997. In consideration for giving you this credit, you agree to
repay us $250,000 one hundred and eighty (180) days after we
issue our credit, and a second repayment of $250,000 three
hundred and sixty (360) days after we issue our credit.
QUANTITY AND NUMBER OF PAGES
1997 Fall/Winter Scheduled
--------------------------
Quantity
Body Cover (To Nearest
Event Pages Pages Size 1,000)
----- ----- ----- ---- -----------
Fall/Winter Season
- ------------------
Edition 1 132 4 8-1/4" x 10-3/4" 2,122,000
Prospect 1 80 4 8-1/4" x 10-3/4" 1,567,000
Edition 2 144 4 8-1/4" x 10-3/4" 2,928,051
Prospect 2 80 4 8-1/4" x 10-3/4" 2,456,845
Edition 3 160 4 8-1/4" x 10-3/4" 2,573,000
Prospect 3 96 4 8-1/4" x 10-3/4" 2,665,000
Edition 4 208 4 8-1/4" x 10-3/4" 2,408,000
J. Crew, Inc. Page 2
August 14, 1997
Prospect 4 152 4 8-1/4" x 10-3/4" 2,626,000
Edition 5 216 4 8-1/4" x 10-3/4" 3,448,000
Prospect 5 152 4 8-1/4" x 10-3/4" 4,095,000
Edition 6 192 4 8-1/4" x 10-3/4" 3,315,000
Edition 7 184 4 8-1/4" x 10-3/4" 3,394,000
Edition 8 120 4 8-1/4" x 10-3/4" 2,314,000
Prospect 8 80 4 8-1/4" x 10-3/4" 761,000
Women's Catalog
- ---------------
Women's 2 80 4 7-5/8" x 10" 1,717,652
Women's 3 80 4 7-5/8" x 10" 1,456,651
Women's 4 88 4 7-5/8" x 10" 1,700,000
College Catalogs
- ----------------
Catalog 1 64 4 9-3/8" x 11-3/8" 1,950,000
1998 Forecasted (continued)
---------------
Quantity
Body Cover (To Nearest
Event Pages Pages Size 1,000)
----- ----- ----- ---- -----------
Spring/Summer Season
- --------------------
Edition 1 96 4 8-1/4" x 10-3/4" 2,400,000
Prospect 1 72 4 8-1/4" x 10-3/4" 2,000,000
Edition 2 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 2 72 4 8-1/4" x 10-3/4" 1,000,000
Edition 3 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 3 72 4 8-1/4" x 10-3/4" 1,000,000
Edition 4 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 4 72 4 8-1/4" x 10-3/4" 1,450,000
Edition 5 96 4 8-1/4" x 10-3/4" 2,600,000
Prospect 5 72 4 8-1/4" x 10-3/4" 500,000
Women's Catalog
- ---------------
Women's 1 96 4 7-5/8" x 10" 1,300,000
Women's 2 96 4 7-5/8" x 10" 1,500,000
Women's 3 96 4 7-5/8" x 10" 1,600,000
Women's 4 72 4 7-5/8" x 10" 1,600,000
Swimwear Catalog
- ----------------
Swimwear 1 48 4 8-1/4" x 10-3/4" 2,950,000
Swimwear 2 48 4 8-1/4" x 10-3/4" 3,050,000
College Catalogs
- ----------------
Catalog 1 64 4 9-1/8" x 11-3/8" 1,600,000
Catalog 2 64 4 9-1/8" x 11-3/8" 1,600,000
J. Crew, Inc. Page 3
August 14, 1997
1998 Forecasted (continued
---------------
Quantity
Body Cover (To Nearest
Event Pages Pages Size 1,000)
----- ----- ----- ---- -----------
Catalog 3 64 4 9-1/8" x 11-3/8" 1,600,000
Catalog 4 64 4 9-1/8" x 11-3/8" 1,700,000
Fall/Winter Season
- ------------------
Edition 1 120 4 8-1/4" x 10-3/4" 2,400,000
Prospect 1 72 4 8-1/4" x 10-3/4" 1,000,000
Edition 2 144 4 8-1/4" x 10-3/4" 2,600,000
Prospect 2 72 4 8-1/4" x 10-3/4" 1,500,000
Edition 3 144 4 8-1/4" x 10-3/4" 2,700,000
Prospect 3 72 4 8-1/4" x 10-3/4" 2,500,000
Edition 4 208 4 8-1/4" x 10-3/4" 3,300,000
Prospect 4 144 4 8-1/4" x 10-3/4" 3,000,000
Edition 5 216 4 8-1/4" x 10-3/4" 3,300,000
Prospect 5 144 4 8-1/4" x 10-3/4" 3,500,000
Edition 6 192 4 8-1/4" x 10-3/4" 3,400,000
Edition 7 184 4 8-1/4" x 10-3/4" 3,300,000
Women's Catalog
- ---------------
Women's 1 96 4 7-5/8" x 10" 1,400,000
Women's 2 96 4 7-5/8" x 10" 1,400,000
Women's 3 96 4 7-5/8" x 10" 1,400,000
Women's 4 72 4 7-5/8" x 10" 1,500,000
College Catalogs
- ----------------
Catalog 1 64 4 9-1/8" x 11-3/8" 1,600,000
Catalog 2 64 4 9-1/8" x 11-3/8" 1,700,000
Catalog 3 64 4 9-1/8" x 11-3/8" 2,100,000
1998 Total Pages (Pages times Quantity and then totaled) = 9,198,200,000
- ------------------------------------------------------------------------
The above specifications summarize the projected 1998 catalog
program. For 1999, 2000 and 2001 the schedule is to be calendar
adjusted, taking into account refinements that occur in response
to changes in market conditions and your budgetary process. These
refinements could consist of changes to quantity, page counts,
versions and possibly cancellations. It is understood that the
volume in 1999, 2000 and 2001 will be at a minimum equivalent to
that projected for 1998 as set out above. Volume is described as
the printed pages multiplied by the total count as described
above.
J. Crew, Inc. Page 4
August 14, 1997
The parties agree to an 8% (eight percent) discount on work
scheduled to start binding between January 1 and June 30 of any
year under this Agreement. This first half discount will be
applied to the Base Makeready and Run per M prices, and will not
be applied to preliminary, freight of all kinds, or bind, mail or
cylinder additionals, and will appear as an invoice credit on
each of the applicable events.
As an incentive for J. Crew Inc. to add additional work with R.R.
Donnelley & Sons Company, commencing in 1998, the parties agree
to an 8% (eight percent) volume discount structure based on an
increase in any calendar year on the projected 1998 level (pages
times quantity) set out above. This volume discount will be
applied to the Base Makeready and Run per M prices, and will not
be applied to preliminary, freight of all kinds, or bind, mail or
cylinder additionals. This volume discount will apply to all
incremental work and assumes a similar number of total square
inches of printed product.
Volume shall consist of the total number of printed pages times
total count calculated at the end of the calendar year. For the
incremental volume, a credit memo will be issued within 30 days
after each calendar year, if a growth volume incentive has been
earned. The volume discount is subject to prompt payment of all
invoices. If J. Crew pays any invoice late, RRD may elect to
reduce any growth volume incentive by the cost of money based on
the prime rate as published in Wall Street Journal plus two
percent (Prime +2%), as well as any other costs incurred to
collect late or outstanding debts.
If a volume incentive is earned at the end of the contract (or
earlier termination), a cash payment will be made 30 days after
the end of contract (or earlier termination). In determining the
amount of such payment, the value of payments due us will be
credited against the value of the volume incentive.
FORECAST
To assist us in providing for your requirements, you shall submit
a forecast by July l of each year showing your total requirements
for the subsequent calendar year for work hereunder, during the
term of this Agreement, including the count, number of pages,
colors, copies to be bound and delivery dates for each issue. We
shall, within 30 days of receipt of such forecasts, develop
manufacturing schedules for the production of the work based on
the forecasts you furnish which we shall present for your review
and approval, such approval not to be unreasonably withheld. You
shall notify us as promptly as practicable of any significant
change in the forecasted requirements. We will produce up to a
twenty-five percent (25%) annual increase (quantity multiplied by
pages and then totaled) over the preceding year for 1999, ten
percent (10%) over the preceding year for 2000, and a mutually
agreed percentage (to be determined at a later date) over the
preceding year for 2001, in accordance with the terms herein and
pursuant to a mutually agreeable production schedule and the
availability of materials. We currently have all work for your
1997 gravure body pages scheduled for production in our
Spartanburg, South Carolina Manufacturing Division, and we will
use all reasonable efforts to schedule all future gravure body
production, as described herein, in our Spartanburg plant. If in
order to meet your forecast
J. Crew, Inc. Page 5
August 14, 1997
requirements, it is necessary to produce some, or all, of your
work elsewhere, it will be produced in a Gravure Manufacturing
Division or Divisions, and any additional production costs or
freight associated with such transfer from the Spartanburg, South
Carolina Division, will not be charged to you.
TECHNOLOGICAL IMPROVEMENTS
We will keep abreast of changes in the graphic arts industry and
will review with you developments which may be beneficial for
your titles. We will also be receptive to any suggestions you may
have for beneficial changes. If you approve of implementing such
changes, the parties will negotiate appropriate prices and
schedules to incorporate such changes into the production of your
work and to allow us to amortize our capital investment, if any.
During the term of this Agreement, we will meet with you once
every six months to discuss technological developments which have
occurred and have become commercially available for application
to the work performed by us for you, and the conditions under
which such developments would be incorporated. Any pricing
adjustments due to technological advancements and efficiencies
will also be discussed prior to the implementation of such
developments.
PRELIMINARY MANUFACTURING PROCESS
This contract is based on a common document workflow. R.R.
Donnelley will function as a client of J. Crew's QPS server and
as such will have access to shared volumes on that server. At the
proper times in the production cycle, we will "check out" the
Quark document, modify it per descriptions below, and check it
back in to the server. During the course of the contract it is
expected that the nature and timing of some operations may
change. The intent of this description is to set forth the major
responsibilities of each party that have been assumed in building
the prices.
Your file shall include all mechanical page elements such as
tints, colored or reverse type and rules. Silhouetting of
photographs and creation of key-only shadows will be performed by
us and will be charged additionally as set forth in Exhibit A.
IMAL CYCLE
----------
When you have completed the rough layout process for a
spread and it is ready for us to begin processing, you will
so indicate by changing the status to "color out". At that
point you will also furnish us with original transparencies.
Each will be accompanied by a thermal proof indicating size
and orientation, as well as instructions for silhouetting,
shadows and creation of composite images due to overlapping
silhouettes. We will produce hi-res separation to the
specifications that you direct. If you so direct, we will
separate, process and archive to a higher dpi (not to exceed
the industry standard) than was the practice in our previous
agreement at no increase in price.
J. Crew, Inc. Page 6
August 14, 1997
We will run a preflight check and take any appropriate
corrective action to your Quark document. For each new
transparency that you furnish, we will generate a lo-res
file and place it into the appropriate Quark document,
thereby replacing any temporary lo-res image that you had
created for rough layout purposes.
For color proofing purposes, we will create and RIP a
temporary file in which, for new subjects only, the hi-res
images are substituted, and submit to you a contract
quality proof (Kodak Approval or equivalent) for your color
comments using industry standard markup language. For
pickup subjects, it is our recommendation that neither the
hi-res nor the lo- res substitute be included in the color
proof at this stage. If you so direct, we will retrieve the
hi-res pickup from archive and incorporate it into the
document. If that is the case it must be understood that
the picked up image, if it is concurrently being worked for
another edition, may not yet have been archived with OK'd
color. Also, any additional color markup resulting from
that circumstance, giving you an earlier opportunity to
view the hi-res pickup on the color proof will be charged
as a "color alteration to retrieved image" per the contract
price schedule.
PAGE CYCLE
----------
When the document has been updated to J. Crew's
satisfaction, you will so indicate by changing the status
to "type out" and furnish us with a thermal proof that will
serve as the OK for type and margins. We will color correct
to the marked-up IMAL proof, run a preflight check and take
any appropriate corrective action to the Quark document.
For each composite image, we will supply a lo-res of the
composite to be substituted for the original lo-res files
in the document.
For color proofing purposes, we will create and RIP a
temporary file in which all hi-res images are substituted,
and submit to you a contract quality proof for color OKs
and two color photocopies of each color proof for your use.
These copies will not be stamped as authorized proofs, nor
will we do any proofreading at this stage. There will be a
sign off on each proof which will indicate J. Crew's
acceptance of this page.
DATA CYCLE
----------
When the document has been updated to J Crew's
satisfaction, you will so indicate by changing the status
to "spread proof revise" and furnish us with a thermal
proof that will serve as the OK for type and margins. We
will color correct to the marked-up page proof, run a
preflight check and take any appropriate corrective action,
including trapping fixes and the spreading of knockout type
whenever needed.
We will RIP the document file, substituting all the hi-res
images, and produce a contract proof for press guidance. We
will make a color photocopy of each color proof to serve as
OK's for type and mechanical elements and margins.
J. Crew, Inc. Page 7
August 14, 1997
Any additional proofing to that which is described above
will be charged as an extra.
Not withstanding the above, if J. Crew, the Lancaster
Preliminary Center, and Spartanburg agree that it would be
mutually beneficial to provide additional preliminary
proofing to that which is described above, we will do so at
no charge to J. Crew.
ALTERATIONS
-----------
Any re-processing of a file that requires changes that
include (but are not limited to) building composite images
and recreating shadows due to position and size changes
will be considered to be alterations and will be charge
additional.
'MAXIMUM CHARGE' AND PAGE DESIGN
--------------------------------
The "Maximum charge" four-color page price is included in
this Agreement with the expectation that the average
difficulty of a J. CREW page (as compared to the
Fall/Winter 1996 and Spring/Summer 1997 catalog seasons)
will not increase during the term of this agreement. If at
any time the design for a particular event causes a
significant increase in the number of pages that qualify
for the "maximum charge" we will honor the price for that
event but we reserve the right to request a review of
future design plans to determine if the design for the
event in question will be carried forward to future events.
If a new, more complex design does become permanent, we
mutually agree to re-negotiate the "maximum charge" price
or to establish a limitation on how frequently this price
may be utilized.
SCHEDULE
--------
Our schedules have four flow cutoff dates. If these four
flow cutoff dates are not maintained, we will do our best
to maintain the schedule but upon prior notification to J.
Crew, we reserve the right to limit the color proofing on
some pages to one cycle if that is necessary to maintain
your mailing date.
Likewise, if we receive any pages more than four days after
any of the four scheduled cutoff dates, upon prior
notification to J. Crew, we reserve the right to modify
proofout dates and to charge additional for overtime costs
if those costs must be incurred in order to maintain the
mailing date. Overtime for lateness will not be charged on
the cover forms provided that presswork schedule
adjustments can be made at the cover plant of manufacture.
ARCHIVING
---------
We will store both random images and final page files in
separate archives.
We will maintain a library of random images, which you will
OK for color after viewing on an IMAL proof. We will, as a
rule of thumb, archive an area up to one inch beyond
J. Crew, Inc. Page 8
August 14, 1997
the cropping point set up in the document during the IMAL
cycle. When one of these images is retrieved for a
subsequent catalog, any color adjustment that is requested
will be charged additionally as a "color alteration to
retrieved image".
If an archived image has not been retrieved for a period of
thirteen months it will be deleted from the archive.
We will store final page files for a minimum of three
months, or as long after that as we believe is necessary
for internal backup purposes. In the event that we are
unable to reproduce a page which we were obligated to
retain in storage, we will pay the cost of transporting
duplicate material to us as well as the cost of reproducing
the page including the cost of duplicating the
transparencies and similar out-of-pocket costs. We will not
be liable for the cost of creating the page such as
re-shooting any photographs.
TELECOMMUNICATIONS
------------------
J. Crew and R.R. Donnelley agree to provide mutually
satisfactory data transmission capability at all times.
Specifically, each party agrees to provide and maintain the
means by which the other may access required data without
unreasonable delays in throughput. If at some time it is
agreed that the transmission capability must be increased,
both companies acknowledge that a corresponding increase
must be made at each company's end of the network
connection, and that each company will be responsible for
any additional expense incurred thereby.
ADS AND OTHER MISCELLANEOUS PROJECTS
------------------------------------
We agree, subject to mutually agreeable scheduling, to
perform separation work for J. Crew work other than the
principal catalog events, and we will maintain the image
archives in such a manner as to allow us to do so as
economically as possible. We have included prices for
this work to the extent that we are familiar with in but
will quote additional prices as other projects develop.
The prices in the "ad pages" section are based on
continuing the traditional workflow. It is, however, more
economical for us to operate within the new QPS-based
workflow that prevails for the catalog work. If and when
the ad work moves to the new workflow, the "ad pages", the
catalog price schedule will apply in place of the "ad
pages" price schedule.
CANCELLATION
------------
Both parties agree that it is the full intent of each that
we shall continue to provide the majority of preliminary
services for your catalogs. We shall be obligated and
entitled to produce a minimum of 80% of your total catalog
pages as described in this agreement for your 1998
Spring/Summer and Fall/Winter Catalog Program and a minimum
of 67% of
J. Crew, Inc. Page 9
August 14, 1997
you total catalog pages for your 1999 and 2000
Spring/Summer and Fall/Winter Catalog programs and 2001
Spring/Summer program.
You will notify us in writing on or before July 1 of 1998,
1999 and 2000 with your forecast of preliminary pages to be
produced by us for the following years Spring/Summer and
Fall/Winter catalog program. This forecast will be at least
67% of your total catalog pages and can be as high as 100%
of total pages for your 1999, 2000 and 2001 program. We
shall within 30 days of receipt of your preliminary
services forecast, develop manufacturing schedules which we
shall present for your review and approval. Our
obligation to produce work for your 1999, 2000 and 2001
programs will be based on the percentage indicated in your
July 1 written notification. Any increases requested after
July 1 of each year will be made on a best effort basis.
Both parties agree to an ongoing review of our joint
experience with the preliminary operation of your work and
as a result of such review, either party may elect to have
you (J. Crew) furnish all preliminary, film or digital
data, for all remaining catalogs under this agreement.
Notification by either party must be received in writing by
either party 12 months prior to the first art in date of
any season.
PRESSWORK
The body to be carefully made ready and printed by the gravure
process in our standard four- color process inks. The cover is to
be carefully made ready and printed by the web offset or gravure
process in our standard four-color process inks. The run per M
prices quoted in Exhibit A are based on the ink coverage
demonstrated by your 1996 catalog program. There shall be no
change in the charges for ink due to changes in coverage unless
such change in either offset or gravure coverage persists over a
year's experience and can be objectively and reasonably
demonstrated to be different from the coverage used to determine
pricing.
CUSTOMER FURNISHED PAPER
You shall furnish f.o.b. our plant of manufacture all paper
required for the printing of your program in the weights, kinds
and sizes set forth herein or as we shall otherwise mutually
agree upon in accordance with a mutually agreeable delivery
schedule and in sufficient time to meet the production schedule.
Paper shall be delivered to us in rolls with steel or fiber
cores, unless otherwise mutually agreed upon, to the
specifications listed on Exhibit C, properly wrapped and wound
with pasters plainly flagged. Returnable cores shall remain your
property and shall be returned by us in accordance with your
directions at your expense (currently upon completed load of rail
car). We shall reimburse you for the cost of any returnable cores
received by us for the work and not returned by us to the mills
from which such cores were shipped.
J. Crew, Inc. Page 10
August 14, 1997
All paper furnished by you shall be of good printing quality and
shall conform to a standard of mechanical quality, as agreed to
by you, us and the paper supplier, suitable for efficient
performance of the work. If at your request we use paper not
acceptable to us and our cost is increased due to the use of such
paper, we shall notify you, and follow up with written
documentation, and we shall make an additional charge to fairly
compensate us for such increased costs.
Paper not conforming to specifications, concealed damage and
defective paper shall be rejected by us, reported promptly to
you, and held for your instructions as to the disposition
thereof. Should you require us to use defective paper or paper
not conforming to specifications and should we incur additional
costs as a result of the use of such paper, we shall charge you
an amount fairly reflecting such additional costs directly caused
by use of such paper including, without limitation,
overconsumption of paper. Without limiting the foregoing, it is
agreed that paper causing significant press slowdowns, or causing
more than a ratio of three (3) proven paper caused web breaks per
one-hundred (100) rolls of each type of paper and basis weight
furnished by you within a series identified as a month's
production of the mill shall not be considered of suitable
mechanical quality and that to the extent the paper falls below
this standard we shall be entitled to make an additional charge
as aforesaid. Such charge will include additional paper
requirements and press down time as described in Exhibit A.
Should you furnish or request we use paper which is designed for
use in another printing process than that set forth in this
Agreement, we will make every reasonable effort to utilize such
paper, it being understood that any additional costs directly
resulting from the use of such paper in producing an acceptable
product will be your responsibility, including, without
limitation, overconsumption of paper.
We shall further submit to you written reports regarding any
defective paper or paper received in a damaged condition as soon
as reasonable practicable after the damage shall have been
discovered. In the case of any paper received in a damaged
condition, we shall prepare affidavits describing such damage for
you. We shall give you all such assistance as you may reasonably
request to assist you in recovering for such damage or defect.
If upon termination of this Agreement we have any of your unused
paper on hand, it is understood and agreed that you will accept
billing for all charges reasonably incurred by us, involved for
disposition of such paper, in accordance with your instructions,
including handling and storage charges as set forth in Exhibit A.
We will make a seasonal accounting and reconciliation, and a per
issue report of all paper furnished by you under this contract
upon completion of each season. Such accounting will show the
paper received, paper consumed and paper requirements based on
the contract allowances specified herein, as adjusted for light
and/or heavy paper, wrapper, header, fiber cores, and damaged
(claimed or concealed) or other defective paper.
J. Crew, Inc. Page 11
August 14, 1997
Should the total paper consumption in any accounting period, as
defined above, exceed the contract allowances specified herein,
adjusted as described above, we will pay for such excess at the
average cost of each kind of paper for such accounting period.
Should the total paper consumption during any such period be less
than the paper requirements adjusted as described above, you
shall pay us an a mount equal to one-half the cost of said paper
so saved. In determining the amount of such payment, the value of
underconsumption, if any, on one kind of paper will be credited
against overconsumption, if any, on other kinds of paper used in
the same accounting period (except the cover paper and body paper
will be handled separately). The average cost of the body paper
shall be calculated based on a 12 month average of 40#
Publication Coated Grade #5 paper, or the applicable paper if
different as indicated in the "Price Watch" report in Miller
Freeman Publication, Inc.'s Pulp and Paper Weekly Magazine.
Any paper saved due to underconsumption, and damaged or other
unusable paper, will remain your property. We will charge for
storage on all such paper, in excess of the storage allowances
described below, until used or disposed of, and will make an
additional charge to fairly compensate us for disposition of such
paper if not used.
All manufacturing waste, or other waste will become our property.
We will store your body paper requirements for each event up to
thirty (30) days prior to the "to press date" at no additional
charge. Should you exceed these limits, we will charge you for
paper storage at the rate set forth in Exhibit A, or at the
prevailing rates at another location including applicable
handling and freight, for the amount of paper which exceeds the
limits.
We will store your cover paper requirements for each event up to
twenty one (21) days prior to the "to press date" at no
additional charge. Should you exceed these limits, we will charge
you for paper storage at the rate set forth in Exhibit A, or at
the prevailing rates at another location including applicable
handling and freight, for the amount of paper which exceeds the
limits.
If R.R. Donnelley recognizes that storage outside the division
will be required, R.R. Donnelley will use best efforts to notify
J. Crew in a timely manner to avoid double handling and
additional freight.
BINDING
We will gather press delivered signatures, along with your
furnished inserts, saddlewire stitch and trim flush three sides
for delivery upon completion f.o.b. our plant of manufacture.
You are to furnish inserts f.o.b. our plant of manufacture in
accordance with the production schedule and to our specifications
ready for binding. We require an additional allowance for binding
and we shall submit such waste percentage (which shall be
consistent with the representative chart below) sufficiently in
advance of the binding date.
Should you furnish us and require us to use furnished inserts
which do not conform to our specifications as set forth in
Exhibit C, we will make every reasonable effort to utilize such
J. Crew, Inc. Page 12
August 14, 1997
inserts. Should we incur additional costs as a result of the use
of such inserts, we will charge you an amount fairly reflecting
such additional costs.
On Line Selectronically(R)
25,000 or Less: Double the Quantity
25,001 to 50,000 25% Extra
50,001 to 100,000 15% Extra
100,001 to 250,000 10% Extra
Over 250,000 3.5% Extra
Non Selectronic(R)
20,000 or Less: 20% or at least 1,000 extra
20,001 to 50,000 10% Extra
50,001 to 100,000 5% Extra
Over 100,000 3.5% Extra
DISPOSITION
We will address your catalog (and order blank) using our
SELECTRONIC(R) addressing service (with one address up to 8
lines) to our specifications which we will submit, bag copies and
mail.
You are to furnish ink-jet formatted magnetic tapes that are
compatible with our equipment, in PASS sequence and in accordance
with specifications we will furnish. We will process the tape to
do 3-tier sortation and to add the necessary ink-jet codes, make
sack tags, generate instructions to the bindery and print a
summary for postal charges at the rates set forth in Exhibit A.
Any reformatting, coding, combining of lists or other required
work necessary for our use of your furnished tapes, will be
charged additional after your agreement has been obtained for
such work. Any double stroking (two hits of ink) to create bold
face type will be additional.
Our price is based on mailing from lists of 150,000 names or
more. Additional charges will be applied for lists of less than
these minimums.
Any requested bar-coding of mail catalogs to obtain postal
discounts will be charged additional at our prices set forth in
Exhibit A.
The mailing prices set forth herein are based upon postal
regulations and procedures in effect as of the date hereof which
require mandatory Zip-code sortation. If postal regulations or
procedures change so as to affect our cost for mailing the
catalogs, the prices herein shall be revised to fairly reflect
any increase or decrease in such costs.
Nothing contained herein shall require us to do anything in
violation of United States Postal laws, regulations or
procedures.
J. Crew, Inc. Page 13
August 14, 1997
Any other required labels shall be furnished by you to our
specifications.
Any requested shipping of mail catalogs to various postal
facilities to obtain postal discounts will be charged additional
at our prices set forth in Exhibit A. These prices will include,
but not be limited to, freight and administration charges.
In the event we move production of any J. Crew work from our
Spartanburg Manufacturing Division, we will pay the additional
costs of distributing your product, caused by such move, if any,
net of freight savings caused by the change in manufacturing
location.
All copies are for delivery upon completion f.o.b. our plant of
manufacture.
PRICES
You shall pay us for the work at the applicable prices set forth
in Exhibit A, which is attached hereto and made a part hereof.
FREIGHT
Unless you request otherwise, we will arrange for shipment of
your finished materials from our plant of manufacture. In such
event, you shall pay all distribution charges, and we shall be
entitled to retain any brokerage commissions or other service
charges earned by us or our wholly-owned subsidiaries.
DISCONTINUANCE OF PUBLICATION
Should you decide to discontinue the publication of Catalog
program in any medium without publishing a successor, whether
titled the same or not, you shall use your best efforts to give
us 90 days advance written notice of such decision. Without
limiting the foregoing, you shall be obligated to pay for work
done or in process. In addition, you shall reimburse us for costs
which we cannot avoid through reasonable effort, which we will
document to your satisfaction. No equipment holding time will be
charged if you give us 90 days notice of discontinuance.
CHANGE IN MEDIUM
In the event that you replace the medium used for your products,
we shall have the first right of negotiation to produce the work
for you in the new medium during the remaining term of this
Agreement provided that our prices are competitive with the
market for the new medium at the time you make such change.
SALE OF CATALOG
We recognize that you may want to sell the catalog under
circumstances and on a time schedule which cannot be predicted
and we will use our best efforts to help you with such a sale. If
circumstances permit you to inform us of the identity of your
prospective purchaser as soon as
J. Crew, Inc. Page 14
August 14, 1997
practicable before you agree to sell the catalog, we will keep
such information strictly confidential and will conduct our
investigation on such purchaser as quickly and confidentially as
possible to determine whether we wish to print for such
prospective purchaser. We will not unreasonably withhold our
consent. If circumstances do not permit you to inform us of the
identity of your prospective purchaser before you agree to sell
the catalog, you agree to bring this paragraph to the attention
of the purchaser and to require the purchaser to assume your
obligations under this agreement if we wish to print for your
purchaser. We will conduct our investigation of the purchaser as
quickly as possible to inform you whether we wish to print for
such purchaser and we will not withhold our consent unreasonably.
If any issue of the catalog needs to be produced between the
effective date of such sale and the time we notify you whether we
will print for your customer, the parties agree to use their best
efforts to resolve any credit or content issued which arise
during such interim period. In the event we are unwilling to
print for such purchaser for financial reasons, the parties agree
to use their best efforts to find another supplier or to come to
interim terms for us to continue to produce the catalog with
financial assurances from you until another supplier can assume
production. You recognize that we consider both reputation and
credit standing in choosing our customers.
OWNERSHIP OF FILM, COPY, PLATES, CYLINDERS, ETC.
Copy and any film furnished by you and electronic data files
derived therefrom will be used solely for your work and will
remain your property. Film, prints, plates and cylinders that we
make will be used solely for your work but will remain our
property. We will only use your text and images for your work.
Upon termination of this agreement you may choose to assume
possession of those files which we have in storage. In that
event, you will provide us with equivalent replacements for the
optical disks (or other storage medium, or a mutually agreed upon
dollar equivalent) on which the data is stored.
SPECIFICATIONS AND PRODUCTION SCHEDULE
All work to be performed hereunder shall be in accordance with
the specifications set forth herein, and completed in accordance
with a production schedule which shall be submitted for your
approval.
If at any time you desire to make changes in the specifications
(including pages and count) set forth herein or in the production
schedule, we will cooperate with you in putting such changes into
effect within a reasonable period of time, provided such changes
do not have a materially adverse effect on our operations.
In the event any such change results in an increase or decrease
in the cost of performing the work, the prices for the work shall
be adjusted to fairly reflect such increase or decrease which
J. Crew, Inc. Page 15
August 14, 1997
we will present for your approval, not to be unreasonably withheld.
In addition, should such change result in our inability to use
any materials on hand or ordered for you in the production of
your work, you will pay us reasonable costs associated with such
materials and their disposition.
PASSING OF TITLE
Title shall pass to you on the date of shipping of completed
production. Possession shall pass to you upon delivery f.o.b. our
plant of final manufacture.
LIEN ON PROPERTY
In the event that any sums due to us by you became past due
during the term of this agreement, we will have the right, if
necessary, to retain possession of and will have a lien on all
property owed by you and in our possession, except for your
customer mailing lists, and all work in process and undelivered
work. In the event we wish to assert our lien on your property in
our possession and you dispute whether, the sum is due, an
officer of our company shall meet in person with an officer of
your company who shall use their best efforts to resolve the
dispute within 15 days. If the dispute continues after such
meeting, you may provide us with alternative security of equal
value and we will release our lien on the original property we
had in our possession.
WORK STOPPAGES
Neither party shall be liable for delays or non-performance of
this Agreement occasioned by strikes, fires, accidents or by
causes beyond their control including, but not limited to the
unavailability of materials, utilities or fuel, however, you
shall retain your obligation to make payments in a timely manner.
In the event of material shortages, we shall use our reasonable
best efforts to assist you to find workable alternatives and
substitute materials. In the event you place all or any part of
the work elsewhere pursuant to this paragraph, you will not make
commitments for a period longer than reasonably necessary to
allow you to purchase the production of catalogs at prices equal
to or less than those set forth herein and will return such work
to us as promptly as practicable.
RESPONSIBILITY FOR SUBJECT MATTER
In furnishing us matter to reproduce or to have incorporated in
the completed product, you represent and warrant that none of
such matter (either as furnished to us by you or as altered by us
at your direction) infringes any copyright, is libelous, or
otherwise violates the rights of or will cause damage or injury
to other persons, and you agree to indemnify and save us harmless
from all losses, damages and expenses, including reasonable
attorneys' fees, which we may suffer as the result of any claim
of such violation, damage or injury.
J. Crew, Inc. Page 16
August 14, 1997
QUALITY, GUARANTEE AND LIMITATION OF LIABILITY
We will perform the work in a good and workmanlike manner and in
accordance with the specifications and production schedule. The
quality of work produced under the terms of this Agreement shall
be generally equal to or better than the average work produced
for comparable work under previous agreements we have had to
produce your catalog consistent with the paper, film, art work or
other materials used in the production of the work. In the event
the work is defective or delayed due to our fault (including
negligence), we shall be liable for direct damages but we shall
not be liable for special or consequential damages, including,
but not limited to, lost profits or business as defined in the
Uniform Commercial Code engaged in the State of New York and
without regard to whether the work performed under this Agreement
would be a sale of goods or a sale of serviced under New York
law. We will use our best efforts to mitigate your damages
including reprinting or repairing any defective work as promptly
as practicable. Further, we shall not be liable for any damages,
whether direct, indirect, special or consequential, associated
with our shipment of any of your work on contract or common
carriers. Notwithstanding the preceding sentence, we will require
all contract or common carriers engaged by us to transport your
work to carry one hundred thousand dollars ($100,000.00) of cargo
insurance and will cooperate with you in filing claims if your
property is damaged in transit.
MATERIALS AND PURCHASED SERVICES
Unless otherwise provided, we will supply the materials (ink,
binding materials, etc.) or purchased services specified herein
or their equivalents. It is understood and agreed that should we
be unable to obtain such materials or services or their
equivalents in necessary quantities, the parties shall select
mutually agreeable substitute materials or services which we
shall present for your approval, not to be unreasonably withheld.
Should the use of such substitute materials or services increase
or decrease the cost of performing the work, the prices will be
adjusted to fairly reflect any such increase or decrease in cost.
The unavailability of materials or services will not be
considered a breach of this Agreement as long as we have used our
best efforts to obtain and use materials, consistent with our
obligations to other customers. Should any volume or trade
discounts be earned on materials or services, they will be
retained by us. All scrap and by-products will become our
property.
STORAGE
We will store final reproduction medium (film or electronic data
files) made by us and used in the production of your work for one
year, after which film will be destroyed and data files erased
unless otherwise agreed to and at prices to be separately quoted.
Plates and cylinders will not be held after completion of
printing of the next catalog unless confirmed by letter form us.
Storage of cylinders beyond that date is not included in the base
prices and will be charged additional as incurred at the then
current price quoted in Exhibit A. The storage will be incurred
at the start of in-home span of the following event. For example,
J. Crew, Inc. Page 17
August 14, 1997
Spring Edition 1 cylinders will be stored at no charge until the
first in-home date of the Spring Edition 2.
Unless otherwise specified, the prices in this Agreement contain
no storage of paper, other materials, work in process or finished
goods beyond the production schedule span. If you delay
completion of the work or postpone delivery of finished goods
beyond the date specified in the production schedule, or if your
furnished materials arrive prior to the dates specified in the
production schedule, storage will be charged at the rates set
forth in Exhibit A for each month up to twelve months the
finished goods, work in process or furnished materials remain in
our possession.
Such rate will be doubled for each month after the first twelve
months of storage. If, following the eighteenth month of storage
we receive no direction from you as to the disposition of the
stored items, such items will be destroyed. No storage charges
will be made for delays which are largely caused by us.
PRICE ADJUSTMENTS FOR CHANGES IN EMPLOYEE COMPENSATION, COSTS
OF MATERIALS, UTILITIES, FUEL AND TAXES
The prices stated in this Agreement are based upon the cost of
direct materials and any purchased services as of June 1, 1997
and labor, utilities, fuel and indirect materials as of the date
hereof. If before completion of the work hereunder the cost of
performance is increased or decreased as the result of changes in
the rates of employee compensation, cost of employee benefits,
payroll taxes, or other working conditions or terms of
employment, or as the result of changes in the cost of materials.
purchased services, utilities or fuel (except electricity, which
will not be adjusted), the prices stated herein shall be
increased or decreased in proportion to such increase or decrease
in cost of performance. If any changes become effective after
part of the work hereunder has been done or part of the material,
utilities or fuel or services has been purchased, such adjustment
of prices shall apply only to the work done or purchases made
after such change. If we are required to pay any new or increased
excise, privilege, processing, gross receipts, or similar tax not
now imposed on account of any act required for the performance of
this Agreement, or if we are required to pay any new payroll tax
or similar charge, the cost of such new or increased tax shall be
added as an extra charge.
If any changes in the non-labor components of our prices
(excluding ink) result in an increase or decrease in our prices,
such increase or decrease will not be effective until the start
of the next Fall/Winter or Spring/Summer Season.
The prices herein shall be adjusted on the basis of changes in
labor, indirect materials, fuel and utility costs occurring at
our Lancaster Service Center for preliminary work. Lancaster West
Manufacturing Division for the body presswork and Spartanburg
Manufacturing Division for the body presswork, binding and all
remaining prices, regardless of where the work is actually
performed. and if such adjustment shall occur at the above
divisions at a time other than the
J. Crew, Inc. Page 18
August 14, 1997
regularly scheduled adjustment for that decision(s), we shall not
apply that percentage increase until the next regularly scheduled
adjustment for the corresponding division(s).
Notwithstanding the foregoing, the increases in manufacturing
prices for both preliminary and printing will not exceed in the
Consumer Price Index (1982-4 = 100), all Urban Wage Earners and
Clerical Workers, U.S. City Average, published by the Bureau of
Labor Statistics, U.S. Department of Labor for the same period.
If the Consumer Price Index is revised or discontinued, this
calculation will be made using the Successor Price Index
designated by the Bureau of Labor and Statistics.
SALES AND USE TAXES
Any sales, retailer's occupation, service occupation, value
added, or use tax imposed on account of this transaction
will he added as an extra charge.
OVERTIME
If overtime is required to meet your delivery or quantity
requirements, we will use our best efforts to make any necessary
overtime available and will charge for such overtime at our then
current rates. If overtime is worked due to our internal
scheduling problems or other problems within our control arising
after a production schedule is agreed upon, and not caused by
your failure to comply with the production schedule, overtime
charges will not be made. No chargeable overtime will be worked
without your prior approval, and in the absence of such approval,
delivery of the work will be made as promptly as practicable
consistent with our then available capacity.
POSTAGE
The cost of postage and permits will be paid by you and you shall
be responsible, if necessary, for establishing an account at the
U.S. Post Office with sufficient funds to cover mailing.
ASSIGNMENT
Neither party to this Agreement shall assign any right or rights
hereunder without the prior written consent of the other party,
except that we may assign payments due us to our wholly-owned
subsidiaries without consent. You may assign this Agreement to
any wholly owned subsidiary of J. Crew Group, Inc. as long as we
receive a guarantee from J. Crew Group, Inc. Subject to this
consent, this Agreement shall inure to the benefit of and shall
bind the successors and assigns of the parties hereto.
BANKRUPTCY
If either party shall be adjudicated a bankrupt, institute
voluntary proceedings for bankruptcy or reorganization, make an
assignment for the benefit of its creditors, apply for or consent
to the appointment of a receiver for it or its property, or admit
in writing its inability to pay its debts as
J. Crew, Inc. Page 19
August 14, 1997
they become due, the other party may terminate this Agreement by
written notice. Any such termination shall not relieve either
party from any accrued obligations hereunder.
EDITING OF COPY
The price quoted does not, unless otherwise stated, include the
editing of copy.
INSURANCE
We will carry at our expense fire, sprinkler leakage and extended
coverage insurance, subject to the usual exclusions, limitations
and conditions of such policies, on the actual cash value of all
our materials, work in process, and all production completed and
not shipped, and on the actual cash value of all positives, copy,
artwork, paper and other materials furnished by you, while in our
care, custody and control. Such insurance shall cover loss of,
damage to or destruction of such property caused by the perils of
fire, lighting, windstorm, hail, explosion, riot, riot attending
a strike, civil commotion, aircraft, vehicles, smoke, vandalism,
malicious mischief and sprinkler leakage, subject to the usual
exclusions of fire and extended coverage policies. If your
property is damaged as a result of an insured peril under the
applicable insurance policy, then, at our option, we will either
replace your damaged property or reimburse you for the actual
cash value of the damaged property. If we elect to reimburse you
for the damaged property's actual cash value, the amount payable
to you shall be limited to the proceeds of such policy plus any
related deductible, if any, applied to the claim for damage to
your property. For positives and other media our insurance
coverage and other liability shall be limited to the cost of
blank film or other media and the cost of duplication from an
original or other copy.
We will advise you of any material changes in our insurance
coverage. We will provide you a certificate of insurance in
force.
If the damaged property is catalogs, they will be replaced by
similar catalogs.
GOVERNING LAW
This Agreement shall be governed by the laws of the State of New
York.
OVERRUNS AND UNDERRUNS
Variations in quantity of zero percent (0%) more or less than
quantities ordered will constitute acceptable delivery, and the
price will be adjusted at the over/under delivery per thousand
copy price. If the work involves more than one version, the
over/under percent for each version shall depend upon ordered
quantity of that version, as separately quoted.
TERMS OF PAYMENT
Net cash sixty-five (65) days from the date of invoice. An
invoice for all materials, preliminary, presswork and initial
binding charges will be issued on completion of the first binding
lot.
J. Crew, Inc. Page 20
August 14, 1997
Charges for any subsequent binding lots will be invoiced
upon completion. All payments must be received at our lock box no
later than the sixty-fifth (65th) day from date of invoice. We
will charge interest at the rate of 1-1/2% per month on any
unpaid invoices after sixty-five (65) days. Our obligation to
perform work hereunder is subject to the validity and continued
effectiveness of guaranty of Popular Services, now known as J.
Crew Group, Inc. dated December 5, 1988.
INTEREST AND COLLECTION COSTS
Our obligation to perform work hereunder is subject to prompt
payment of all invoices pursuant to the terms of this and other
agreements we may have with you. Should any invoice issued
hereunder become past due, you agree to pay interest at the rate
equal to the prime rate announced by Citibank for three month
loans to its most credit-worthy customers (the "Prime Rate") plus
three percent (3%) per year, or the lawful limit if less, on all
amounts past due. Progress billing of interest due or failure to
bill for interest due shall not constitute a waiver of our right
to charge interest on all amounts past due to the date payment is
received.
If you fail to pay our invoice in accord with these terms, you
agree to pay all costs of collection, including but not limited
to, reasonable attorneys' fees (if the full amount of the invoice
is ultimately determined or admitted to be due or a pro rated
amount of such costs of collection if less than the full amount
is ultimately determined to be due by you to us).
Should any portion of any invoice become disputed, you agree to
pay the undisputed portion according to its terms and you will
notify us promptly of the dispute. Both parties agree to use
their best efforts to resolve the disputed portion of such
invoice within thirty (30) days of learning of the dispute.
Interest shall accrue on disputed amounts at a rate equal to the
"Prime Rate" described above if such amounts are ultimately
determined or admitted to be due.
CREDIT REVIEW
If you delay completion of manufacture beyond the period
contemplated by the production schedule or if partial payment is
made prior to the completion of the entire quantity, interim
billing may be made. The above provisions may be reviewed by us
and should there be a substantial adverse change in your credit
standing or in the event that you do not comply with the terms of
these provisions, we will have the right to change the terms of
payment. and our obligation to perform further work will be
subject to reaching mutual agreement on revised terms.
WAIVER
No waiver by either party hereto of any default by the other in
the strict and literal performance of or compliance with any
provision, condition, or requirement herein shall be deemed to be
a waiver of, or in any manner release such other party from,
strict compliance with any provision, condition or requirement in
the future; nor shall any delay or omission of either party to
exercise any right of termination or the right hereunder in any
manner impair the exercise of any such
J. Crew, Inc. Page 21
August 14, 1997
right accruing to it thereafter. Except when otherwise expressly
stated, no remedy expressly granted herein to either party in the
event of a default by the other shall be deemed to exclude any
other remedy which would otherwise be available.
NO JOINT VENTURE
Nothing herein contained shall in any way constitute a
partnership between, or joint venture by, the parties hereto or
be construed to evidence the intention of the parties to
constitute such. Neither of the parties shall hold itself out
contrary to the terms of this paragraph by advertising or
otherwise, and neither party shall be or become liable or hound
by any representation, act or omission whatsoever of the other
party contrary to the provisions of this paragraph.
EXHIBITS
This Agreement includes the following Exhibits which are attached
hereto and made a part hereof:
EXHIBIT A - PRICE SCHEDULE
EXHIBIT B - PAPER SPECIFICATIONS
EXHIBIT C - OUTSIDE SUPPLIED PARTS REQUIREMENTS
IN WITNESS WHEREOF, the parties have caused their authorized
officers to sign this agreement as of the date written above. If
this Agreement is signed by both parties on or before August 18,
1997, it shall take effect with all work produced as of the 1997
Fall/Winter Edition 1 Catalog.
RR DONNELLEY & SONS COMPANY
By:_________________________________________
Joe Lawyer
Merchandise Media business Unit President
J. CREW Inc.
By:_____________________________
Authorized Officer
Date:_____________________, 1997
J. Crew, Inc. Page 1
Exhibit A - Price Schedule 8/14/97
PART I - PRESSWORK PRICING
- --------------------------
Presswork Prices (Presswork, Binding, Disposition and Ink). These
prices include 1 (one) base version. No storage (other than set
forth in the clauses entitled "Customer Furnished Paper"
"Storage") is included. Interplant freight to ship covers from
Lancaster to Spartanburg is included in our prices.
A. 8-1/4" x 10-3/4" OFFSET COVER OPTIONS Makeready Run/M
-------------------------------------
4-page offset cover..................... $ 2,067.00 $ 5.13
8-page offset cover .................... 2,067.00 9.60
B. 8-1/4" x 10-3/4" GRAVURE BODY OPTIONS
45-page gravure body.................... $ 13,800.00 $ 57.70
56-page gravure body.................... 23,795.00 66.75
64-page gravure body.................... 23,795.00 70.79
72-page gravure body.................... 13,800.00 85.34
80-page gravure body.................... 27,600.00 83.88
84-page gravure body.................... 13,800.00 90.65
88-page gravure body.................... 23,795.00 93.42
92-page gravure body.................... 33,790.00 95.20
96-page gravure body.................... 13,800.00 93.97
100-page gravure body................... 33,790.00 103.24
104-page gravure body................... 23,795.00 103.01
108-page gravure body................... 23,795.00 103.78
112-page gravure body................... 23,795.00 107.06
116-page gravure body................... 23,795.00 111.83
120-page gravure body................... 23,795.00 113.60
124-page gravure body................... 33,790.00 116.87
128-page gravure body................... 27,600.00 120.14
132-page gravure body................... 33,790.00 123.42
136-page gravure body................... 23,795.00 129.69
140-page gravure body................... 33,790.00 131.46
144-page gravure body................... 27,600.00 130.23
148-page gravure body................... 33,790.00 139.50
152-page gravure body................... 37,595.00 139.25
156-page gravure body................... 37,595.00 140.05
160-page gravure body................... 37,595.00 143.32
164-page gravure body................... 37,595.00 148.09
168-page gravure body................... 37,595.00 149.86
172-page gravure body................... 47,590.00 153.74
176-page gravure body................... 41,400.00 156.41
180-page gravure body................... 47,590.00 162.78
184-page gravure body................... 37,595.00 168.45
J. Crew, Inc. Page 2
Exhibit A - Price Schedule 8/14/97
PART 1- Presswork Pricing (continued)
-------------------------
B. 8-1/4" x 10-3/4" GRAVURE BODY OPTIONS (continued)
-------------------------------------
188-page gravure body................... 47,590.00 170.82
192-page gravure body................... 27,600.00 169.60
196-page gravure body................... 47,590.00 178.87
200-page gravure body................... 37,595.00 178.64
204-page gravure body................... 37,595.00 181.41
208-page gravure body................... 37,595.00 184.68
212-page gravure body................... 37,595.00 189.46
216-page gravure body................... 37,595.00 191.23
220-page gravure body................... 47,590.00 194.60
224-page gravure body................... 41,400.00 198.77
228-page gravure body................... 47,590.00 202.14
232-page gravure body................... 37,595.00 208.32
236-page gravure body................... 47,590.00 210.19
240-page gravure body................... 41,400.00 208.86
Paper Handling (all formats) per cwt.... - -
Excess Paper Storage (all formats):
First applicable month or fraction thereof
per cwt................................ - 0.40
Each additional month or fraction thereof
per cwt................................ - 0.13
Press down time, per hour, (all formats) - 547
C. FURNISHED PAPER REQUIREMENTS: 8-1/4" x 10-3/4"
----------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. per 1,000
25 x 38-60# --------- ---------
4-page offset cover..................... 1,190 27.17
8-page offset cover..................... 1,190 54.34
Cover Versioning (Based on 4 or 8 page cover)
Black plate change, one side of web 560
Black plate change, both sides of web 642
Four-color change, one side of web 824
Four-color change, both sides of web 1,190
J. Crew, Inc. Page 3
Exhibit A - Price Schedule 8/14/97
Cover Options
-------------
25 x 38-70#
4-page offset cover..................... 1,388 31.69
8-page offset cover..................... 1,388 63.39
Cover Versioning (Based on 4 or 8 page cover)
Black plate change, one side of web 653
Black plate change, both sides of web 750
Four-color change, one side of web 961
Four-color change, both sides of web 1,388
Body Options Makeready Run Lbs.
------------ Lbs. per 1,000
25 x 38 - 38# -------------------------
48-page gravure body.................... 10,201 194.91
56-page gravure body.................... 15,301 228.31
64-page gravure body.................... 15,301 259.88
72-page gravure body.................... 7,650 292.37
80-page gravure body.................... 20,402 324.85
84-page gravure body.................... 8,926 341.09
88-page gravure body.................... 14,451 357.34
92-page gravure body.................... 19,552 373.58
96-page gravure body.................... 10,201 359.82
100-page gravure body................... 19,552 406.07
104-page gravure body................... 15,301 423.22
108-page gravure body................... 15,301 438.55
112-page gravure body................... 15,301 454.79
116-page gravure body................... 14,451 471.04
120-page gravure body................... 15,301 487.28
124-page gravure body................... 20,402 503.52
128-page gravure body................... 20,402 519.76
132-page gravure body................... 20,402 536.01
136-page gravure body................... 14,451 552.25
140-page gravure body................... 19,552 568.49
144-page gravure body................... 20,402 584.73
148-page gravure body................... 19,552 600.98
152-page gravure body................... 25,502 618.13
156-page gravure body................... 25,502 633.46
160-page gravure body................... 25,502 649.70
164-page gravure body................... 24,652 665.95
J. Crew, Inc. Page 4
Exhibit A - Price Schedule 8/14/97
C. FURNISHED PAPER REQUIREMENTS:
8-1/4" x 10-314" (Continued)
168-page gravure body................... 17,852 682.19
172-page gravure body................... 30,603 698.43
176-page gravure body................... 30,603 714.67
180-page gravure body................... 30,603 730.92
184-page gravure body................... 24,652 747.16
188-page gravure body................... 29,753 763.40
192-page gravure body................... 20,402 779.64
196-page gravure body................... 29,753 795.89
200-page gravure body................... 25,502 813.04
204-page gravure body................... 25,502 828.37
208-page gravure body................... 25,502 844.62
212-page gravure body................... 24,652 860.86
216-page gravure body................... 25,502 877.10
220-page gravure body................... 30,603 893.34
224-page gravure body................... 30,603 909.59
228-page gravure body................... 30,603 925.83
232-page gravure body................... 24,652 942.07
236-page gravure body................... 29,753 958.31
240-page gravure body................... 30,603 974.56
Gravure Body Versions (Per press form):
Narrow Web
One-color cylinder change,
one side of web................... 547
One-color cylinder change,
both sides of web................. 911
Four-color cylinder change,
one side of web................... 1,640
Four-color cylinder change,
both sides of web................. 5,100
Gravure Body Versions (Per press form):
Wide Web
One-color cylinder change,
one side of web................... 1,094
One-color cylinder change,
both sides of web................. 1,822
Four-color cylinder change,
one side of web................... 3,280
Four-color cylinder change,
both sides of web................. 10,200
D. 7-5/8" x 10" OFFSET COVER OPTIONS Makeready Run/M
---------------------------------
4-page offset cover............... $ 2,067.00 $ 5.13
8-page offset cover............... 2,067.00 9.60
E. 7-5/8" x 10" GRAVURE BODY OPTIONS
---------------------------------
48-page gravure body.............. $13,800.00 $ 56.15
J. Crew, Inc. Page 5
Exhibit A - Price Schedule 8/14/97
52-page gravure body.............. 19,990.00 65.63
56-page gravure body.............. 19,990.00 68.61
60-page gravure body.............. 23,795.00 65.59
64-page gravure body.............. 23,795.00 68.57
68-page gravure body.............. 23,795.00 73.05
72-page gravure body.............. 23,795.00 74.53
76-page gravure body.............. 33,790.00 78.01
80-page gravure body.............. 27,600.00 80.49
84-page gravure body.............. 33,790.00 83.97
88-page gravure body.............. 23,795.00 89.45
92-page gravure body.............. 33,790.00 91.43
96-page gravure body.............. 13,800.00 89.41
F. FURNISHED PAPER REQUIREMENTS: 7-5/8" x 10"
------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. : per 1,000
25 x 38-60# ----------------------
4-page offset cover..................... 1,190 25.43
8-page offset cover..................... 1,190 50.86
Cover Versioning (Based on 4 or
8 page cover)
Black plate change, one side of web 560
Black plate change, both sides of web 642
Four-color change, one side of web 824
Four-color change, both sides of web 1,190
Cover Options
-------------
25 x 38-70#
4-page offset cover............... 1,388 29.67
8-page offset cover............... 1,388 59.34
Cover Versioning
(Based on 4 or 8 page cover)
Black plate change,
one side of web 653
Black plate change,
both sides of web 750
Four-color change,
one side of web 961
Four-color change,
both sides of web 1,388
J. Crew, Inc. Page 6
Exhibit A - Price Schedule 8/14/97
Body Options Makeready Run Lbs.
------------ Lbs. per 1,000
25 x 38 - 38# ------------------------
48-page gravure body.................... 5,033 173.73
52-page gravure body.................... 9,227 188.20
56-page gravure body.................... 9,227 202.68
60-page gravure body.................... 10,066 217.16
64-page gravure body.................... 10,066 231.63
68-page gravure body.................... 9,227 246.11
72-page gravure body.................... 10,066 260.59
76-page gravure body.................... 15,099 275.06
80-page gravure body.................... 8,389 289.54
84-page gravure body.................... 15,099 304.02
88-page gravure body.................... 9,227 318.50
92-page gravure body.................... 14,261 332.97
96-page gravure body.................... 10,066 347.45
G. 9-1/8" x 11-3/8" GRAVURE COVER OPTIONS Makeready Run/M
--------------------------------------
4-page gravure cover.................... $ 9,995.00 $ 8.50
H. 9-1/8" x 11-3/8" GRAVURE BODY OPTIONS
-------------------------------------
48-page gravure body.................... $ 9,995.00 $ 65.84
52-page gravure body.................... 19,990.00 72.54
56-page gravure body.................... 19,990.00 75.74
60-page gravure body.................... 19,990.00 78.44
64-page gravure body.................... 19,990.00 80.64
68-page gravure body.................... 19,990.00 85.84
72-page gravure body.................... 19,990.00 88.04
76-page gravure body.................... 29,985.00 91.74
80-page gravure body.................... 19,990.00 101.44
84-page gravure body.................... 29,985.00 99.14
88-page gravure body.................... 19,990.00 105.84
92-page gravure body.................... 29,985.00 108.04
96-page gravure body.................... 19,990.00 110.24
I. FURNISHED PAPER REQUIREMENTS: 9-1/8"x 11-3/8"
----------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. per 1,000
25 x 38-60# ----------------------
4-page gravure cover.................... 3,125 31.70
J. Crew, Inc. Page 7
Exhibit A - Price Schedule 8/14/97
Body Options Makeready Run Lbs.
------------ Lbs. per 1,000
25 x 38- 38# ----------------------
48-page gravure body.................... 5,937 226.88
52-page gravure body.................... 10,885 245.79
56-page gravure body.................... 11,874 265.05
60-page gravure body.................... 11,874 283.60
64-page gravure body.................... 11,874 302.51
68-page gravure body.................... 10,885 321.42
72-page gravure body.................... 11,874 340.32
76-page gravure body.................... 17,811 359.23
80-page gravure body.................... 9,895 378.14
84-page gravure body.................... 17,811 397.04
88-page gravure body.................... 10,885 415.95
92-page gravure body.................... 16,822 434.86
96-page gravure body.................... 11,874 453.77
J. 8-1/4" x 8-1/4" OFFSET COVER OPTIONS Makeready Run/M
------------------------------------
4-page offset cover..................... $ 2,067.00 $ 9.39
8-page offset cover..................... 2,067.00 12.78
K. 8-1/4" x 8-1/4" GRAVURE BODY OPTIONS
------------------------------------
64-page gravure body.................... $ 9,995.00 $ 61.68
80-page gravure body.................... 19,990.00 71.69
96-page gravure body.................... 19,990.00 81.70
100-page gravure body................... 29,985.00 87.65
112-page gravure body................... 19,990.00 96.31
128-page gravure body................... 19,990.00 101.73
144-page gravure body................... 29,985.00 112.35
152-page gravure body................... 29,985.00 119.65
160-page gravure body................... 29,985.00 122.36
168-page gravure body................... 29,985.00 136.75
176-page gravure body................... 29,985.00 139.46
192-page gravure body................... 29,985.00 144.89
Paper Handling (all formats) per cwt.... - -
J. Crew, Inc. Page 8
Exhibit A - Price Schedule 8/14/97
L. FURNISHED PAPER REQUIREMENTS: 8-1/4" x 8-1/4"
----------------------------------------------
Cover Options Makeready Run Lbs.
------------- Lbs. per 1,000
25 x 38-60# ----------------------
4-page offset cover..................... 1,190 27.42
8-page offset cover..................... 1,190 54.83
Cover Versioning (Based on 4 or 8
page cover)
Black plate change, one side
of web 560
Black plate change, both sides
of web 642
Four-color change, one side
of web 824
Four-color change, both sides
of web 1,190
Cover Options
-------------
25 x 38-70#
4-page offset cover 1,388 31.98
5-page offset cover 1,388 63.96
Cover Versioning (Based on 4 or
8 page cover)
Black plate change, one side
of web 653
Black plate change, both
sides of web 750
Four-color change, one side
of web 961
Four-color change, both sides
of web 1,388
Body Options Makeready Run Lbs.
25 x 38 - 38# Lbs. per 1,000
----------------------
64-page gravure body.................... 5,255 200.82
80-page gravure body.................... 10,510 251.49
96-page gravure body.................... 10,510 301.23
100-page gravure body................... 13,138 314.13
112-page gravure body................... 9,196 351.43
128-page gravure body................... 10,510 401.64
144-page gravure body................... 15,765 452.31
152-page gravure body................... 14,451 476.94
160-page gravure body................... 15,765 502.04
168-page gravure body................... 13,794 527.15
176-page gravure body................... 14,451 552.25
192-page gravure body................... 15,765 602.45
J. Crew, Inc. Page 9
Exhibit A - Price Schedule 8/14/97
Gravure Body Versions (Per press form):
One-color cylinder change, one side
of web............................ 564
One-color cylinder change,
both sides of web................. 940
Four-color cylinder change,
one side of web................... 1,692
Four-color cylinder change,
both sides of web................. 5,265
PART II - Additionals
- ---------------------
Presswork Additionals:
Cover Versioning (based on 4-page cover with customer-
supplied paper):
Black plate change, one side
of web............................ $252.00
Black plate change, both sides
of web............................ 370.00
Four-color change, one side
of web............................ 611.00
Four-color change, both sides
of web 1,417.00
Gravure Body Versioning (Per press form
with customer-supplied paper):
Narrow Web
One-color (Black) cylinder change,
one side of web................... 1,374.00
One-color (Black) cylinder change,
both sides of web................. 2,559.00
Four-color cylinder change,
one side of web................... 4,356.00
Four-color cylinder change, both
sides of web...................... 9,995.00
Wide Web
One-color (Black) cylinder change,
one side of web................... 1,897.00
One-color (Black) cylinder change,
both sides of web................. 3,533.00
Four-color cylinder change,
one side of web................... 6,014.00
Four-color cylinder change,
both sides of web................. 13,800.00
Press Stop, each.................. 300.00
Cylinder storage, per cylinder,
first month....................... 56.00
Cylinder storage, per cylinder,
each subsequent month............. 70.00
Pick-up cylinders, makeready press,
per press form.................... 4,512.00
Bindery Additionals:
Bindery Stop...................... 175.00
Bind Makeready
(includes Ink Jet makeready)...... 697.00
J. Crew, Inc. Page 10
Exhibit A - Price Schedule 8/14/97
Additional for Dot whacking (does not
include cost of the label):
With guarantee of 97%
affixation, per 1,000............. 3.76
100% affixation, per 1,000........ 4.38
Product storage beyond normal
production period, per M
8 pages
First month, per 1,000 8's
stored............................ 0.67
Each additional month,
per 1,000 8's stored.............. 0.16
Short Run Mail: MR per
list under 150,000................ 175.00
Short Run Mail: List less
than 25,000 copies - per M........ 5.64
Short Run Mail: 25,000
to 49,999, per M.................. 3.07
Short Run Mail: 50,000 to
99,999, per M..................... 1.70
Short Run Mail: 100,000 to
149,999, per M.................... 0.95
Drop ship admin, per cwt.......... 0.15
J. Crew, Inc. Page 11
Exhibit A - Price Schedule 8/14/97
PART II - Additionals (Continued)
- ---------------------
Bindery Additionals (Continued): -
Additional Ink Jet preparation prices:
Tape Processing, per 1,000............... $0.80
Additional for messages, per 1,000....... 0.56
Zip corrections, each.................... 0.03
Split/rekey, per 1,000................... 0.12
Tape Handling, each...................... 6.62
Bar Codes (Tape Processing),
per 1,000 copies......................... 0.53
Additional to Ink Jet personalized message
on either the cover or the order blank:
Full message of up to 6 lines
of up to 50 characters per line,
per 1,000 copies......................... 0.77
Only a few words or numbers,
per 1,000 copies......................... 0.39
Bar Coding (Ink Jet Operation),
per 1,000 copies......................... 1.58
SELECTRONIC(R) gathering:
Tape Processing
Additional processing
for SELECTRONIC(R) gathering of multi-weight
pieces. Provided the furnished magnetic tape
contains clearly defined codes that can
be used to "trigger" the feeding patter,
machine instructions will be added,
per 1,000...................................... 0.94
Bindery
Basic makeready, each selectronic
run (up to 5 boxes)...................... 678.00
Makeready each additional
selectronically(R) controlled box........ 56.65
Selectronic(R) Running:(charged to
entire run count, not just
Selectronically fired sigs)
Up to 3 boxes, per M.................. 2.25
4 to 6 boxes, per M................... 3.50
7to 10 boxes, per M................... 4.50
Additional for any box with insertion
5% or less, per box per M................ 0.30
Additional for any box with insertion
5% to 10%, per box per M................. 0.20
SELECTRONIC(R) Feeding Cards:
Makeready 246.00
Run, per 1,000 copies 0.17
SELECTRONIC(R) Blow in Cards:
Run, per machine, per 1,000 copies 0.32
J. Crew, Inc. Page 12
Exhibit A - Price Schedule 8/14/97
SELECTRONIC(R)Dot-Whacking:
Run, per machine, per 1,000 copies 0.28
(Cannot guarantee 100% affixation)
Cartoning, per carton 2.70
Powerpacks, per skid 27.97
Lancaster Preliminary Center 8/14/97
J. Crew Contract Renewal Pricing Page 1
4/c Document Handling, per page.................... $275.00
Includes QPS check and generation of
related internal proof, replacement of
lo-res image with archived hi-res,
re-sizing and rotating, creation of
composite images, Postscript & RIP,
spreading of knockout type as required,
contract color proofs for page and data
cycles as required. Two color copies
will be pulled of each color proof but only
the final set produced from the press
guidance will be handled as an authorized
proof. Monthly maintenance costs for a
TI telecommunications line are included in
this figure.
New transparency for archive....................... $305.00
Includes the cost of IMAL proofing,
generation of the lo-res, archiving in a
random image database, swatch matching within
the same color family, and fleshtone work.
Cloning, color creation, background work
and other local corrections are additional.
When schedule permits, a second IMAL proofing
cycle will be offered at no additional cost.
4/C Page (inclusive); Maximum charge............... $1,848.00
This price represents a "cap" on the
incremental billing for any page. We will
maintain a spreadsheet that will accumulate
the dollar total for each individual page.
When the normal incremental billing would
otherwise exceed $1848, this price will be
substituted. Color deviations and mechanical
alterations, however, will be charged on the
same basis as for any other page.
Type version page.................................. $76.50
Includes PostScript & RIP, writing a
duplicate 4/c file for NKI transmission or
film output as well as color mechanical
proof - color proof not included
Silhouette mask, per new subject................... $40.50
Shadow, per subject................................ $22.50
Receive and archive image file..................... $14.00
This is to cover the basic handling costs
to accept and maintain an industry standard
hi-res file from an outside source. Any
extraordinary conversion costs will be
charged as additional, as will a silhouette
and/or shadow if the proper accompanying
file or clipping path is not furnished.
Lancaster Preliminary Center Page 2
J. Crew Contract Renewal Pricing 8/14/97
Mechanical Alterations And Additional Proofs
--------------------------------------------
Rescan transparency for size changes............... $230.00
4/c mechanical change (as marked on
position proof).................................... $67.00
This applies when we are asked to open
the Quark File and make a change to
page mechanics.
Rebuild composite image............................ $41.00
This applies if manual intervention
is required for this function when we
process a document in which images
involving overlapping silhouettes
have shifted.
Color alteration to retrieved image................ $85.00
This charge applies to a color correction
of an archived subject which is then
permanently placed in the archive; the
preceding image is deleted.
Additional color proof............................. $37.80
Late correction premium, per page.................. $117.50
Color Deviations
- ----------------
Cloning, per item.................................. $97.25
Color creation, per item........................... $139.00
Background work, per background.................... $69.50
System hour rate for specialty work not
included above..................................... $130.00
Ad pages
- --------
4/c Base page...................................... $360.00
Includes the basic mechanical construction
of the page but does not include
processing of transparencies, silhouettes
or shadows. Includes a final form color
proof.
New transparency................................... $247.30
Includes the cost of IMAL proofing , image
archiving, swatch matching within the same
color family, and fleshtone work.
Cloning, color creation, background work
and other local corrections are additional.
Pickup image, each................................. $28.91
Additional to resize pickup image.................. $26.28
Lancaster Preliminary Center Page 3
J. Crew Contract Renewal Pricing 8/14/97
Additional for color alteration to retrieved image. $141.20
Replacement type file.............................. $108.70
Bind-ins
- --------
4/c Base page...................................... $360.00
Revise color cycle................................. $190.00
New scan (no archiving) or re-scan for
different GCR level................................ $190.00
4/c mechanical tint page........................... $109.84
Other
- -----
Postcard: 4/c Base page............................ $180.44
Billboard file, pick-up or new, one cycle.......... $500.00
Billboard file, pickup or new, each add'l cycle.... $150.00
EXHIBIT A
J. CREW GROUP, INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the J. Crew Group, Inc. 1997 Stock Option
Plan (the "Plan") is to promote the interests of the Company and
its stockholders by providing the Company's key employees and
consultants with an appropriate incentive to encourage them to
continue in the employ of the Company and to improve the growth
and profitability of the Company.
2. Definitions
As used in this Plan, the following capitalized terms shall
have the following meanings:
(a) "Affiliate" shall mean the Company and any of its direct
or indirect subsidiaries.
(b) "Board" shall mean the Board of Directors of the
Company.
(c) "Cause" shall mean, when used in connection with the
termination of a Participant's Employment, unless otherwise
provided in the Participant's Stock Option Grant Agreement, the
termination of the Participant's Employment by the Company or an
Affiliate on account of (i) the willful violation by the
Participant of any federal or state law or any rule of the
Company or any Affiliate, (ii) a breach by a Participant of the
Participant's duty of loyalty to the Company and its Affiliates
in contemplation of the Participant's termination of Employment,
such as the Participant's pre-termination of Employment
solicitation of customers or employees of the Company or an
Affiliate, (iii) the Participant's unauthorized removal from the
premises of the Company or Affiliate of any document (in any
medium or form) relating to the Company or an Affiliate or the
customers of the Company or an Affiliate, or (iv) any gross
negligence in connection with the performance of the
Participant's duties as an Employee. Any rights the Company or an
Affiliate may have hereunder in respect of the events giving rise
to Cause shall
be in addition to the rights the Company or Affiliate may have
under any other agreement with the Employee or at law or in
equity. If, subsequent to a Participant's termination of
Employment, it is discovered that such Participant's Employment
could have been terminated for Cause, the Participant's
Employment shall, at the election of the Committee, in its sole
discretion, be deemed to have been terminated for Cause
retroactively to the date the events giving rise to Cause
occurred.
(d) "Change in Control" shall mean the occurrence of any of
the following events: (i) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions)
of all or substantially all of the assets of the Company or JCC
to any Person or group of related persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any
affiliates thereof other than to TPG Partnership II, L.P. or any
of its affiliates (hereinafter "TPG II"); (ii) the approval by
the holders of capital stock of the Company or JCC of any plan or
proposal for the liquidation or dissolution of the Company or
JCC, as the case may be; (iii) (A) any Person or Group (other
than TPG II) shall become the owner, directly or indirectly,
beneficially or of record, of shares representing more than 40%
of the aggregate voting power of the issued and outstanding stock
entitled to vote in the election of directors, managers or
trustees (the "Voting Stock") of the Company or JCC and (B) TPG
II beneficially owns, directly or indirectly, in the aggregate a
lesser percentage of the Voting Stock of the Company than such
other Person or Group; (iv) the replacement of a majority of the
Board of Directors of the Company or JCC over a two-year period
from the directors who constituted the Board of Directors of the
Company or JCC, as the case may be, at the beginning of such
period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors of the
Company or JCC, as the case may be, then still in office who
either were
2
members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors
was previously so approved or who were nominated by, or designees
of, TPG II; (v) any Person or Group other than TPG II shall have
acquired the power to elect a majority of the members of the
Board of Directors of the Company; or (vi) a merger or
consolidation of the Company with another entity in which holders
of the Common Stock of the Company immediately prior to the
consummation of the transaction hold, directly or indirectly,
immediately following the consummation of the transaction, 50% or
less of the common equity interest in the surviving corporation
in such transaction.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Commission" shall mean the U.S. Securities and Exchange
Commission.
(g) "Committee" shall mean the Committee appointed by the
Board pursuant to Section 3 of the Plan.
(h) "Common Stock" shall mean the common stock of the
Company.
(i) "Company" shall mean J. Crew Group, Inc.
(j) "Disability" shall mean a permanent disability as
defined in the Company's or an Affiliate's disability plans, or
as defined from time to time by the Company, in its discretion,
or as specified in the Participant's Stock Option Grant
Agreement.
(k) "EBITDA" shall mean, for any period, the consolidated
earnings (losses) of the Company and its affiliates before
extraordinary items and the cumulative effect of accounting
changes, as determined by the Company in accordance with U.S.
generally accepted accounting principles, and before interest
(expense or income), taxes, depreciation, amortization, non-cash
gains and losses from sales of assets other than in the ordinary
course of business, Transaction Costs and Valuation Adjustments.
For purposes of clarification, in determining EBITDA,
3
consolidated earnings shall be reduced (or, with respect to
losses, increased), but only once, by compensation expenses
attributable to this Plan and any other compensation plan,
program or arrangement of the Company or any of its affiliates,
to the extent such expenses are recorded in accordance with U.S.
generally accepted accounting principles. In the event of the
occurrence of any business combination transaction affecting the
earnings or indebtedness of the Company, including (without
limitation) any transaction accounted for as a pooling or as a
recapitalization, the Committee shall adjust EBITDA as the
Committee shall in good faith consider necessary or appropriate,
including (without limitation) to reflect transaction-related
costs attributable to such accounting method ("Transaction
Costs").
(l) "Eligible Employee" shall mean (i) any Employee who is a
key executive of the Company or an Affiliate, or (ii) certain
other Employees or consultants who, in the judgment of the
Committee, should be eligible to participate in the Plan due to
the services they perform on behalf of the Company or an
Affiliate.
(m) "Employment" shall mean employment with the Company or
any Affiliate and shall include the provision of services as a
consultant for the Company or any Affiliate. "Employee" and
"Employed" shall have correlative meanings.
(n) "Exercise Date" shall have the meaning set forth in
Section 4.10 herein.
(o) "Exercise Notice" shall have the meaning set forth in
Section 4.10 herein.
(p) "Exercise Price" shall mean the price that the
Participant must pay under the Option for each share of Common
Stock as determined by the Committee for each Grant and specified
in the Stock Option Grant Agreements.
(q) "Fair Market Value" shall mean, as of any date:
4
(1) prior to the existence of a Public Market for the
Common Stock, the quotient obtained by dividing (i) the excess of
(x) the product of (A) 10 (as such number may be changed as provided
below, the "Multiple") and (B) EBITDA for the twelve month period
ending on the fiscal quarter-end immediately preceding such date
over (y) the sum of (I) the weighted arithmetic average
indebtedness (net of all cash and cash equivalents) during such
period of the Company and its consolidated direct and indirect
wholly-owned subsidiaries and (II) for each less than
wholly-owned direct or indirect subsidiary of the Company the
earnings of which are either consolidated with those of the
Company or accounted for on an equity basis, the weighted
arithmetic average indebtedness (net of all cash and cash
equivalents) during such period of such subsidiary multiplied by
the proportion of the total earnings (determined on the same
basis as, and excluding the same items as in the determination
of, EBITDA) of such subsidiary included in EBITDA (excluding
earnings attributable to dividends received from such
subsidiary), by (ii) the total number of shares of Common Stock
on the last day of such period, determined on a fully diluted
basis. For purposes of determining the indebtedness of an entity,
all preferred stock of the entity, other than preferred stock
convertible into Common Stock, shall be considered indebtedness
in the amount of the liquidation value thereof plus accumulated
but unpaid dividends thereon. Notwithstanding the foregoing
provisions of this paragraph (1), for the ten (10) day period
immediately following the occurrence of a Change of Control, Fair
Market Value shall not be less than the price per share, if any,
paid to any member of the Initial Ownership Group or the public
tender offer price paid in connection with such Change of
Control. The Committee shall review the Multiple then in effect
following the audit of the Company's financial statements each
fiscal year, and shall make such increases or decreases in the
Multiple
5
as shall be determined by the Committee in good faith to reflect
market conditions and Company performance.
(2) on which a Public Market for the Common Stock
exists, (i) the average of the high and low sales prices on such
day of a share of Common Stock as reported on the principal
securities exchange on which shares of Common Stock are then
listed or admitted to trading or (ii) if not so reported, the
average of the closing bid and ask prices on such day as reported
on the National Association of Securities Dealers Automated
Quotation System or (iii) if not so reported, as furnished by any
member of the National Association of Securities Dealers, Inc.
selected by the Committee. The Fair Market Value of a share of
Common Stock as of any such date on which the applicable exchange
or inter-dealer quotation system through which trading in the
Common Stock regularly occurs is closed shall be the Fair Market
Value determined pursuant to the preceding sentence as of the
immediately preceding date on which the Common Stock is traded, a
bid and ask price is reported or a trading price is reported by
any member of NASD selected by the Committee. In the event that
the price of a share of Common Stock shall not be so reported or
furnished, the Fair Market Value shall be determined by the
Committee in good faith to reflect the fair market value of a
share of Common Stock.
(r) "Grant" shall mean a grant of an Option under the Plan
evidenced by a Stock Option Grant Agreement.
(s) "Grant Date" shall mean the Grant Date as defined in
Section 4.3 herein.
(t) "Initial Ownership Group" shall mean TPG Partners II,
L.P., each beneficial owner of Common Stock immediately after
October 17, 1997 and each person or entity directly or indirectly
controlling, controlled by or under common control with TPG
Partners II, L.P., or any such beneficial owner.
6
(u) "JCC" shall mean J. Crew Operating Corp., a wholly owned
subsidiary of the Company.
(v) "Non-Qualified Stock Option" shall mean an Option that
is not an 'incentive stock option" within the meaning of Section
422 of the Code.
(w) "Option" shall mean the option to purchase Common Stock
granted to any Participant under the Plan. Each Option granted
hereunder shall be a Non-Qualified Stock Option and shall be
identified as such in the Stock Option Grant Agreement by which
it is evidenced.
(x) "Option Spread" shall mean, with respect to an Option,
the excess, if any, of the Fair Market Value of a share of Common
Stock as of the applicable Valuation Date over the Exercise
Price.
(y) "Participant" shall mean an Eligible Employee to whom a
Grant of an Option under the Plan has been made, and, where
applicable, shall include Permitted Transferees.
(z) "Permitted Transferee" shall have the meaning set forth
in Section 4.6.
(aa) "Person" means an individual, partnership, corporation,
limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision
thereof.
(bb) A "Public Market" for the Common Stock shall be deemed
to exist for purposes of the Plan if the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act and
trading regularly occurs in such Common Stock in, on or through
the facilities of securities exchanges and/or inter-dealer
quotation systems in the United States (within the meaning of
Section 902(n) of the Securities Act) or any designated offshore
securities market (within the meaning of Rule 902(a) of the
Securities Act).
7
(cc) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(dd) "Stock Option Grant Agreement" shall mean an agreement
entered into by each Participant and the Company evidencing the
Grant of each Option pursuant to the Plan (a sample of which is
attached hereto as Exhibit A).
(ee) "Stockholders' Agreement" shall mean the Stockholders'
Agreement, attached hereto as Exhibit B or such other
stockholders' agreement as may be entered into between the
Company and any Participant.
(ff) "Transfer" shall mean any transfer, sale, assignment,
gift, testamentary transfer, pledge, hypothecation or other
disposition of any interest. "Transferee" and "Transferor" shall
have correlative meanings.
(gg) "Valuation Adjustments" shall mean that amount of
non-cash expense charged against earnings for any period
resulting from the application of accounting for business
combinations in accordance with Accounting Principles Board
Opinion #16. These charges may include, but are not limited to,
amounts such as inventory revaluations, property, plant and
equipment revaluations, goodwill amortization and finance fee
amortization.
(hh) "Valuation Date" shall mean (i) prior to the existence
of a Public Market for the Common Stock, the last day of each
calendar quarter, or (ii) on or after the existence of a Public
Market for the Common Stock, the trading date immediately
preceding the date of the relevant transaction.
(ii) "Vesting Date" shall mean the date an Option becomes
exercisable as defined in Section 4.4 herein.
(jj) "Withholding Request" shall have the meaning set forth
in Section 4.10 herein.
8
3. Administration of the Plan
The Committee shall be appointed by the Board and shall
administer the Plan. No member of the Committee shall participate
in any decision that specifically affects such member's interest
in the Plan.
3.1 Powers of the Committee. In addition to the other powers
granted to the Committee under the Plan, the Committee shall have
the power: (a) to determine to which of the Eligible Employees
Grants shall be made; (b) to determine the time or times when
Grants shall be made and to determine the number of shares of
Common Stock subject to each such Grant; (c) to prescribe the
form of any instrument evidencing a Grant; (d) to adopt, amend
and rescind such rules and regulations as, in its opinion, may be
advisable for the administration of the Plan; (e) to construe and
interpret the Plan, such rules and regulations and the
instruments evidencing Grants; and (f) to make all other
determinations necessary or advisable for the administration of
the Plan.
3.2 Determinations of the Committee. Any Grant,
determination, prescription or other act of the Committee shall
be final and conclusively binding upon all persons.
3.3 Indemnification of the Committee. No member of the
Committee or the Board shall be liable for any action or
determination made in good faith with respect to the Plan or any
Grant. To the full extent permitted by law, the Company shall
indemnify and hold harmless each person made or threatened to be
made a party to any civil or criminal action or proceeding by
reason of the fact that such person, or such person's testator or
intestate, is or was a member of the Committee.
3.4 Compliance with Applicable Law. Notwithstanding
anything herein to the contrary, the Company shall not be
required to issue or deliver any certificates evidencing shares
of Common Stock pursuant to the exercise of any Options, unless
and until the Committee has
9
determined, with advice of counsel, that the issuance and
delivery of such certificates is in compliance with all
applicable laws, regulations of governmental authorities and, if
applicable, the requirements of any exchange on which the shares
of Common Stock are listed or traded. The Company shall use its
reasonable efforts to register such shares of Common Stock or to
take any other action in order to comply with any such law,
regulation or requirement with respect to the issuance and
delivery of such certificates. In addition to the terms and
conditions provided herein, the Committee may require that a
Participant make such reasonable covenants, agreements and
representations as the Committee, in its sole discretion, deems
advisable in order to comply with any such laws, regulations or
requirements.
3.5 Inconsistent Terms. In the event of a conflict between
the terms of the Plan and the terms of any Stock Option Grant
Agreement, the terms of the Stock Option Grant Agreement shall
govern.
4. Options
Subject to adjustment as provided in Section 4.13 hereof,
the Committee may grant to Participants Options to purchase
shares of Common Stock of the Company which, in the aggregate, do
not exceed 7388 shares of Common Stock. To the extent that any
Option granted under the Plan terminates, expires or is canceled
without having been exercised, the shares covered by such Option
shall again be available for Grant under the Plan.
4.1 Identification of Options. The Options granted under the
Plan shall be clearly identified in the Stock Option Grant
Agreement as Non-Qualified Stock Options.
4.2 Exercise Price. The Exercise Price of any Option granted
under the Plan shall be such price as the Committee shall
determine (which may be equal to, less than or greater than the
Fair Market Value of a share of Common Stock on the Grant Date
for such Options) and which
10
shall be specified in the Stock Option Grant Agreement; provided
that such price may not be less than the minimum price required
by law.
4.3 Grant Date. The Grant Date of the Options shall be the
date designated by the Committee and specified in the Stock
Option Grant Agreement as the date the Option is granted.
4.4 Vesting Date of Options. Each Stock Option Grant
Agreement shall indicate the date or conditions under which such
Option shall become exercisable; provided, however, that, upon a
Change in Control, all outstanding Options shall immediately
become vested.
4.5 Expiration of Options. With respect to each Participant,
such Participant's Option(s), or portion thereof, which have not
become exercisable shall expire on the date such Participant's
Employment is terminated for any reason unless otherwise
specified in the Stock Option Grant Agreement. With respect to
each Participant, each Participant's Option(s), or any portion
thereof, which have become exercisable on the date such
Participant's Employment is terminated shall expire on the
earlier of (i) the commencement of business on the date the
Participant's Employment is terminated for Cause; (ii) 90 days
after the date the Participant's Employment is terminated for any
reason other than Cause, death or Disability; (iii) one year
after the date the Participant's Employment is terminated by
reason of death or Disability; or (iv) the 10th anniversary of
the Grant Date for such Option(s). Notwithstanding the foregoing,
the Committee may specify in the Stock Option Grant Agreement a
different expiration date or period for any Option Granted
hereunder, and such expiration date or period shall supersede the
foregoing expiration period.
4.6 Limitation on Transfer. During the lifetime of a
Participant, each Option shall be exercisable only by such
Participant unless the Participant obtains written consent from
the
11
Company to Transfer such Option to a specified Transferee (a
"Permitted Transferee") or the Participant's Stock Option Grant
Agreement provides otherwise.
4.7 Condition Precedent to Transfer of Any Option. It shall
be a condition precedent to any Transfer of any Option by any
Participant that the Transferee, if not already a Participant in
the Plan, shall agree prior to the Transfer in writing with the
Company to be bound by the terms of the Plan and the Stock Option
Grant Agreement as if he had been an original signatory thereto.
4.8 Effect of Void Transfers. In the event of any purported
Transfer of any Options in violation of the provisions of the
Plan, such purported Transfer shall, to the extent permitted by
applicable law, be void and of no effect.
4.9 Exercise of Options. A Participant may exercise any or
all of his vested Options by serving an Exercise Notice on the
Company as provided in Section 4.10 hereto.
4.10 Method of Exercise. The Option shall be exercised by
delivery of written notice to the Company's principal office (the
"Exercise Notice"), to the attention of its Secretary, no less
than five business days in advance of the effective date of the
proposed exercise (the "Exercise Date"). Such notice shall (a)
specify the number of shares of Common Stock with respect to
which the Option is being exercised, the Grant Date of such
Option and the Exercise Date, (b) be signed by the Participant,
and (c) prior to the existence of a Public Market for the Common
Stock, indicate in writing that the Participant agrees to be
bound by the Stockholders' Agreement, and (d) if the Option is
being exercised by the Participant's Permitted Transferee(s),
such Permitted Transferee(s) shall indicate in writing that they
agree to and shall be bound by the Plan and Stock Option Grant
Agreement as if they had been original signatories thereto. The
Exercise Notice shall include (i) payment in cash for an amount
equal to the Exercise Price
12
multiplied by the number of shares of Common Stock specified in
such Exercise Notice, (ii) a certificate representing the number
of shares of Common Stock with a Fair Market Value equal to the
Exercise Price (provided the Participant has owned such shares at
least six months prior to the Exercise Date) multiplied by the
number of shares of Common Stock specified in such Exercise
Notice, or (iii) a combination of (i) and (ii) or any method
otherwise approved by the Committee. In addition, the Exercise
Notice shall include payment either in cash or previously-owned
shares of Common Stock in an amount equal to the applicable
withholding taxes based on the Option Spread for each share of
Common Stock specified in the Exercise Notice as of the most
recent Valuation Date unless the Participant requests, in
writing, that the Company withhold a portion of the shares that
are to be distributed to the Participant to satisfy the
applicable federal, state and local withholding taxes incurred in
connection with the exercise of the Option (the "Withholding
Request"). The Committee, in its sole discretion, will either
grant or deny the Withholding Request and shall notify the
Participant of its determination prior to the Exercise Date. If
the Withholding Request is denied, the Participant shall pay an
amount equal to the applicable withholding taxes based on the
Option Spread for each share of Common Stock specified in the
Exercise Notice as of the most recent Valuation Date on or before
such Exercise Date. The partial exercise of the Option, alone,
shall not cause the expiration, termination or cancellation of
the remaining Options.
4.11 Certificates of Shares. Upon the exercise of the
Options in accordance with Section 4.10 and, prior to the
existence of a Public Market for the Common Stock, execution of
the Stockholders' Agreement, certificates of shares of Common
Stock shall be issued in the name of the Participant and
delivered to such Participant as soon as practicable following
the Exercise Date. Prior to the existence of a Public Market, no
shares of Common Stock shall be issued to
13
any Participant until such Participant agrees to be bound by and
executes the Stockholders' Agreement.
4.12 Administration of Options.
(a) Termination of the Options. The Committee may, at any
time, in its absolute discretion, without amendment to the Plan
or any relevant Stock Option Grant Agreement, terminate the
Options then outstanding, whether or not exercisable, provided,
however, that the Company, in full consideration of such
termination, shall pay (a) with respect to any Option, or portion
thereof, then outstanding, an amount equal to the Option Spread
determined as of the Valuation Date coincident with or next
succeeding the date of termination. Such payment shall be made as
soon as practicable after the payment amounts are determined,
provided, however, that the Company shall have the option to make
payments to the Participants by issuing a note to the Participant
bearing a reasonable rate of interest as determined by the
Committee in its absolute discretion.
(b) Amendment of Terms of Options. The Committee may, in its
absolute discretion, amend the Plan or terms of any Option,
provided, however, that any such amendment shall not impair or
adversely affect the Participants' rights under the Plan or such
Option without such Participant's written consent.
4.13 Adjustment Upon Changes in Company Stock.
(a) Increase or Decrease in Issued Shares Without
Consideration. Subject to any required action by the stockholders
of the Company, in the event of any increase or decrease in the
number of issued shares of Common Stock resulting from a
subdivision or consolidation of shares of Common Stock or the
payment of a stock dividend (but only on the shares of Common
Stock), or any other increase or decrease in the number of such
shares effected without receipt of
14
consideration by the Company, the Committee shall, make such
adjustments with respect to the number of shares of Common Stock
subject to the Options, the exercise price per share of Common
Stock and the Option Value of each such Option, as the Committee
may consider appropriate to prevent the enlargement or dilution
of rights.
(b) Certain Mergers. Subject to any required action by the
stockholders of the Company, in the event that the Company shall
be the surviving corporation in any merger or consolidation
(except a merger or consolidation as a result of which the
holders of shares of Common Stock receive securities of another
corporation), the Options outstanding on the date of such merger
or consolidation shall pertain to and apply to the securities
which a holder of the number of shares of Common Stock subject to
any such Option would have received in such merger or
consolidation (it being understood that if, in connection with
such transaction, the stockholders of the Company retain their
shares of Common Stock and are not entitled to any additional or
other consideration, the Options shall not be affected by such
transaction).
(c) Certain Other Transactions. In the event of (i) a
dissolution or liquidation of the Company, (ii) a sale of all or
substantially all of the Company's assets, (iii) a merger or
consolidation involving the Company in which the Company is not
the surviving corporation or (iv) a merger or consolidation
involving the Company in which the Company is the surviving
corporation but the holders of shares of Common Stock receive
securities of another corporation and/or other property,
including cash, the Committee shall, in its absolute discretion,
have the power to provide for the exchange of each Option
outstanding immediately prior to such event (whether or not then
exercisable) for an option on or stock appreciation right with
respect to, as appropriate, some or all of the property for which
the stock underlying such Options are exchanged and, incident
thereto, make an equitable adjustment, as determined by the
Committee
15
in the exercise price of the options or stock appreciation
rights, or the number of shares or amount of property subject to
the options or stock appreciation rights or, if appropriate,
provide for a cash payment to the Participants in partial
consideration for the exchange of the Options as the Committee
may consider appropriate to prevent dilution or enlargement of
rights.
(d) Other Changes. In the event of any change in the
capitalization of the Company or a corporate change other than
those specifically referred to in Sections 4.13(a), (b) or (c)
hereof, the Committee shall, make such adjustments in the number
and class of shares subject to Options outstanding on the date on
which such change occurs and in the per-share exercise price of
each such Option as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
(e) No Other Rights. Except as expressly provided in the
Plan or the Stock Option Grant Agreements evidencing the Options,
the Participants shall not have any rights by reason of any
subdivision or consolidation of shares of Common Stock or shares
of stock of any class, the payment of any dividend, any increase
or decrease in the number of shares of Common Stock or shares of
stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as
expressly provided in the Plan or the Stock Option Grant
Agreements evidencing the Options, no issuance by the Company of
shares of Common Stock or shares of stock of any class, or
securities convertible into shares of Common Stock or shares of
stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of
Common Stock subject to the Options or the exercise price of such
Options.
16
5. Miscellaneous
5.1 Rights as Stockholders. The Participants shall not have
any rights as stockholders with respect to any shares of Common
Stock covered by or relating to the Options granted pursuant to
the Plan until the date the Participants become the registered
owners of such shares. Except as otherwise expressly provided in
Sections 4.12 and 4.13 hereof, no adjustment to the Options shall
be made for dividends or other rights for which the record date
occurs prior to the date such stock certificate is issued.
5.2 No Special Employment Rights. Nothing contained in the
Plan shall confer upon the Participants any right with respect to
the continuation of their Employment or interfere in any way with
the right of the Company or an Affiliate, subject to the terms of
any separate Employment agreements to the contrary, at any time
to terminate such Employment or to increase or decrease the
compensation of the Participants from the rate in existence at
the time of the grant of any Option.
5.3 No Obligation to Exercise. The Grant to the Participants
of the Options shall impose no obligation upon the Participants
to exercise such Options.
5.4 Restrictions on Common Stock. The rights and obligations
of the Participants with respect to Common Stock obtained through
the exercise of any Option provided in the Plan shall be governed
by the terms and conditions of the Stockholders' Agreement.
5.5 Notices. All notices and other communications hereunder
shall be in writing and shall be given and shall be deemed to
have been duly given if delivered in person, by cable, telegram,
telex or facsimile transmission, to the parties as follows:
27
If to the Participant:
To the address shown on the Stock Option Grant
Agreement.
If to the Company:
J. Crew Group Inc.
625 Sixth Avenue
Third Floor
New York, NY 10011
Attention: Chief Financial Officer
or to such other address as any party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall only be effective upon receipt.
5.6 Descriptive Headings. The headings in the Plan are for
convenience of reference only and shall not limit or otherwise
affect the meaning of the terms contained herein.
5.7 Severability. In the event that any one or more of the
provisions, subdivisions, words, clauses, phrases or sentences
contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability
of any such provision, subdivision, word, clause, phrase or
sentence in every other respect and of the remaining provisions,
subdivisions, words, clauses, phrases or sentences hereof shall
not in any way be impaired, it being intended that all rights,
powers and privileges of the Company and Participants shall be
enforceable to the fullest extent permitted by law.
5.8 Governing Law. The Plan shall be governed by and
construed and enforced in accordance with the laws of the State
of New York, without regard to the provisions governing conflict
of laws.
October 17, 1997
18
EXHIBIT A-1 Time Based Vesting
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this ___ day of _________,
199_ between J. CREW GROUP INC. (the "Company") and ____________
(the "Participant").
WHEREAS, the Company has adopted and maintains the
J. Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company;
WHEREAS, the Plan provides for the Grant to
Participants in the Plan of Non-Qualified Stock Options to
purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to _____ shares of Common
Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby
granted is __________.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein. If there is any conflict between the
terms and conditions of the Plan and this Agreement, the terms
and conditions of this Agreement, as interpreted by the
Committee, shall govern. All capitalized terms used herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share
underlying the Option hereby granted is ___________.
5. Vesting Date. The Option shall become exercisable as
follows: (i) [___ (10%)] of the shares of Common Stock underlying
the Option immediately upon Grant; (ii) [___ 10%)] of the shares
of Common Stock underlying the Option on the first anniversary of
the Grant Date; and (iii) [___ 20%)] of the shares of Common
Stock underlying the Option on each of the second through the
fifth anniversaries of the Grant Date. Notwithstanding the
foregoing, in the event of a Change in Control, all shares of
Common Stock underlying the Option shall become immediately
exercisable.
6. Expiration Date. Subject to the provisions of the Plan,
with respect to the Option or any portion thereof which has not
become exercisable, the Option shall expire on the date the
Participant's Employment is terminated for any reason, and with
respect to any Option or any portion thereof which has become
exercisable, the Option shall expire on the earlier of: (i) 90
days after the Participant's termination of Employment other than
for Cause, death or Disability; (ii) one year after termination
of the Participant's Employment by reason of death or Disability;
(iii) the commencement of business on the date the Participant's
Employment is, or is deemed to have been, terminated for Cause;
or (iv) the tenth anniversary of the Grant Date.
7. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party or any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
8. Limitation on Transfer. During the lifetime of the
Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
request authorization from the Committee to assign his rights
with respect to the Option granted herein to a trust or
custodianship, the beneficiaries of which may include only the
Participant, the Participant's spouse or the Participant's lineal
descendants (by blood or adoption), and, if the Committee grants
such authorization, the Participant may assign his rights
accordingly. In the event of any such assignment, such trust or
custodianship shall be subject to all the restrictions,
obligations, and responsibilities as apply to the Participant
under the Plan and this Stock Option Grant Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
shares of Common Stock obtained pursuant to the Option granted
herein shall not be transferred except as provided in the Plan
and, where applicable, the Stockholders' Agreement.
9. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
2
10. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
11. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of NEW YORK, without regard to the provisions governing
conflict of laws.
12. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan. The Participant
hereby acknowledges that all decisions, determinations and
interpretations of the Committee in respect of the Plan, this
Agreement and the Option shall be final and conclusive.
* * * * *
3
IN WITNESS WHEREOF, the Company has caused this
Agreement to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on his own behalf,
thereby representing that he has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By: __________________________
______________________________
[Name of Participant]
[Address]
4
EXHIBIT A-2 Performance Based Vesting
STOCK OPTION GRANT AGREEMENT
THIS AGREEMENT, made as of this ___ day of _________, 199_
between J. CREW GROUP INC. (the "Company") and ____________ (the
"Participant").
WHEREAS, the Company has adopted and maintains the
J. Crew Group 1997 Stock Option Plan (the "Plan") to promote the
interests of the Company and its stockholders by providing the
Company's key employees with an appropriate incentive to
encourage them to continue in the employ of the Company and to
improve the growth and profitability of the Company.
WHEREAS, the Plan provides for the grant to
Participants in the Plan of Non-Qualified Stock Options to
purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants hereinafter set forth, the parties hereto
hereby agree as follows:
1. Grant of Options. Pursuant to, and subject to, the
terms and conditions set forth herein and in the Plan, the
Company hereby grants to the Participant a NON-QUALIFIED STOCK
OPTION (the "Option") with respect to _____ shares of Common
Stock of the Company.
2. Grant Date. The Grant Date of the Option hereby
granted is ______________.
3. Incorporation of Plan. All terms, conditions and
restrictions of the Plan are incorporated herein and made part
hereof as if stated herein. If there is any conflict between the
terms and conditions of the Plan and this Agreement, the terms
and conditions of this Agreement, as interpreted by the
Committee, shall govern. All capitalized terms used herein shall
have the meaning given to such terms in the Plan.
4. Exercise Price. The exercise price of each share
underlying the Option hereby granted is ___________.
5. Vesting Date. On the last day of each of the fiscal
years [______] through [________], (each an "Anniversary Date"),
the Option will become exercisable with respect to up to twenty
percent of the shares of Common Stock underlying the Option (the
"Eligible Portion") in accordance with the following: (i) if less
than 90% of the Annual EBITDA Target is achieved in the fiscal
year ending on the respective Anniversary Date, 0% of the
Eligible Portion will become exercisable; (ii) if 90% of the
Annual EBITDA Target is achieved in the fiscal year ending on the
respective Anniversary Date, 50% of the Eligible Portion will
become exercisable; (iii) if 95% of the Annual EBITDA Target is
achieved in the fiscal year ending on the respective Anniversary
Date, 100% of the Eligible Portion will become exercisable, and
(iv) if between 90% and 95% of the Annual EBITDA Target is
achieved in the fiscal year ending on the respective Anniversary
Date, the percentage of the Eligible Portion which will become
exercisable shall be determined on the basis of straight line
interpolation based on the amounts set forth in (ii) and (iii)
above. Notwithstanding the foregoing, the Option shall become
immediately exercisable upon the occurrence of any of the
following: (i) the Participant's employment is terminated by the
Company without Cause, (ii) the Participant's employment is
terminated by reason of death or Disability, or (iii) upon a
Change in Control of the Company. In addition, the Option shall
become exercisable on the seventh anniversary of the Grant Date.
For purposes of this Stock Option Grant Agreement, the "Annual
EBITDA Target" for each fiscal year shall be determined by the
Committee, in its absolute discretion.
6. Expiration Date. Subject to the provisions of the
Plan, the Option shall expire and be canceled on the tenth
anniversary of the Grant Date; provided that the Option shall
expire prior to the tenth anniversary of the Grant Date as
follows: (i) to the extent the Option is not exercisable on the
date the Participant's Employment terminates for any reason, such
Option shall expire and be canceled on the date the Employment
terminates; and (ii) to the extent the Option is exercisable on
the date the Participant's Employment terminates, the Option
shall expire and be canceled (A) 90 days after the Participant's
termination of Employment other than for Cause, death or
Disability (but not later than the tenth anniversary of the Grant
Date); (B) one year after termination of the Participant's
Employment by reason of death or Disability (but not later than
the tenth anniversary of the Grant Date); or (C) the commencement
of business on the date the Participant's Employment is, or is
deemed to have been, terminated for Cause.
7. Delays or Omissions. No delay or omission to exercise
any right, power or remedy accruing to any party hereto upon any
breach or default of any party under this Agreement, shall impair
any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default
thereafter occurring nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent
or approval of any kind or character on the part of any party of
any breach or default under this Agreement, or any waiver on the
part of any party or any provisions or conditions of this
Agreement, shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
8. Limitation on Transfer. During the lifetime of the
Participant, the Option shall be exercisable only by the
Participant. The Option shall not be assignable or transferable
otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Participant may
request authorization from the Committee to assign his rights
with respect to the Option granted herein to a trust or
custodianship, the beneficiaries of which may include only the
Participant, the Participant's spouse, or the Participant's
lineal descendants (by blood or adoption), and, if the Committee
grants such authorization, the Participant may assign his rights
accordingly. In the event of any such assignment, such trust or
custodianship shall be subject to all the restrictions,
obligations and responsibilities as apply
2
to the Participant under the Plan and this Agreement and shall be
entitled to all the rights of the Participant under the Plan. All
shares of Common Stock obtained pursuant to the Option Granted
herein shall not be transferred except as provided in the Plan
and, where applicable, the Stockholders' Agreement.
9. Integration. This Agreement, and the other documents
referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with
respect to its subject matter. There are no restrictions,
agreements, promises, representations, warranties, covenants or
undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement, including
without limitation the Plan, supersedes all prior agreements and
understandings between the parties with respect to its subject
matter.
10. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
11. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the
State of NEW YORK, without regard to the provisions governing
conflict of laws.
12. Participant Acknowledgment. The Participant hereby
acknowledges receipt of a copy of the Plan. The Participant
hereby acknowledges that all decisions, determinations and
interpretations of the Committee in respect of the Plan, this
Agreement and the Option shall be final and conclusive.
* * * * *
3
IN WITNESS WHEREOF, the Company has caused this
Agreement to be duly executed by its duly authorized officer and said
Participant has hereunto signed this Agreement on his own behalf,
thereby representing that he has carefully read and understands
this Agreement and the Plan as of the day and year first written
above.
J. CREW GROUP INC.
By: __________________________
_______________________________
[Name of Participant]
[Address]
4
Exhibit B
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of
________, 199__, between J. Crew Group, Inc. (the "Company"), TPG
Partners II, L.P. ("TPG") and ___________________ (the
"Stockholder").
WHEREAS, the Stockholder is an employee of the Company
and in such capacity was granted an option (the "Option") to
purchase shares of common stock of the Company, $.01 par value
per share ("Common Stock"), pursuant to the Company's 1997 Stock
Option Plan (the "Option Plan");
WHEREAS, as a condition to the issuance of shares of
Common Stock pursuant to the exercise of an Option, the
Stockholder is required under the Option Plan to execute this
Agreement;
WHEREAS, the Stockholder desires to exercise the Option to
purchase __________ shares of Common Stock; and
WHEREAS, the Stockholder and the Company desire to
enter this Agreement and to have this Agreement apply to the
shares to be purchased pursuant to the Option Plan and to any
shares of Common Stock acquired after the date hereof by the
Stockholder from whatever source, subject to any future agreement
between the Company and the Stockholder to the contrary (in the
aggregate, the "Shares").
NOW THEREFORE, in consideration of the premises
hereinafter set forth, and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto
agree as follows.
1. Investment. The Stockholder represents that the Shares
are being acquired for investment and not with a view toward the
distribution thereof.
2. Issuance of Shares. The Stockholder acknowledges
and agrees that the certificate for the Shares shall bear the
following legends (except that the second paragraph of this
legend shall not be required after the Shares have been
registered and except that the first paragraph of this legend
shall not be required after the termination of this Agreement):
The shares represented by this certificate are subject to
the terms and conditions of a Stockholders' Agreement dated
as of ______________, 19__ and may not be sold,
transferred, hypothecated, assigned or encumbered, except
as may be permitted by the aforesaid Agreement. A copy of
the Stockholders' Agreement may be obtained from the
Secretary of the Company.
The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares
have been acquired for investment and may
not be sold, transferred, pledged or hypothecated in the
absence of an effective registration statement for the
shares under the Securities Act of 1933 or an opinion of
counsel for the Company that registration is not required
under said Act.
Upon the termination of this Agreement, or upon
registration of the Shares under the Securities Act of 1933 (the
"Securities Act"), the Stockholder shall have the right to
exchange any Shares containing the above legend (i) in the case
of the registration of the Shares, for Shares legended only with
the first paragraph described above and (ii) in the case of the
termination of this Agreement, for Shares legended only with the
second paragraph described above.
3. Transfer of Shares; Call Rights.
(a) The Stockholder agrees that he will not cause or
permit the Shares or his interest in the Shares to be sold,
transferred, hypothecated, assigned or encumbered except as
expressly permitted by this Section 3; provided, however, that
the Shares or any such interest may be transferred (i) on the
Stockholder's death by bequest or inheritance to the
Stockholder's executors, administrators, testamentary trustees,
legatees or beneficiaries, (ii) to a trust or custodianship the
beneficiaries of which may include only the Stockholder, the
Stockholder's spouse, or the Stockholder's lineal descendants (by
blood or adoption), (iii) in accordance with Section 4 of this
Agreement, and (iv) to the Company pursuant to Section 4.10 of
the Option Plan, subject in any such case to the agreement by
each transferee (other than the Company) in writing to be bound
by the terms of this Agreement and provided in any such case that
no such transfer that would cause the Company to be required to
register the Common Stock under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), shall be
permitted.
(b) The Company (or its designated assignee) shall
have the right, during the one-hundred-twenty-day period (x)
beginning on the one-year anniversary of the termination of the
Stockholder's employment as a result of death or Disability or
(y) immediately following the termination of the employment of
the Stockholder with the Company for any other reason at any
time, to purchase from the Stockholder, and upon the exercise of
such right the Stockholder shall sell to the Company (or its
designated assignee), all or any portion of the Shares held by
the Stockholder as of the date as of which such right, is
exercised at a per Share price equal to the Fair Market Value (as
defined in the Option Plan) of a share of Common Stock determined
as of the date as of which such right is exercised. The Company
(or its designated assignee) shall exercise such right by
delivering to the Stockholder a written notice specifying its
intent to purchase Shares held by the Stockholder, the date as of
which such right is to be exercised and the number of Shares to
be purchased. Such purchase and sale shall occur on such date as
the Company (or its designated assignee) shall specify which date
shall not be later than ninety (90) days after the fiscal
quarter-end immediately following the date as of which the
Company's right is exercised.
2
4. Certain Rights.
(a) Drag Along Rights. If TPG desires to sell all or
substantially all of its shares of Common Stock to a good faith
independent purchaser (a "Purchaser") (other than any other
investment partnership, limited liability company or other entity
established for investment purposes and controlled by the
principals of TPG or any of its affiliates and other than any
employees of TPG, hereinafter referred to as a "Permitted
Transferee") and said Purchaser desires to acquire all or
substantially all of the issued and outstanding shares of Common
Stock (or all or substantially all of the assets of the Company)
upon such terms and conditions as agreed to with TPG, the
Stockholder agrees to sell all of his Shares to said Purchaser
(or to vote all of his Shares in favor of any merger or other
transaction which would effect a sale of such shares of Common
Stock or assets of the Company) at the same price per share of
Common Stock and pursuant to the same terms and conditions with
respect to payment for the shares of Common Stock as agreed to by
TPG. In such case, TPG shall give written notice of such sale to
the Stockholder at least 30 days prior to the consummation of
such sale, setting forth (i) the consideration to be received by
the holders of shares of Common Stock, (ii) the identity of the
Purchaser, (iii) any other material items and conditions of the
proposed transfer and (iv) the date of the proposed transfer.
(b) Tag Along Rights. (i) Subject to paragraph (iv)
of this Section 4(b), if TPG or its affiliates proposes to
transfer any of its shares of Common Stock to a Purchaser (other
than a Permitted Transferee), then TPG or such Permitted
Transferee (hereinafter referred to as a "Selling Stockholder")
shall give written notice of such proposed transfer to the
Stockholder (the "Selling Stockholder's Notice") at least 30 days
prior to the consummation of such proposed transfer, and shall
provide notice to all other stockholders of the Company to whom
TPG has granted similar "tag-along" rights (such stockholders
together with the Stockholder, referred to herein as the "Other
Stockholders") setting forth (A) the number of shares of Common
Stock offered, (B) the consideration to be received by such
Selling Stockholder, (C) the identity of the Purchaser, (D) any
other material items and conditions of the proposed transfer and
(E) the date of the proposed transfer.
(ii) Upon delivery of the Selling Stockholder's
Notice, the Stockholder may elect to sell up to the sum of (A)
the Pro Rata Portion (as hereinafter defined) and (B) the Excess
Pro Rata Portion (as hereinafter defined) of his Shares, at the
same price per share of Common Stock and pursuant to the same
terms and conditions with respect to payment for the shares of
Common Stock as agreed to by the Selling Stockholder, by sending
written notice to the Selling Stockholder within 15 days of the
date of the Selling Stockholder's Notice, indicating his election
to sell up to the sum of the Pro Rata Portion plus the Excess Pro
Rata Portion of his Shares in the same transaction. Following
such 15 day period, the Selling Stockholder and each Other
Stockholder shall be permitted to sell to the Purchaser on the
terms and conditions set forth in the Selling Stockholder's
Notice the sum of (X) the Pro Rata Portion and (Y) the Excess Pro
Rata Portion of its Shares.
(iii) For purposes of Section 4(b) and 4(c) hereof,
"Pro Rata Portion" shall mean, with respect to shares of Common
Stock held by the Stockholder or Selling Stockholder,
3
as the case may be, a number equal to the product of (x) the
total number of such shares then owned by the Stockholder or the
Selling Stockholder, as the case may be, and (y) a fraction, the
numerator of which shall be the total number of such shares
proposed to be sold to the Purchaser as set forth in the Selling
Stockholder's Notice or initially proposed to be registered by
the Selling Stockholder, as the case may be, and the denominator
of which shall be the total number of such shares then
outstanding (including such shares proposed to be sold or
registered by the Selling Stockholder); provided, however, that
any fraction of a share resulting from such calculation shall be
disregarded for purposes of determining the Pro Rata Portion. For
purposes of Sections 4(b) and 4(c), "Excess Pro Rata Portion"
shall mean, with respect to shares of Common Stock held by the
Stockholder or the Selling Stockholder, as the case may be, a
number equal to the product of (x) the number of Non-Elected
Shares (as defined below) and (y) a fraction, the numerator of
which shall be such Stockholder's Pro Rata Portion with respect
to such shares, and the denominator of which shall be the sum of
(1) the aggregate Pro Rata Portions with respect to the shares of
Common Stock of all of the Other Stockholders that have elected
to exercise in full their rights to sell their Pro Rata Portion
of shares of Common Stock, and (2) the Selling Stockholder's Pro
Rata Portion of shares of Common Stock (the aggregate amount of
such denominator is hereinafter referred to as the "Elected
Shares"). For purposes of this Agreement, "Non-Elected Shares"
shall mean the excess, if any, of the total number of shares of
Common Stock, proposed to be sold to a Purchaser as set forth in
a Selling Stockholder's Notice or initially proposed to be
registered by the Selling Stockholder, as the case may be, less
the amount of Elected Shares.
(iv) Notwithstanding anything to the contrary
contained herein, the provisions of this Section 4(b) shall not
apply to any sale or transfer by TPG of shares of Common Stock
unless and until TPG, after giving effect to the proposed sale or
transfer, shall have sold or transferred in the aggregate (other
than to Permitted Transferees) shares of Common Stock,
representing 7.5% of shares of Common Stock owned by TPG on the
date hereof.
(c) Piggyback Registration Rights.
(i) Notice to Stockholder. If the Company determines
that it will file a registration statement under the Securities
Act, other than a registration statement on Form S-4 or Form S-8
or any successor form, for an offering which includes shares of
Common Stock held by TPG or its affiliates (hereinafter in this
paragraph (c) of Section 4 referred to as a "Selling
Stockholder"), then the Company shall give prompt written notice
to the Stockholder that such filing is expected to be made (but
in no event less than 30 days nor more than 60 days in advance of
filing such registration statement), the jurisdiction or
jurisdictions in which such offering is expected to be made, and
the underwriter or underwriters (if any) that the Company (or the
person requesting such registration) intends to designate for
such offering. If the Company, within 15 days after giving such
notice, receives a written request for registration of any Shares
from the Stockholder, then the Company shall include in the same
registration statement the number of Shares to be sold by the
Stockholder as shall have been specified in his request, except
that the Stockholder shall not be permitted to register more than
the Pro Rata Portion plus the Excess Pro Rata portion of his
Shares. The Company shall bear all costs of preparing and filing
the registration statement, and shall indemnify and hold
harmless, to the extent customary and
4
reasonable, pursuant to indemnification and contribution
provisions to be entered into by the Company at the time of
filing of the registration statement, the seller of any shares of
Common Stock covered by such registration statement.
Notwithstanding anything herein to the contrary, the
Company, on prior notice to the participating Stockholder, may
abandon its intention to file a registration statement under this
Section 4(c) at any time prior to such filing.
(ii) Allocation. If the managing underwriter shall
inform the Company in writing that the number of shares of Common
Stock requested to be included in such registration exceeds the
number which can be sold in (or during the time of) such offering
within a price range acceptable to TPG, then the Company shall
include in such registration such number of shares of Common
Stock which the Company is so advised can be sold in (or during
the time of) such offering. All holders of shares of Common Stock
proposing to sell shares of Common Stock shall share pro rata in
the number of shares of Common Stock to be excluded from such
offering, such sharing to be based on the respective numbers of
shares of Common Stock as to which registration has been
requested by such holders.
(iii) Permitted Transfer. Notwithstanding anything to
the contrary contained herein, sales of Shares pursuant to a
registration statement filed by the Company may be made without
compliance with any other provision of this Agreement.
5. Termination. This Agreement shall terminate
immediately following the existence of a Public Market for the
Common Stock except that (i) the requirements contained in
Section 2 hereof shall survive the termination of this Agreement
and (ii) the provisions contained in Section 3 hereof shall
continue with respect to each Share during such period of time,
if any, as the Stockholder is precluded from selling such Shares
pursuant to Rule 144 of the Securities Act. For this purpose, a
"Public Market" for the Common Stock shall be deemed to exist if
the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act and trading regularly occurs in such Common
Stock in, on or through the facilities of securities exchanges
and/or inter-dealer quotation systems in the United States
(within the meaning of Section 902(n) of the Securities Act) or
any designated offshore securities market (within the meaning of
Rule 902(a) of the Securities Act).
6. Distributions With Respect To Shares. As used herein,
the term "Shares" includes securities of any kind whatsoever
distributed with respect to the Common Stock acquired by the
Stockholder pursuant to the Option Plan or any such securities
resulting from a stock split or consolidation involving such
Common Stock.
7. Amendment; Assignment. This Agreement may be
amended, superseded, canceled, renewed or extended, and the terms
hereof may be waived, only by a written instrument signed by
authorized representatives of the parties or, in the case of a
waiver, by an authorized representative of the party waiving
compliance. No such written instrument shall be effective unless
it expressly recites that it is intended to amend, supersede,
cancel, renew or extend this Agreement or to waive compliance
with one or more of the terms hereof, as the case may be. Except
for the Stockholder's right to assign his or her rights under
Section 3(a) or the
5
Company's right to assign its rights under Section 3(b), no party
to this Agreement may assign any of its rights or obligations
under this Agreement without the prior written consent of the
other parties hereto.
8. Notices. All notices and other communications
hereunder shall be in writing, shall be deemed to have been given
if delivered in person or by certified mail, return receipt
requested, and shall be deemed to have been given when personally
delivered or three (3) days after mailing to the following
address:
If to the Stockholder:
If to the Company:
If to TPG:
or to such other address as any party may have
furnished to the others in writing in accordance herewith, except
that notices of change of address shall only be effective upon
receipt.
9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an
original, but each of which together shall constitute one and the
same document.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of NEW YORK,
without reference to its principles of conflicts of law.
11. Binding Effect. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the heirs,
personal representatives, successors and permitted assigns of the
parties hereto. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person
other than the parties to this Agreement, or their respective
heirs, personal representatives, successors or assigns, any legal
or equitable rights, remedy or claim under or in respect of this
Agreement or any provision contained herein.
12. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject
matter hereof.
13. Severability. If any term, provision, covenant or
restriction of this Agreement, is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
6
14. Miscellaneous. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
* * * * * *
7
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the day and year first
above written.
_____________________________
[Stockholder]
J. CREW GROUP, INC.
_____________________________
By:
Title:
TPG PARTNERS II, L.P.
_____________________________
By:
Title:
8
Conformed Copy
Exhibit 16.1
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, NW
Washington, DC 20549
Ladies and Gentlemen:
We have read and agree with the comments in Item 19 of the
Registration Statement on Form S- 4 of J. Crew Group, Inc.to be
filed with the Securities and Exchange Commission on December 16,
1997.
Yours Truly,
/s/ DELOITTE & TOUCHE LLP
New York, New York
December 15, 1997
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
J. CREW GROUP, INC.
State of Name Under Which
Name of Subsidiary Incorporation Subsidiary Does Business
- ------------------ ------------- ------------------------
J. Crew Operating Corp. Delaware J. Crew Operating Corp.
J. Crew Inc. New Jersey J. Crew Inc.
Popular Club Plan, Inc. New Jersey Popular Club Plan, Inc.
Clifford & Wills, Inc. New Jersey Clifford & Wills, Inc.
Grace Holmes, Inc. Delaware (J. Crew Retail Stores?)
H.F.D. No. 55, Inc. Delaware (J. Crew Factory Outlet
Stores?)
C & W Outlet, Inc. New York C & W Outlet, Inc.
J. Crew International, Inc. Delaware J. Crew International, Inc.
J. Crew Services, Inc. Delaware J. Crew Services, Inc.
Exhibit 23.1
Conformed Copy
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of J. Crew
Group, Inc. on Form S-4 of our report dated March 31, 1997,
appearing in the Prospectus, which is a part of this Registration
Statement, and to the reference to us under the headings
"Selected Financial Data" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
New York, New York
December 15, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
-----------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or organization if not a
U.S. national bank)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq., Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
-----------------
J. Crew Group, Inc.
(Exact name of obligor as specified in its charter)
New York 22-2894486
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
(770 Broadway)
(New York, NY) (10003)
(13 1/8% Senior Discount Debentures Due 2008)
(Title of indenture securities)
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The
Commonwealth of Massachusetts, 100 Cambridge
Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe
each such affiliation.
The obligor is not an affiliate of the trustee or
its parent, State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee,
as now in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of
Banks of Massachusetts that no certificate of
authority for the trustee to commence business
was necessary or issued is on file with the
Securities and Exchange
2
Commission as Exhibit 2 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse
Shoe, Inc. (File No. 22-17940) and is incorporated herein
by reference thereto.
3. A copy of the authorization of the trustee to exercise
corporate trust powers, if such authorization is not
contained in the documents specified in paragraph (1)
or (2), above.
A copy of the authorization of the trustee to
exercise corporate trust powers is on file with
the Securities and Exchange Commission as Exhibit
3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of
Morse Shoe, Inc., (File No. 22-17940) and is
incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in
effect, is on file with the Securities and
Exchange Commission as Exhibit 4 to the Statement
of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of
Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
5. A copy of each indenture referred to in item 4, if the obligor
is in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section
321(b) of the Act is annexed hereto as Exhibit 6
and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority is annexed hereto a Exhibit 7 and made
a part hereof.
NOTES
In answering any item of this Statement of Eligibility
which relates to matters peculiarly within the knowledge of the
obligor or any underwriter for the obligor, the trustee has
relied upon information furnished to it by the obligor and the
underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
3
The answer furnished to Item 2 of this statement will
be amended, if necessary, to reflect any facts which differ from
those stated and which would have been required to be stated if
known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, as amended, the trustee, State Street Bank and Trust
Company, a corporation organized and existing under the laws of
The Commonwealth of Massachusetts, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 15th day of December, 1997.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Steven Cimalore
NAME: Steven Cimalore
TITLE: Vice President
4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the
proposed issuance by J. Crew Group, Inc. of its 13 1/8% Senior
Discount Debentures due 2008 we hereby consent that reports of
examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Steven Cimalore
NAME: Steven Cimalore
TITLE: Vice President
Dated:
5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust
Company, Massachusetts and foreign and domestic subsidiaries, a
state banking institution organized and operating under the
banking laws of this commonwealth and a member of the Federal
Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve
Bank of this District pursuant to the provisions of the Federal
Reserve Act and in accordance with a call made by the
Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
ASSETS Thousands of Dollars
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin 1,665,142
Interest-bearing balances.............................. 8,193,292
Securities............................................. 10,238,113
Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its Edge
subsidiary ...................................... 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income... 4,936,454
Allowance for loan and lease losses ....... 70,307
Allocated transfer risk reserve ........... 0
Loans and leases, net of unearned income and allowances 4,866,147
Assets held in trading accounts........................ 957,478
Premises and fixed assets.............................. 380,117
Other real estate owned................................ 884
Investments in unconsolidated subsidiaries............. 25,835
Customer's liability to this bank
on acceptances outstanding ............................ 45,548
Intangible assets...................................... 158,080
Other assets........................................... 1,066,957
---------
Total assets........................................... 33,450,737
==========
LIABILITIES
Deposits:
In domestic offices.............................. 8,270,845
Noninterest-bearing.......... 6,318,360
Interest-bearing............. 1,952,485
In foreign offices and Edge subsidiary........... 12,760,086
Noninterest-bearing.......... 53,052
Interest-bearing............. 12,707,034
Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of
its Edge subsidiary ............................. 8,216,641
Demand notes issued to the U.S. Treasury and
Trading Liabilities ................................... 926,821
Other borrowed money................................... 671,164
Subordinated notes and debentures...................... 0
Bank's liability on acceptances executed and outstanding 46,137
Other liabilities...................................... 745,529
Total liabilities...................................... 31,637,223
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.......... 0
Common stock........................................... 29,931
Surplus................................................ 360,717
Undivided profits and capital
reserves/Net unrealized holding gains (losses) 1,426,881
Cumulative foreign currency translation adjustments.... (4,015)
Total equity capital................................... 1,813,514
Total liabilities and equity capital................... 33,450,737
==========
6
I, Rex S. Schuette, Senior Vice President and Comptroller of the
above named bank do hereby declare that this Report of Condition
has been prepared in conformance with the instructions issued by
the Board of Governors of the Federal Reserve System and is true
to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us
and to the best of our knowledge and belief has been prepared in
conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true and correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
7
5
1,000,000
12-MOS 9-MOS
JAN-31-1997 JAN-31-1997
JAN-31-1997 NOV-7-1997
7 13
0 0
62 22
4 5
198 261
321 365
136 172
49 61
411 493
189 226
95 295
0 0
2 0
0 1
100 (195)
411 493
796 557
809 567
429 311
777 564
0 20
0 0
10 11
21 (29)
9 (5)
13 (24)
0 0
0 (5)
0 0
13 (29)
0 0
0 0
Exhibit 99.1
FORM OF LETTER OF TRANSMITTAL
J. CREW GROUP, INC.
Offer to Exchange
Series B 13 1/8% Senior Discount Debentures due 2008,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 13 1/8% Senior Discount Debentures due 2008
Pursuant to the Prospectus, dated _______ __, 1998.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME,
ON ___________ __, 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON __________ __, 1998.
Delivery to: State Street Bank and Trust Company, Exchange Agent
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporate Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, NY 10006
For information call:
(617) 664-5587
Delivery of this instrument to an address other than
as set forth above will not constitute a valid delivery.
The undersigned acknowledges receipt of the
Prospectus, dated _______ __, 1997 (the "Prospectus"), of J. Crew
Group, Inc., a New York corporation, (the "Issuer"), and this
Letter of Transmittal (this "Letter"), which together constitute
the offer (the "Exchange Offer") to exchange an aggregate
principal amount at maturity of up to $142,000,000 of Series B 13
1/8% Senior Discount Debentures due 2008 (the "New Debentures")
for an equal principal amount at maturity of the outstanding
Series A 13 1/8% Senior Discount Debentures due 2008 (the "Old
Debentures"). State Street Bank and Trust Company is the exchange
agent for the Exchange Offer (the "Exchange Agent").
For each Old Debenture accepted for exchange, the
holder of such Old Debenture will receive a New Debenture having
a principal amount at maturity equal to that of the surrendered
Old Debenture. The New Debentures will accrue interest at 13 1/8%
per annum. Interest on the New Debentures is payable
semi-annually in arrears on April 15 and October 15 of each year
commencing October 15, 2002.
Notwithstanding the foregoing, liquidated damages
("Liquidated Damages") shall become payable in respect of the Old
Debentures as follows:
If (a) the Issuer fails to file a registration
statement with respect to the New Debentures (the "Exchange Offer
Registration Statement") or a shelf registration statement
covering resales of the Old Debentures (the "Shelf Registration
Statement", and, collectively, the "Registration Statements") as
required by the Registration Rights Agreement on or before the
date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or
prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Issuer fails to consummate
the Exchange Offer within 180 days after the date at which the
Old Debentures were issued (the "Issue Date") as required by the
Regulation Rights Agreement, or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted
Securities (as defined in "The Exchange Offer -- Terms of the
Exchange Offer" section of the Prospectus) during the periods
specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration
Default"), then the Issuer will pay Liquidated Damages as
follows: to each holder of Transfer Restricted Securities, with
respect to such 90-day period immediately following the
occurrence of the first Registration Default in an amount equal
to $0.05 per week per $1,000 principal amount of Transfer
Restricted Securities held by such holder. The amount of the
Liquidated Damages will increase by an additional $0.05 per week
per $1,000 principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all
Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.25 per week per $1,000 principal amount
of Transfer Restricted Securities. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will
cease.
The Issuer reserves the right (i) to delay acceptance
of any Old Debentures, to extend the Exchange Offer or to
terminate the Exchange Offer and not permit acceptance of Old
Debentures not previously accepted if any of the conditions set
forth in "The Exchange Offer-- Conditions" section of the
Prospectus shall have occurred and shall not have been waived by
the Issuer, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, or (ii) to amend
the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Old Debentures. Any such delay
in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice
thereof to the Exchange Agent. If the Exchange Offer is amended
in a manner determined by the Issuer to constitute a material
change, the Issuer will promptly disclose such amendment in a
manner reasonably calculated to inform the holders of the Old
Debentures of such amendment.
This Letter is to be completed by a holder of Old
Debentures either if Old Debentures are to be forwarded herewith
or if a tender of Old Debentures, if available, is to be made by
book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in "The Exchange
Offer" section of the Prospectus. Holders of Old Debentures whose
certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry
tender of their Old Debentures into the Exchange Agent's account
at the
2
Book-Entry Transfer Facility (a "Book-Entry Confirmation") and
all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their
Old Debentures according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" section of the Prospectus. See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes
below and signed this Letter to indicate the action the undersigned
desires to take with respect to the Exchange Offer.
3
List below the Old Debentures to which this Letter
relates. If the space provided below is inadequate, the
certificate numbers and principal amount of Old Debentures should
be listed on a separate signed schedule affixed hereto.
- ---------------------------------------------------------------------------
DESCRIPTION OF OLD DEBENTURES 1 2 3
- ---------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) of Certificate Principal Amount Principal Amount
Registered Holder(s) Number(s)* at Maturity of at Maturity
(Please fill in, if blank) Old Debenture(s) Tendered**
- ---------------------------------------------------------------------------
----------------------------------------------
----------------------------------------------
Total
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
* Need not be completed if Old Debentures are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to
have tendered ALL of the Old Debentures represented by the Old Debentures
indicated in column 2. See Instruction 2. Old Debentures tendered
hereby must be in denominations of principal amount at maturity of
$1,000 and any integral multiple thereof. See Instruction 1.
- ---------------------------------------------------------------------------
|_| CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY
THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution________________________________________
Account Number______________ Transaction Code Number________________
|_| CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)______________________________________
Window Ticket Number (if any)________________________________________
Date of Execution of Notice of Guaranteed Delivery___________________
Name of Institution which guaranteed delivery________________________
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number_______________ Transaction Code Number_______________
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:________________________________________________________________
Address:_____________________________________________________________
_____________________________________________________________________
4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the
Exchange Offer, the undersigned hereby tenders to the Issuer the
aggregate principal amount at maturity of Old Debentures
indicated above. Subject to, and effective upon, the acceptance
for exchange of the Old Debentures tendered hereby, the
undersigned hereby sells, assigns and transfers to, or upon the
order of, the Issuer all right, title and interest in and to such
Old Debentures as are being tendered hereby.
The undersigned hereby represents and warrants that
the undersigned has full power and authority to tender, sell,
assign and transfer the Old Debentures tendered hereby and that
the Issuer will acquire good and unencumbered title thereto, free
and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted
by the Issuer. The undersigned hereby further represents that any
New Debentures acquired in exchange for Old Debentures tendered
hereby will have been acquired in the ordinary course of business
of the person receiving such New Debentures, whether or not such
person is the undersigned, that neither the holder of such Old
Debentures nor any such other person is engaged in, or intends to
engage in a distribution of such New Debentures, or has an
arrangement or understanding with any person to participate in
the distribution of such New Debentures, and that neither the
holder of such Old Debentures nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act of
1933, as amended (the "Securities Act"), of the Issuer.
The undersigned also acknowledges that this Exchange
Offer is being made based upon the Issuer's understanding of an
interpretation by the staff of the Securities and Exchange
Commission (the "Commission") as set forth in no-action letters
issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988),
Morgan Stanley & Co. Incorporated, SEC No- Action Letter
(available June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993), that the New Debentures issued
in exchange for the Old Debentures pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by
each holder thereof (other than a broker-dealer who acquires such
New Debentures directly from the Issuer for resale pursuant to
Rule 144A under the Securities Act or any other available
exemption under the Securities Act or any such holder that is an
"affiliate" of the Issuer within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided
that such New Debentures are acquired in the ordinary course of
such holder's business and such holder is not engaged in, and
does not intend to engage in, a distribution of such New
Debentures and has no arrangement with any person to participate
in the distribution of such New Debentures. If a holder of Old
Debentures is engaged in or intends to engage in a distribution
of the New Debentures or has any arrangement or understanding
with respect to the distribution of the New Debentures to be
acquired pursuant to the Exchange Offer, such holder may not rely
on the applicable interpretations of the staff of the Commission
and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
secondary resale transaction. If the undersigned is a
broker-dealer that will receive New Debentures for its own
account in exchange for Old Debentures, it represents that the
Old Debentures to be exchanged for the New Debentures were
acquired by it as a result of market-making activities or other
trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Debentures;
however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and
deliver any additional documents deemed by the Issuer to be
necessary or desirable to complete the sale, assignment and
transfer of the Old Debentures tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every
obligation of the
5
undersigned hereunder shall be binding upon the successors, assigns,
heirs, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned and shall not be affected by,
and shall survive, the death or incapacity of the undersigned.
This tender may be withdrawn only in accordance with the
procedures set forth in "The Exchange Offer--Withdrawal of
Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled
"Special Issuance Instructions" below, please deliver the New
Debentures (and, if applicable, substitute certificates
representing Old Debentures for any Old Debentures not exchanged)
in the name of the undersigned or, in the case of a book-entry
delivery of Old Debentures, please credit the account indicated
above maintained at the Book-Entry Transfer Facility. Similarly,
unless otherwise indicated under the box entitled "Special
Delivery Instructions" below, please send the New Debentures
(and, if applicable, substitute certificates representing Old
Debentures for any Old Debentures not exchanged) to the
undersigned at the address shown above in the box entitled
"Description of Old Debentures".
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED
"DESCRIPTION OF OLD DEBENTURES" ABOVE AND SIGNING THIS LETTER,
WILL BE DEEMED TO HAVE TENDERED THE OLD DEBENTURES AS SET FORTH
IN SUCH BOX ABOVE.
6
- -----------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old
Debentures not exchanged and/or New Debentures
are to be issued in the name of and sent to someone
other than the person(s) whose signature(s) appear(s)
on this Letter above, or if Old Debentures delivered
by book-entry transfer which are not accepted for
exchange are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility other
than the account indicated above.
Issue New Debentures and/or Debentures to:
Name(s):_____________________________________________
(Please Type or Print)
_____________________________________________________
(Please Type or Print)
Address:_____________________________________________
_____________________________________________________
(Including Zip Code)
(Complete accompanying Substitute Form W-9)
Credit unexchanged Old Debentures delivered by
book-entry transfer to the Book-Entry Transfer
Facility account set forth below.
_____________________________________________________
(Book-Entry Transfer Facility
Account Number, if applicable)
- -----------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 3 and 4)
To be completed ONLY if certificates for Old
Debentures not exchanged and/or New Debentures
are to be sent to someone other than the person(s)
whose signature(s) appear(s) on this Letter above or
to such person(s) at an address other than shown in
the box entitled "Description of Old Debentures" on
this Letter above.
Mail New Debentures and/or Old Debentures to:
Name(s):_____________________________________________
(Please Type or Print)
_____________________________________________________
(Please Type or Print)
Address:_____________________________________________
_____________________________________________________
(Including Zip Code)
- -----------------------------------------------------
IMPORTANT: THIS LETTER (TOGETHER WITH THE CERTIFICATES FOR OLD
DEBENTURES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED
BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
PLEASE READ THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
7
- -----------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(Complete accompanying Substitute Form W-9)
Dated:........................................................ , 1998
.............................................................x
.............................................................x
(Signature(s) of Owner) (Date)
Area Code and Telephone Number:...........................
If a holder is tendering any Old Debentures, this Letter
must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for the Old Debentures or by
any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature
is by a trustee, executor, administrator, guardian, officer or
other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
Name(s):..................................................
..........................................................
(Please Type or Print)
Capacity:.................................................
Address:..................................................
..........................................................
(Including Zip Code)
SIGNATURE GUARANTEE
(if required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution:..................................
(Authorized Signature)
..........................................................
(Title)
..........................................................
(Name and Firm)
Dated:........................................................, 1998
- ----------------------------------------------------------------------
8
INSTRUCTIONS
J. Crew Group, Inc.
Forming Part of the Terms and Conditions of the Offer to Exchange
Series B 13 1/8% Senior Discount Debentures due 2008,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 13 1/8% Senior Discount Debentures due 2008.
1. Delivery of this Letter and Old Debentures; Guaranteed
Delivery Procedures.
This Letter is to be completed by holders of Old
Debentures either if certificates are to be forwarded herewith or
if tenders are to be made pursuant to the procedures for delivery
by book-entry transfer set forth in "The Exchange Offer --
Book-Entry Transfer" section of the Prospectus. Certificates for
all physically tendered Old Debentures, or Book-Entry
Confirmation, as the case may be, as well as a properly completed
and duly executed Letter of Transmittal and any other documents
required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Debentures tendered
hereby must be in denominations of principal amount at maturity
of $1,000 and any integral multiple thereof.
Holders of Old Debentures whose certificates for Old
Debentures are not immediately available or who cannot deliver
their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot
complete the procedure for book-entry transfer on a timely basis,
may tender their Old Debentures pursuant to the guaranteed
delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus. Pursuant to such
procedures, (i) such tender must be made through an Eligible
Institution (as defined below), (ii) prior to the Expiration
Date, the Exchange Agent must receive from such Eligible
Institution a properly completed and duly executed Letter of
Transmittal and Notice of Guaranteed Delivery, substantially in
the form provided by the Issuer (by mail or hand delivery),
setting forth the name and address of the holder of Old
Debentures and the amount of Old Debentures tendered, stating
that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after
the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Debentures, or a
Book-Entry Confirmation, as the case may be, and any other
documents required by this Letter will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Debentures, in
proper form for transfer, or Book-Entry Confirmation, as the case
may be, and all other documents required by this Letter, are
received by the Exchange Agent within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old
Debentures and all other required documents is at the election
and risk of the tendering holders, but the delivery will be
deemed made only when actually received or confirmed by the
Exchange Agent. If Old Debentures are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
9
2. Partial Tenders (not applicable to holders of Old Debentures
who tender by book-entry transfer).
If less than all of the Old Debentures evidenced by a
submitted certificate are to be tendered, the tendering holder(s)
should fill in the aggregate principal amount at maturity of Old
Debentures to be tendered in the box above entitled "Description
of Old Debentures--Principal Amount at Maturity Tendered." A
reissued certificate representing the balance of nontendered Old
Debentures will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter,
promptly after the Expiration Date. All of the Old Debentures
delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
3. Signatures of this Letter; Bond Powers and Endorsements;
Guarantee of Signatures.
If this Letter is signed by the registered holder of
the Old Debentures tendered hereby, the signature must correspond
exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Old Debentures are owned of record by
two or more joint owners, all such owners must sign this Letter.
If any tendered Old Debentures are registered in
different names on several certificates, it will be necessary to
complete, sign and submit as many separate copies of this Letter
as there are different registrations of certificates.
When this Letter is signed by the registered holder of
the Old Debentures specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are
required. If, however, the New Debentures are to be issued, or
any untendered Old Debentures are to be reissued, to a person
other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are
required. Signatures on such certificates must be guaranteed by
an Eligible Institution.
If this Letter is signed by a person other than the
registered holder of any certificates specified herein, such
certificates must be endorsed or accompanied by appropriate bond
powers, in either case signed exactly as the name of the
registered holder appears on the certificates and the signatures
on such certificates must be guaranteed by an Eligible
Institution.
If this Letter or any certificates or bond powers are
signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Issuer, proper
evidence satisfactory to the Issuer of their authority to so act
must be submitted.
Endorsements on certificates for Old Debentures or
signatures on bond powers required by this Instruction 3 must be
guaranteed by a firm which is a member of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an
"eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible
Institution").
Signatures on this Letter need not be guaranteed by an
Eligible Institution, provided the Old Debentures are tendered:
(i) by a registered holder of Old Debentures (which term, for
purposes of the Exchange Offer, includes any participant in the
Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Debentures)
tendered who
10
has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on this Letter, or (ii) for the
account of an Eligible Institution.
4. Special Issuance and Delivery Instructions.
Tendering holders of Old Debentures should indicate in
the applicable box the name and address to which New Debentures
issued pursuant to the Exchange Offer and/or substitute
certificates evidencing Old Debentures not exchanged are to be
issued or sent, if different from the name or address of the
person signing this Letter. In the case of issuance in a
different name, the employer identification or social security
number of the person named must also be indicated. A holder of
Old Debentures tendering Old Debentures by book-entry transfer
may request that Old Debentures not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such
holder of Old Debentures may designate hereon. If no such
instructions are given, such Old Debentures not exchanged will be
returned to the name or address of the person signing this
Letter.
5. Tax Identification Number.
Federal income tax law generally requires that a
tendering holder whose Old Debentures are accepted for exchange
must provide the Issuer (as payor) with such Holder's correct
Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which, in the case of a tendering holder who is an
individual, is his or her social security number. If the Issuer
is not provided with the current TIN or an adequate basis for an
exemption, such tendering holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, delivery of
New Debentures to such tendering holder may be subject to backup
withholding in an amount equal to 31% of all reportable payments
made after the exchange. If withholding results in an overpayment
of taxes, a refund may be obtained.
Exempt holders of Old Debentures (including, among
others, all corporations and certain foreign individuals) are not
subject to these backup withholding and reporting requirements.
See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
To prevent backup withholding, each tendering holder
of Old Debentures must provide its correct TIN by completing the
"Substitute Form W-9" set forth below, certifying that the TIN
provided is correct (or that such holder is awaiting a TIN) and
that (i) the holder is exempt from backup withholding, (ii) the
holder has not been notified by the Internal Revenue Service that
such holder is subject to a backup withholding as a result of a
failure to report all interest or dividends or (iii) the Internal
Revenue Service has notified the holder that such holder is no
longer subject to backup withholding. If the tendering holder of
Old Debentures is a nonresident alien or foreign entity not
subject to backup withholding, such holder must give the Issuer a
completed Form W-8, Certificate of Foreign Status. These forms
may be obtained from the Exchange Agent. If the Old Debentures
are in more than one name or are not in the name of the actual
owner, such holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have
a TIN, such holder should consult the W-9 Guidelines for
instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its
TIN. Debenture: checking this box and writing "applied for" on
the form means that such holder has already applied for a TIN or
that such holder intends to apply for one in the near future. If
such holder does not provide its TIN to the Issuer within 60
days, backup withholding will begin and continue until such
holder furnishes its TIN to the Issuer.
6. Transfer Taxes.
The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Old Debentures to it or its order
pursuant to the Exchange Offer. If, however, New Debentures
and/or substitute Old Debentures
11
not exchanged are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered
holder of the Old Debentures tendered hereby, or if tendered Old
Debentures are registered in the name of any person other than
the person signing this Letter, or if a transfer tax is imposed
for any reason other than the transfer of Old Debentures to the
Issuer or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder
or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer
taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it is not
necessary for transfer tax stamps to be affixed to the Old
Debentures specified in this Letter.
7. Waiver of Conditions.
The Issuer reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the
Prospectus.
8. No Conditional Tenders.
No alternative, conditional, irregular or contingent
tenders will be accepted. All tendering holders of Old
Debentures, by execution of this Letter, shall waive any right to
receive notice of the acceptance of their Old Debentures for
exchange.
Neither the Issuer, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity
with respect to any tender of Old Debentures nor shall any of
them incur any liability for failure to give any such notice.
9. Mutilated, Lost, Stolen or Destroyed Old Debentures.
Any holder whose Old Debentures have been mutilated,
lost, stolen or destroyed should contact the Exchange Agent at
the address indicated above for further instructions.
10. Requests for Assistance or Additional Copies.
Questions relating to the procedure for tendering, as
well as requests for additional copies of the Prospectus and this
Letter, may be directed to the Exchange Agent, at the address and
telephone number indicated above.
12
TO BE COMPLETED BY ALL TENDERING HOLDERS
(See Instruction 5)
PAYOR'S NAME: J. CREW GROUP, INC.
- ------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR
Form W-9 TIN IN THE BOX AT RIGHT AND TIN:_____________________________
CERTIFY BY SIGNING AND (Social Security Number or
DATING BELOW. Employer Identification Number)
----------------------------------------------------------------
Department of Part 2 -- TIN Applied For
the Treasury
----------------------------------------------------------------
Internal CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Revenue
Service
(1) the number shown on this form is my correct Taxpayer
Payor's Identification Number (or I am waiting for a number
Request to be issued to me).
For
Taxpayer (2) I am not subject to backup withholding either because:
Identification (a) I am exempt from backup withholding, or (b) I have not
Number been notified by the Internal Revenue Service (the
("TIN") and "IRS") that I am subject to backup withholding as a result
Certification of a failure to report all interest or dividends, or (c)
the IRS has notified me that I am no longer subject
to backup witholding, and
(3) any other information provided on this form is true and
correct.
SIGNATURE................. DATE......................
- -------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
- -----------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- -----------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either (a) I
have mailed or delivered an application to receive a taxpayer
identification number to the appropriate Internal Revenue Service
Center or Social Security Administration Office or (b) I intend
to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification
number by the time of the exchange, 31 percent of all reportable
payments made to me thereafter will be withheld until I provide a
number.
- ------------------------------------------ ---------------------------------
Signature Date
- ------------------------------------------------------------------------------
13
Exhibit 99.2
------------
FORM OF NOTICE OF GUARANTEED DELIVERY FOR
J. CREW GROUP, INC.
This form or one substantially equivalent hereto must
be used to accept the Exchange Offer of J. Crew Group, Inc. (the
"Issuer") made pursuant to the Prospectus, dated ________ __,
1998 (the "Prospectus"), and the enclosed Letter of Transmittal
(the "Letter of Transmittal") if certificates for Old Debentures
are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not
permit all required documents to reach the Issuer prior to 5:00
P.M., New York City time, on the Expiration Date of the Exchange
Offer. Such form may be delivered by mail or hand delivery to
State Street Bank and Trust Company (the "Exchange Agent") as set
forth below. In addition, in order to utilize the guaranteed
delivery procedure to tender Old Debentures pursuant to the
Exchange Offer, a completed, signed and dated Letter of
Transmittal must also be received by the Exchange Agent prior to
5:00 P.M., New York City time, on the Expiration Date.
Capitalized terms not defined herein are defined in the
Prospectus.
Delivery to: State Street Bank and Trust Company, Exchange Agent
By Mail: By Overnight Mail or Courier:
P.O. Box 778 Two International Place
Boston, Massachusetts 02102 Boston, Massachusetts 02110
Attention: Corporate Trust Department Attention: Corporate Trust Department
Kellie Mullen Kellie Mullen
By Hand in New York to 5:00 p.m. By Hand in Boston to 5:00 p.m.
(as drop agent): Two International Place
61 Broadway Fourth Floor
15th Floor Corporate Trust
Corporate Trust Window Boston, Massachusetts 02110
New York, NY 10006
For information call:
(617) 664-5587
Delivery of this instrument to an address other than
as set forth above will not constitute a valid delivery.
Ladies and Gentlemen:
Upon the terms and conditions set forth in the
Prospectus and the accompanying Letter of Transmittal, the
undersigned hereby tenders to the Issuer the principal amount at
maturity of Old Debentures set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer --
Guaranteed Delivery Procedures" section of the Prospectus.
Principal Amount of Old Debentures Name(s) of Record Holders(s):
Tendered:
$--------------------------------------
-----------------------------------
Certificate Nos. (if available):
-----------------------------------
Address(es):
- ----------------------------------
- ----------------------------------
-----------------------------------
-----------------------------------
If Old Debentures will be delivered Area Code and Telephone Number(s):
by book-entry transfer to The Depositary
Trust Company, provide Depositary
account number.
-----------------------------------
Signature(s):
Account Number_________________________
-----------------------------------
-----------------------------------
THE ACCOMPANYING GUARANTEE MUST BE COMPLETED.
2
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm that is a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company
having an office correspondent in the United States or any
"eligible guarantor" institution within the meaning of Rule
17Ad-15 of the Securities Exchange Act of 1934, as amended,
hereby (a) guarantees to deliver to the Exchange Agent, at one
its address set forth above, the certificates representing all
tendered Old Debentures, in proper form for transfer, or a
Book-Entry Confirmation, together with a properly completed and
duly executed Letter of Transmittal, with any required signature
guarantees, and any other documents required by the Letter of
Transmittal within three New York Stock Exchange trading days
after the date of execution of this Notice of Guaranteed
Delivery.
Name of Firm: ____________________________ ______________________________
(Authorized Signature)
Address:__________________________________
__________________________________________
Area Code and
Telephone Number:_________________________
Title:_________________________
Name:__________________________
Date:__________________________
Exhibit 99.3
------------
FORM OF LETTER
J. CREW GROUP, INC.
Offer to Exchange
Series B 13 1/8% Senior Discount Debentures due 2008,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 13 1/8% Senior Discount Debentures due 2008
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Upon and subject to the terms and conditions set forth
in the Prospectus, dated ______ __, 1998 (the "Prospectus"), and
the enclosed Letter of Transmittal (the "Letter of Transmittal"),
an offer to exchange (the "Exchange Offer") the registered Series
B 13 1/8% Senior Discount Debentures due 2008 (the "New
Debentures") for any and all outstanding Series A 13 1/8% Senior
Discount Debentures due 2008 (the "Old Debentures") (CUSIP No.
_____________) is being made pursuant to such Prospectus. The
Exchange Offer is being made in order to satisfy certain
obligations of J. Crew Group, Inc. (the "Issuer") contained in
the Registration Rights Agreement, dated as of October 17, 1997,
between the Issuer and Donaldson, Lufkin and Jenrette Securities
Corporation and Chase Securities Inc. (the "Initial Purchasers").
We are requesting that you contact your clients for
whom you hold Old Debentures regarding the Exchange Offer. For
your information and for forwarding to your clients for whom you
hold Old Debentures registered in your name or in the name of
your nominee, or who hold Old Debentures registered in their own
names, we are enclosing the following documents:
1. Prospectus dated _________ __, 1998;
2. The Letter of Transmittal for your use and
for the information of your clients;
3. A Notice of Guaranteed Delivery to be used to accept
the Exchange Offer if certificates for Old Debentures are not
immediately available or time will not permit all required
documents to reach the Exchange Agent prior to the Expiration
Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis; and
4. A form of letter which may be sent to your clients for
whose account you hold Old Debentures registered in your name or
the name of your nominee, with space provided for obtaining such
clients' instructions with regard to the Exchange Offer.
Your prompt action is requested. The Exchange Offer
will expire at 5:00 p.m., New York City time, on _____________
__, 1998 (the "Expiration Date") (30 calendar days following the
commencement of the Exchange Offer), unless extended by the
Issuer. Old Debentures tendered pursuant to the Exchange Offer
may be withdrawn at any time before the Expiration Date.
To participate in the Exchange Offer, a duly executed
and properly completed Letter of Transmittal, with any required
signature guarantees and any other required documents, should be
sent to the Exchange Agent and certificates representing the Old
Debentures should be delivered to the Exchange Agent, all in
accordance with the instructions set forth in the Letter of
Transmittal and the Prospectus.
If holders of Old Debentures wish to tender, but it is
impracticable for them to forward their certificates for Old
Debentures prior to the expiration of the Exchange Offer or to
comply with the book-entry transfer procedures on a timely basis,
a tender may be effected by following the guaranteed delivery
procedures described in the Prospectus under "The Exchange Offer
- - Guaranteed Delivery Procedures."
Additional copies of the enclosed material may be
obtained from the Exchange Agent, State Street Bank and Trust
Company, 61 Broadway, 15th Floor, Corporate Trust Window, New
York, NY 10006, telephone: (617) 664-5587.
J. CREW GROUP, INC.
-------------------------
2
Exhibit 99.4
------------
FORM OF LETTER
J. CREW GROUP, INC.
Offer to Exchange
Series B 13 1/8% Senior Discount Debentures due 2008,
which have been registered under the Securities Act of 1933, as amended,
for any and all Outstanding
Series A 13 1/8% Senior Discount Debentures due 2008
To Our Clients:
Enclosed for your consideration is a Prospectus of J.
Crew Group, Inc., a New York corporation (the "Issuer"), dated
______ __, 1998 (the "Prospectus"), and the enclosed Letter of
Transmittal (the "Letter of Transmittal") relating to the offer
to exchange (the "Exchange Offer") of registered Series B 13 1/8%
Senior Discount Debentures due 2008 (the "New Debentures") for
any and all outstanding Series A 13 1/8% Senior Discount
Debentures due 2008 (the "Old Debentures") (CUSIP No. _________),
upon the terms and subject to the conditions described in the
Prospectus. The Exchange Offer is being made in order to satisfy
certain obligations of the Issuer contained in the Registration
Rights Agreement, dated as of October 17, 1997, between the
Issuer and Donaldson, Lufkin & Jenrette Securities Corporation
and Chase Securities Inc. (the "Initial Purchasers").
This material is being forwarded to you as the
beneficial owner of the Old Debentures carried by us in your
account but not registered in your name. A tender of such Old
Debentures may only be made by us as the holder of record and
pursuant to your instructions.
Accordingly, we request instructions as to whether you
wish us to tender on your behalf the Old Debentures held by us
for your account, pursuant to the terms and conditions set forth
in the enclosed Prospectus and Letter of Transmittal. We also
request that you confirm that we may, on your behalf, make the
representations and warranties contained in the Letter of
Transmittal.
Your instructions should be forwarded to us as
promptly as possible in order to permit us to tender the Old
Debentures on your behalf in accordance with the provisions of
the Exchange Offer. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ____________ __, 1998 (the "Expiration
Date") (30 calendar days following the commencement of the
Exchange Offer), unless extended by the Issuer. Any Old
Debentures tendered pursuant to the Exchange Offer may be
withdrawn at any time before 5:00 p.m., New York City time on the
Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Debentures.
2. The Exchange Offer is subject to certain conditions
set forth in the Prospectus in the section captioned "The
Exchange Offer -- Conditions."
3. Any transfer taxes incident to the transfer of Old
Debentures from the holder to the Issuer will be paid by the
Issuer, except as otherwise provided in the Instructions in the
Letter of Transmittal.
4. The Exchange Offer expires at 5:00 p.m., New York City time, on
the Expiration Date unless extended by the Issuer.
If you wish to have us tender your Old Debentures, please so
instruct us by completing, executing and returning to us the
instruction form set forth below. The Letter of Transmittal is
furnished to you for information only and may not be used
directly by you to tender Old Debentures.
Instructions with Respect to the Exchange Offer
The undersigned acknowledge(s) receipt of your letter
enclosing the Prospectus, dated ______ __, 1998, of J. Crew
Group, Inc., a New York corporation, and the related specimen
Letter of Transmittal.
- ----------------------------------------------------------------------
This will instruct you to tender the number of Old
Debentures indicated below held by you for the account of the
undersigned, pursuant to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal. (Check
one).
Box 1 |_| Please tender my Old Debentures held by you for
my account. If I do not wish to tender all of the Old
Debentures held by you for my account, I have
identified on a signed schedule attached hereto the
number of Old Debentures that I do not wish tendered.
Box 2 |_| Please do not tender any Old Debentures held by you
for my account.
- ----------------------------------------------------------------------
Date______________________,1998 ___________________________________________
Signature(s)
___________________________________________
___________________________________________
Please print name(s) here
___________________________________________
Area Code and Telephone No.
Unless a specific contrary instruction is given in the
space provided, your signature(s) hereon shall constitute an
instruction to us to tender all Old Debentures.
2
