1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
BRYLANE INC.
AT
$24.50 NET PER SHARE IN CASH
BY
BUTTONS ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY
OF
PINAULT-PRINTEMPS-REDOUTE S.A.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, APRIL 12, 1999, UNLESS THE OFFER IS EXTENDED.
BUTTON ACQUISITION CORPORATION, A DELAWARE CORPORATION ("PURCHASER") AND AN
INDIRECT WHOLLY OWNED SUBSIDIARY OF PINAULT-PRINTEMPS-REDOUTE S.A., A FRENCH
SOCIETE ANONYME ("PARENT"), IS OFFERING TO PURCHASE ALL OF THE OUTSTANDING
SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE (THE "SHARES"), OF BRYLANE
INC., A DELAWARE CORPORATION (THE "COMPANY"), NOT BENEFICIALLY OWNED BY PARENT
AT A PRICE OF $24.50 PER SHARE, NET TO THE SELLER IN CASH, WITHOUT INTEREST
THEREON, UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THIS OFFER TO
PURCHASE AND THE RELATED LETTER OF TRANSMITTAL (WHICH TOGETHER, AS AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, CONSTITUTE THE "OFFER").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER, THAT NUMBER OF
SHARES WHICH, WHEN AGGREGATED WITH THE SHARES CURRENTLY BENEFICIALLY OWNED BY
PARENT, REPRESENT AT LEAST 90% OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A
FULLY DILUTED BASIS, ON THE DATE OF PURCHASE; PROVIDED, THAT, IF THE OFFER IS
EXTENDED PAST APRIL 12, 1999, PURCHASER MAY, IF IT AMENDS THE OFFER TO SO
PROVIDE, ACCEPT FOR PAYMENT OR PAY FOR TENDERED SHARES WHICH, WHEN AGGREGATED
WITH THE SHARES CURRENTLY BENEFICIALLY OWNED BY PARENT, REPRESENT AT LEAST 75%
OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY DILUTED BASIS ON THE DATE
OF PURCHASE. SEE "THE TENDER OFFER--SECTION 12. CERTAIN CONDITIONS OF THE
OFFER."
THE BOARD OF DIRECTORS OF THE COMPANY, BASED UPON, AMONG OTHER THINGS, THE
UNANIMOUS RECOMMENDATION OF A COMMITTEE OF THE BOARD OF DIRECTORS COMPRISED OF
THE THREE INDEPENDENT DIRECTORS, HAS UNANIMOUSLY DETERMINED THAT EACH OF THE
OFFER AND THE MERGER (AS DEFINED BELOW) IS FAIR TO, AND IN THE BEST INTERESTS
OF, THE STOCKHOLDERS OF THE COMPANY (OTHER THAN PURCHASER AND PARENT) AND HAS
APPROVED THE OFFER, THE MERGER AND THE MERGER AGREEMENT (AS DEFINED BELOW), AND
RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT
TO THE OFFER. SEE "SPECIAL FACTORS--RECOMMENDATION OF THE COMPANY BOARD;
FAIRNESS OF THE OFFER AND THE MERGER."
The Shares are listed on the New York Stock Exchange, Inc. (the "NYSE") under
the symbol "BYL". On March 9, 1999, the last full day of trading prior to the
announcement of the execution of the Merger Agreement, the closing price on the
NYSE Composite Tape was $21.4375 per share. On March 15, 1999, the last full
trading day prior to the commencement of the Offer, the closing price on the
NYSE was $24.25 per share. Stockholders are urged to obtain a current market
quotation for the Shares.
IMPORTANT
ANY STOCKHOLDER DESIRING TO TENDER ALL OR ANY PORTION OF SUCH STOCKHOLDER'S
SHARES SHOULD EITHER (A) COMPLETE AND SIGN THE LETTER OF TRANSMITTAL ACCOMPANIED
HEREWITH (OR A MANUALLY SIGNED FACSIMILE THEREOF) IN ACCORDANCE WITH THE
INSTRUCTIONS IN THE LETTER OF TRANSMITTAL, AND MAIL OR DELIVER IT TOGETHER WITH
THE CERTIFICATE(S) EVIDENCING TENDERED SHARES AND ANY OTHER REQUIRED DOCUMENTS,
TO CHASEMELLON SHAREHOLDER SERVICES LLC (THE "DEPOSITORY") (AT THE DEPOSITORY'S
ADDRESS SET FORTH ON THE BACK COVER OF THIS OFFER TO PURCHASE) OR TENDER SUCH
SHARES PURSUANT TO THE PROCEDURE FOR BOOK-ENTRY TRANSFER SET FORTH IN "THE
TENDER OFFER--SECTION 3. PROCEDURES FOR TENDERING SHARES" OR (B) REQUEST SUCH
STOCKHOLDER'S BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO
EFFECT THE TRANSACTION FOR SUCH STOCKHOLDER. A HOLDER WHOSE SHARES ARE
REGISTERED IN THE NAME OF A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR
OTHER NOMINEE MUST CONTACT SUCH BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY,
OR OTHER NOMINEE IF SUCH HOLDER DESIRES TO TENDER SUCH SHARES.
Any stockholder who desires to tender Shares and whose certificates evidencing
such Shares are not immediately available, or who cannot comply with the
procedure for book-entry transfer on a timely basis, may tender such Shares by
following the procedure for guaranteed delivery set forth in "THE TENDER
OFFER--Section 3. Procedures for Tendering Shares."
Questions and requests for assistance and additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and the
other related materials may be directed to MacKenzie Partners, Inc. or ▇.▇.
▇▇▇▇▇▇ Securities Inc. at their respective addresses and telephone numbers set
forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and the other tender offer
materials may also be obtained from brokers, dealers, commercial banks or trust
companies.
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS OFFER TO PURCHASE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
The Dealer Manager for the Offer is:
▇.▇. ▇▇▇▇▇▇ & CO.
March 16, 1999
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TABLE OF CONTENTS
PAGE
INTRODUCTION............................... 1
SPECIAL FACTORS............................ 3
Background of the Offer.................. 3
Business of the Company............... 3
History and Background of the Company
and Arrangements between the
Company, Parent and Purchaser....... 3
Position of Parent and Purchaser
Regarding Fairness of the Offer and
the Merger............................ 8
Position of Parent and Purchaser...... 8
▇.▇. ▇▇▇▇▇▇ Reports................... 9
Recommendation of the Company Board;
Fairness of the Offer and the
Merger................................ 12
Recommendation of the Special
Committee and the Company Board..... 12
Opinion of Bear ▇▇▇▇▇▇▇............... 14
Certain Financial Projections
(Unaudited)........................... 17
Cautionary Statement Concerning
Forward-Looking Statements............ 20
Purpose and Structure of the Offer;
Reasons of Parent and Purchaser for
the Offer and the Merger.............. 20
Plans for the Company; Certain Effects of
the Offer............................. 20
Rights of Stockholders in the Offer and
the Merger; Appraisal Rights.......... 22
The Merger Agreement..................... 22
The Offer............................. 22
The Merger; Effect of the Merger...... 23
Conduct of Business of the Company.... 24
Covenants............................. 25
Representations and Warranties........ 25
Conditions to the Merger.............. 26
Termination........................... 26
Amendment and Waiver.................. 27
Fees and Expenses..................... 27
Conditions to the Offer............... 27
Interests of Certain Persons in the Offer
and the Merger........................ 28
Related Party Transactions............ 28
Beneficial Ownership of Shares........ 30
THE TENDER OFFER........................... 32
1. Terms of the Offer................... 32
2. Acceptance for Payment and Payment... 32
3. Procedures for Tendering Shares...... 33
Physical Delivery of
Certificates................... 33
Book-Entry Transfer.............. 33
Notice of Guaranteed Delivery.... 34
PAGE
General Timing................... 34
4. Withdrawal Rights.................... 35
5. Certain United States Federal Income
Tax Consequences................... 35
6. Price Range of Shares; Dividends..... 36
7. Certain Information Concerning the
Company............................... 36
General.......................... 36
Financial Information............ 37
Recent Financial Results......... 43
8. Certain Information Concerning Parent
and Purchaser...................... 44
9. Financing of the Offer and the
Merger................................ 45
10. Dividends and Distributions.......... 45
11. Effect of the Offer on the Market for
the Shares; the New York Stock
Exchange and Exchange Act
Registration....................... 45
12. Certain Conditions of the Offer...... 46
13. Extension of Tender Period;
Amendment; Termination............. 47
14. Certain Legal Matters and Regulatory
Approvals.......................... 48
General.......................... 48
State Takeover Laws.............. 48
Antitrust........................ 48
Litigation....................... 49
15. Fees and Expenses.................... 49
16. Miscellaneous........................ 50
SCHEDULE I LIST OF DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT, PURCHASER,
▇▇▇▇▇▇▇, S.A., S.C.A. FINANCIERE,
PINAULT AND REDCATS S.A.
SCHEDULE II OPINION OF BEAR ▇▇▇▇▇▇▇, FINANCIAL
ADVISOR OF THE SPECIAL COMMITTEE OF
BRYLANE INC.
SCHEDULE DELAWARE GENERAL CORPORATION LAW
III SECTION 262 REGARDING DISSENTERS'
RIGHTS.
SCHEDULE IV AGREEMENT AND PLAN OF MERGER, DATED
AS OF MARCH 10, 1999, BY AND AMONG
PINAULT-PRINTEMPS-REDOUTE S.A.,
BUTTONS ACQUISITION CORPORATION AND
BRYLANE INC.
SCHEDULE V REPORT OF INDEPENDENT ACCOUNTANTS
AND AUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) OF BRYLANE INC.
SCHEDULE VI REPORT OF INDEPENDENT ACCOUNTANTS
AND UNAUDITED FINANCIAL STATEMENTS
(AND RELATED NOTES) OF BRYLANE INC.
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To the Holders of Common Stock of Brylane Inc.:
INTRODUCTION
Buttons Acquisition Corporation., a Delaware corporation ("Purchaser") and an
indirect wholly owned subsidiary of Pinault-Printemps-Redoute S.A., a societe
anonyme organized and existing under the laws of the Republic of France
("Parent"), hereby offers to purchase all issued and outstanding shares of
common stock, par value $0.01 per share (the "Shares"), of Brylane Inc., a
Delaware corporation (the "Company"), not beneficially owned by Parent, at a
price of $24.50 per Share, net to the seller in cash (the "Offer Price"), upon
the terms and subject to the conditions set forth in this Offer to Purchase and
in the related Letter of Transmittal (which together, as amended or supplemented
from time to time, constitute the "Offer").
The Company is a Delaware corporation listed on the New York Stock Exchange,
Inc. ("NYSE"). Parent, a French company listed on the Paris Bourse, currently
beneficially owns approximately 49.9% of the outstanding Shares. Prior to the
consummation of the Offer, Purchaser, by operation of law or otherwise, will
acquire the Shares held by another subsidiary of Parent. The Company is the
nation's leading specialty catalog retailer of value-priced apparel with a
portfolio of catalogs.
Tendering holders of Shares (the "Stockholders") will not be obligated to pay
brokerage fees or commissions or, except as otherwise provided in Instruction 6
of the Letter of Transmittal, stock transfer taxes with respect to the purchase
of the Shares by Purchaser pursuant to the Offer. Purchaser and Parent will pay
all charges and expenses of ▇.▇. ▇▇▇▇▇▇ Securities Inc. ("▇.▇. ▇▇▇▇▇▇"), which
is acting as the Dealer Manager (in such capacity, the "Dealer Manager"),
ChaseMellon Shareholder Services LLC, as Depositary (in such capacity, the
"Depositary"), and MacKenzie Partners, Inc., as Information Agent (in such
capacity, the "Information Agent"), incurred in connection with the Offer. See
"THE TENDER OFFER--Section 15. Fees and Expenses."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED
AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER, THAT NUMBER OF
SHARES WHICH, WHEN AGGREGATED WITH THE SHARES CURRENTLY BENEFICIALLY OWNED BY
PARENT, REPRESENT AT LEAST 90% OF THE TOTAL NUMBER OF OUTSTANDING SHARES, ON A
FULLY DILUTED BASIS, ON THE DATE OF PURCHASE; PROVIDED, THAT, IF THE OFFER IS
EXTENDED PAST APRIL 12, 1999, PURCHASER MAY, IF IT AMENDS THE OFFER TO SO
PROVIDE, ACCEPT FOR PAYMENT OR PAY FOR TENDERED SHARES, WHICH WHEN AGGREGATED
WITH THE SHARES CURRENTLY BENEFICIALLY OWNED BY PARENT, REPRESENT AT LEAST 75%
OF THE TOTAL NUMBER OF OUTSTANDING SHARES, ON A FULLY DILUTED BASIS, ON THE DATE
OF PURCHASE (THE "MINIMUM CONDITION"). SEE "THE TENDER OFFER--SECTION 12.
CERTAIN CONDITIONS OF THE OFFER." THE MINIMUM CONDITION CANNOT BE WAIVED BY
PARENT OR PURCHASER.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BASED UPON, AMONG
OTHER THINGS, THE UNANIMOUS RECOMMENDATION OF A COMMITTEE OF THE BOARD OF
DIRECTORS COMPRISED OF THE THREE INDEPENDENT DIRECTORS (THE "SPECIAL
COMMITTEE"), HAS UNANIMOUSLY DETERMINED THAT EACH OF THE OFFER AND THE MERGER
(AS DEFINED BELOW) IS FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF
THE COMPANY (OTHER THAN PURCHASER AND PARENT) AND HAS APPROVED THE OFFER, THE
MERGER AND THE MERGER AGREEMENT (AS DEFINED BELOW) AND RECOMMENDS THAT
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES TO PURCHASER PURSUANT TO
THE OFFER. SEE "SPECIAL FACTORS--RECOMMENDATION OF THE COMPANY BOARD; FAIRNESS
OF THE OFFER AND THE MERGER."
The Offer is being made pursuant to the Agreement and Plan of Merger, dated as
of March 10, 1999, by and among Purchaser, Parent and the Company (the "Merger
Agreement"). The Merger Agreement provides, among other things, that, following
the purchase of Shares pursuant to the Offer and upon the terms and subject to
the conditions set forth in the Merger Agreement and in accordance with the
relevant provisions of the Delaware Corporation Law (the "DGCL"), Purchaser will
be merged with and into the Company (the "Merger"). Following consummation of
the Merger, the Company will continue as the surviving corporation in the Merger
(the "Surviving Corporation") and will be an indirect wholly owned subsidiary of
Parent. At the effective time of the Merger (the "Effective Time"), each Share
issued and outstanding immediately prior to the Effective Time (other than
Shares held by Purchaser, Parent, any wholly owned subsidiary of Parent or
Purchaser, in the treasury of the Company or by any wholly owned subsidiary of
the Company or the Shares, if any, held by Dissenting Stockholders (as defined
below)) will be converted into the right to receive, in cash, an amount equal to
the Offer Price, without interest.
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The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including, if required by law, the approval and adoption of
the Merger Agreement by the requisite vote of stockholders of the Company (the
"Stockholders"). See "SPECIAL FACTORS--The Merger Agreement." Under the DGCL,
except as otherwise described below, the Merger must be approved by the
affirmative vote of a majority of the Shares entitled to vote on a proposal to
approve the Merger at a duly convened meeting of the Stockholders. However,
pursuant to the DGCL, if Purchaser acquires, pursuant to the Offer and
otherwise, at least 90% of the then outstanding Shares, Parent will be able to
cause the Merger to become effective without the approval of the Stockholders.
The Minimum Condition at the Initial Expiration Date is 90% of the total number
of outstanding Shares on a fully diluted basis. If the Minimum Condition is not
met at the Initial Expiration Date, Purchaser may, but is not obligated to,
reduce the Minimum Condition to as low as 75% of the total number of outstanding
Shares on a fully diluted basis. There can be no assurance that Purchaser will
reduce the Minimum Condition if it is not satisfied at the Initial Expiration
Date.
In the event that Purchaser acquires at least 90% of the then outstanding Shares
(including Shares beneficially owned by Purchaser), Parent intends to take all
necessary and appropriate action under the DGCL to cause the Merger to become
effective as soon as practicable after such acquisition, without approval of the
Stockholders. See "SPECIAL FACTORS--The Merger Agreement." If, however,
Purchaser does not acquire 90% of the then outstanding Shares (including Shares
beneficially owned by Parent), and a vote of the Stockholders is required under
the DGCL to consummate the Merger, a significantly longer period of time will be
required to effect the Merger. THEREFORE, IF PURCHASER DOES NOT ACQUIRE 90% OF
THE THEN OUTSTANDING SHARES (INCLUDING SHARES BENEFICIALLY OWNED BY PARENT),
PARENT WILL BE UNABLE TO CONSUMMATE A "SHORT-FORM" MERGER, AND, DUE TO THE
REQUIREMENTS OF THE DGCL, CONSUMMATION OF THE MERGER WOULD BE DELAYED.
The Company has represented to Parent and Purchaser that the authorized capital
stock of the Company consists of 40,000,000 Shares and 1,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). As of the
close of business on February 27, 1999, 17,248,296 Shares were issued and
outstanding, and 3,740,800 Shares were held in treasury. No shares of Preferred
Stock are issued and outstanding. The Company has no Shares reserved for
issuance, except that, as of March 8, 1999, there were 835,732 Shares reserved
for issuance pursuant to outstanding options to purchase Shares ("Options")
granted under the Company's stock option and similar plans (collectively, the
"Stock Plans"). As of March 8, 1999, the Company has outstanding Options to
purchase 835,732 Shares. As of March 8, 1998, there were approximately 121
record holders of Shares.
Parent currently beneficially owns 8,617,017 Shares, equal to approximately
49.9% of the total number of Shares issued and outstanding as of February 27,
1999. As a result of the 17,248,296 Shares outstanding, the outstanding options
to acquire 835,732 Shares and Parent's beneficial ownership of 8,617,017 Shares,
the Minimum Condition at the Initial Expiration Date will be satisfied if
7,658,609 Shares are validly tendered in the Offer and not properly withdrawn.
If after the Initial Expiration Date, the Minimum Condition is reduced to 75% of
the outstanding Shares on a fully diluted basis, the Minimum Condition will be
satisfied if 4,946,004 Shares are validly tendered in the Offer and not properly
withdrawn.
The purpose of the Offer and the Merger is to facilitate the acquisition of all
of the remaining Shares for cash and, thereby, enable Parent to acquire 100% of
the outstanding Shares.
Parent and Purchaser believe that the consideration to be received by the
Stockholders (other than Parent and Purchaser) pursuant to the Offer and the
Merger is fair to such Stockholders. See "SPECIAL FACTORS--Position of Parent
and Purchaser Regarding Fairness of the Offer and the Merger--Position of Parent
and Purchaser."
Bear, ▇▇▇▇▇▇▇ & Co. Inc. ("Bear ▇▇▇▇▇▇▇"), the Special Committee's financial
advisor, has delivered a written opinion to the Special Committee, dated March
9, 1999, to the effect that, subject to the assumptions and limitations set
forth in the opinion, as of the date thereof, the $24.50 per Share cash
consideration to be received by Stockholders (other than Parent, the Company and
any of their respective wholly owned subsidiaries) in the Offer and the Merger
pursuant to the Merger Agreement is fair to such holders from a financial point
of view. See "SPECIAL FACTORS--Recommendation of the Company Board; Fairness of
the Offer and the Merger--Opinion of Bear ▇▇▇▇▇▇▇" for further information
concerning the opinion of Bear ▇▇▇▇▇▇▇.
Termination of Registration of Shares. It is the present intention of Purchaser
to seek to cause the Company to make an application for the termination of the
registration of Shares under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as soon as possible after the purchase of Shares pursuant
to the Offer if the requirements for termination of such registration are met.
See "THE TENDER OFFER--Section 11. Effect of the Offer on the Market for the
Shares; the New York Stock Exchange and Exchange Act Registration."
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL, TOGETHER WITH THE
SCHEDULE 14D-9 (AS DEFINED BELOW) ISSUED ON BEHALF OF THE SPECIAL COMMITTEE AND
THE COMPANY BOARD, CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY
BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
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5
SPECIAL FACTORS
BACKGROUND OF THE OFFER
Business of the Company
The Company is the nation's leading specialty catalog retailer of value-priced
apparel, with catalogs that target consumers of both special and regular size
apparel. Through its ▇▇▇▇ ▇▇▇▇▇▇ and Roaman's catalogs, the Company is the
leading catalog retailer of women's special size apparel (sizes 14 through 56),
and, through its KingSize catalog, is a leading catalog retailer of men's
special size apparel (sizes XL to 9XL). The Company's ▇▇▇▇▇▇▇▇'▇ of Boston
catalog division ("▇▇▇▇▇▇▇▇'▇"), which the Company acquired in December 1996, is
the nation's largest off-price women's catalog retailer, and offers a broad
selection of high quality apparel at prices typically 25% to 50% below the
regular prices of department and specialty retail stores. The Company also
reaches the women's regular size apparel market (sizes 4 to 18) through its
▇▇▇▇▇▇ catalog. In addition, the Company has recently introduced and continues
to develop several new catalog concepts. The Company successfully launched the
Bridgewater catalog (regular size women's, men's and children's apparel) in
fiscal 1996 and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (off-price special size women's apparel) and
▇▇▇▇▇ (regular size men's apparel) catalogs in fiscal 1997. The Company also
markets apparel to some of these same customer segments through three catalogs
which it distributes under the "Sears" name to customers of Sears, ▇▇▇▇▇▇▇ and
Co. under an exclusive licensing arrangement with Sears Shop at Home Services,
Inc.
The Company's merchandising strategy is to provide value-priced apparel with a
consistent quality and fit, to concentrate on apparel with limited fashion risk,
and to offer a broad selection of sizes, styles and colors.
History and Background of the Company and Arrangements between the Company,
Parent and Purchaser
The Company's catalog retail business dates back to the mailing of the first
▇▇▇▇ ▇▇▇▇▇▇ catalog in 1924 and the first Roaman's catalog in the 1940s. Both
▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇'s were acquired by The Limited, Inc. ("The Limited") in
the early 1980s. In 1985, the ▇▇▇▇▇▇ catalog business was launched to capitalize
on the "▇▇▇▇▇▇" name, which had developed as The Limited's ▇▇▇▇▇▇ retail store
operations grew to over 800 stores during the 1980s. On August 30, 1993,
affiliates of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. Incorporated, a private investment firm
("FS&Co."), and The Limited formed a partnership (the "Partnership") to acquire
these catalog businesses. FS&Co., together with certain members of the Company's
management, acquired a 60% aggregate interest in the Partnership, while The
Limited retained the remaining 40%.
On October 16, 1995, the Partnership acquired the KingSize catalog division (the
"KingSize Acquisition") of WearGuard Corporation ("WearGuard"), a wholly owned
subsidiary of ARAMARK Corporation ("ARAMARK"). In connection with the KingSize
Acquisition, WearGuard assigned to the Company its license to distribute the
Sears Big & Tall catalog, as well as its interest in certain trademarks,
including the KingSize(R) registered trademark. On December 9, 1996, the Company
acquired the ▇▇▇▇▇▇▇▇'▇ of Boston catalog division of The TJX Companies, Inc.
("TJX"), excluding substantially all accounts receivable (the "▇▇▇▇▇▇▇▇'▇
Acquisition").
On February 26, 1997, the Company issued 4,000,000 Shares for $24.00 per Share,
with aggregate proceeds to the Company of $89,280,000 in the Company's initial
public offering (the "Initial Public Offering"). In connection with the Initial
Public Offering, on February 26, 1997, the Partnership became a wholly owned
subsidiary of the Company pursuant to an exchange transaction in which the
Company acquired, directly, and indirectly through the acquisition of wholly
owned subsidiaries, a 100% ownership interest in the Partnership in exchange for
Shares (the "Exchange Transaction"). In connection with the Exchange
Transaction, the Partnership retained all of its assets, operations and
liabilities.
On October 20, 1997, the Company completed an offering (the "October 1997
Offering") on behalf of certain selling Stockholders (including FS&Co. and The
Limited) of 5,000,000 Shares for a per Share price of $46.00, with aggregate
proceeds to the selling Stockholders of $219,650,000. Concurrent therewith, the
Company repurchased from such selling Stockholders (including FS&Co. and The
Limited) an aggregate of 2,500,000 Shares for $46.00 per Share.
On April 3, 1998, Parent, through REDAM LLC, a Delaware limited liability
company and an indirect wholly owned subsidiary of Parent ("REDAM"), acquired
8,010,917 Shares, representing approximately 43.7% of the then outstanding
Shares, at a price of $51.00 from certain Stockholders (including all of the
Shares then held by affiliates of FS&Co. and an affiliate of The Limited, and
including 1,047,861 Shares held by certain other Stockholders, including certain
members of the Company's management) (the "April 1998 Stock Purchase"). The
April 1998 Stock Purchase was undertaken by Parent as a step in its
international growth strategy, enhancing its presence in the United States and
supporting its objective of establishing its Redcats (previously named La
Redoute) catalog business as a major global distributor. The stock purchase
agreements relating to the April 1998 Stock Purchase are filed as Exhibits
(c)(2) through (c)(5) to the Schedule 14D-1. In connection with the April 1998
Stock Purchase, the Company and Parent entered into a Governance Agreement,
dated as of
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6
April 3, 1998 (the "Governance Agreement"), pursuant to which, among other
things, ▇▇▇▇▇▇'s ability to acquire additional Shares and to take other actions
has been limited, and into a Registration Rights Agreement, dated as of April 3,
1998 (the "Registration Rights Agreement"), pursuant to which the Company has
granted Parent certain registration rights to facilitate the resale of the
Shares beneficially owned by Parent under certain conditions. See "Interests of
Certain Persons in the Offer and the Merger."
Following April 3, 1998, REDAM acquired an additional 772,100 Shares in open
market and private transactions at prices ranging from $51.00 to $24.64 per
Share. On October 15, 1998, REDAM sold 166,000 Shares at a price of $13.50 per
Share in a private transaction to an unaffiliated third party.
In September and October 1998, the Company purchased in open market transactions
an aggregate of 1,240,800 Shares at an average price of $21.47 per Share. The
highest per Share price paid was $28.54, and the lowest per Share price paid was
$16.15.
On November 27, 1998, REDAM conveyed to EMPUSA LLC, a Delaware limited liability
company and an indirect wholly owned subsidiary of Parent ("EMPUSA"), all of the
8,617,017 Shares owned by REDAM, which represented approximately 49.9% of the
outstanding Shares. The directors of the Company affiliated with Parent (the
"Parent Directors") currently own an aggregate additional 27,270 Shares for
their personal accounts.
On November 30, 1998, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman and Chief Executive Officer of
Parent, held a preliminary discussion with ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman and Chief
Executive Officer of the Company, regarding the possibility of Parent making a
request of the three independent directors of the Company regarding the waiver
of certain provisions of the Governance Agreement. ▇▇. ▇▇▇▇▇▇▇ agreed to convene
a special meeting of the Company Board to be held on December 2, 1998 to
consider any request Parent might present.
On December 2, 1998, at a special meeting of the Company Board, ▇▇▇▇▇▇ submitted
a proposal letter (the "Proposal Letter") to the independent directors of the
Company, following the waiver by such independent directors of the terms of the
Governance Agreement which prohibit Parent from submitting such a proposal and
making it public. The Proposal Letter sets forth Parent's proposal (the
"Proposal") to acquire all of the outstanding Shares not beneficially owned by
Parent for $20.00 per Share in cash. Parent also informed the Company Board that
it had retained ▇.▇. ▇▇▇▇▇▇ to act as its financial advisor in connection with
the Proposal. A copy of the Proposal Letter is filed as Exhibit (a)(15) to the
Schedule 14D-1.
On December 2, 1998, Parent issued the following press release (the "December
2nd Announcement"), a copy of which is filed as Exhibit (a)(14) to the Schedule
14D-1:
Paris, December 2, 1998 -- Pinault-Printemps-Redoute S.A. ("PPR"), a
publicly traded specialty retailer listed on the Paris Bourse (▇▇▇▇.▇▇),
today announced that it has made a proposal to the independent directors of
the Board of Directors of Brylane Inc. (NYSE: BYL) regarding the
acquisition of all remaining outstanding shares of Brylane not owned by PPR
for $20 per share. The letter reflecting PPR's proposal which was sent to
the independent directors of Brylane is attached.
PPR currently owns approximately 49.9% of the outstanding Brylane common
stock. Affiliates of PPR own an additional approximately 0.2% of the
Brylane common stock. At a price per share of $20, the aggregate value of
the transaction would be approximately $172.5 million to acquire the shares
of common stock not already owned by PPR. The $20 per share purchase price
represents a premium of approximately 18.5% to yesterday's closing price
and 27.8% and 16.0% premium over the average of the closing prices of
Brylane common stock on the New York Stock Exchange over the past 30
trading days and 60 trading days, respectively.
PPR's proposal is subject to the approval of the Board of Directors of
Brylane, including the approval of a majority of the independent directors
on the Brylane Board, and other conditions customary in transactions of
this type. The proposed offer is not conditioned on financing.
"We believe that this transaction will better position ▇▇▇▇▇▇▇ to pursue
future business and growth opportunities while allowing PPR to capitalize
upon cross-border opportunities in the specialty catalog sector in a more
effective manner," said ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman of the Executive Board of
PPR. "Although we believe that ▇▇▇▇▇▇▇ faces many challenging competitors,
PPR has concluded that its corporate goals would be better served if it
owned all of the outstanding equity in Brylane."
PPR also stated in its proposal to the Brylane Board that PPR is not
interested, under any circumstances, in selling its interest in Brylane.
Moreover, PPR reserves the right to amend or withdraw the proposal at any
time in its discretion.
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7
Brylane is the nation's leading specialty catalog retailer of value-priced
apparel, with a focused portfolio of catalogs that includes Lane Bryant,
▇▇▇▇▇▇'s, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and KingSize, serving the special size apparel
market, and ▇▇▇▇▇▇▇▇'▇ of Boston, ▇▇▇▇▇▇, Bridgewater and ▇▇▇▇▇ serving the
regular size apparel market. In addition, the Company's home catalog,
introduced in September 1998, offers value-priced home products. Brylane
also markets certain of its catalogs under the "Sears" name to customers of
Sears, ▇▇▇▇▇▇▇ and Co. under an exclusive licensing arrangement with Sears
Shop at Home Services, Inc. Brylane is headquartered in New York and has
facilities in Indiana, Massachusetts and Texas.
Headquartered in Paris, PPR operates several specialized retail chains that
sell a wide range of consumer goods. PPR's principal chains include
Printemps (general merchandise), Conforama (furniture, household electronic
goods and appliances) and Fnac (records, books, computers and consumer
electronics). Through La Redoute, PPR is Europe's third largest mail order
company.
* * *
This press release is not an offer or the solicitation of an offer to buy
any securities of Brylane, and no such offer or solicitation will be made
except in compliance with applicable securities laws.
Information Concerning Forward-Looking Statements: This press release
contains forward-looking statements as defined by the federal securities
laws and are based on PPR's current expectations and assumptions, which are
subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated, projected or implied.
Certain factors that could cause actual results to differ are indicated in
Brylane's filings with the Securities and Exchange Commission.
The text of the Proposal Letter to the Company Board is as follows:
December 2, 1998
STRICTLY CONFIDENTIAL
Independent Directors
Board of Directors
Brylane Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
Over the past year during which Pinault-Printemps-Redoute S.A. ("PPR")
first became interested in, and then acquired a significant stake in,
Brylane Inc. ("Brylane"), we have developed a growing appreciation for the
business, operations, management and catalogs of Brylane. PPR believes, as
it has since its original purchase of Brylane shares, that Brylane can be
an important element in PPR's future international growth plans. PPR
continues to have confidence in the future performance of Brylane, its
strategic direction and its current management despite the recent
disappointing operating results. We believe that ▇▇▇▇▇▇▇ faces an
increasingly difficult business environment, with many challenging
competitors, some of whom are parts of significantly larger,
well-capitalized companies. As such, PPR has now concluded that its
corporate goals would be better served if it owned all of the equity
interest in Brylane and PPR believes that Brylane, and its various
constituencies, would be better served if Brylane were to cease being a
public company subject to the vagaries and volatility of the public equity
markets.
In light of current market and economic conditions, we are pleased that the
independent directors of Brylane have consented, pursuant to the terms of
the Governance Agreement currently in effect between PPR and Brylane, to
allow PPR to make, and the independent directors to consider and evaluate,
a proposal from PPR to acquire all of the publicly held shares of Brylane
common stock.
Accordingly, on behalf of PPR, we are pleased to make the following
proposal to acquire all of the outstanding common shares of Brylane not
currently owned by PPR (the "Public Shares"). The principal terms of our
proposal are as follows:
1. Our proposal would result in all holders of Public Shares receiving $20
per share in cash. The transaction would involve an aggregate payment of
approximately $172.5 million to the holders of Public Shares, based on
the 8,623,872 Public Shares we understand to be outstanding.
2. Initiation of the transaction would be subject to, among other things,
approval by the Board of Directors of Brylane, including the approval of
a majority of the independent directors, as required by the Governance
Agreement, execution of a definitive agreement, and other conditions
customary in transactions of this type.
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8
3. The transaction would be financed through PPR's available cash and
committed facilities and would not be conditioned upon financing.
4. The acquisition transaction would be implemented through a cash tender
offer followed by a merger of a PPR subsidiary into Brylane, with
Brylane as the surviving corporation.
5. The separate identity of ▇▇▇▇▇▇▇ would be continued following
consummation of the transaction for the foreseeable future.
6. ▇▇▇▇▇▇▇'s officers and other employees would continue on their present
terms for the foreseeable future, and we would intend to work with
Brylane management to develop appropriate incentives for Brylane
management and employees, who, as a group, we value highly.
We believe that our proposal is at a fair price that reflects ▇▇▇▇▇▇▇'s
historical results and future prospects and that consummation of our
proposed transaction would be in the best interest of ▇▇▇▇▇▇▇ and its
public stockholders. Our proposed acquisition price of $20 per share
represents an 18.5% premium over yesterday's closing price for Brylane and
a 27.8% and 16.0% premium over the average of Brylane's closing prices for
the past 30 and 60 trading days, respectively.
We would like to make it clear that PPR is not interested, under any
circumstances, in selling its 49.9% interest in Brylane owned by PPR.
Together with its affiliates, PPR owns approximately 50.1% of ▇▇▇▇▇▇▇'s
common stock (based upon the 17,240,889 shares of Brylane common stock we
understand to be outstanding as of November 28, 1998) and, thus, there is
no realistic prospect of sale of a controlling interest in ▇▇▇▇▇▇▇ to a
third party. Therefore, if we are not able to consummate the proposal at a
reasonable price we currently intend to continue to be long-term
stockholders of Brylane.
We understand that this proposal will be considered by a special committee
of independent directors of Brylane, as required by the Governance
Agreement, and that such committee will wish to retain its own financial
and legal advisors to assist in those deliberations. We invite such
representatives to meet with our advisors to discuss this proposal at your
earliest convenience. As required under federal securities laws, this
proposal will be made public through a Schedule 13D filing with the SEC,
and we will be issuing a press release later today to facilitate
dissemination of the information in this letter.
We hope you will view our proposal favorably and give it your prompt
attention. We reserve the right to amend or withdraw this proposal at any
time in our discretion.
We look forward to hearing from you soon.
Sincerely,
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Chairman and Chief Executive Officer Member of Executive Board
Pinault-Printemps-Redoute, ▇.▇. ▇▇▇▇▇▇▇-Printemps-Redoute, S.A.
Chief Executive Officer
La Redoute S.A.
Following submission of the Proposal Letter to the independent directors of the
Company, the Company Board formed the Special Committee. The Special Committee
was granted the authority of the Company Board with respect to the Proposal and
authorized to retain, at the expense of the Company, financial and legal
advisors. The Company Board then reviewed and approved a press release
announcing that the Proposal had been received and that the Special Committee
comprised of three independent directors had been appointed to consider the
Proposal, which press release was issued later that day (the "December 2 Company
Press Release"). A copy of the December 2 Company Press Release is filed as
Exhibit (a)(13) to the Schedule 14D-1.
On December 4, 1998, the Special Committee met, together with its counsel, and
decided to retain a financial advisor, and following such meeting members of the
Special Committee met with or spoke to representatives of various investment
banking firms, including Bear ▇▇▇▇▇▇▇, and received and reviewed proposals from
such investment banking firms regarding their possible engagement as financial
advisor to the Special Committee.
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9
On December 30, 1998, the Special Committee decided that it would select Bear
▇▇▇▇▇▇▇ as its financial advisor. In early January 1999, the Special Committee
and Bear ▇▇▇▇▇▇▇ negotiated the terms of Bear ▇▇▇▇▇▇▇' retention. On January 15,
1999 the Company issued a press release announcing the selection of Bear ▇▇▇▇▇▇▇
as the Special Committee's financial advisor. On various dates in January,
February and March 1999, representatives of Bear ▇▇▇▇▇▇▇ met with various
members of the Company's management and with various members of the Special
Committee.
On January 29, 1999, the Special Committee met with representatives of Bear
▇▇▇▇▇▇▇ and received Bear ▇▇▇▇▇▇▇' preliminary analysis of the Proposal. At such
meeting, ▇▇▇▇ ▇▇▇▇▇▇▇ stated that it did not anticipate that it would be in a
position to advise that the proposed acquisition price of $20.00 per Share was
fair to the Stockholders from a financial point of view.
On February 2, 1999, representatives of ▇.▇. ▇▇▇▇▇▇ and Bear ▇▇▇▇▇▇▇ held a
meeting at the offices of Bear ▇▇▇▇▇▇▇ in New York to review the Budget
Projections (as defined below) which had been provided to Bear ▇▇▇▇▇▇▇ by the
Company's management.
Members of Parent's management and representatives of ▇.▇. ▇▇▇▇▇▇ held a meeting
at the Company's offices on February 12, 1999 to review the Budget Projections
with the Company's management. Representatives of ▇▇▇▇ ▇▇▇▇▇▇▇ also attended the
meeting.
On February 18, 1999, the Company Board held its regularly scheduled Company
Board meeting to address matters unrelated to the Proposal. At such meeting,
among other matters, the Company's management presented the Company's fiscal
1999, 2000 and 2001 projections prepared in the last quarter of the Company's
1998 fiscal year (the "Budget Projections") to the Company Board. See "--Certain
Financial Projections (Unaudited)."
On February 22, 1999, representatives of Bear ▇▇▇▇▇▇▇ and ▇.▇. ▇▇▇▇▇▇ held a
meeting to discuss their different perspectives on valuation of the Company. At
such meeting, ▇.▇. ▇▇▇▇▇▇ made a presentation to Bear ▇▇▇▇▇▇▇ of the February 22
Report (as defined below) with respect to the views of ▇.▇. ▇▇▇▇▇▇ and Parent's
management as to valuation of the Company. See "--Position of Parent and
Purchaser Regarding Fairness of the Offer" and "--the Merger--▇.▇. ▇▇▇▇▇▇
Report."
Following such meeting, counsel for ▇▇▇▇▇▇ made a request to counsel for the
Special Committee to set up a meeting between Parent and its advisors and the
Special Committee and its advisors.
The Company's management and the Special Committee discussed the outlook for the
Company during February 1999 and at meetings held on March 3 and 4, 1999.
On March 4, 1999, members of Parent's management and representatives of Parent's
financial and legal advisors met with the Special Committee, its financial and
legal advisors and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chairman and Chief Executive Officer of the
Company, to review Parent's perspective on the Company's valuation in light of
certain projections of future financial results of the Company prepared as of
February 26, 1999 by the Company's management (the "Management Projections")
that had been received by ▇.▇. ▇▇▇▇▇▇ from Bear ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇'s own
internal analysis of the Company's business. See "--Certain Financial
Projections (Unaudited)." As part of these discussions ▇▇▇▇▇▇'s Chairman and the
Special Committee met to discuss various alternatives, including the possibility
that Parent might withdraw the Proposal if a satisfactory price could not be
agreed upon by the parties and the possibility that the Special Committee might
terminate discussions unless the price was significantly improved. During these
discussions, ▇▇▇▇▇▇ expressed a possible willingness to increase the price from
that contained in the Proposal, subject to various conditions being satisfied,
including, without limitation, negotiation of all remaining issues and a
definitive merger agreement, approval of the Special Committee and receipt of a
fairness opinion from Bear ▇▇▇▇▇▇▇. At the conclusion of these discussions,
Parent and the Special Committee requested their respective counsel to proceed
with the negotiation of a definitive merger agreement.
On March 5, 1999, counsel to Parent delivered a draft merger agreement to
counsel for the Special Committee and the Company. Between March 6 and March 9,
Parent, the Company and the Special Committee, and their respective counsel,
negotiated the terms of the definitive merger agreement. As a result of
negotiations, ▇▇▇▇▇▇ confirmed to the Special Committee that it was willing to
increase the price it was prepared to pay to acquire all of the Shares it did
not beneficially own to $24.50 per Share.
At a meeting held on March 9, 1999 by telephone conference call, the Special
Committee met with its legal and financial advisors. At the meeting, legal
counsel to the Special Committee then reviewed the legal duties of the Special
Committee in approving a transaction and the proposed terms of the Merger
Agreement, and Bear ▇▇▇▇▇▇▇ reviewed its analysis and rendered its oral opinion
concerning the fairness from a financial point of view of the proposed
consideration to be received by Stockholders (other than Parent, the Company and
their respective wholly owned subsidiaries) in the Offer and Merger. See
"--Recommendation of the Company Board; Fairness of the Offer and the
Merger--Opinion of Bear ▇▇▇▇▇▇▇." The Special Committee unanimously (a)
determined that each of the Offer and the Merger is fair to and in the best
interests of the
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10
Stockholders (other than Parent and Purchaser) and that the Merger Agreement is
advisable; (b) approved the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger; (c) approved the Company waiving
the restriction of the Governance Agreement to permit the Offer and Merger; and
(d) recommended to the Company Board that the Company Board recommend that the
Stockholders accept the Offer and tender their Shares pursuant to the Offer and
approve and adopt the Merger and the Merger Agreement.
Immediately following the Special Committee meeting on March 9, the Company
Board met by telephone conference call in a special Company Board meeting,
during which meeting the Company Board received presentations from counsel to
the Company, counsel to the Special Committee and counsel to Parent and received
the recommendation of the Special Committee. With the Parent Directors on the
Company Board abstaining and otherwise by unanimous vote, the Company Board
(including ▇▇. ▇▇▇▇▇▇▇) then (a) determined that each of the Offer and the
Merger is fair to and in the best interests of the Stockholders (other than
Parent and Purchaser) and that the Merger Agreement is advisable; (b) approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger; and (c) recommended that the Stockholders accept the Offer
and tender their Shares in the Offer and adopt and approve the Merger Agreement
and the Merger.
At such meeting, following the initial vote, the full Company Board then, by
unanimous vote, (a) determined that each of the Offer and the Merger is fair to
and in the best interests of the Stockholders (other than Parent and Purchaser)
and that the Merger Agreement is advisable; (b) approved the Merger Agreement
and the transactions contemplated thereby, including the Offer and the Merger;
and (c) recommended that the Company Board recommend that the Stockholders
accept the Offer and tender their Shares in the Offer.
Following such meetings and finalization of necessary documentation, Parent,
Purchaser and the Company entered into the Merger Agreement.
On March 10, 1999, Parent and the Company issued a joint press release (the
"March 10 Press Release") announcing the transactions, including the execution
of the Merger Agreement. Also on March 10, 1999, Parent issued a French language
press release in Paris (the "French Press Release") announcing the transactions,
including the execution of the Merger Agreement. Copies of the March 10 Press
Release and the French Press Release are filed as Exhibit (a)(10) and Exhibit
(a)(11), respectively, to the Schedule 14D-1.
Also on March 10, 1999, Parent issued a press release (the "Parent Results Press
Release") announcing its audited consolidated results for the year ended
December 31, 1999. A copy of the Parent Results Press Release is filed as
Exhibit (a)(12) to the Schedule 14D-1. See "THE TENDER OFFER--Section 8 Certain
Information Concerning Parent and Purchaser."
On March 15, 1999, the Company issued a press release (the "March 15 Press
Release") announcing its results for the fiscal year ended January 30, 1999. See
"THE TENDER OFFER--Section 7 Certain Information Concerning the Company." A copy
of the March 15 Press Release is filed as Exhibit (a)(9) to the Schedule 14D-1.
On March 16, 1999, pursuant to the Merger Agreement, Purchaser commenced the
Offer, and Parent and Purchaser issued a press release (the "March 16 Press
Release") announcing commencement of the Offer. A copy of the March 16 Press
Release is filed as Exhibit (a)(8) to the Schedule 14D-1.
POSITION OF PARENT AND PURCHASER REGARDING FAIRNESS OF THE OFFER AND THE MERGER
Position of Parent and Purchaser
Parent and Purchaser believe that the consideration to be received by the
Stockholders pursuant to the Offer and the Merger is fair to the Stockholders
(other than Parent and Purchaser). Parent and Purchaser base their belief on the
following:
- the fact that the Special Committee concluded that the Offer and the
Merger was fair to, and in the best interests of, the Stockholders and
that the Merger Agreement is advisable;
- the fact that the Company Board determined that the Offer and the Merger
was fair to, and in the best interests of, the Stockholders and that the
Merger Agreement is advisable;
- notwithstanding the fact that Bear ▇▇▇▇▇▇▇' opinion was provided solely
for the information and assistance of the Special Committee and the
Company Board and that Parent and Purchaser are not entitled to rely on
such opinion, the fact that the Special Committee received a written
opinion from Bear ▇▇▇▇▇▇▇ that, subject to the various assumptions and
limitations set forth therein, as of the date thereof, the $24.50 per
Share in cash to be received by Stockholders (other than Parent or the
Company and their respective wholly owned subsidiaries) in the Offer and
the Merger pursuant to the Merger Agreement is fair to such Stockholders
from a financial point of view;
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11
- the presence of the Minimum Condition ensures that, in order for the
Offer to be consummated, at least a majority of the Shares not
beneficially owned by Parent will have to be tendered pursuant to the
Offer and not properly withdrawn, and, for the Offer to be consummated at
12:00 midnight, New York City time, April 12, 1999 (the "Initial
Expiration Date"), at least 90% of the total number of outstanding Shares
will have to be tendered pursuant to the Offer and not properly withdrawn
(provided, that, following the Initial Expiration Date, Purchaser may,
but is not required to, accept for payment Shares tendered and not
properly withdrawn which, when aggregated with the Shares beneficially
owned by Parent, represent at least 75% of the total number of
outstanding Shares);
- the Merger Agreement was negotiated with the Special Committee at
arm's-length;
- the historical and projected financial performance of the Company and its
financial results and ▇▇▇▇▇▇'s views as to the likelihood of achieving
such results under various scenarios (See "--Certain Financial
Projections (Unaudited)");
- the various analyses performed by ▇.▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇'s financial
advisor;
- the consideration to be paid in the Offer represents a premium of
approximately 45.2% over the closing price of the Shares on December 1,
1998, the last trading day, prior to the December 2nd Announcement, an
approximately 88.5% premium over the closing price for the Shares one
week prior to the December 2nd Announcement, an approximately 62.7% and
an approximately 62.7% premium over the average of the Company's closing
prices of the Shares for the 30 and 60 days, respectively, prior to
December 2, 1998, and an approximately 14.3% premium over the closing
price of the Shares on March 9, 1999, the day before the execution of the
Merger Agreement;
- the consideration to be paid to the Stockholders is entirely in cash;
- in the Merger, Stockholders will receive an amount in cash equal to
$24.50 or any greater amount per Share paid pursuant to the Offer (the
"Per Share Amount"); and
- the fact the Governance Agreement, which Parent complied with in
connection with the Proposal and the Offer, provided specific procedures
for the independent directors, which procedures could be used to prevent
Parent from making the Offer if the independent directors believed that
it was not in the best interests of the Company's public Stockholders.
Parent and Purchaser did not find it practicable to assign, nor did they assign,
relative weights to the individual factors considered in reaching their
conclusion as to fairness. In light of the nature of the Company's business,
Parent and Purchaser did not deem net book value or liquidation value to be
relevant indicators of the value of the Shares.
▇.▇. ▇▇▇▇▇▇ Reports
Pursuant to an engagement letter dated December 1, 1998, ▇▇▇▇▇▇ retained ▇.▇.
▇▇▇▇▇▇ as its exclusive financial advisor in connection with ▇▇▇▇▇▇'s efforts to
acquire the Shares it does not beneficially own (the "Acquisition").
On November 17, 1998, ▇.▇. ▇▇▇▇▇▇ made a presentation (the "November 17 Report")
to members of Parent's senior management to update Parent on its investment in
the Company and to assist Parent in its evaluation of various alternatives with
respect to such investment. The information contained in the November 17 report
was based upon public information available at such time.
After receiving the Budget Projections prepared by the Company's management and
furnished to ▇.▇. ▇▇▇▇▇▇ in February 1999 by ▇▇▇▇ ▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇▇ and
▇▇▇▇▇▇'s management prepared a presentation, dated February 22, 1999 (the
"February 22 Report"), for certain members of Parent's senior management
respecting the views of ▇.▇. ▇▇▇▇▇▇ and Parent's management as to the valuation
of the Company. See "--Certain Financial Projections (Unaudited)." The February
22 Report was reviewed with Bear ▇▇▇▇▇▇▇ by ▇.▇. ▇▇▇▇▇▇.
On March 4, 1999, ▇.▇. ▇▇▇▇▇▇ made a presentation to the Special Committee (the
"March 4 Report" and, together with the November 17 Report and the February 22
Report, the "▇.▇. ▇▇▇▇▇▇ Reports"), following delivery to ▇.▇. ▇▇▇▇▇▇ by ▇▇▇▇
▇▇▇▇▇▇▇ of the Management Projections prepared by the Company's management and
reflecting the Management Projections to certain members of Parent's senior
management in which ▇.▇. ▇▇▇▇▇▇ further discussed its views on the valuation of
the Company. See "--Certain Financial Projections (Unaudited)."
No limitations were imposed by Parent or Purchaser upon ▇.▇. ▇▇▇▇▇▇ with respect
to the investigations made or procedures followed by ▇.▇. ▇▇▇▇▇▇ in rendering
any of the ▇.▇. ▇▇▇▇▇▇ Reports. The full text of each of the November 17 Report,
the February 22 Report and the March 4 Report, which sets forth the assumptions
made, matters considered and limits on the review undertaken in such Report, are
filed as Exhibits (b)(5), (b)(4), and (b)(3), respectively, to the Schedule
13E-3 and is
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12
incorporated herein by reference. The ▇.▇. ▇▇▇▇▇▇ Reports are available for
inspection and copying at the principal executive offices of the Company during
its regular business hours to any Stockholder or his representative who has been
so designated in writing.
SET FORTH BELOW IS A SUMMARY OF THE MATERIAL ANALYSES SET FORTH IN THE MARCH 4
REPORT PREPARED BY ▇.▇. ▇▇▇▇▇▇. THE MARCH 4 REPORT IS DIRECTED ONLY TO ▇.▇.
▇▇▇▇▇▇'▇ AND ▇▇▇▇▇▇'S PERSPECTIVES FOR VALUING THE COMPANY AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER SUCH STOCKHOLDER
SHOULD TENDER HIS SHARES PURSUANT TO THE OFFER OR HOW SUCH STOCKHOLDER SHOULD
VOTE IN CONNECTION WITH THE MERGER. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MARCH 4 REPORT.
In producing the March 4 Report, ▇.▇. ▇▇▇▇▇▇ reviewed, among other things, the
audited financial statements of the Company for the fiscal year ended January
31, 1998, the unaudited financial statements of the Company for the periods
ended May 2, 1998, August 1, 1998 and October 31, 1998 and projected financial
results for the fiscal years ended January 30, 1999, January 30, 2000 and
January 31, 2001, provided by the Company's management; current and historical
market prices of the Shares; certain publicly available information concerning
the business of the Company and of certain other companies engaged in businesses
believed to be comparable to those of the Company, and the reported market
prices for certain other companies' securities deemed comparable; the Budget
Projections and the Management Projections; and certain agreements with respect
to outstanding indebtedness or obligations of the Company. ▇.▇. ▇▇▇▇▇▇ also held
discussions with certain members of the senior management of the Company and
Parent and Bear ▇▇▇▇▇▇▇ with respect to certain aspects of the Acquisition, and
the past and current business operations of the Company, the financial condition
and future prospects and operations of the Company, and certain other matters
believed necessary or appropriate to ▇.▇. ▇▇▇▇▇▇'▇ inquiry. In addition, ▇.▇.
▇▇▇▇▇▇ reviewed such other financial studies and analyses and considered such
other information as it deemed appropriate for the purpose of its March 4
Report.
▇.▇. ▇▇▇▇▇▇ relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by the Company or Parent or otherwise reviewed by ▇.▇.
▇▇▇▇▇▇, and ▇.▇. ▇▇▇▇▇▇ has not assumed any responsibility or liability
therefor. ▇.▇. ▇▇▇▇▇▇ has not conducted any valuation or appraisal of any assets
or liabilities of the Company, nor have any valuations or appraisals of the
Company been provided to ▇.▇. ▇▇▇▇▇▇. In relying on financial analyses and
forecasts provided to ▇.▇. ▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇▇ assumed that they have been
reasonably prepared based on assumptions reflecting the best currently available
estimates and judgments by the Company's management, as of the date prepared, as
to the expected future results of operations and financial condition of the
Company to which such analyses or forecasts relate.
The Budget Projections and the Management Projections furnished to ▇.▇. ▇▇▇▇▇▇
for the Company were prepared by the Company's management. The Company does not
publicly disclose internal management projections of the type provided to ▇.▇.
▇▇▇▇▇▇ in connection with ▇.▇. ▇▇▇▇▇▇'▇ analysis of the Acquisition and such
projections were not prepared with a view toward public disclosure. These
projections were based on numerous variables and assumptions that are inherently
uncertain and may be beyond the control of management, including, without
limitation, factors related to general economic and competitive conditions and
prevailing interest rates. Accordingly, actual results could vary significantly
from those set forth in such projections. For additional information regarding
such projections see "--Certain Financial Projections (Unaudited)."
The March 4 Report is based on economic, market and other conditions as in
effect on, and the information made available to ▇.▇. ▇▇▇▇▇▇ as of, the date of
such report. Subsequent developments may effect the contents and conclusions of
the March 4 Report.
In accordance with customary investment banking practice, ▇.▇. ▇▇▇▇▇▇ employed
generally accepted valuation methods in reaching the conclusions set forth in
the March 4 Report. ▇.▇. ▇▇▇▇▇▇ conducted its analyses based upon (a) the
Management Projections prepared as of February 26, 1999 by the Company's
management and delivered to ▇.▇. ▇▇▇▇▇▇ by Bear ▇▇▇▇▇▇▇ (the "Management Case");
and (b) the Budget Projections adjusted by Parent, following Parent's internal
analysis of the Company's business, to reflect modest reductions in catalog
response rates and gross margin rates compared to the Management Case (the
"Parent Case"). As the Management Case covered only three fiscal years and the
Parent Case covered five fiscal years, ▇.▇. ▇▇▇▇▇▇ extended the Management Case
an additional two fiscal years, based on certain assumptions jointly developed
with Parent. ▇.▇. ▇▇▇▇▇▇'▇ and ▇▇▇▇▇▇'s preparation of the Parent Case was
completed following discussions with the Company's senior management on February
12, 1999 and reflects only one of a broad range of possible economic outcomes
for the Company. Where applicable, ▇.▇. ▇▇▇▇▇▇'▇ analyses assumed net debt of
$372 million and 17.3 million Shares outstanding on a fully diluted basis.
With respect to certain of its analyses, ▇.▇. ▇▇▇▇▇▇, using publicly available
information, compared selected financial data of the Company with similar data
for selected publicly traded companies engaged in businesses which ▇.▇. ▇▇▇▇▇▇
judged to be
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13
analogous to the Company. Such companies selected by ▇.▇. ▇▇▇▇▇▇ were Coldwater
Creek Inc. ("Coldwater"), DM Management Company ("DM"), ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Corporation ("▇▇▇▇▇▇▇ ▇▇▇▇▇▇"), The Talbots, Inc. ("Talbots"), Intimate Brands,
Inc., Spiegel, Inc., Lands' End, Inc. ("Lands' End") and ▇▇▇▇▇*s Inc.
(collectively, the "Broader Comparable Companies"). These companies were
selected, among other reasons, because of the comparable nature of their
business segments, size and/or customer base. The Company also performed certain
comparison analyses with respect to Coldwater Creek, DM, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and
Talbots, (collectively, the "Comparable Companies"), which ▇.▇. ▇▇▇▇▇▇ believed
to be more analogous to the Company than the other Broader Comparable Companies
due to the Comparable Companies' lack of a substantial Internet presence, as is
this case with the Company.
Price/Earnings Analysis. ▇.▇. ▇▇▇▇▇▇ conducted a price/earnings ratio
valuation. Applying the price/earnings ratio of 17.7x for the Broader Comparable
Companies (the "Broader Comparable Companies P/E Ratio") discounted by the
historical 12-month average discount of 35% with respect to which the Company
has traded relative to the Broader Comparable Companies, derived a value of
$19.56 per Share based on the Management Case. Applying the Broader Comparable
Companies P/E Ratio, and giving effect to the 35% discount, derived a value of
$17.14 per Share based on the Parent Case. ▇.▇. ▇▇▇▇▇▇ conducted the same
analysis with respect to the Comparable Companies, which have a price/earnings
ratio of 14.1x and to which the Company traditionally trades at a 25% discount.
This analysis resulted in a value of $15.76 per Share based on the Parent Case
and $17.98 per Share based on the Management Case.
Discounted Cash Flow Analysis. ▇.▇. ▇▇▇▇▇▇ conducted a discounted cash flow
analysis for the purpose of determining the fully diluted equity value for the
Shares. ▇.▇. ▇▇▇▇▇▇ calculated the unlevered free cash flows that the Company is
expected to generate during fiscal years 1999 through 2003 based upon the
Management Case and the Parent Case. ▇.▇. ▇▇▇▇▇▇'▇ analysis assumed a weighted
average cost of capital of 10.0%, a terminal period of sales growth of 1.5%, a
compound annual revenue growth rate over the five year projected period of 3.1%
and 4.8%, a gross margin average over such five year period of 48.0% and 48.6%,
and an operating margin average over such five year period of 6.3% and 6.8%, in
each case for the Parent Case and the Management Case, respectively. The value
derived based on the Parent Case was $16.36 per Share, which implies a fiscal
year 1999 estimated EBITDA (earnings before interest, taxes, depreciation and
amortization) multiple of 7.0x and a fiscal year 1999 estimated EBIT (earnings
before interest and taxes) multiple of 9.3x. The value derived based on the
Management Base Case was $22.62 per Share, which implies a fiscal year 1999
estimated EBITDA multiple of 7.7x and a fiscal year 1999 estimated EBIT multiple
10.2x.
Discounted Cash Flow Sensitivity Analysis. ▇.▇. ▇▇▇▇▇▇ applied a sensitivity
analysis to the foregoing discounted cash flow analysis, applying sales growth
rates of 1.0% to 2.0% and weighted average cost of capital rates of 10.0% to
11.0%. Based on the Parent Case, this analysis resulted in a range of valuations
from $11.23 per Share to $17.68 per Share. Based on the Management Case, this
analysis resulted in a range of valuations from $16.52 per Share to $24.28 per
Share.
Comparable Trading Multiples Analysis. ▇.▇. ▇▇▇▇▇▇ undertook a comparable
trading multiples analysis. Applying the 1999 estimated median EBITDA multiples
of the Comparable Companies of 7.0x resulted in an implied value of $16.36 per
Share based on the Parent Case and an implied value of $18.25 per Share based on
the Management Case. Applying the 1999 estimated median EBIT multiples of the
Comparable Companies of 9.7x resulted in an implied value of $17.78 per Share
based on the Parent Case and an implied value of $20.39 per Share based on the
Management Case.
As part of its investment banking business, ▇.▇. ▇▇▇▇▇▇ and its affiliates are
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. ▇.▇. ▇▇▇▇▇▇ was selected to advise Parent with respect to
the Acquisition on the basis of such experience and its familiarity with Parent
and the Company. ▇.▇. ▇▇▇▇▇▇ represented Parent in connection with the April
1998 Stock Purchase.
For services rendered in connection with the Acquisition, Parent has agreed to
pay ▇.▇. ▇▇▇▇▇▇ a total fee of $1.35 million upon acquisition by Purchaser of a
majority of the Shares not owned by Parent or Purchaser. In addition, ▇▇▇▇▇▇ has
agreed to reimburse ▇.▇. ▇▇▇▇▇▇ for its expenses incurred in connection with its
services, including the fees and disbursements of counsel, and will indemnify
▇.▇. ▇▇▇▇▇▇ against certain liabilities, including liabilities arising under the
United States federal securities laws. ▇.▇. ▇▇▇▇▇▇ is acting as Dealer Manager
in the Offer, although it will not be receiving any additional compensation in
connection with such assignment.
▇.▇. ▇▇▇▇▇▇ and its affiliates maintain banking and other business relationships
with Parent and its affiliates, for which it receives customary fees. In the
ordinary course of their businesses, affiliates of ▇.▇. ▇▇▇▇▇▇ may actively
trade the debt and equity securities of Parent or the Company for their own
accounts or for the accounts of customers and, accordingly, they may at any time
hold long or short positions in such securities.
11
14
▇.▇. ▇▇▇▇▇▇ acted as a co-manager of the Initial Public Offering, and the
October 1997 Offering, and was to act as a co-manager of an offering the Company
was to undertake on behalf of FS&Co. and The Limited and which was canceled as a
result of the April 1998 Stock Purchase. In connection with the foregoing
offerings, ▇.▇. ▇▇▇▇▇▇ received compensation totaling approximately $2.4
million. In 1993 affiliates of ▇.▇. ▇▇▇▇▇▇ co-managed the issuance of the
Company's senior subordinated notes. In 1996, affiliates of ▇.▇. ▇▇▇▇▇▇
co-arranged and co-underwrote the Company's bank debt facility. In 1997,
affiliates of ▇.▇. ▇▇▇▇▇▇ acted as administrative agent in connection with the
Company's bank debt facilities. In connection with such debt issuances, ▇.▇.
▇▇▇▇▇▇ received compensation totaling approximately $2.8 million.
RECOMMENDATION OF THE COMPANY BOARD; FAIRNESS OF THE OFFER AND THE MERGER
Recommendation of the Special Committee and the Company Board
On March 9, 1999, the Special Committee unanimously
- determined that each of the Offer and the Merger is fair to and in the
best interests of the Stockholders (other than Parent and Purchaser) and
that the Merger Agreement is advisable;
- approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger;
- approved of the Company waiving the Governance Agreement to permit the
Offer and the Merger; and
- recommended to the Company Board that the Company Board recommend that
the Stockholders accept the Offer and tender their Shares pursuant to the
Offer and approve and adopt the Merger and the Merger Agreement.
On March 9, 1999, the Company Board, based upon, among other things, the
unanimous recommendation of the Special Committee, unanimously
- determined that each of the Offer and the Merger is fair to and in the
best interests of the Stockholders (other than Parent and Purchaser) and
that the Merger Agreement is advisable;
- approved the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger; and
- recommended that the Stockholders accept the Offer and tender their
Shares in the Offer and adopt and approve the Merger Agreement and the
Merger.
Special Committee. In reaching its determinations and recommendations referred
to above, the Special Committee considered the following factors, each of which,
in the view of the Special Committee, supported such determinations:
- the history of the negotiations between the Special Committee and its
representatives and Parent and its representatives, including (a) that
the negotiations resulted in an increase in the price at which Parent was
prepared to acquire the Shares from $20.00 to $24.50 per Share, (b) the
Special Committee's belief that Parent would not further increase the
Offer Price, and, accordingly, $24.50 per Share was, in the opinion of
the Special Committee, the highest price which could be obtained from
Parent and (c) the Special Committee's belief that further negotiations
with Parent could cause Parent to abandon the Offer, with the resulting
possibility that the market price for the Shares could fall substantially
below $24.50, and probably below $20.00 per Share;
- the Special Committee's concerns that the changes in the competitive
landscape which had caused the Management Projections prepared in
February 1999 to assume lower sales growth than that assumed when the
Budget Projections were prepared in the last quarter of the Company's
1998 fiscal year also created greater uncertainty that the Company's
management could accurately estimate future financial performance and
that the Management Projections could be achieved;
- the possibility that the anticipated release of fourth quarter fiscal
1998 and year end fiscal 1998 earnings of the Company, which are
substantially below the expectations of Wall Street analysts, could
significantly and adversely impact the Share price in the absence of the
Offer;
- the opinion of Bear ▇▇▇▇▇▇▇ that, based upon and subject to the various
assumptions and limitations set forth therein, as of the date thereof,
the $24.50 per Share to be received by the Stockholders (other than
Parent, the Company or any of their respective wholly owned subsidiaries)
in the Offer and the Merger pursuant to the Merger Agreement is fair to
such Stockholders from a financial point of view, and the report and
analyses presented to the Special Committee in connection therewith (See
"--Opinion of Bear ▇▇▇▇▇▇▇"); a copy of Bear ▇▇▇▇▇▇▇' opinion is attached
as Schedule II to this Offer to Purchase (Stockholders are urged to read
this opinion in its entirety);
12
15
- the possibility that, because of lower than expected Company earnings or
a decline in the trading price of the Shares or the stock market in
general, the consideration the minority Stockholders would obtain in a
future transaction might be less advantageous than the consideration they
would receive pursuant to the Offer and the Merger;
- the facts that Parent has sufficient stock ownership and Company Board
representation to prevent a disposition of the Company to a third party
without Parent's consent, that Parent had indicated that it was not
interested in selling the Company to a third party, and that under such
circumstances it was not feasible for the Special Committee to, and it
did not and did not ask Bear ▇▇▇▇▇▇▇ to, solicit third party indications
of interest for the acquisition of the Company or its businesses;
- the historical market prices and recent trading activity of the Shares,
including (a) that the Offer Price of $24.50 per Share represents a
premium of approximately 45.2% over the $16.875 per Share closing price
on December 1, 1998, the day prior to the December 2 Announcement, (b)
that between September 1998 and the December 2nd Announcement the Shares
had traded at prices ranging from a low of $11.13 to a high of $17.13 per
Share, and (c) that the Shares never traded on the NYSE above $23.625 per
Share following the December 2nd Announcement and prior to execution of
the Merger Agreement;
- the Minimum Condition requirement that Purchaser not accept for payment
any tendered Shares unless there are validly tendered and not properly
withdrawn prior to the Expiration Date that number of Shares which, when
aggregated with the Shares currently beneficially owned by Parent,
represent at least 90% of the total number of outstanding Shares, on a
fully diluted basis, on the date of purchase; provided, that following
the Initial Expiration Date, Purchaser may, but is not required to,
accept for payment tendered Shares which, when aggregated with the Shares
currently beneficially owned by Parent, represent at least 75% of the
total number of outstanding Shares, on a fully diluted basis, on the date
of purchase;
- the terms and conditions of the Offer, the Merger and the Merger
Agreement, including (a) that the Minimum Condition may not be waived by
Parent or Purchaser; (b) that the terms and conditions of the Offer may
not be changed in any manner which is adverse to the Stockholders without
the consent of the Special Committee; (c) that the Company may terminate
the Merger Agreement if the Special Committee approves or recommends
another offer or an agreement to effect an Acquisition Transaction (as
defined below) under certain circumstances; (d) that the Offer and Merger
are not subject to any financing condition; and (e) the limited nature of
the conditions to the Offer and the Merger; and
- the availability of appraisal rights for the Stockholders under the DGCL
in connection with the Merger.
Company Board. In reaching its determinations referred to above, the Company
Board considered the following factors, each of which, in the view of the
Company Board, supported such determinations:
- the conclusions and recommendations of the Special Committee;
- the receipt by the Special Committee of the opinion of Bear ▇▇▇▇▇▇▇
addressed to the Special Committee that, based upon and subject to the
various assumptions and limitations set forth therein, as of the date
thereof, the $24.50 per Share to be received by the holders of the Shares
(other than Parent, the Company or any of their respective wholly owned
subsidiaries) in the Offer and the Merger pursuant to the Merger
Agreement is fair to such holders from a financial point of view; and
- the fact that the Offer Price and the terms and conditions of the Merger
Agreement were the result of arm's-length negotiations between the
Special Committee, the Company and Parent and their respective advisors.
The Company Board recognized that consummation of the Offer and the Merger will
deprive current Stockholders of the opportunity to participate in the future
growth prospects of the Company, and, therefore, in reaching its conclusion to
approve the Offer and the Merger, determined that the historical results of the
operations and future prospects of the Company are adequately reflected in the
$24.50 price per Share. The members of the Company Board, including the members
of the Special Committee, evaluated the Proposal, the Offer and the Merger in
light of their knowledge of the business, financial condition and prospects of
the Company, and based upon the advice of financial and legal advisors. In light
of the number and variety of factors that the Company Board and the Special
Committee considered in connection with their evaluation of the Offer and the
Merger, neither the Company Board nor the Special Committee found it practicable
to assign relative weights to the foregoing factors, and, accordingly, neither
the Company Board nor the Special Committee did so.
13
16
The Company Board, including the members of the Special Committee, believes that
the Offer and the Merger are procedurally fair because, among other things:
- the Special Committee consisted of three independent directors appointed
to represent the interests of the Stockholders other than Parent and its
wholly owned subsidiaries;
- the Special Committee had the ability, under the Governance Agreement, to
prohibit Parent from making the Proposal and proceeding with the
negotiations and discussions that led to the Merger Agreement, and the
Governance Agreement restricted Parent's ability to acquire beneficial
ownership of additional Shares during a standstill period of three years
(subject to earlier termination under certain circumstances);
- the Special Committee retained and received advice from independent legal
counsel;
- the Special Committee retained Bear ▇▇▇▇▇▇▇ as its independent financial
advisor to assist it in evaluating a potential transaction with Purchaser
and received advice from Bear ▇▇▇▇▇▇▇;
- the existence of the Minimum Condition (which may not be waived by Parent
or Purchaser) has the effect of requiring a majority of the Stockholders
(other than Parent and its wholly owned subsidiaries) to tender their
Shares into the Offer in order for it to be consummated;
- the deliberations pursuant to which the Special Committee evaluated the
Offer and the Merger; and
- the fact that the $24.50 per Share price and the other terms and
conditions of the Merger Agreement resulted from active arm's-length
bargaining between representatives of the Special Committee, on the one
hand, and representatives of Parent, on the other hand.
Under Delaware law, a plan of merger requires the vote of a majority of all
outstanding shares entitled to vote thereon in order to be adopted. The Company
Board and the Special Committee recognized that the Merger is not structured to
require the approval of a majority of the Stockholders (other than Parent and
Purchaser) and that Parent, beneficially owning approximately 49.9% of the
outstanding Shares, has sufficient voting power to approve the Merger if other
Stockholders holding less than 1% of the outstanding Shares also vote in favor
of the Merger. The Parent Directors currently own an aggregate additional 27,270
shares for their personal accounts. Parent is restricted under the Governance
Agreement from acquiring beneficial ownership of additional Shares. A condition
to the Merger, however, is that Purchaser shall have purchased all Shares
tendered in the Offer. Consummation of the Offer is conditioned upon there being
validly tendered, and not withdrawn, such number of the then issued and
outstanding Shares which, when aggregated with Shares currently beneficially
owned by Parent, constitutes at least 90%, or, in certain circumstances, 75%, of
the then outstanding Shares on a fully diluted basis, which effectively requires
that over 50% of the minority Stockholders tender their Shares.
Opinion of Bear ▇▇▇▇▇▇▇
The Special Committee retained Bear ▇▇▇▇▇▇▇ to act as its financial advisor in
connection with the Offer and the Merger and related matters based upon Bear
▇▇▇▇▇▇▇' qualifications, expertise and reputation. On March 9, 1999, Bear
▇▇▇▇▇▇▇ delivered its oral opinion to the Special Committee that, based upon the
procedures and subject to the assumptions and qualifications described to the
Special Committee and later set forth in the written opinion of Bear ▇▇▇▇▇▇▇
dated March 9, 1999, the consideration to be received by the holders of Shares
other than the Company, Parent and their respective wholly owned subsidiaries
pursuant to the Merger Agreement was fair from a financial point of view.
The full text of Bear ▇▇▇▇▇▇▇' written opinion dated as of March 9, 1999, which
highlights, among other things, assumptions made, matters considered, and scope
and limitations on the review undertaken, is attached as Schedule II to this
Offer to Purchase and is incorporated herein by reference. A copy of the Bear
▇▇▇▇▇▇▇' opinion is available for inspection and copying at the principal
executive offices of the Company. The following summary is qualified in its
entirety by reference to the full text of Bear ▇▇▇▇▇▇▇' opinion. Stockholders
are urged to, and should, read Bear ▇▇▇▇▇▇▇' opinion carefully and completely.
Bear ▇▇▇▇▇▇▇' opinion is directed to the Special Committee and the Company Board
and addresses the fairness of the consideration, from a financial point of view,
to the Stockholders other than the Company, Parent and their respective wholly
owned subsidiaries pursuant to the Merger Agreement. It does not address any
other aspect of the Merger, including the Company's underlying business decision
to pursue the transaction, nor does it constitute a recommendation to the
Special Committee, the Company Board or any Stockholders as to whether to tender
their Shares in the Offer or how to vote in connection with the Merger.
14
17
In arriving at its opinion, Bear ▇▇▇▇▇▇▇ reviewed:
- a draft of the Merger Agreement, in substantially the form executed by
the parties;
- the Company's Initial Public Offering prospectus dated February 21, 1997,
its Annual Report to Stockholders and Annual Report on Form 10-K for the
fiscal year ended January 31, 1998 and its Quarterly Reports on Form 10-Q
for the periods ended May 2, 1998, August 1, 1998 and October 31, 1998;
- preliminary financial information for the fiscal year and quarter ended
January 30, 1999;
- certain financial and operating information, including projections, with
respect to the business, operations and prospects of the Company
furnished to Bear ▇▇▇▇▇▇▇ by the Company;
- a trading history of the Shares from February 21, 1997 (the date of the
Initial Public Offering) to March 4, 1999 and in comparison with those
other companies that Bear ▇▇▇▇▇▇▇ deemed generally comparable to the
Company; and
- a comparison of the historical financial results and present financial
condition of the Company with those of other companies Bear ▇▇▇▇▇▇▇
deemed relevant; and, to the extent publicly available, the financial
terms of certain comparable acquisition transactions.
In addition, Bear ▇▇▇▇▇▇▇ had discussions with the Company's management and the
Special Committee concerning the Company's business, operations, assets,
liabilities, financial condition, liquidity and prospects and undertook such
other studies, analyses, inquiries and investigations as Bear ▇▇▇▇▇▇▇ deemed
appropriate.
In rendering its opinion, Bear ▇▇▇▇▇▇▇ relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including, and without limitation, the projections provided
to Bear ▇▇▇▇▇▇▇ by the Company. With respect to the Management Projections, ▇▇▇▇
▇▇▇▇▇▇▇ assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of the
Company as to the expected future performance of the Company. In addition, Bear
▇▇▇▇▇▇▇ assumed that, in all respects material to its analysis, the Offer and
the Merger would be consummated on the terms set forth in the Merger Agreement
and that the representations and warranties contained in the Merger Agreement
are true and correct. Bear ▇▇▇▇▇▇▇ did not make any independent valuation or
appraisal of the assets or liabilities of the Company, nor was Bear ▇▇▇▇▇▇▇
furnished with any such appraisals. Bear ▇▇▇▇▇▇▇' opinion was based on economic,
market and other conditions, and on the information made available to Bear
▇▇▇▇▇▇▇, as of the date of the opinion.
No limitations were imposed by the Company or the Special Committee (or any
other party) on the scope of Bear ▇▇▇▇▇▇▇' investigation or the procedures to be
followed by Bear ▇▇▇▇▇▇▇ in connection with preparing the Bear ▇▇▇▇▇▇▇' opinion,
except that Bear ▇▇▇▇▇▇▇ was not authorized to solicit, and did not solicit,
indications of interest for the acquisition of all or any part of the Company
from any party, nor did it have any such discussions with any party other than
Parent.
Set forth below is a brief summary of certain analyses performed by ▇▇▇▇ ▇▇▇▇▇▇▇
and reviewed with the Special Committee on March 9, 1999 in connection with the
preparation of Bear ▇▇▇▇▇▇▇' opinion. For the purpose of conducting these
analyses, Bear ▇▇▇▇▇▇▇ relied, among other things, on the Management Projections
provided to it by the Company, which are summarized in this Offer to Purchase
under "-- Certain Financial Projections (Unaudited)."
Applying the Offer Price of $24.50 per Share and the Company's most recent
estimates of EBITDA, EBIT and earnings per share for fiscal year 1998 and fiscal
year 1999, Bear ▇▇▇▇▇▇▇ calculated
- the multiple of enterprise value to 1998 EBITDA and EBIT of 9.6x and
13.1x, respectively, and the multiple of market price to 1998 earnings
per share of 22.7x; and
- the multiple of enterprise value to 1999 EBITDA and EBIT of 8.1x and
10.6x, respectively, and the multiple of market price to 1999 earnings
per share of 14.4x.
Comparable Public Company Analysis. As part of its analysis, Bear ▇▇▇▇▇▇▇
compared certain financial information of the Company with corresponding
publicly available information of a group of five publicly-traded direct
marketing companies that Bear ▇▇▇▇▇▇▇ considered comparable in certain respects
with the Company. This group included: ▇▇▇▇▇ Corporation, Coldwater, DM, Lands'
End and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ (collectively, the "Bear ▇▇▇▇▇▇▇' Comparable Companies").
Bear ▇▇▇▇▇▇▇ analyzed the Offer Price by comparing certain market trading
statistics for the Company with those of the Bear ▇▇▇▇▇▇▇' Comparable Companies.
The market trading information used in the ratios provided below is as of March
4, 1999. The market trading information used in the valuation analysis was
enterprise value to projected 1999 EBITDA and EBIT, and market price to
estimated 1999 earnings per share. All estimates for the Company were based on
Management Projections.
Earnings per share estimates for the Bear ▇▇▇▇▇▇▇' Comparable Companies were
based on the harmonic mean of First Call estimates as of March 4, 1999 while
EBITDA and EBIT projections were based on recently available research reports
for each Bear ▇▇▇▇▇▇▇' Comparable Company. An analysis of the multiples for the
Bear ▇▇▇▇▇▇▇' Comparable Companies yielded
15
18
harmonic mean multiples of projected 1999 EBITDA, EBIT and earnings per share of
6.1x, 7.4x, and 11.6x, respectively. The Offer Price results in implied
multiples of projected 1999 EBITDA, EBIT and earnings per share of 8.1x, 10.6x,
and 14.4x, respectively.
Precedent Transaction Analysis. Using publicly available information, ▇▇▇▇
▇▇▇▇▇▇▇ performed an analysis of 15 precedent transactions of direct
marketing/catalog companies that Bear ▇▇▇▇▇▇▇ deemed comparable to the Offer and
the Merger. This analysis yielded harmonic mean multiples of latest 12 month's
EBITDA, EBIT and earnings per share of 9.4x, 11.7x and 20.9x, respectively. The
Offer, based on the Company's most recent estimates for fiscal 1998, results in
implied multiples of EBITDA, EBIT and earnings per share of 9.6x, 13.1x, and
22.7x, respectively.
Discounted Cash Flow Analysis. Bear ▇▇▇▇▇▇▇ performed a discounted cash flow
analysis of the Company for the fiscal years ended 1999 through 2003 based on
the Management Projections, which Bear ▇▇▇▇▇▇▇ extended for purposes of this
analysis to 2003 based on guidance from the Company. Unlevered free cash flows
of the Company were calculated as EBITA less taxes plus depreciation less
capital expenditures less changes in working capital. Bear ▇▇▇▇▇▇▇ calculated
terminal values by applying a range of exit multiples of 6.5x to 7.5x 2003
EBITDA for the Company. These multiples implied perpetual growth rates of
unlevered free cash flows of 3.3% to 4.1%, representing estimated ranges of
long-term cash flow growth rates for the Company. The unlevered cash flow
streams and terminal values were then discounted to the present using a range of
discount rates from 10.5% to 11.5%, representing an estimated weighted average
cost of capital range for the Company. The discounted values were then adjusted
by adding cash and subtracting debt to arrive at implied equity values. Based on
this analysis, ▇▇▇▇ ▇▇▇▇▇▇▇ calculated implied per share values for the Company
from $18 to $25.
No company or transaction used in the Bear ▇▇▇▇▇▇▇' Comparable Company or
precedent transaction analysis is identical to the Company or the Offer or the
Merger. Accordingly, any preceding analysis involved complex considerations and
judgments concerning financial and operating characteristics of the Company and
other general business, economic, market, or financial factors that could affect
the public trading value or acquisition value of the Company and of the
companies to which it is being compared.
The preparation of a fairness opinion is a complex process and is not conducive
to a partial analysis or summary description. In arriving at its opinion, ▇▇▇▇
▇▇▇▇▇▇▇ considered the results of all its analysis as a whole and did not
attribute any particular weight to any analysis or factor considered by it. Bear
▇▇▇▇▇▇▇ believes that selecting any portion of the analyses, without considering
all analyses, would create an incomplete view of the process underlying its
opinion. In addition, Bear ▇▇▇▇▇▇▇ may have deemed various assumptions more or
less probable than other assumptions, so that the ranges of valuations resulting
for any particular analysis described above should not be taken to be Bear
▇▇▇▇▇▇▇' view of the actual value of the Company.
In performing its analyses, ▇▇▇▇ ▇▇▇▇▇▇▇ made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
performed by Bear ▇▇▇▇▇▇▇ are not necessarily indicative of actual value. These
analyses were performed solely as part of Bear ▇▇▇▇▇▇▇' analysis of whether the
consideration to be received by the Stockholders other than the Company, Parent
and their respective wholly owned subsidiaries pursuant to the Merger Agreement,
was fair from a financial point of view, and were conducted in connection with
the delivery of Bear ▇▇▇▇▇▇▇' opinion. The analyses are not appraisals that
reflect the prices at which the Company might actually be sold.
As described above, ▇▇▇▇ ▇▇▇▇▇▇▇' opinion provided to the Special Committee and
the Company Board was one of a number of factors taken into consideration by the
Special Committee in making its determination to recommend adoption of the
Merger Agreement and the transactions contemplated thereby. Consequently, the
Bear ▇▇▇▇▇▇▇' analyses described above should not be viewed as determinative of
the opinion of the Special Committee or the view of the Company's management
with respect to the value of the Company.
In connection with its opinion, ▇▇▇▇ ▇▇▇▇▇▇▇ made a presentation to the Special
Committee on March 9, 1999 (the "Bear ▇▇▇▇▇▇▇ Report") as to the fairness of the
Offer based on the foregoing analyses. A copy of the Bear ▇▇▇▇▇▇▇ Report is
filed as Exhibit (b)(2) to the Schedule 13E-3. The Bear ▇▇▇▇▇▇▇ Report is
available for inspection and copying at the principal executive offices of the
Company during its regular business hours to any Stockholder or his
representative who has been so designated in writing.
Bear ▇▇▇▇▇▇▇ is an internationally recognized investment banking and advisory
firm. As part of its investment banking business, Bear ▇▇▇▇▇▇▇ is regularly
engaged in the valuation of business and securities in connection with mergers
and acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuation for estate, corporate and other purposes. Bear ▇▇▇▇▇▇▇ has advised the
Special Committee that, in the ordinary course of its business, Bear ▇▇▇▇▇▇▇ and
its affiliates may actively trade the debt and equity securities or senior loans
of the Company and Parent for their own account and for the accounts of
customers and, accordingly, may at any time hold a long or short term position
in the securities. Bear ▇▇▇▇▇▇▇ and its affiliates may maintain relationships
with the Special Committee and Parent in the future.
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Pursuant to a letter agreement (the "Bear ▇▇▇▇▇▇▇ Letter Agreement") between the
Special Committee, the Company and Bear ▇▇▇▇▇▇▇, dated January 28, 1999, the
Company agreed to pay Bear ▇▇▇▇▇▇▇ the following compensation: (a) an initial
cash fee of $500,000; (b) an additional cash fee of $500,000 at the earlier of
April 30, 1999 or at such time Bear ▇▇▇▇▇▇▇ rendered an opinion; and (c) a cash
fee of $300,000 if Bear ▇▇▇▇▇▇▇ is called upon for testimony by deposition or
trial in litigation relating to any transaction. The Company has also agreed to
reimburse Bear ▇▇▇▇▇▇▇ for its reasonable out-of pocket expenses, including
attorneys fees, and to indemnify Bear ▇▇▇▇▇▇▇ against certain liabilities,
including liabilities under the federal securities laws. The Securities and
Exchange Commission (the "Commission") has taken the position that such
indemnification under the federal securities laws may not be enforceable if it
is found to be against public policy.
CERTAIN FINANCIAL PROJECTIONS (UNAUDITED)
The Company does not, as a matter of course, make public forecasts or
projections as to future sales, expenses, earnings or other income statement
data. However, after making the Proposal, Bear ▇▇▇▇▇▇▇, on behalf of the Special
Committee, provided Parent with certain analyses prepared by the Company's
management which included the Budget Projections and the Management Projections.
See "--Recommendation of the Company Board; Fairness of the Offer and the
Merger--Opinion of Bear ▇▇▇▇▇▇▇." Such information has been set forth below for
the limited purpose of giving Stockholders access to projections by the
Company's management that were available for review by Parent in connection with
the Proposal and the Offer.
The projected financial information set forth below necessarily reflects
numerous assumptions with respect to general business and economic conditions
and other matters, many of which are inherently uncertain or beyond the
Company's or Parent's control, and does not take into account any changes in the
Company's operations or capital structure which may result from the Offer and
the Merger. It is not possible to predict whether the assumptions made in
preparing the projected financial information will be valid, and actual results
may prove to be materially higher or lower than those contained in the
projections. The inclusion of this information should not be regarded as an
indication that the Company, Parent, Purchaser or anyone else who received this
information considered it a reliable predictor of future events, and this
information should not be relied on as such. None of Parent, Purchaser, the
Company or any of their respective representatives assumes any responsibility
for the validity, reasonableness, accuracy or completeness of the projected
financial information, and the Company has made no representations to Parent or
Purchaser regarding such information.
The Management Projections were prepared later than the Budget Projections and,
unlike the Budget Projections, took into account the Company's performance in
the first four weeks of fiscal year 1999. The Budget Projections were prepared
in the last quarter of the Company's 1998 fiscal year as part of the Company's
annual planning and budgeting process and were developed both to plan for the
future and as a set of management objectives. The Budget Projections, at the
time of their preparation, reflected the Company's management's best judgment as
to the most likely future financial results of the Company, including assumed
consumer reaction to several merchandising changes in certain key catalogs. The
Management Projections, at the time of their preparation during the first
quarter of fiscal year 1999, represented the Company's management's best
judgment as to the most likely future financial results of the Company.
Several factors were considered by the Company's management in developing the
Management Projections, including, without limitation:
- substantially fewer orders from certain initial spring mailings
reflecting disappointing responses to several merchandising changes;
- changes in the industry indicating more intense competition from existing
and new entrants resulting in more alternatives for the consumer,
including the Internet as a distribution channel, at competitive prices;
and
- loss of key management in the ▇▇▇▇▇▇▇▇'▇ division.
With respect to each of the Budget Projections and the Management Projections,
the first projected year is based on a detailed set of merchandising and
operational assumptions by selling season, while the second and third projected
years are based upon a more general set of assumptions that might result from
the successful achievement of the initial year financial objectives. Because of
the factors discussed above, the Budget Projections do not currently represent
the Company's management's judgment of the most likely future financial results
of the Company. Management does not intend to make publicly available any
updated projections which it may prepare in the ordinary course of business.
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20
BRYLANE INC.
BUDGET PROJECTIONS
PREPARED IN THE LAST QUARTER OF THE COMPANY'S 1998 FISCAL YEAR
-----------------------------------------------------------
ACTUAL ESTIMATE PROJECTED PROJECTED PROJECTED
FISCAL FISCAL FISCAL FISCAL FISCAL
1997 1998(1) 1999 2000 2001
-------- -------- --------- --------- ---------
($ in millions, except per share data)
Net Sales $1,314.8 $1,328.3 $1,388.9 $1,479.2 $1,590.1
% Growth -- 1.0% 4.6% 6.5% 7.5%
Gross Margin 637.2 640.6 678.1 718.9 772.8
% of Net Sales 48.5% 48.2% 48.8% 48.6% 48.6%
Advertising 302.2 329.4 328.2 347.6 373.7
% of Net Sales 23.0% 24.8% 23.6% 23.5% 23.5%
Fulfillment Costs 124.4 142.6 152.7 160.9 171.7
% of Net Sales 9.5% 10.7% 11.0% 10.9% 10.8%
Support Services 89.3 91.5 96.0 100.6 106.5
% of Net Sales 6.8% 6.9% 6.9% 6.8% 6.7%
-------- -------- -------- -------- --------
Operating Income(2) $ 121.3 $ 77.1 $ 101.2 $ 109.8 $ 120.8
% of Net Sales 9.2% 5.8% 7.3% 7.4% 7.6%
EBITDA(2) $ 135.7 $ 88.8 $ 113.5 $ 122.3 $ 133.3
% of Net Sales 10.3% 6.7% 8.2% 8.3% 8.4%
Amortization 11.0 11.3 11.2 11.2 11.0
Interest Expense 27.7 29.2 25.5 24.0 23.1
-------- -------- -------- -------- --------
Pretax Income 82.6 36.6 64.5 74.6 86.7
Taxes 31.5 14.1 24.8 28.7 33.4
-------- -------- -------- -------- --------
Net Income(2) $ 51.1 $ 22.2 $ 39.6 $ 45.9 $ 53.3
======== ======== ======== ======== ========
% of Net Sales 3.9% 1.7% 2.9% 3.1% 3.4%
======== ======== ======== ======== ========
Net Income(3) $ 47.0 $ 15.5 $ 39.6 $ 45.9 $ 53.3
======== ======== ======== ======== ========
% of Net Sales 3.6% 1.2% 2.9% 3.1% 3.4%
Fully Diluted Shares (millions) 19.4 18.1 17.3 17.3 17.3
Earnings Per Share(2) $ 2.67 $ 1.25 $ 2.29 $ 2.65 $ 3.08
---------------
Footnotes:
(1) These estimates have been superseded by the Company's recently announced
earnings for fiscal year 1998. See "THE TENDER OFFER--Section 7. Certain
Information Concerning the Company."
(2) Does not include after-tax charge of $6.7 million in fiscal year 1998
relating to deferred financing fees incurred through refinancing of bank
debt and redemption of senior subordinated notes, and $4.1 million in fiscal
year 1997 relating to deferred financing fees incurred through refinancing
of bank debt.
(3) After extraordinary charge described in note 2.
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BRYLANE INC.
MANAGEMENT PROJECTIONS
AS OF FEBRUARY 26, 1999
-----------------------------------------------------------
ACTUAL ESTIMATE PROJECTED PROJECTED PROJECTED
FISCAL FISCAL FISCAL FISCAL FISCAL
1997 1998(1) 1999 2000 2001
-------- -------- --------- --------- ---------
($ in millions, except per share data)
Net Sales $1,314.8 $1,328.4 $1,356.5 $1,444.6 $1,553.0
% Growth 1.0% 2.1% 6.5% 7.5%
Gross Margin 637.2 635.5 659.8 700.6 753.2
% of Net Sales 48.5% 47.8% 48.6% 48.5% 48.5%
Advertising 302.2 328.3 328.2 346.7 372.7
% of Net Sales 23.0% 24.7% 24.2% 24.0% 24.0%
Fulfillment Costs 124.4 143.0 150.4 157.5 167.7
% of Net Sales 9.5% 10.8% 11.1% 10.9% 10.8%
Support Services 89.3 92.2 94.8 98.2 104.1
% of Net Sales 6.8% 6.9% 7.0% 6.8% 6.7%
-------- -------- -------- -------- --------
Operating Income(2) $ 121.3 $ 72.1 $ 86.4 $ 98.2 $ 108.7
% of Net Sales 9.2% 5.4% 6.4% 6.8% 7.0%
EBITDA(2) $ 135.7 $ 83.8 $ 98.7 $ 110.7 $ 121.2
% of Net Sales 10.3% 6.3% 7.3% 7.7% 7.8%
Amortization 11.0 11.3 11.2 $ 11.2 11.0
Interest Expense 27.7 29.1 27.6 25.0 24.1
-------- -------- -------- -------- --------
Pretax Income 82.7 31.7 47.6 62.0 73.6
Taxes 31.5 12.2 18.3 23.9 28.3
-------- -------- -------- -------- --------
Net Income(2) $ 51.1 $ 19.5 $ 29.3 $ 38.1 $ 45.2
======== ======== ======== ======== ========
% of Net Sales 3.9% 1.5% 2.2% 2.6% 2.9%
======== ======== ======== ======== ========
Net Income(3) $ 47.0 $ 12.8 $ 29.3 $ 38.1 $ 45.2
======== ======== ======== ======== ========
Fully Diluted Shares (millions) 19.4 18.1 17.3 17.3 17.3
Earnings Per Share(2) $ 2.67 $ 1.08 $ 1.70 $ 2.21 $ 2.62
---------------
Footnotes:
(1) These estimates have been superseded by the Company's recently announced
earnings for fiscal year 1998. See "THE TENDER OFFER--Section 7. Certain
Information Concerning the Company."
(2) Does not include after-tax charge of $6.7 million in fiscal year 1998
relating to deferred financing fees incurred through refinancing of bank
debt and redemption of senior subordinated notes, and $4.1 million in fiscal
year 1997 relating to deferred financing fees incurred through refinancing
of bank debt.
(3) After extraordinary charges described in note 2.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain matters discussed herein, including without limitation, the Budget
Projections and Management Projections, are forward-looking statements that
involve risks and uncertainties. Such information has been included in this
Offer to Purchase for the limited purpose of giving Stockholders access to
projections by the Company's management that were made available to Parent. Such
information was prepared by the Company's management for internal use and not
with a view to publication. The foregoing Budget Projections and Management
Projections were based on assumptions concerning the Company's products and
business prospects in 1999 through 2001, including the assumption that the
Company would continue to operate under the same ownership structure as then
existed. The Budget Projections and Management Projections were also based on
other revenue, expense and operating assumptions. Information of this type is
based on estimates and assumptions that are inherently subject to significant
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the Company's control. Such
uncertainties and contingencies include, but are not limited to: changes in the
economic conditions in which the Company operates; greater than anticipated
competition or price pressures; new product offerings; better or worse than
expected customer growth resulting in the need to expand operations and make
capital investments; and the impact of investments required to enter new
markets. Accordingly, there can be no assurance that the projected results would
be realized or that actual results would not be significantly higher or lower
than those set forth above. In addition, the Budget Projections and Management
Projections were not prepared with a view to public disclosure or compliance
with the published guidelines of the Commission or the guidelines established by
the American Institute of Certified Public Accountants regarding projections and
forecasts, and are included in this Offer to Purchase only because such
information was made available to Parent by the Company. Neither Parent's nor
the Company's independent accountants have examined, complied or applied any
agreed upon procedures to this information, and, accordingly, assume no
responsibility for this information. Neither Parent nor the Company nor any
other party assumes any responsibility for the accuracy or validity of the
foregoing Budget Projections and Management Projections. Neither Parent,
Purchaser nor the Company intends to provide any updated information with
respect to any forward-looking statements.
PURPOSE AND STRUCTURE OF THE OFFER; REASONS OF PARENT AND PURCHASER FOR THE
OFFER AND THE MERGER
The purpose of the Offer, the Merger and the Merger Agreement is to enable
Parent to acquire complete control of the Company Board and the entire equity
interest in the Company. In light of the terms of the Governance Agreement,
Parent did not consider any alternative means to accomplish such purpose. Upon
consummation of the Merger, the Company will become a wholly owned subsidiary of
Parent. The Offer is being made pursuant to the Merger Agreement. The two-step
Offer and Merger structure have been used in lieu of a one-step merger because
Parent believes that a tender offer may be consummated more quickly than a
one-step merger transaction.
▇▇▇▇▇▇ believes that the acquisition by Parent of the remaining Shares is
appropriate at this time because the acquisition will better position the
Company to pursue future business and growth opportunities, while allowing
Parent to capitalize upon cross-border opportunities in the specialty catalog
sector in a more effective manner. See "--Background of the Offer--Business of
the Company" and "--Background of the Offer--History and Background of the
Company and Arrangements between the Company, Parent and Purchaser."
▇▇▇▇▇▇ has also been disappointed by the Company's recent financial results and
believes that significant actions may be warranted with respect to the Company's
business in order to reverse the recent declining trend with respect to the
Company's financial results. ▇▇▇▇▇▇ believes that the Company will not be able
to successfully implement the changes Parent believes to be necessary so long as
the Company remains public, subject to the vagaries of the stock market and the
short-term outlook of many public Stockholders and analysts. ▇▇▇▇▇▇ believes
that if the Company is no longer public, it would be better able to implement
changes to the Company's warehouse distribution systems as well as to remedy
problems in the ▇▇▇▇▇▇▇▇ business. In addition, ▇▇▇▇▇▇ is not willing to make
the significant investment in resources and expertise that it believes will be
necessary to reverse recent trends, absent ownership of all of the Shares.
▇▇▇▇▇▇ also believes that it may be better able to motivate and incentivise the
Company's management as a private entity.
PLANS FOR THE COMPANY; CERTAIN EFFECTS OF THE OFFER
As promptly as practicable following the purchase of and payment for Shares
under the Offer, (a) Parent intends, in the event Purchaser acquires a number of
shares such that, when aggregated with such other Shares beneficially owned by
Parent, represents at least 90% of the then outstanding Shares to cause a
"short-form" merger of Purchaser and the Company under the DGCL with
Stockholders (other than Parent, the Company and their respective wholly owned
subsidiaries and other than Shares (if any) held by Dissenting Stockholders)
receiving $24.50 per share in cash in such Merger and (b) in the event Purchaser
acquires less than 90% of the then outstanding Shares, including Shares
currently beneficially owned by Parent, the
20
23
Company intends to cause a special meeting of Stockholders to be held to vote
upon the Merger (the "Special Meeting"). If Purchaser does not acquire a number
of shares such that, when aggregated with such other Shares beneficially owned
by Parent, represents at least 90% of the then outstanding Shares, and a vote of
Stockholders is required under the DGCL to consummate the Merger, a
significantly longer period of time will be required to effect the Merger. In
the Merger Agreement, the Company has agreed to convene a Special Meeting as
soon as practicable following consummation of the Offer for the purpose of
considering and taking action on the Merger Agreement and the transactions
contemplated thereby, and, subject to fiduciary obligations of the Company Board
and the Special Committee under applicable law, to include in the related proxy
statement the recommendation of the Company Board and the Special Committee that
Stockholders vote in favor of the approval of the Merger Agreement. Parent has
agreed to cause all Shares then owned by it, Purchaser or any of its other
subsidiaries (as defined below) to be voted in favor of approval of the Merger
Agreement.
It is expected that, initially following the Merger, except as set forth below,
the business and operations of the Company will be conducted in a manner
substantially similar to how they are conducted currently. However, Parent will
continue to evaluate the business and operations of the Company during the
pendency of the Offer and after the consummation of the Offer and the Merger,
and will take further actions as its deems appropriate under the circumstances
then existing.
Except as otherwise described in this Offer to Purchase, Parent has no current
plans or proposals which relate to or would result in: (a) other than the
Merger, an extraordinary corporate transaction, such as a merger, reorganization
or liquidation involving the Company; (b) a sale or transfer of a material
amount of assets of the Company; (c) any change in the Company's management or
any change in any material term of the employment contract of any executive
officer; or (d) any other material change in the Company's corporate structure
or business.
Nevertheless, Parent may initiate a review of the Company and its assets,
corporate structure, capitalization, operations, properties, policies,
management and personnel to determine what changes, if any, would be desirable
following the Merger in order best to organize and integrate the activities of
the Company and Parent. As a result of the Merger, it is ▇▇▇▇▇▇'s intention that
the Company Board will consist solely of ▇▇. ▇▇▇▇▇▇▇ and representatives of
Parent. Parent may also consider material changes in the present dividend policy
(which is currently not to pay any dividends), indebtedness and capitalization
of the Company. Parent intends to take actions that will respond to the recent
disappointing financial results, following a full review of the Company's
operations after completion of the Offer and the Merger. In particular, Parent
expressly reserves the right to make any changes that it deems necessary or
appropriate in light of its review or in light of future developments. Parent
has no present intention to change the Company's senior management or the terms
of their employment and currently intends to work with the Company's senior
management to develop appropriate incentives for management of the Company.
As a result of the Offer, the direct and indirect interest of Parent in the
Company's net book value and net earnings will increase to the extent of the
number of Shares acquired under the Offer. Following consummation of the Merger,
▇▇▇▇▇▇'s direct and indirect interest in such items will increase to 100%, and
Parent and its subsidiaries will be entitled to all benefits resulting from that
interest, including all income generated by the Company's operations, and any
future increase in the Company's value and the right to elect all members of the
Company Board. Similarly, Parent will also bear the risk of losses generated by
the Company's operations and any decrease in the value of the Company after the
Merger.
Upon consummation of the Merger, the Company will become a privately held
corporation. Accordingly, Stockholders will not have the opportunity to
participate in the earnings and growth of the Company after the Merger and will
not have any right to vote on corporate matters. Similarly, Stockholders will
not face the risk of losses generated by the Company's operations or decline in
the value of the Company after the Merger.
Following consummation of the Offer, the Company may fail to meet certain of the
criteria for continued listing on the NYSE and be subject to delisting. The
criteria for listing on the NYSE include a requirement that the Company have at
least 1,200 beneficial stockholders of 100 Shares or more and at least 600,000
publicly held Shares. In addition, the registration of the Shares under the
Exchange Act may be terminated either (a) 90 days following consummation of the
Offer, if there be fewer than 300 stockholders of record or (b) 90 days
following consummation of the Merger. Accordingly, following the Merger there
will be no publicly traded Common Stock of the Company outstanding. See "THE
TENDER OFFER--Section 11. Effect of the Offer on the Market for the Shares; the
New York Stock Exchange and Exchange Act Registration."
It is expected that, if Shares are not accepted for payment by Purchaser
pursuant to the Offer and the Merger is not consummated, the Company's current
management, under the general direction of the Company Board, will continue to
manage the Company as an ongoing business.
21
24
RIGHTS OF STOCKHOLDERS IN THE OFFER AND THE MERGER; APPRAISAL RIGHTS
No appraisal rights are available in connection with the Offer. If the Merger is
consummated, however, Stockholders who have not tendered their Shares will have
certain rights under the DGCL to dissent and demand appraisal of, and to receive
payment in cash of the fair value of, their Shares. Stockholders who perfect
such rights by complying with the procedures set forth in Section 262 of the
DGCL ("Section 262") will have the fair value of their Shares (exclusive of any
element of value arising from the accomplishment or expectation of the Merger)
determined by the Delaware Court of Chancery and will be entitled to receive a
cash payment equal to such fair value from the Surviving Corporation. In
addition, such dissenting Stockholders (the "Dissenting Stockholders") would be
entitled to receive payment of a fair rate of interest from the date of
consummation of the Merger on the amount determined to be the fair value of
their Shares (the "Dissenting Shares"). In determining the fair value of the
Dissenting Shares, the court is required to take into account all relevant
factors. Accordingly, such determination could be based upon considerations
other than, or in addition to, the market value of the Shares, including, among
other things, asset values and earning capacity. In ▇▇▇▇▇▇▇▇▇▇ v. UOP, Inc., the
Delaware Supreme court stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in an appraisal proceeding.
The ▇▇▇▇▇▇▇▇▇▇ court also noted that, under Section 262, fair value is to be
determined "exclusive of any element of value arising from the accomplishment or
expectation of the merger." In Cede & Co. v. Technicolor, Inc., however, the
Delaware Supreme Court stated that, in the context of a two-step cash merger,
"to the extent that value has been added following a change in majority control
before cash-out, it is still value attributable to the going concern," to be
included in the appraisal process. As a consequence, the fair value determined
in any appraisal proceeding could be more or less than the consideration to be
paid in the Offer and the Merger.
Parent does not intend to object, assuming the proper procedures are followed,
to the exercise of appraisal rights by any Dissenting Stockholder and the demand
for appraisal of, and payment in cash for the fair value of, the Dissenting
Shares. Parent intends, however, to cause the Surviving Corporation to argue in
an appraisal proceeding that, for purposes of such proceeding, the fair value of
each Dissenting Share is less than the price paid in the Merger. In this regard,
Stockholders should be aware that opinions of investment banking firms as to the
fairness from a financial point of view (including ▇▇▇▇ ▇▇▇▇▇▇' opinion
described in this Offer to Purchase and the ▇.▇. ▇▇▇▇▇▇ Reports described in
this Offer to Purchase) are not necessarily opinions as to "fair value" under
Section 262.
THE PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT ADHERENCE TO
THE APPLICABLE PROVISIONS OF THE DGCL. The foregoing summary of Section 262 is
qualified in its entirety by reference to Section 262, a copy of which is
attached as Schedule III to this Offer to Purchase.
THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement, a copy
of which is attached as Schedule IV to this Offer to Purchase. Such summary is
qualified in its entirety by reference to the Merger Agreement.
The Offer
The obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer is subject to the satisfaction of certain conditions that
are described in "THE TENDER OFFER--Section 12. Certain Conditions of the
Offer." Without the prior consent of the Special Committee, Purchaser has agreed
that it will not
- decrease the price to be paid in the Offer and the Merger;
- change the number of ▇▇▇▇▇▇ sought to be purchased in the Offer to less
than all of the outstanding Shares not beneficially owned by Parent;
- change the form of the consideration payable in the Offer;
- add to the conditions to the Offer described in "THE TENDER
OFFER--Section 12. Certain Conditions of the Offer;" or
- make any other change in the terms or conditions of the Offer which is
adverse to Stockholders.
Pursuant to the Merger Agreement, Purchaser
- if requested by the Company at the direction of the Special Committee,
will extend the Offer for up to 20 business days in the event that on the
Initial Expiration Date, Purchaser has not accepted for payment Shares
pursuant to the Offer as a result of one or more of the conditions to the
Offer set forth in Annex I of the Merger Agreement and described in
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"THE TENDER OFFER--Section 12. Certain Conditions of the Offer" not
having been satisfied or waived by Purchaser;
- at its discretion, may determine from time to time to extend the Offer
for no more than an aggregate of 20 business days following the later of
the Initial Expiration Date and the first expiration date thereafter on
which all of the conditions to the Offer set forth in Annex I to the
Merger Agreement and described in "THE TENDER OFFER--Section 12. Certain
Conditions of the Offer" have been satisfied or waived, if applicable. If
Purchaser extends the Offer in accordance with the provisions described
in this clause, all of the conditions of the Offer will be deemed to have
been irrevocably satisfied for all purposes of the Offer and will not be
asserted as a basis for not consummating the Offer; and
- may, from time to time at its discretion, extend the Offer in increments
of up to 10 business days each, if one or more of the conditions to the
Offer set forth in Annex I to the Merger Agreement and described in "THE
TENDER OFFER--Section 12. Certain Conditions of the Offer" has not been
satisfied or waived.
Pursuant to the Merger Agreement, Purchaser has agreed not to accept for payment
any Shares tendered pursuant to the Offer unless there have been validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares which, together with the Shares beneficially owned by Parent, satisfy the
Minimum Condition.
The Merger; Effect of the Merger
The Merger Agreement provides that, at the Effective Time, Purchaser will be
merged with and into the Company. Following the Merger, the separate corporate
existence of Purchaser will cease, and the Company will continue as the
Surviving Corporation. The directors of Purchaser immediately prior to the
Effective Time will be the initial directors of the Surviving Corporation and
will hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal. Prior to the
Effective Time, the directors of the Company, other than directors who are
directors of Purchaser and other than ▇▇. ▇▇▇▇▇▇▇, will resign from the Company
Board effective immediately following the Effective Time. The officers of the
Company immediately prior to the Effective Time will be the initial officers of
the Surviving Corporation, and will hold office until their successors are duly
elected and qualified or their earlier death, resignation or removal.
If required to consummate the Merger, the Company has agreed that it will:
- call and hold a Special Meeting as soon as practicable following the
acceptance for payment of Shares by Purchaser pursuant to the Offer to
consider and take action on the Merger Agreement;
- prepare and file with the Commission a preliminary proxy statement
relating to the Merger Agreement and use its reasonable best efforts (a)
to cause a definitive proxy statement (the "Proxy Statement") to be
mailed to Stockholders, and (b) subject to the fiduciary duties of the
Company Board, to obtain the necessary approvals of the Merger and the
Merger Agreement by Stockholders; and
- subject to the fiduciary obligations of the Company Board and the Special
Committee, include in the Proxy Statement the recommendation of the
Company Board and the Special Committee that Stockholders vote in favor
of the approval of the Merger Agreement.
Parent has agreed that it will vote, or cause to be voted, all of the Shares
then beneficially owned by it, Purchaser or any of its other subsidiaries in
favor of the approval of the Merger Agreement. As of the date of this Offer to
Purchase, Parent beneficially owns 8,617,017 Shares, representing approximately
49.9% of the outstanding Shares, and the Parent Directors own an additional
27,270 Shares for their own accounts.
The parties have agreed that, in the event that Parent, Purchaser or any other
subsidiary of Parent acquires, together with the Shares beneficially owned by
Parent, at least 90% of the outstanding Shares pursuant to the Offer, they will
take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the acceptance for payment of and payment
for Shares by Purchaser pursuant to the Offer without a Stockholder meeting.
Conversion of Shares. At the Effective Time, each Share issued and outstanding
immediately prior to the Effective Time (other than any Shares held by Parent,
Purchaser, any wholly owned subsidiary of Parent or Purchaser, in the treasury
of the Company or by any wholly owned subsidiary of the Company and other than
Dissenting Shares), will be converted into the right to receive in cash an
amount (the "Merger Price") equal to the price paid in the Offer.
Options. All the outstanding Options will be canceled as of the Effective Time.
Immediately prior to the Effective Time, each Option, whether or not then vested
or exercisable, will no longer be exercisable but will entitle the holder who is
an employee or director of the Company or any of its subsidiaries at the
Effective Time, to payments in cash at the Effective Time, equal to
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the product of (a) the total number of Shares subject to such Option, whether or
not then vested or exercisable, and (b) the excess (if any) of the Merger Price
over the exercise price per Share subject to such Option.
Conduct of Business of the Company
Pursuant to the Merger Agreement, the Company has agreed that, until the
Effective Time, except as permitted by the Merger Agreement or with the prior
written consent of Parent, the Company:
- will, and will cause each of its subsidiaries to, conduct its operations
in the ordinary and usual course of business consistent with past
practice; and
- will use its reasonable best efforts, and will cause each of its
subsidiaries to use its reasonable best efforts, to preserve intact the
business organization of the Company and each of its subsidiaries, to
keep available the services of its and their present officers and key
employees, and to preserve the good will of those having business
relationships with it, including, without limitation, maintaining
satisfactory relationships with licensors, suppliers, distributors,
customers and others having business relationships with the Company.
The Company has also agreed that it will not, and will not permit any of its
subsidiaries to, prior to the Effective Time, without the prior written consent
of Parent:
- adopt or propose any amendment to its Certificate of Incorporation or
By-Laws or comparable organizational documents;
- issue, reissue, pledge or sell, or authorize the issuance, reissuance,
pledge or sale of (a) additional shares of capital stock, or securities
convertible into capital stock, or any rights, warrants or options to
acquire any convertible securities or capital stock, other than the
issuance of Shares, in accordance with the terms of the instruments
governing such issuance on the date of the Merger Agreement, pursuant to
the exercise of Options outstanding on March 10, 1999 or (b) any other
securities in respect of, in lieu of, or in substitution for, shares of
its capital stock outstanding on the date of the Merger Agreement;
- make any other changes in its capital structure;
- declare, set aside or pay any dividend or other distribution in respect
of any of its capital stock other than between the Company and any of its
wholly owned subsidiaries;
- split, combine, subdivide, reclassify or redeem, purchase or otherwise
acquire, or propose to redeem or purchase or otherwise acquire, any
shares of its capital stock, or any of its other securities, or create
any subsidiaries;
- incur, assume or pre-pay any long-term debt or incur or assume any
short-term debt, except that the Company and its subsidiaries may incur
or pre-pay debt in the ordinary course of business in amounts and for
purposes consistent with past practice;
- assume, guarantee, endorse or otherwise become liable or responsible for
the obligations of any other person except in the ordinary course of
business consistent with past practice;
- make any loans, advances or capital contributions to, or investments in,
any other person except in the ordinary course of business consistent
with past practice and except for loans, advances or capital
contributions between any wholly owned subsidiary of the Company and the
Company or another wholly owned subsidiary of the Company;
- other than in the ordinary course of business, (a) modify, amend or
terminate any material contract, (b) except as required by law, waive,
release, relinquish, settle, compromise or assign any material contract
(or any of the Company's rights thereunder), right or claim, or (c)
cancel or forgive any indebtedness owed to the Company or any of its
subsidiaries except in ordinary course of business consistent with past
practice;
- file any tax return (except in the ordinary course of business), or make
or revoke any tax election, or change any method of accounting, except to
the extent that such action would not have a Material Adverse Effect on
the Company (as defined below);
- other than in the ordinary course of business, enter into any contract or
agreement that would be material to the Company and its subsidiaries
taken as a whole;
- except as may be required as a result of a change in applicable law or in
generally accepted accounting principles, make any change in its methods
or principles of accounting; or
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- agree in writing or otherwise to take any of the actions described above
or any action which would cause any representation or warranty in the
Merger Agreement to be or become untrue or incorrect in any material
respect.
Covenants
Acquisition Transactions. The Company has agreed to promptly advise Parent in
reasonable detail of the receipt, directly or indirectly, of any inquiries,
discussions, negotiations or proposals relating to a merger, liquidation,
recapitalization, consolidation or other business combination involving the
Company or its subsidiaries, or any combination of such transactions (an
"Acquisition Transaction"), including the offeror and the terms of any proposal
relating to an Acquisition Transaction. The Company has agreed to promptly
advise Parent of any material development relating to a proposal, including the
results of any discussions or negotiations. The Company has agreed that it will
not provide any non-public information to any third party without having entered
into a customary confidentiality agreement.
Indemnification and Insurance. Parent has agreed, from and after the Effective
Time, to cause the Surviving Corporation to indemnify and hold harmless the
officers and directors of the Company (the "Indemnified Parties") for acts or
omissions occurring prior to the Effective Time to the extent currently provided
under the Company's Certificate of Incorporation, By-Laws and pre-existing
indemnification agreements. Parent has also agreed that the Company, and from
and after the Effective Time, the Surviving Corporation will cause the Company's
current directors' and officers' liability insurance policies to be maintained
for not less than six years, subject to certain limitations specified in the
Merger Agreement. The Merger Agreement also sets forth the specific procedures
for indemnification.
Management: Parent has stated in the Merger Agreement that it has no present
intention to change the Company's senior management or the terms of their
employment following consummation of the Transactions. Parent has also specified
that it intends to work with the Company's senior management to develop
appropriate incentives for the Company's management following consummation of
the transactions contemplated under the Merger Agreement.
Other Covenants. The Merger Agreement contains other covenants of Parent,
Purchaser and the Company relating to, among other things:
- access by ▇▇▇▇▇▇ and Purchaser to information concerning the Company;
- use of reasonable best efforts to obtain necessary consents and make
necessary filings; and
- notifications of certain matters.
Representations and Warranties
The Merger Agreement contains customary representations and warranties of the
parties, including representations
- by the Company, Parent and Purchaser regarding organization matters,
authority and conflicts and consents;
- by the Company regarding organizational documents, capitalization,
filings with the Commission, financial statements, employee benefit
matters, litigation, taxes, intellectual property, year 2000 compliance
and required vote for the Merger;
- by the Company regarding the absence of a Material Adverse Effect on the
Company and the ordinary course operation of the Company and its
subsidiaries, in each case since January 30, 1999; and
- by ▇▇▇▇▇▇ and Purchaser regarding availability of financing for the Offer
and Merger.
For purposes of the Merger Agreement and this Offer:
- "Material Adverse Effect on the Company" means any change in or effect on
the business, assets, liabilities, financial condition, results of
operation or prospects of the Company or its subsidiaries that is
materially adverse to the Company and its subsidiaries taken as a whole.
- "Material Adverse Effect on Parent" means any change in or effect on the
business, assets, liabilities, financial condition, results of operation
or prospects of Parent or its subsidiaries that is materially adverse to
Parent and its subsidiaries taken as a whole.
- "subsidiary" when used with respect to any party means any corporation or
other organization, incorporated or unincorporated, (a) of which such
party or another subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such
party or any subsidiary of such party do not have 50% or more of the
voting interests in such partnership) or (b) 50% or more of the
securities or other interests of which having by their terms ordinary
voting power to elect at least 50% of the board of directors or others
performing similar functions
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with respect to such corporation or other organization is directly or indirectly
owned or controlled by such party or one or more of its subsidiaries (or if
there are no such voting securities or interests, 50% or more of the equity
interests of which is directly or indirectly owned or controlled by such party
or one or more of its subsidiaries).
Conditions to the Merger
Pursuant to the Merger Agreement, the obligations of Parent, Purchaser and the
Company to consummate the Merger are subject to the satisfaction, at or before
the Effective Time, of the following conditions:
- the transactions contemplated by the Merger Agreement shall have been
approved by the Stockholders, if required by the DGCL;
- Purchaser shall have accepted for payment and paid for Shares pursuant to
the Offer in accordance with the terms of the Merger Agreement (this
condition will be deemed satisfied if Purchaser fails to accept for
payment or pay for Shares pursuant to the Offer in violation of the terms
of the Offer);
- the consummation of the Merger shall not be restrained, enjoined or
prohibited by any order, judgment, decree, injunction or ruling of a
court or any governmental entity, and there shall be no statute, rule or
regulation which prevents consummation of the Merger or the other
transactions contemplated by the Merger Agreement;
- there shall be no pending claim, action, suit, hearing or proceeding
("Action") challenging or seeking to restrain or prohibit the
consummation of the transactions contemplated by the Merger Agreement, or
any Action filed against the Company or any of its subsidiaries that
could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company or on the consummation of the
transactions contemplated by the Merger Agreement; and
- any waiting period (and any extension thereof) under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended,
applicable to the Merger shall have expired or terminated and any other
approvals or requirements under any other antitrust or similar laws shall
have been obtained or complied with.
Termination
The Merger Agreement provides that it may be terminated:
- by the mutual written consent of Parent and the Company;
- by the Company, if (a) Purchaser fails to commence the Offer, (b)
Purchaser has not accepted for payment and paid for Shares pursuant to
the Offer on or before June 30, 1999 (subject to extension in certain
events), or (c) Purchaser fails to purchase validly tendered Shares in
violation of applicable law;
- by Parent or the Company, if the Offer is terminated or withdrawn
pursuant to its terms without any Shares being purchased; provided that
neither Parent nor the Company may so terminate the Merger Agreement if
it has breached the Merger Agreement in any material respect or, in the
case of Parent, if it or Purchaser is in material violation of the terms
of the Offer;
- by Parent or the Company, if there is a final and nonappealable order,
decree or ruling or other action permanently enjoining, restraining or
otherwise prohibiting the acceptance for payment of, or payment for,
Shares pursuant to the Offer or the Merger;
- by the Company, if prior to the purchase of Shares pursuant to the Offer
in accordance with the terms of the Merger Agreement, the Special
Committee approves or recommends another offer or an agreement to carry
out an Acquisition Transaction proposal made by a third party, on terms
which a majority of the members of the Special Committee have determined
in good faith (a) based on the advice of a nationally recognized
investment banker, are more favorable to the Company and the Stockholders
(other than Parent and Purchaser) than the transactions contemplated by
the Merger Agreement and (b) based on the advice from its outside
counsel, that failure to so approve and terminate the Merger Agreement
would constitute a breach of fiduciary duties of the Company Board;
- by Parent prior to the purchase of Shares pursuant to the Offer, if the
Special Committee (a) withdraws or modifies in a manner adverse to
Purchaser its approval or recommendation of the Offer, the Merger
Agreement or the Merger, (b) approves or recommends another offer or an
agreement to carry out an Acquisition Transaction proposal made by a
third party or (c) resolves to take of these actions;
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- by the Company prior to the consummation of the Offer, if (a) any of the
representations and warranties of Parent or Purchaser contained in the
Merger Agreement and qualified as to materiality were when made or have
since become untrue or incorrect or (b) any other representations or
warranties of Parent or Purchaser contained in the Merger Agreement were
when made or have become untrue or incorrect and such breach could
reasonably be expected individually or in the aggregate, to have a
Material Adverse Effect on Parent or on the ability of Parent or
Purchaser to consummate the Offer and the Merger;
- by the Company prior to the consummation of the Offer, if Parent or
Purchaser have breached or failed to comply in any material respect with
any of their respective agreements or obligations under the Merger
Agreement and the breach is not cured prior to the earlier of (a) 10 days
following notice of such breach and (b) two business days prior to the
date on which the Offer expires;
- by Parent prior to the purchase of Shares pursuant to the Offer, if (a)
any of the representations or warranties of the Company (1) contained in
the Merger Agreement and qualified as to materiality or (2) relating to
its capitalization were when made or have since become untrue or
incorrect or (b) any other representations or warranties of the Company
contained in the Merger Agreement (other than the representations and
warranties relating to its capitalization) were when made or have become
untrue or incorrect and such breach could reasonably be expected
individually or in the aggregate, to have Material Adverse Effect on the
Company or which could reasonably be expected individually or in the
aggregate, to prevent or materially delay the consummation of the Offer;
- by Parent prior to the purchase of Shares pursuant to the Offer, if the
Company shall have breached or failed to comply in any material respect
with any of its agreements or obligations under the Merger Agreement and
the breach is not cured prior to the earlier of (a) 10 days following
notice of such breach and (b) two business days prior to the date on
which the Offer expires; or
- by Parent prior to the purchase of Shares pursuant to the Offer, if the
Minimum Condition is not satisfied by the expiration date of the Offer
and on or prior to such date any person (other than Parent or Purchaser
or any affiliate thereof) makes a proposal or public announcement or
communication to the Company regarding an Acquisition Transaction.
Amendment and Waiver
The Merger Agreement may be amended by the Company, Parent and Purchaser at any
time before or after approval of the Merger Agreement by the Stockholders but,
after such approval, no amendment may be made which decreases the Merger Price
or adversely affects the rights of the Stockholders without the approval of the
Stockholders.
At any time prior to the Effective Time, the parties may
- extend the time for the performance of any of the obligations or other
acts of any other party to the Merger Agreement;
- waive any inaccuracies in the representations and warranties by any other
party to the Merger Agreement; or
- waive compliance with any of the agreements of any other party to the
Merger Agreement or with any conditions to its own obligations.
Fees and Expenses
The Merger Agreement provides that all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby will be paid
by the party incurring the expenses. If the Merger Agreement is terminated by
the Company under limited circumstances, ▇▇▇▇▇▇ has agreed to reimburse the
out-of-pocket costs and expenses incurred by the Company in connection with the
Merger Agreement and related transactions.
Conditions to the Offer
Annex I to the Merger Agreement sets forth the conditions to consummation of the
Offer, including without limitation, the Minimum Condition and the absence of a
development or event which has, or could reasonably be expected to have,
Material Adverse Effect on the Company. For a description of conditions to
consummation of the Offer, see "THE TENDER OFFER--Section 12. Certain Conditions
of the Offer."
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INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER
Related Party Transactions
In considering the recommendation of Parent, the Company Board and the Special
Committee with respect to the Offer and the Merger, Stockholders should be aware
that Parent and Parent Directors have interests in the Offer and the Merger
which are described below and which may be different from the interests of other
Stockholders.
Parent Stock Ownership and Representation on Company Board. Parent beneficially
owns approximately 49.9% of the currently outstanding Shares. The Parent
Directors own an additional 27,270 Shares for their own accounts. Of the nine
current directors of the Company, five are also directors and/or executive
officers of Parent and/or its affiliates. See "-- Beneficial Ownership of
Shares" for information regarding Shares beneficially owned by Parent and
certain of ▇▇▇▇▇▇'s executive officers or directors. See also "Schedule
I -- List of Directors and Executive Officers of Parent, Purchaser, Artemis,
S.A., S.C.A. Financiere Pinault and RedCats S.A." Stockholders should be aware
that as a result of Parent's current ownership of approximately 49.9% of the
issued and outstanding Shares, and the Parent Directors constituting a majority
of the Company's directors, Parent may be deemed to control the Company.
Governance Agreement. Pursuant to the Governance Agreement, during a standstill
period of three years (which period is subject to early termination in certain
circumstances set forth in the Governance Agreement), Parent and its affiliates
are subject to certain limitations and restrictions relating to (a)
solicitations or public proposals to effect a merger or other business
combination or sale of all or substantially all of the assets of the Company and
(b) limitations on acquisitions of additional Shares. Such standstill
restrictions were waived by the Company in accordance with the terms of the
Governance Agreement in connection with the Proposal, the Offer, the Merger and
the other transactions contemplated by the Merger Agreement.
In addition, under the Governance Agreement,
- the Company is required to use its best efforts to have the Company Board
include up to five nominees of Parent in the slate of nominees presented
by the Company Board for election at each Stockholder meeting at which
directors are to be elected, subject to the resignation of specified
numbers of Parent Directors in the event ownership of Shares by Parent or
its affiliates falls below certain thresholds set forth in the Governance
Agreement;
- Parent and the Company are required to use their best efforts to assure
that the Company Board will include (a) at least three directors who are
independent of Parent, FS&Co., The Limited and the Company's management
(the "Independent Directors") and (b) the Company's chief executive
officer;
- Parent has specified representation on the committees of the Company
Board; and
- until the first anniversary of the Governance Agreement (April 3, 1999),
certain specified officers of the Company may not be terminated without
cause unless two-thirds of the directors then in office approve such
termination.
Pursuant to the Governance Agreement, Parent has agreed that, as long as at
least two-ninths or an equivalent proportion of the directors of the Company are
Parent Directors,
- any transaction with Parent or its affiliates must be on arm's-length
terms and approved by a majority of the Independent Directors;
- any amendment, repeal or other modification of the Governance Agreement
or any other agreement or instrument of the Company, including its
Certificate of Incorporation or By-Laws, which would have the effect of
altering the terms of the Governance Agreement in any manner adverse to
the Stockholders (other than Parent) must be approved by a majority of
the Independent Directors;
- any disposition of any assets of the Company or any business combination,
spin-off or other transaction pursuant to which Parent would receive
consideration different from that received by other Stockholders must be
approved by a majority of the Independent Directors; and
- any corporate opportunity (merger or acquisition) relating to the United
States mail order business which Parent or its affiliates receives must
first be presented to and considered by the Company. If, within 20 days
of being presented with an opportunity described in this clause, the
Company chooses not to pursue such opportunity or the Company chooses to
pursue such opportunity and fails to consummate a transaction with
respect to such opportunity within 45 days of being presented with the
opportunity, Parent and/or its affiliates may pursue such opportunity.
In addition, under the Governance Agreement, Parent has agreed that, if any
Parent business that is primarily mail order desires to enter the United States
mail order business, then the Company will be offered a right of first refusal
with respect to
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such business in the United States. If, within 20 days of being presented with
such opportunity, the Company chooses not to pursue such opportunity or the
Company chooses to pursue such opportunity and fails to consummate a transaction
with respect to such opportunity within 45 days of being presented with the
opportunity, Parent and/or its affiliates may pursue such opportunity. Parent
will not interfere with any merger or acquisition opportunities that the Company
receives on its own (other than through participating in any decision made by
the Company Board).
The Governance Agreement is filed as Exhibit (c)(6) to the Schedule 14D-1.
Registration Rights Agreement. On April 3, 1998, the Company and Parent entered
into the Registration Rights Agreement, pursuant to which the Company has
granted Parent certain registration rights to facilitate the resale of the
Shares owned by Parent under certain conditions. Under the Registration Rights
Agreement, Parent and its affiliates are entitled to two demand registrations.
Parent has not exercised any rights under the Registration Rights Agreement and
expects to terminate the Registration Rights Agreement following consummation of
the Merger. The Registration Rights Agreement is filed as Exhibit (c)(7) to the
Schedule 14D-1.
Directors of the Surviving Corporation. The directors of Purchaser (including
certain current directors of the Company who are Parent Directors) immediately
prior to the Effective Time and ▇▇. ▇▇▇▇▇▇▇ will be the initial directors of the
Company after the Merger is completed. All of the Company's other incumbent
directors have agreed to resign.
Indemnification and Insurance. Pursuant to the terms of the Merger Agreement,
Parent has agreed, from and after the Effective Time, to cause the Surviving
Corporation to indemnify and hold harmless the Indemnified Parties for acts or
omissions occurring prior to the Effective Time to the extent currently provided
under the Company's Certificate of Incorporation or By-Laws and pre-existing
indemnification agreements. Parent has also agreed that the Company, and from
and after the Effective Time, the Surviving Corporation, will cause the
Company's current directors' and officers' liability insurance policies to be
maintained for not less than six years, subject to certain limitations. See
"--The Merger Agreement--Covenants--Indemnification and Insurance."
Section 203 of the DGCL. Section 203 of the DGCL, in general, prohibits a
Delaware corporation, such as the Company, from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers, as set
forth below) with an "Interested Stockholder" (defined generally as a person
that is the beneficial owner of 15% or more of a corporation's outstanding
stock) for a period of three years following the date that such person became an
Interested Stockholder, unless (a) prior to the date such person became an
Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder, (b) upon consummation of the
transaction that resulted in the stockholder becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction is commenced, excluding
stock held by directors who are also officers of the corporation and employee
stock ownership plans that do not provide employees with the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (c) on or subsequent to the date such person became
an Interested Stockholder, the Business Combination is approved by the board of
directors of the corporation and authorized at a meeting of stockholders, and
not by written consent, by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder. The foregoing description of Section 203 of the DGCL is
not necessarily complete and is qualified by reference to the DGCL.
In connection with the April 1998 Stock Purchase, the Company Board took the
actions necessary so that the provisions of Section 203 of the DGCL would not be
triggered. The Company Board confirmed and ratified these actions in its
approval of the Offer, the Merger and the other transactions contemplated by the
Merger Agreement, and no further action by the Company Board with respect to
Section 203 of the DGCL is required.
Redoute Catalog. Parent and the Company are currently planning to have the
Company market Redoute catalogs for Parent in the United States. If the Offer
and Merger are not consummated, Parent and the Company intend to share the costs
of the marketing of the Redoute catalogs.
Special Committee Payment. The three members of the Special Committee are to be
paid $75,000 each by the Company for their service on the Special Committee.
Options. Pursuant to the Merger Agreement, all the outstanding Options will be
canceled as of the Effective Time. Immediately prior to the Effective Time, each
Option, whether or not then vested or exercisable, will no longer be exercisable
but will entitle the holder who is an employee or director of the Company or any
of its subsidiaries at the Effective Time, to payments in cash at the Effective
Time, equal to the product of (a) the total number of Shares subject to such
Option, whether or not then vested or exercisable, and (b) the excess (if any)
of the Merger Price over the exercise price per Share subject to such Option.
See "--The Merger Agreement--The Merger; Effect of the Merger."
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Beneficial Ownership of Shares
The following table sets forth certain information, as of January 30, 1999,
regarding the ownership of the Shares by each person known by Purchaser to be
the beneficial owner of more than 5% of the issued and outstanding Shares, and
any director or executive officer of Parent or Purchaser who is the beneficial
owner of Shares or Options issued by the Company.
NUMBER OF
SHARES
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER(1) OWNED(2) OF CLASS
--------------------------- ------------ --------
Pinault-Printemps-Redoute, S.A.(3).......................... 8,617,017 49.9%
Capital Research and Management Company(4).................. 1,749,600 10.1%
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇............................................ 60,170(6) *
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇........................................... 44,547(7) *
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇......................................... 28,253(8) *
▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇........................................... 20,668(9) *
▇▇▇▇▇ ▇▇▇▇▇▇▇▇(5)........................................... 19,334(10) *
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇.......................................... 1,000(11) *
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.......................................... 18,667(12) *
▇▇▇▇▇▇▇ ▇▇▇▇▇▇(3)........................................... 25,000 *
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇(3).......................................... 0 *
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇(3).......................................... 270 *
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇............................................. 0 *
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇........................................... 13,014(13) *
▇▇▇▇▇ ▇▇▇▇▇▇▇▇(3)........................................... 2,000 *
All directors and executive officers of the Company as a
group (21 persons)........................................ 329,722(14) 1.9%
---------------
* Less than 1%.
(1) The persons and entities named in this table have sole voting power and
investment power with respect to all Shares shown as beneficially owned by
them, subject to community property laws where applicable and the
information contained in this table and these notes.
(2) The Company has reserved for issuance to officers, key employees, certain
members of the Company Board and consultants to the Company (or its
subsidiaries), Options to purchase up to 3,379,584 Shares. Does not give
effect to any payments to be made with respect to Options pursuant of the
terms of the Merger Agreement.
(3) The Shares shown as beneficially owned by Parent are held of record by
EMPUSA. ▇▇. ▇▇▇▇▇▇ is Chairman and Chief Executive Officer of Redcats S.A.,
a wholly owned subsidiary of Parent ("Redcats"), ▇▇. ▇▇▇▇▇▇ is Vice
President--Corporate Development of Redcats, ▇▇. ▇▇▇▇▇▇▇ is Chief Financial
Officer of Redcats, ▇▇. ▇▇▇▇▇▇▇ is Chairman and Chief Executive Officer of
S.A. Redoute France and ▇▇. ▇▇▇▇▇▇▇▇ is Chairman and Chief Executive
Officer of Parent, and, as such, each may be deemed to be a beneficial
owner of the Shares owned by EMPUSA. Messrs. ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ each disclaim beneficial ownership of such Shares.
(4) As reported in a Schedule 13G dated February 8, 1999 filed jointly with the
Commission by Capital Research and Management Company ("CRMC"), as
investment advisor, and SMALLCAP World Fund Inc., an investment company
registered under the Investment Company Act of 1940, as amended, which is
advised by CRMC.
(5) ▇▇. ▇▇▇▇▇▇▇▇▇ tendered her resignation from the Company on March 1, 1999 to
be effective May 28, 1999.
(6) Includes 7,402 Shares held by the Company's retirement plan and 52,668
Shares subject to Options (including 8,334 Shares issuable within 60 days
upon exercise of Options).
(7) Includes 9,963 Shares held by the Company's retirement plan and 28,334
Shares subject to Options (including 6,667 Shares issuable within 60 days
upon exercise of Options) and includes 250 Shares held by ▇▇. ▇▇▇▇▇▇▇'▇
son.
(8) Includes 11,153 Shares held by the Company's retirement plan and 17,000
Shares subject to Options (including 6,000 Shares issuable within 60 days
upon exercise of Options).
(9) Includes 20,668 Shares subject to Options (including 6,667 Shares issuable
within 60 days upon exercise of Options).
(10) Includes 19,334 Shares subject to Options (including 6,000 Shares issuable
within 60 days upon exercise of Options).
(11) Reflects Shares issuable within 60 days upon exercise of Options.
(12) Includes 12,667 Shares subject to Options (including 1,000 Shares issuable
within 60 days upon exercise of Options).
(13) Includes 5,014 Shares subject to Options (including 1,000 Shares issuable
within 60 days upon exercise of Options).
(14) Includes 38,383 Shares held by the Company's retirement plan and 237,086
Shares subject to Options (including 48,004 Shares issuable within 60 days
upon exercise of Options).
Neither Parent nor Purchaser has effected any transactions in Shares during the
past 60 days.
To the best of ▇▇▇▇▇▇'s knowledge, it is the present intention of each officer
and director of Parent, Purchaser and the Company who owns Shares to tender such
Shares in connection with the Offer.
As of March 12, 1999, the Company's 401(k) Plan owns an aggregate of 92,043
Shares, representing less than 1% of the outstanding Shares.
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33
According to ▇▇▇▇▇▇'s records, from and after April 3, 1998, Parent, through its
subsidiary REDAM, purchased the following number of Shares at the following
average price per Share:
AVERAGE
NUMBER OF PURCHASE
SHARES PRICE HIGH LOW
--------- -------- ------ ------
1998:
First Quarter............................................. 8,010,917 $51.00 $51.00 $51.00
Second Quarter............................................ 557,700 46.10 51.00 40.24
Third Quarter............................................. 214,400 34.71 38.78 24.60
On October 15, 1998, REDAM sold 166,000 Shares at a price of $13.50 per Share in
a private transaction to an unaffiliated third party.
In September and October 1998, the Company purchased in open market transactions
an aggregate of 1,240,800 Shares at an average price of $21.47 per Share. The
highest per Share price paid was $28.54, and the lowest per Share price paid was
$16.15.
Prior to the consummation of the Offer, Purchaser, by operation of law or
otherwise, will acquire the Shares held by another indirect wholly owned
subsidiary of Parent, EMPUSA.
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THE TENDER OFFER
1. Terms of the Offer. Upon the terms and subject to the conditions of the
Offer, Purchaser will accept for payment and pay for all Shares which are
validly tendered prior to the Expiration Date and not withdrawn in accordance
with "--Section 4. Withdrawal Rights." The term "Expiration Date" means the
Initial Expiration Date unless and until Purchaser, subject to the terms of the
Merger Agreement, shall have extended the period of time during which the Offer
is open, in which event the term "Expiration Date" shall refer to the latest
time and date at which the Offer, as so extended by Purchaser, shall expire.
Pursuant to the Merger Agreement and subject to the terms and conditions of the
Offer, Purchaser (a) if so requested by the Company at the direction of the
Special Committee, will extend the Offer for up to 20 business days in the event
that, upon the Initial Expiration Date Purchaser has not accepted for payment
Shares pursuant to the Offer as a result of one or more of the conditions to the
Merger Agreement not having been satisfied or waived by Purchaser, (b) at its
discretion, may determine from time to time to extend the Offer for no more than
an aggregate of 20 business days following the later of the Initial Expiration
Date and the first expiration date thereafter on which all of the conditions
described in "--Section 12. Certain Conditions to the Offer" are satisfied or
waived, if applicable, provided, however, that, in the event that the Offer is
extended in accordance with the provisions described in clause (b), all of the
conditions of the Offer will be deemed to have been irrevocably satisfied for
all purposes of the Offer and may not be asserted as a basis for not
consummation the Offer and (c) may, from time to time at its discretion, extend
the Offer in increments of up to 10 business days each if one more of the
conditions shall not have been satisfied or waived.
Purchaser expressly reserves the right to amend the terms and conditions of the
Offer; provided, that, pursuant to the Merger Agreement, except as described in
the preceding paragraph, without the prior consent of the Special Committee,
Parent will not: (a) decrease the Offer Price; (b) change the number of Shares
sought to be purchased in the Offer to less than all of the outstanding Shares
not beneficially owned by Parent; (c) change the form of consideration payable
in the Offer; (d) or add to the conditions to the Offer described in "--Section
12. Certain Conditions of the Offer;" or (e) make any other change in the terms
or conditions of the Offer which is adverse to Stockholders.
The Offer is conditioned upon, among other things, there being validly tendered
and not properly withdrawn prior to the expiration of the Offer, that number of
Shares which, when aggregated with the Shares currently beneficially owned by
Parent, represent at least 90% of the total number of outstanding Shares, on a
fully diluted basis, on the date of purchase; provided, that if the Offer is
extended past April 12, 1999, Purchaser may, but is not required to, accept for
payment or pay for tendered Shares which, when aggregated with the Shares
currently beneficially owned by Parent, represent at least 75% of the total
number of outstanding shares of Common Stock, on a fully diluted basis, on the
date of purchase.
THE OFFER IS SUBJECT TO CERTAIN CONDITIONS DESCRIBED IN "--SECTION 12. CERTAIN
CONDITIONS OF THE OFFER," INCLUDING SATISFACTION OF THE MINIMUM CONDITION. If
any such condition is not satisfied prior to the expiration of the Offer,
Purchaser may, subject to the terms of the Merger Agreement (including the
Company's ability to require Purchaser to extend the Offer):
- terminate the Offer and return all tendered Shares to tendering
Stockholders;
- extend the Offer and, subject to withdrawal rights as set forth in
"--Section 4, Withdrawal Rights," retain all such Shares until the
expiration of the Offer as so extended;
- other than as described in "--Section 12. Certain Conditions of the
Offer," waive such condition and, subject to any requirement to receive
written consent from the Company pursuant to the Merger Agreement,
purchase all Shares validly tendered and not withdrawn by the Expiration
Date; or
- delay acceptance for payment of (whether or not the Shares have
theretofore been accepted for payment), or payment for, any Shares
tendered and not withdrawn, subject to applicable law, until satisfaction
or waiver of the conditions to the Offer. For a description of
Purchaser's right to extend the period of time during which the Offer is
open, and to amend, delay or terminate the Offer, see "--Section 13.
Extension of Tender Period; Amendment; Termination."
The Company has provided Purchaser with the Stockholder list and security
position listings for the purpose of disseminating the Offer to Stockholders.
This Offer to Purchase, the related Letter of Transmittal and other related
materials will be mailed to record holders of Shares and will be furnished to
brokers, banks and similar persons whose names, or the names of whose nominees,
appear on the Stockholder list or, if applicable, who are listed as participants
in a clearing agency's security position listing for subsequent transmittal to
beneficial owners of Shares.
2. Acceptance for Payment and Payment. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), Purchaser will accept
for payment and pay for all Shares validly tendered and not properly withdrawn
by the Expiration Date as soon as practicable after the
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35
later of (a) the Expiration Date and (b) the satisfaction or waiver of the
conditions described in "--Section 12. Certain Conditions of the Offer." For a
description of Purchaser's right to terminate the Offer and not accept for
payment or pay for Shares or to delay acceptance for payment or payment for
Shares, see "--Section 13. Extension of Tender Period; Amendment; Termination."
For purposes of the Offer, Purchaser will be deemed to have accepted for payment
tendered Shares if, as and when Purchaser gives oral or written notice to the
Depository of its acceptance of the tender of such Shares. Payment for Shares
accepted for payment pursuant to the Offer will be made by deposit of the
purchase price with the Depository, which will act as agent for tendering
Stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to tendering Stockholders. In all cases, payment for
Shares accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depository of certificates for such Shares (or of a confirmation
of a book-entry transfer of such Shares into the Depository's account at the
Depository Trust Company ("DTC")), a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) (or, in the case of a
book-entry transfer, an Agent's Message (as defined below in "--Section 3.)) and
any other documents required by the Letter of Transmittal. For a description of
the procedure for tendering Shares pursuant to the Offer, see "--Section 3.
Procedures for Tendering Shares." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID
BY PURCHASER ON THE CONSIDERATION PAID FOR SHARES PURSUANT TO THE OFFER,
REGARDLESS OF ANY DELAY IN MAKING SUCH PAYMENT.
If Purchaser increases the consideration to be paid for Shares pursuant to the
Offer, Purchaser will pay such increased consideration for all Shares purchased
pursuant to the Offer, whether or not such Shares were tendered prior to such
increase in consideration.
If any tendered Shares are not purchased pursuant to the Offer for any reason,
or if certificates are submitted for more Shares than are tendered, certificates
for such unpurchased or untendered Shares will be returned (or, in the case of
Shares tendered by book-entry transfer, such Shares will be credited to an
account maintained at DTC), without expense to the tendering Stockholder, as
promptly as practicable after expiration or termination of the Offer.
3. Procedures for Tendering Shares.
(a) Physical Delivery of Certificates. To tender Shares pursuant to the Offer,
either:
- a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof), with any required signature guarantees, and
any other documents required by the Letter of Transmittal must be
received by the Depository at one of its addresses set forth on the back
cover of this Offer to Purchase prior to the Expiration Date and either
(1) certificates for Shares to be tendered must be received by the
Depository; or (2) such Shares must be delivered to the Depository
pursuant to the procedures for book-entry transfer described below (and a
confirmation of such delivery received by the Depository, including an
Agent's Message if the tendering Stockholder has not delivered a Letter
of Transmittal), in each case prior to the Expiration Date; or
- the tendering Stockholder must comply with the guaranteed delivery
procedures described below.
The term "Agent's Message" means a message transmitted by DTC to and received by
the Depository and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering the Shares which are the subject of such book-entry confirmation that
such participant has received and agrees to be bound by the terms of the Letter
of Transmittal and that the Company may enforce such agreement against such
participant.
(b) Book-Entry Transfer. The Depository will establish an account with respect
to the Shares at DTC for purposes of the Offer within two business days after
the date of this Offer to Purchase, and any financial institution that is a
participant in the system of DTC may make delivery of Shares by causing the DTC
to transfer such Shares into the Depository's account in accordance with the
procedures of DTC. However, although delivery of Shares may be effected through
book-entry transfer, the Letter of Transmittal (or manually signed facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees or an Agent's Message and any other required documents,
must, in any case, be received by the Depository at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the guaranteed delivery procedures described below must be complied with.
DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO DTC
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITORY.
Except as provided below, all signatures on all Letters of Transmittal must be
guaranteed by a recognized member of a Medallion Signature Guarantee Program
(each of the foregoing, an "Eligible Institution"). Signatures on a Letter of
Transmittal need not be guaranteed if: (1) the Letter of Transmittal is signed
by a registered holder of the Shares tendered therewith, and such holder has not
completed either the box entitled "Special Payment Instructions," or the box
entitled "Special Delivery Instructions" on the Letter of Transmittal; or (2)
such Shares are tendered for the account of an Eligible Institution.
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36
If the certificates evidencing Shares are registered in the name of a person
other than the signer of the Letter of Transmittal, or if payment is to be made
or certificates for Shares which are not tendered or accepted for payment are to
be returned to a person other than the registered holder of the certificates
surrendered, then such tendered certificates must be endorsed or accompanied by
appropriate stock powers signed exactly as the name or names of the registered
holder or holders appear on the certificates, with the signature(s) on the
certificate or stock powers guaranteed as described above. See Instruction 5 of
the Letter of Transmittal.
(c) Notice of Guaranteed Delivery. If a Stockholder desires to tender Shares
pursuant to the Offer, and such Stockholder's certificates are not immediately
available, or such Stockholder cannot deliver such Shares and all other required
documents to reach the Depository on or prior to the Expiration Date, or such
Stockholder cannot complete the procedure for book-entry transfer on a timely
basis, such Shares may nevertheless be tendered if all the following conditions
are satisfied:
- the tender is made by or through an Eligible Institution;
- a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser, is received by the
Depository prior to the Expiration Date as provided below; and
- the certificates for such Shares (or a confirmation of a book-entry
transfer of such Shares into the Depository's account at DTC), together
with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) or, in the case of book-entry, an
Agent's Message, with any required signature guarantees and any other
documents required by the Letter of Transmittal, are received by the
Depository within three trading days after the date of execution of the
Notice of Guaranteed Delivery. A "trading day" is any day on which the
NYSE is open for business.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted by
facsimile transmission, or mailed to the Depository and must include a guarantee
by an Eligible Institution in the form set forth in the Notice of Guaranteed
Delivery.
(d) General ▇▇▇▇▇▇.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ANY OTHER
REQUIRED DOCUMENTS, INCLUDING THROUGH DTC, IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Under the United States federal income tax laws, the Depository will be required
to withhold 31% of the amount of any payments made to certain Stockholders
pursuant to the Offer. In order to avoid such backup withholding, each tendering
Stockholder must provide the Depository with such Stockholder's correct taxpayer
identification number and certify that such Stockholder is not subject to backup
United States federal income tax withholding by completing the Substitute Form
W-9 included in the Letter of Transmittal (see Instruction 10 of the Letter of
Transmittal) or by filing a Form W-9 with the Depository prior to any such
payments. If the Stockholder is a nonresident alien or foreign entity not
subject to backup withholding, the Stockholder must give the Depository a
completed Form W-8 Certificate of Foreign Status prior to receipt of any
payments.
By executing a Letter of Transmittal as set forth above, a tendering Stockholder
irrevocably appoints designees of Purchaser as the Stockholder's attorneys in
fact and proxies, in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of such Stockholder's rights
with respect to the Shares tendered by the Stockholder and accepted for payment
by Purchaser (and any and all other Shares or other securities issued or
issuable in respect of such Shares on or after the date of the Merger
Agreement). All such proxies and powers of attorney shall be irrevocable and
coupled with an interest in the tendered Shares. Such appointment is effective
only upon acceptance for payment of the Shares by Purchaser. Upon such
acceptance for payment, all prior proxies and consents granted by such
Stockholder with respect to such Shares and other securities will, without
further action, be revoked, and no subsequent proxies or powers of attorney may
be given nor any subsequent written consent executed by such ▇▇▇▇▇▇▇▇▇▇▇ (and,
if given or executed, will be deemed to be ineffective). The designees of
Purchaser will be empowered to exercise all voting and other rights of such
Stockholder as they, in their sole discretion, may deem proper at any annual,
special or adjourned meeting of the Stockholders, by written consent or
otherwise. Purchaser reserves the right to require that, in order for Shares to
be deemed validly tendered, immediately upon Purchaser's acceptance for payment
of such Shares, Purchaser is able to exercise full voting and other rights with
respect to such Shares (including voting at any meeting of Stockholders then
scheduled or acting by written consent without a meeting).
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37
A tender of Shares pursuant to any one of the procedures described above will
constitute the tendering Stockholder's acceptance of the terms and conditions of
the Offer, as well as the tendering Stockholder's representation and warranty
that such Stockholder has the full power and authority to tender and assign the
Shares tendered, as specified in the Letter of Transmittal. Purchaser's
acceptance for payment of Shares tendered pursuant to the Offer will constitute
a binding agreement between the tendering Stockholder and Purchaser upon the
terms and subject to the conditions of the Offer.
All questions as to the form of documents and the validity, eligibility
(including time of receipt) and acceptance for payment of any tendered Shares
will be determined by Purchaser, in its sole discretion, which determination
shall be final and binding. Purchaser reserves the absolute right to reject any
or all tenders of Shares determined by it not to be in proper form or the
acceptance for payment of, or payment for which may, in the opinion of
Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right to
waive any defect or irregularity in any tender of Shares. No tender of Shares
will be deemed to have been properly made until all defects and irregularities
relating thereto have been cured or waived. Purchaser's interpretation of the
terms and conditions of the Offer in this regard will be final and binding. None
of Purchaser, Parent, the Depository, the Dealer Manager, the Information Agent
or any other person will be under any duty to give notification of any defects
or irregularities in tenders or will incur any liability for failure to give any
such notification.
4. Withdrawal Rights. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are
irrevocable, except that they may be withdrawn after May 14, 1999, unless
theretofore accepted for payment as provided in this Offer to Purchase.
For a withdrawal to be effective, a written, telegraphic, or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares tendered and the number of Shares
to be withdrawn, and the name of the registered holder, if different from that
of the person who tendered such Shares. If Certificates representing Shares to
be withdrawn have been delivered to the Depositary, a signed notice of
withdrawal with (except in the case of Shares tendered by an Eligible
Institution) signatures guaranteed by an Eligible Institution must be submitted
prior to the physical release of such certificates. In addition, such notice
must specify, in the case of Shares tendered by delivery of certificates, the
name of the registered holder (if different from that of the tendering holder)
and the serial numbers shown on the particular certificates evidencing the
Shares to be withdrawn, or, in the case of Shares tendered by book-entry
transfer, the name and number of the account at DTC to be credited with the
withdrawn securities, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph. Withdrawals may not be rescinded, and Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered by again following one of
the procedures described in "--Section 3. Procedures for Tendering Shares" at
any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of notices
of withdrawal will be determined by Purchaser, in its sole discretion, whose
determination will be final and binding. None of Purchaser, Parent, the
Depository, the Dealer Manager, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
5. Certain United States Federal Income Tax Consequences. The following
summary addresses the material United States federal income tax consequences to
Stockholders who exchange their Shares for cash in the Offer. The summary does
not address all aspects of United States federal income taxation that may be
relevant to particular Stockholders in light of their personal circumstances or
to holders subject to special treatment under the Internal Revenue Code of 1986,
as amended (the "Code") (including, without limitation, financial institutions,
broker-dealers, insurance companies, tax-exempt organizations, holders who
received their Shares through the exercise of Options or otherwise as
compensation, holders who are not citizens or residents of the United States and
holders who hold their Shares as part of a hedge, straddle or conversion
transaction), nor does this summary address the effect of any foreign, state,
local or other tax laws or any United States federal laws not pertaining to
income tax. The discussion assumes that each holder of Shares holds such Shares
as a capital asset within the meaning of Section 1221 of the Code.
The receipt of cash for Shares pursuant to the Offer will be a taxable
transaction for United States federal income tax purposes and may also be a
taxable transaction under applicable state, local or foreign tax laws. In
general, a Stockholder who receives cash for Shares pursuant to the Offer will
recognize gain or loss for United States federal income tax purposes equal to
the difference between the amount of cash received in exchange for the Shares
and such Stockholder's adjusted tax basis in such Shares. Such gain or loss will
be capital gain or loss, and will be long-term capital gain or loss if the
Stockholder has held the Shares for more than one year. The maximum regular
United States federal income tax rate applicable to capital gains recognized by
an individual is 20% if the individual has held the Shares for more than 12
months. The maximum United
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States federal income tax rate applicable to all capital gains recognized by a
corporation is 35%. Certain limitations exist on the deductibility of capital
losses by corporate and individual taxpayers.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE OFFER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS, INCLUDING THE UNITED STATES FEDERAL
ALTERNATIVE MINIMUM TAX.
6. Price Range of Shares; Dividends. The Shares are listed and principally
traded on the NYSE under the symbol "BYL" and began trading on February 21,
1997. The following table sets forth, for the quarters indicated, the high and
low prices per Share on the NYSE as reported on the NYSE Composite Tape:
HIGH LOW
-------- --------
1997:
First Quarter (beginning February 21, 1997)............... $29.3750 $21.2500
Second Quarter............................................ 39.5000 26.5000
Third Quarter............................................. 49.3750 37.7500
Fourth Quarter............................................ 54.8750 42.0000
1998:
First Quarter (beginning January 31, 1998)................ 61.1250 48.9375
Second Quarter............................................ 59.7500 38.6875
Third Quarter............................................. 40.6875 10.7500
Fourth Quarter............................................ 23.6250 10.2500
1999:
First Quarter (beginning January 31, 1999 and through
March 15, 1999)........................................... 24.2500 21.3125
On December 1, 1998, the last full trading day prior to the December 2nd
Announcement, the closing price per Share as reported on the NYSE Composite Tape
was $16.875. On March 9, 1999, the last full trading day prior to announcement
of the Merger Agreement, the closing price per Share as reported on the NYSE
Composite Tape was $21.4375. On March 15, 1999, the last full trading day prior
to commencement of the Offer, the closing price per Share as reported on the
NYSE was $24.25.
No cash dividends have been paid on the Shares.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
7. (a) Certain Information Concerning the Company. Except as otherwise set
forth herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company or
has been taken from or based upon publicly available documents and records on
file with the Commission and other public sources. Parent and Purchaser assume
no responsibility for the accuracy or completeness of the information concerning
the Company furnished by the Company or contained in such documents and records
or for any failure by the Company to disclose events which may have occurred or
may affect the significance or accuracy of any such information but which are
unknown to Purchaser or Parent.
(b) General. The Company is a Delaware corporation with its principal executive
offices located at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇. The telephone number
of the Company at such offices is (▇▇▇) ▇▇▇-▇▇▇▇. The Company is the nation's
leading specialty catalog retailer of value-priced apparel, with a focused
portfolio of catalogs that includes ▇▇▇▇ ▇▇▇▇▇▇, Roaman's, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and
KingSize, serving the special size apparel market, and ▇▇▇▇▇▇▇▇'s, Lerner,
Bridgewater and ▇▇▇▇▇, serving the regular-size apparel market. In addition, the
Company's home catalog, introduced in September 1998, offers value-priced home
products. The Company also markets certain of its catalogs under the "Sears"
name to customers of Sears, ▇▇▇▇▇▇▇ and Co. under an exclusive licensing
arrangement with Sears Shop at Home Services, Inc. The Company has facilities in
Indiana, Massachusetts and Texas.
36
39
(c) Financial Information. Set forth below is certain selected financial
information relating to the Company which has been excerpted or derived from the
audited financial statements contained in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1998 (the "Form 10-K") and the
unaudited financial statements contained in the Company's Form 10-Q dated
October 31, 1998 (the "Form 10-Q"). The following selected financial information
does not include the notes related thereto. More comprehensive financial
information, including the notes thereto, is included in the Form 10-K and the
Company's Form 10-Q and other documents filed by the Company with the
Commission. The financial information that follows is qualified in its entirety
by reference to such reports and other documents, which may be examined and
copies of which may be obtained from the offices of the Commission in the manner
set forth below. In addition, Schedules V and VI to this Offer to Purchase set
forth the Company's audited financial statements for the fiscal year ended
January 31, 1998 and the Company's unaudited financial statements for the period
ended October 31, 1998, respectively.
BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME
THIRTY-NINE WEEKS ENDED FISCAL YEAR ENDED
OCTOBER 31, NOVEMBER 1, JANUARY 31, FEBRUARY 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(Dollars in thousands, except shares and per share/unit data)
Net sales......................................... $ 996,254 $ 968,911 $ 1,314,839 $ 705,353
Cost of goods sold................................ 506,190 498,822 677,639 348,229
----------- ----------- ----------- -----------
Gross margin...................................... 490,064 470,089 637,200 357,124
Operating expenses:
Catalog and advertising......................... 249,193 227,997 302,232 186,985
Fulfillment..................................... 100,237 87,608 124,372 55,450
Support services................................ 68,086 66,503 89,260 54,422
Intangibles and organization cost
amortization................................. 8,458 8,150 10,972 6,518
----------- ----------- ----------- -----------
Total operating expenses.......................... 425,974 390,258 526,836 303,375
----------- ----------- ----------- -----------
Operating income.................................. 64,090 79,831 110,364 53,749
Interest expense, net............................. 22,999 20,112 27,707 24,026
----------- ----------- ----------- -----------
Income before income taxes and extraordinary
charge.......................................... 41,091 59,719 82,657 29,723
Provision for income taxes........................ 15,824 22,637 31,545 315
----------- ----------- ----------- -----------
Income before extraordinary charge................ 25,267 37,082 51,112 29,408
Extraordinary charge related to early retirement
of debt, net of tax............................. 6,720 4,110 4,077 2,456
----------- ----------- ----------- -----------
Net income........................................ $ 18,547 $ 32,972 $ 47,035 $ 26,952
=========== =========== =========== ===========
Basic earnings per share/unit:
Income per share/unit before extraordinary
charge....................................... $ 1.40 $ 1.91 $ 2.75 $ 2.22
Extraordinary charge per share/unit............. 0.37 0.21 0.22 0.19
----------- ----------- ----------- -----------
Net income per share/unit....................... $ 1.03 $ 1.70 $ 2.53 $ 2.03
=========== =========== =========== ===========
Diluted earnings per share/unit:
Income per share/unit before extraordinary
charge....................................... $ 1.38 $ 1.86 $ 2.67 $ 2.05
Extraordinary charge per share/unit............. 0.37 0.20 0.21 0.17
----------- ----------- ----------- -----------
Net income per share/unit....................... $ 1.01 $ 1.66 $ 2.46 $ 1.88
=========== =========== =========== ===========
Weighted average shares/units outstanding:
Basic........................................... 18,073,557 19,373,746 18,606,048 13,270,220
Diluted......................................... 18,359,687 20,185,900 19,412,973 14,389,835
37
40
BRYLANE INC.
SELECTED CONSOLIDATED BALANCE SHEET DATA
OCTOBER 31, JANUARY 31, FEBRUARY 1,
1998 1998 1997
----------- ----------- -----------
(UNAUDITED)
ASSETS
(Dollars in thousands)
Current Assets:
Cash and cash equivalents................................. $ -- $ 5,083 $ 3,285
Deferred receivables, net of allowance for doubtful
accounts of $2,098, $1,474 and $1,975, respectively.... 25,144 8,194 18,082
Accounts receivable, other................................ 11,257 7,851 36,775
Inventories............................................... 240,936 219,553 168,821
Catalog costs and paper inventory......................... 67,385 51,982 41,012
Other..................................................... 7,334 6,426 6,252
--------- --------- ---------
TOTAL CURRENT ASSETS.............................. 352,056 299,089 274,227
Property and equipment, net................................. 79,998 77,095 75,970
Intangibles and deferred financing fees..................... 323,711 333,319 354,357
Deferred income taxes....................................... 10,697 10,697 --
Deferred offering costs..................................... -- -- 680
--------- --------- ---------
TOTAL ASSETS...................................... $ 766,462 $ 720,200 $ 705,234
========= ========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 154,301 $ 139,480 $ 93,928
Accrued expenses.......................................... 24,705 38,705 53,968
Reserve for returns....................................... 19,837 17,844 18,603
Revolving line of credit-current portion.................. 78,000 19,000 --
Current portion of long-term debt......................... 17,500 10,000 26,000
--------- --------- ---------
Total Current Liabilities......................... 294,343 $ 225,029 $ 192,499
Long-term debt.............................................. 282,500 329,753 401,362
Other long-term liabilities................................. 11,570 9,010 6,010
--------- --------- ---------
TOTAL LIABILITIES................................. 588,413 563,792 599,871
Convertible redeemable preferred stock...................... -- 1,370 1,500
Partnership/stockholders' equity:
General partner of ▇▇▇▇▇▇▇, L.P., 2,562,500 units at
February 1, 1997....................................... -- -- 25,625
Limited partners of ▇▇▇▇▇▇▇, ▇.▇., 12,908,945 units at
February 1, 1997....................................... -- -- 159,855
Common stock, $.01 par value 40,000,000 shares authorized;
20,980,396 shares issued and 17,239,596 shares
outstanding at October 31, 1998; 19,910,519 shares
issued and 17,410,519 shares outstanding at January 31,
1998................................................... 210 199 --
Additional paid in capital................................ 181,263 303,260 --
Reduction for predecessor cost--carryover basis........... -- (152,067) (152,067)
Loans to management investors............................. -- (1,025) (2,490)
Retained earnings......................................... 138,218 119,671 72,940
Treasury stock, 3,740,800 at October 31, 1998; 2,500,000
at
January 31, 1998....................................... (141,642) (115,000) --
--------- --------- ---------
Total partnership/stockholders' equity............ 178,049 155,038 103,863
--------- --------- ---------
TOTAL LIABILITIES AND EQUITY...................... $ 766,462 $ 720,200 $ 705,234
========= ========= =========
38
41
BRYLANE INC.
CASH FLOW DATA
THIRTY-NINE WEEKS ENDED FISCAL YEAR ENDED
OCTOBER 31, NOVEMBER 1, JANUARY 31, FEBRUARY 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
(Dollars in thousands) (UNAUDITED)
OPERATING ACTIVITIES:
Net income............................................ $ 18,547 $ 32,972 $ 47,035 $ 26,952
Impact of other operating activities on cash flows:
Depreciation........................................ 8,663 7,617 10,376 4,821
Amortization........................................ 9,175 9,187 12,162 8,218
Non-recurring inventory charge...................... -- 3,315 3,315 1,657
Extraordinary charge related to early retirement of
debt............................................. 10,927 6,524 6,524 2,456
Non-cash compensation expense....................... 50 523 700 2,400
Deferred income taxes............................... -- -- 8,168 --
Loss on sale of assets.............................. 41 -- -- --
Changes in operating assets and liabilities:
Accounts receivable................................. (20,356) (13,747) 10,007 (15,137)
Inventories......................................... (21,383) (42,795) (54,047) (32,064)
Catalog costs and paper inventory................... (15,403) (20,839) (10,970) (2,492)
Accounts payable.................................... 14,821 55,564 27,600 9,926
Accrued expenses.................................... (4,730) 20,110 2,565 11,638
Reserve for returns................................. 1,993 7,665 6,558 (4,743)
Other assets and liabilities........................ 2,890 5,151 (3,389) (609)
--------- --------- --------- ---------
Net cash provided by operating activities........ 5,235 71,247 66,604 13,023
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchase price adjustment relating to ▇▇▇▇▇▇▇▇'▇
acquisition......................................... -- 32,888 32,888 --
Cash payment in connection with the ▇▇▇▇▇▇▇▇'▇
acquisition, net of cash acquired................... -- -- -- (222,951)
Proceeds from sale of asset........................... 13 -- -- --
Acquisition related fees and expenses paid at
closing............................................. -- (6,215)
Capital expenditures.................................. (12,855) (10,319) (12,740) (3,932)
--------- --------- --------- ---------
Net cash (used in) provided by investing
activities..................................... (12,842) 22,569 20,148 (233,098)
--------- --------- --------- ---------
39
42
BRYLANE INC.
CASH FLOW DATA -- (CONTINUED)
THIRTY-NINE WEEKS ENDED FISCAL YEAR ENDED
OCTOBER 31, NOVEMBER 1, JANUARY 31, FEBRUARY 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
(Dollars in thousands) (UNAUDITED)
FINANCING ACTIVITIES:
Payments on debt.................................... (175,000) (464,662) (591,162) (107,476)
Additions to debt................................... 29,000 -- 115,500 5,000
Proceeds from issuance of long-term debt............ 300,000 416,663 416,663 283,000
Redemption of senior subordinated notes............. (131,250) -- -- --
Offering fees and expenses.......................... -- (8,170) -- --
Debt issuance fees and expenses..................... (3,703) (1,394) -- --
Cash receipts on management notes................... 1,025 965 -- --
Proceeds received from exercise of options.......... 9,094 349 1,141 --
Equity contributions from partners.................. -- -- -- 51,329
Proceeds from issuance of preferred stock........... -- -- -- 1,500
Proceeds from initial public offering............... -- 96,000 96,000 --
Offering and debt issuance fees and expenses........ -- -- (9,564) (7,685)
Tax distributions to partners....................... -- -- -- (9,854)
Purchase of treasury stock.......................... (26,642) (115,000) (115,000) --
Other............................................... -- -- 1,468 77
--------- --------- --------- ---------
Net cash provided by (used in) financing activities... 2,524 (75,249) (84,954) 215,891
--------- --------- --------- ---------
Cash and cash equivalents, at beginning of year....... 5,083 3,285 3,285 7,469
--------- --------- --------- ---------
Cash and cash equivalents, at end of year or period... $ -- $ 21,852 $ 5,083 $ 3,285
========= ========= ========= =========
40
43
BRYLANE INC.
PARTNERSHIP/STOCKHOLDERS' EQUITY DATA
GENERAL PARTNERS ADDITIONAL
LIMITED PARTNERS COMMON STOCK PAID IN
UNITS AMOUNTS SHARES AMOUNT CAPITAL
(Dollars in thousands) ------------ --------- ---------- ------ ----------
Dollars in thousands
Balance, January 28, 1995................... 12,547,500 $ 125,475 -- -- --
Net income................................ -- -- -- -- --
Sale of units............................. 365,000 5,475 -- -- --
Repurchase of units....................... (10,000) (121) -- -- --
Tax distributions payable to partners..... -- -- -- -- --
------------ --------- ---------- ---- ---------
Balance, February 3, 1996................... 12,902,500 130,829 -- -- --
Net income................................ -- -- -- -- --
Sale of units............................. 2,573,945 51,441 -- -- --
Repurchase of units....................... (5,000) (60) -- -- --
Exchange of stock options................. -- 3,270 -- -- --
Tax distributions payable to partners..... -- -- -- -- --
------------ --------- ---------- ---- ---------
Balance, February 1, 1997................... 15,471,445 185,480 -- -- --
Net income................................ -- -- -- -- --
Tax distributions made to partners........ -- -- -- -- --
Proceeds from Initial Public Offering..... -- -- 4,000,000 $ 40 $ 95,960
Initial Public Offering expenses.......... -- -- -- -- (8,850)
Exchange of partnership units for common
stock.................................. (15,471,445) (185,480) 15,471,445 155 185,325
Purchase of treasury stock................ -- -- (2,500,000) -- (115,000)
Recognition of deferred tax asset and
opening income tax adjustments......... -- -- -- -- 18,142
Repayment of management notes............. -- -- -- -- --
Conversion of convertible note............ -- -- 352,908 4 9,701
Conversion of preferred stock............. -- -- 6,500 -- 130
Exercise of stock options................. -- -- 79,666 -- 1,144
Tax benefit related to issuance of shares
under employee benefit plans........... -- -- -- -- 1,008
Exchange of stock options................. -- -- -- -- 700
------------ --------- ---------- ---- ---------
Balance, January 31, 1998................... 0 0 17,410,519 199 188,260
Transfer of reduction for predecessor cost
carryover basis to additional paid in
capital................................ -- -- -- -- (152,067)
Net income................................ -- -- -- -- --
Purchase of treasury shares............... -- -- (1,240,800) -- (26,642)
Repayment of management notes............. -- -- -- -- --
Conversion of convertible note............ -- -- 374,364 4 10,291
Conversion of preferred shares............ -- -- 68,500 1 1,369
Exercise of stock options................. -- -- 627,013 6 9,088
Tax benefit related to issuance of shares
under employee benefit plan............ -- -- -- -- 9,272
Exchange of stock options................. -- -- -- -- 50
------------ --------- ---------- ---- ---------
Balance, October 31, 1998 (unaudited)....... 0 $ 0 17,239,596 $210 $ 39,621
============ ========= ========== ==== =========
41
44
BRYLANE INC.
PARTNERSHIP/STOCKHOLDERS' EQUITY DATA -- (CONTINUED)
REDUCTION FOR
PREDECESSOR LOANS TO
COST-CARRYOVER MANAGEMENT RETAINED
BASIS INVESTORS EARNINGS TOTAL
-------------- ---------- -------- ---------
(Dollars in thousands)
Balance, January 28, 1995............................. (152,067) $(2,453) $ 30,822 $ 1,777
Net income.......................................... -- -- 27,850 27,850
Sale of units....................................... -- (112) -- 5,363
Repurchase of units................................. -- 50 -- (71)
Tax distributions payable to partners............... -- -- (7,732) (7,732)
--------- ------- -------- ---------
Balance, February 3, 1996............................. (152,067) (2,515) 50,940 27,187
Net income.......................................... -- -- 26,952 26,952
Sale of units....................................... -- 25 -- 51,466
Repurchase of units................................. -- -- -- (60)
Exchange of stock options........................... -- -- -- 3,270
Tax distributions payable to partners............... -- -- (4,952) (4,952)
--------- ------- -------- ---------
Balance, February 1, 1997............................. (152,067) (2,490) 72,940 103,863
Net income.......................................... -- -- 47,035 47,035
Tax distributions made to partners.................. -- -- (304) (304)
Proceeds from Initial Public Offering............... -- -- -- 96,000
Initial Public Offering expenses.................... -- -- -- (8,850)
Exchange of partnership units for common stock...... -- -- -- --
Purchase of treasury stock.......................... -- -- -- (115,000)
Recognition of deferred tax asset and opening income
tax adjustments.................................. -- -- -- 18,142
Repayment of management notes....................... -- 1,465 -- 1,465
Conversion of convertible note...................... -- -- -- 9,705
Conversion of preferred stock....................... -- -- -- 130
Exercise of stock options........................... -- -- -- 1,144
Tax benefit related to issuance of shares under
employee benefit plans........................... -- -- -- 1,008
Exchange of stock options........................... -- -- -- 700
--------- ------- -------- ---------
Balance, January 31, 1998............................. (152,067) (1,025) 119,671 155,038
Transfer of reduction for predecessor cost carryover
basis to additional paid in capital.............. 152,067 -- -- --
Net income.......................................... -- -- 18,547 18,547
Purchase of treasury shares......................... -- -- -- (26,642)
Repayment of management notes....................... -- 1,025 -- 1,025
Conversion of convertible note...................... -- -- -- 10,295
Conversion of preferred shares...................... -- -- -- 1,370]
Exercise of stock options........................... -- -- -- 9,094
Tax benefit related to issuance of shares under
employee benefit plans........................... -- -- -- 9,272
Exchange of stock options........................... -- -- -- 50
--------- ------- -------- ---------
Balance, October 31, 1998 (unaudited) $ 0 $ 0 $138,218 $ 178,049
========= ======= ======== =========
42
45
The Company's ratio of earnings to fixed charges was 2.90, 4.08, 3.19 and
3.73 for the Company's fiscal year ended January 30, 1999, fiscal year ended
January 31, 1998, fiscal quarter ended October 31, 1998 and fiscal quarter ended
November 1, 1997, respectively. The Company's book value per share was $9.89 and
$10.33 as of January 30, 1999 and October 31, 1998, respectively.
Recent Financial Results.
On March 15, 1999, the Company issued a press release (the "March 15 Press
Release") its results for the fourth quarter of fiscal year 1998 and fiscal year
1998.
For the fourth quarter of fiscal 1998, the Company's net loss was $8.1 million,
compared to net income of $14.0 million in the same period 1997. The diluted net
loss per Share was $0.47 versus earnings of $0.77 per Share in the fourth
quarter of fiscal 1997. The operating loss was $5.7 million versus operating
income of $30.3 million of the fourth quarter of 1997. Net sales for the period
totaled $332.1 million compared to $345.8 million 1997.
For the fiscal year ended January 30, 1999, net income was $10.5 million
compared to $47.0 million last year. Diluted earnings were $0.58 per share
versus $2.46 per share for fiscal 1997. Operating income was $58.4 million in
1998 compared to $110.3 million last year. Net sales for the year totaled $1.3
billion versus $1.3 billion in the prior year.
STATEMENT OF OPERATIONS
THIRTEEN WEEKS ENDED FIFTY-TWO WEEKS ENDED
1/30/99 1/31/98 1/30/99 1/31/98
----------- ----------- ----------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(In millions, except share and per share amounts)
Net sales....................................... $332.1 $345.8 $1,328.4 $1,314.8
Cost of goods sold.............................. 187.5 178.7 693.7(c) 677.6(f)
---------- ---------- ---------- ----------
Gross margin.................................... 144.6 167.1 634.7 637.2
Catalog and operating expenses.................. 147.5(a) 133.9(b) 565.0(a,d) 515.9(b)
Intangibles and organization cost
amortization.................................. 2.8 2.9 11.3 11.0
---------- ---------- ---------- ----------
Operating (loss) income......................... (5.7) 30.3 58.4 110.3
Interest expense, net........................... 6.1 7.6 29.1 27.7
---------- ---------- ---------- ----------
Income (loss) before income taxes............... (11.8) 22.7 29.3 82.6
(Benefit) Provision for income taxes............ (3.2) 8.7 12.6 31.5
---------- ---------- ---------- ----------
Net (loss) income before extraordinary charge... (8.6) 14.0 16.7 51.1
Extraordinary charge, net of tax................ (0.5) 0.0 6.2(e) 4.1(e)
---------- ---------- ---------- ----------
Net (loss) income............................... $ (8.1) $ 14.0 $ 10.5 $ 47.0
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE DATA:
Net (loss) income per share before extraordinary
charge........................................ $ (0.50) $ 0.77 $ 0.92 $ 2.67
Net (loss) income per share..................... $ (0.47) $ 0.77 $ 0.58 $ 2.46
Diluted shares.................................. 17,274,939 18,272,217 18,090,886 19,412,973
Notes:
(a) Includes operating expenses for the thirteen and fifty-two weeks ended
January 30, 1999 of $2.2 million associated with the Proposal. The impact
on the diluted earnings per Share is $0.13 in the thirteen weeks ended
January 30, 1999 and $0.12 in the fifty-two weeks ended January 30, 1999.
(b) Includes non-cash compensation charge of $0.2 million in each fiscal
quarter due to amendments to the 1996 Brylane Performance Option Plan.
(c) Includes merchandise loss related to the discontinuance of ▇▇▇ ▇▇▇▇▇ of
$1.2 million of the fifty-two weeks ended January 30, 1999.
(d) Includes relocation expenses of the King Size business to New York of $0.7
million and $0.5 million for a withdrawn registration statement in the
fifty-two weeks ended January 30, 1999.
(e) For the fifty-two weeks ended January 30, 1999, represents a one-time,
after tax extraordinary charge of $6.2 million related to the elimination
of the deferred financing fees associated with the Senior Subordinated
Notes and the 1997 Amended Bank Credit Facility. For the fifty-two weeks
ended January 31, 1998, represents a one-time, after tax extraordinary
charge of $4.1 million related to the elimination of the deferred
financing fees associated with the 1996 Bank Credit Facility.
43
46
(f) Includes a non-recurring inventory charge of $3.3 million for the
fifty-two weeks ended January 31, 1998 for the step-up of the value of
inventory in connection with the ▇▇▇▇▇▇▇▇'▇ acquisition.
A copy of the March 15 Press Release is filed as Exhibit (a)(9) to the Schedule
14D-1.
The Company is subject to the informational filing requirements of the Exchange
Act and, in accordance therewith, is required to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information as of particular dates
concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities and
any material interest of such persons in transactions with the Company is
required to be disclosed in proxy statements distributed to the Stockholders and
filed with the Commission. Such reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
Commission at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, and at
the Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048 and the Citicorp Center, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. Information regarding the public reference
facilities may be obtained from the Commission by telephoning 1-800-SEC-0330.
The Company's filings are also available to the public on the Commission's
Internet site (▇▇▇▇://▇▇▇.▇▇▇.▇▇▇). Copies of such materials may also be
obtained by mail from the Public Reference Section of the Commission at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇ at prescribed rates. Certain reports
and other information concerning the Company may also be inspected at the
offices of the NYSE, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
8. Certain Information Concerning Parent and Purchaser. Parent is a societe
anonyme organized under the laws of the Republic of France. Its registered
office address is ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇. Parent,
through its subsidiaries, is principally engaged in the following businesses:
worldwide distribution of electrical components and industrial supplies (Rexel);
distribution in Europe of office supplies (▇▇▇▇▇▇▇▇); distribution in France of
wood and building materials (Pinault Bois et Materiaux); retail distribution of
furniture, leisure products and home equipment; department stores and mail order
of retail products through various catalogues; and financial services mainly in
connection with group businesses. Parent is also a holding company for a variety
of companies principally engaged in automobile and pharmaceutical trading in
Africa and the French overseas territories, as well as for certain trading
companies in Europe. Parent's principal chains include Printemps (general
merchandise), Conforama (furniture, household electronic goods and appliances)
and Fnac (records books, computers and consumer electronics). Through Redcats,
Parent is Europe's third largest mail order company.
Purchaser is a Delaware corporation established on March 8, 1998 and has not
carried on any activities other than the execution of the Merger Agreement.
Purchaser is an indirect wholly owned subsidiary of Parent.
The name, citizenship, business address, principal occupation or employment and
five-year employment history for each of the directors and executive officers of
Parent and Purchaser and certain other information are set forth in Schedule I
to this Offer to Purchaser.
On March 10, 1999, Parent announced its audited consolidated results for the
year ended December 31, 1998. As at such date, Parent had consolidated revenues
of 108,329,000,000 French Francs, operating income of 5,977,000,000 French
Francs and net income of 3,331,000,000 French Francs. A copy of the Parent
Results Press Release is filed as Exhibit (a)(12) to the Schedule 14D-1.
Parent beneficially owns 8,617,017 Shares, representing approximately 49.9% of
the 17,248,296 Shares issued and outstanding at February 27, 1999.
Except as described in this Offer to Purchase,
- none of Parent, Purchaser, nor, to the best knowledge of Parent and
Purchaser, any of the persons listed in Schedule I to this Offer to
Purchase or any associate or majority owned subsidiary of Parent or
Purchaser or any of the persons so listed beneficially owns or has any
right to acquire, directly or indirectly, any Shares; and
- none of Parent, Purchaser, nor, to the best knowledge of Parent and
Purchaser, any of the individuals or entities referred to above, nor any
director, executive officer or subsidiary of any of the foregoing, has
effected any transaction in the Shares during the past 60 days.
Except as provided in the Merger Agreement or as otherwise described in this
Offer to Purchase, none of Parent, Purchaser nor, to the best knowledge of
Parent and Purchaser, any of the persons listed in Schedule I to this Offer to
Purchase, has any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or voting of such securities, finder's fees, joint ventures, loan
or option arrangements, puts or call, guarantees of loans, guaranties against
loss,
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guaranties of profits, division of profits or loss or the giving or withholding
of proxies. Except as set forth in this Offer to Purchase, since April 3, 1998,
none of Parent, Purchaser nor, to the best knowledge of Parent and Purchaser,
any of the persons listed on Schedule I to this Offer to Purchase, has had any
business relationship or transaction with the Company or any of its executive
officers, directors or affiliates that is required to be reported under the
rules and regulations of the Commission applicable to the Offer. Except as set
forth in this Offer to Purchase, since April 3, 1998, there have been no
contacts, negotiations or transactions between Parent or Purchaser or any of
their subsidiaries or, to the best knowledge of Parent and Purchaser, any of the
persons listed in Schedule I to this Offer to Purchase, on the one hand, and the
Company or its affiliates, on the other hand, concerning a merger, consolidation
or acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
9. Financing of the Offer and the Merger. The total amount of funds required
by Parent and Purchaser to consummate the Offer and the Merger and to pay
related fees and expenses is estimated to be approximately $235 million. Parent
intends to use cash on hand and/or funds from its or its affiliate's existing
undrawn credit facilities. The decision as to the allocation of funding among
existing or anticipated credit facilities will be made based on Parent's review
from time to time of the advisability of particular actions, as well as on
prevailing interest rates and financial and other economic conditions and such
other factors as Parent may deem appropriate. The terms of any such financing
will be fixed prior to consummation of the Offer. The Offer is not subject to
financing.
10. Dividends and Distributions. The Merger Agreement does not permit the
Company to declare any dividends without Parent's consent, and Parent has no
intention of providing any such consent. If, on or after March 10, 1999, the
Company should declare or pay any dividend on the Shares or make any other
distribution (including the issuance of additional shares of capital stock
pursuant to a stock dividend or stock split, the issuance of other securities or
the issuance of rights for the purchase of any securities) with respect to the
Shares that is payable or distributable to Stockholders of record on a date
prior to the transfer to the name of Purchaser or its nominee or transferee on
the Company's stock transfer records of the Shares pursuant to the Offer, then,
without prejudice to Purchaser's rights described in "Section 12. Certain
Conditions of the Offer," (a) the purchase price per Share payable by Purchaser
pursuant to the Offer will be reduced (subject to the terms and conditions of
the Merger Agreement) to the extent any such dividend or distribution is payable
in cash and (b) any non-cash dividend, distribution or right shall be received
and held by the tendering Stockholder for the account of Purchaser and will be
required to be promptly remitted and transferred by each tendering Stockholder
to the Depository for the account of Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, Purchaser will be entitled to all the rights and privileges as owner or any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by Purchaser, in its sole discretion.
11. Effect of the Offer on the Market for the Shares; the New York Stock
Exchange and Exchange Act Registration. The purchase of Shares by Purchaser
pursuant to the Offer will reduce the number of Shares that might otherwise
trade publicly and will reduce the number of Stockholders, which could adversely
affect the liquidity and market value of the remaining Shares held by the
public. Following consummation of the Offer, the Company may fail to meet
certain of the criteria for continued listing on the NYSE and be subject to
delisting. See "SPECIAL FACTORS--Plans for the Company; Certain Effects of the
Offer."
In the event the Shares are no longer listed on the NYSE, quotations might still
be available from other sources. The extent of the public market for the Shares
and the availability of such quotations would, however, depend upon the number
of Stockholders remaining at such time, the interest in maintaining a market in
such Shares on the part of securities firms, the possible termination of
registration of such Shares under the Exchange Act as described below and other
factors.
The Shares are currently "margin securities," as such term is defined under the
rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of such securities. Depending upon factors
similar to those described above regarding listing and market quotations,
following the Offer it is possible that the Shares might no longer constitute
margin securities for purposes of the margin regulations of the Federal Reserve
Board, in which event such Shares could no longer be used as collateral for
loans made by brokers.
The Shares are currently registered under the Exchange Act. Such registration
may be terminated upon application by the Company to the Commission if the
Shares are not listed on a national securities exchange and there are fewer than
300 record holders. See "SPECIAL FACTORS--Plans for the Company; Certain Effects
of the Offer." The termination of the registration of the Shares under the
Exchange Act would substantially reduce the information required to be furnished
by the Company to Stockholders and to the Commission, and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) of the Exchange Act, the requirement of furnishing a
proxy statement in connection with
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48
Stockholders' meetings and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions, no longer applicable to the
Shares. In addition, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of the ability to dispose of such
securities pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended. If registration of the Shares under the Exchange Act were terminated,
the Shares would no longer be margin securities or be eligible for NYSE
reporting. Parent currently intends to cause the Company to terminate the
registration of the Shares under the Exchange Act as soon as practicable after
consummation of the Offer if the requirements for termination of registration
are met.
12. Certain Conditions of the Offer.
Notwithstanding any other provisions of the Offer, Purchaser shall not be
required to accept for payment or pay for any tendered Shares, unless (a) there
are validly tendered and not properly withdrawn prior to the Expiration Date
that number of Shares which, when aggregated with the Shares currently
beneficially owned by Parent, represent at least 90% of the total number of
outstanding Shares, on a fully diluted basis, on the date of purchase; provided,
that following the Initial Expiration Date, Purchaser may accept for payment or
pay for tendered Shares which, when aggregated with the Shares currently
beneficially owned by Parent, represent at least 75% of the total number of
outstanding Shares, on a fully diluted basis, on the date of purchase, satisfy
the Minimum Condition and (b) any applicable waiting period under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, or under any
applicable foreign statutes or regulations shall have expired or been
terminated. Furthermore, notwithstanding any other provisions of the Offer,
Purchaser may, subject to the terms of the Merger Agreement, amend or terminate
the Offer or postpone the acceptance for payment of or payment for tendered
Shares if at any time on or after March 10, 1999 (unless otherwise indicated
below) and before the time of payment for any Shares, any of the following
events shall occur:
- there shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction enacted,
enforced, promulgated, amended, issued or deemed applicable to the Offer,
by any legislative body, court, government or governmental,
administrative or regulatory authority or agency, other than the routine
application of the waiting period provisions of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended, to the Offer or to the
Merger, that would reasonably be expected to: (a) make illegal or
otherwise prohibit or materially delay consummation of the Offer or the
Merger or seek to obtain material damages or make materially more costly
the making of the Offer, (b) prohibit or materially limit the ownership
or operation by Parent or Purchaser of all or any material portion of the
business or assets of the Company or any of its subsidiaries taken as a
whole or compel Parent or Purchaser to dispose of or hold separately all
or any material portion of the business or assets of Parent or Purchaser
or the Company or any of its subsidiaries taken as a whole, or seek to
impose any material limitation on the ability of Parent or Purchaser to
conduct its business or own such assets, (c) impose material limitations
on the ability of Parent or Purchaser effectively to acquire, hold or
exercise full rights of ownership of the Shares, including, without
limitation, the right to vote any Shares acquired or owned by Purchaser
or Parent on all matters properly presented to the Stockholders, or (d)
require divestiture by Parent or Purchaser of any Shares; or
- there shall be any pending Action challenging or seeking to restrain or
prohibit the consummation of the transactions contemplated by the Merger
Agreement or any other Action filed against the Company or any of its
subsidiaries after the date of the Merger Agreement which, if adversely
determined, could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company or the
consummation of the transactions contemplated by the Merger Agreement; or
- there shall have occurred any development that has, or would reasonably
be expected to have, a material adverse effect on the business, assets,
liabilities, financial condition, results of operations or prospects of
the Company and its subsidiaries taken as a whole, excluding any
development or event arising out of or attributable to the United States
economy generally; or
- the Company and Purchaser and Parent shall have reached an agreement that
the Offer or the Merger Agreement be terminated, or the Merger Agreement
shall have been terminated in accordance with its terms; or
- any of the representations and warranties of the Company (a) set forth in
the Merger Agreement that are qualified as to materiality or (b) relating
to the capitalization of the Company shall not be true and correct; or
- any representations and warranties in the Merger Agreement that are not
qualified by materiality shall not be true and correct in any respect
which would reasonably be expected to have a Material Adverse Effect on
the Company, in each case, as if such representations and warranties were
made at the time of such determination, except as to any such
representation or warranty which speaks as of a specific date, which must
be untrue or incorrect in the foregoing respects as of such specific
date; or
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49
- the Company shall have failed to perform in any material respect or to
comply in any material respect with any of its obligations, covenants or
agreements under the Merger Agreement; or
- the Special Committee shall have withdrawn or modified in a manner
adverse to Parent or Purchaser the adoption or recommendation of the
Offer, the Merger or the Merger Agreement; or
- the Special Committee shall have resolved to withdraw or modify in a
manner adverse to Parent or Purchaser the adoption or recommendation of
the Offer, the Merger or the Merger Agreement; or
- there shall have occurred, and continued to exist, (a) any general
suspension of, or limitation on prices for, trading in securities on the
NYSE or on the Paris Bourse (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges
not related to market conditions, (b) any decline of at least 20% in
either the Dow ▇▇▇▇▇ Average of Industrial Stocks or the Standard &
Poor's 500 Index from the close of business on the last trading day
immediately preceding the date of the Merger Agreement, (c) any change in
currency exchange rates measured from the close of business on the date
of the Merger Agreement, resulting in an increase of 15% or more in the
Per Share Amount as translated from U.S. Dollars into French Francs, (d)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or France, (e) a commencement of a
war, armed hostilities or other significant national or international
crisis directly or indirectly involving the United States or France, or
(f) in the case of any of the foregoing clauses (a) through (e) existing
at the time of the commencement of the Offer, a material acceleration or
worsening thereof.
The conditions described above are for the benefit of Parent and Purchaser and
may be asserted by Parent or Purchaser regardless of the circumstances giving
rise to any such conditions and may be waived by Parent or Purchaser in whole or
in part at any time and from time to time in their reasonable discretion, in
each case, subject to the terms of the Merger Agreement. The failure by Parent
or Purchaser at any time to exercise any of the rights described above will not
be deemed a waiver of any such right and each such right will be deemed an
ongoing right which may be asserted at any time and from time to time. Any
determination by ▇▇▇▇▇▇▇▇▇ concerning the events described in this "--Section
12. Certain Conditions of the Offer" will be final and binding on all parties.
13. Extension of Tender Period; Amendment; Termination. Subject to the terms
of the Merger Agreement and the applicable rules of the Commission, Purchaser
expressly reserves the right, in its sole discretion, at any time or from time
to time, regardless of whether or not any of the conditions described in
"--Section 12. Certain Conditions of the Offer" will have occurred or will have
been determined by Purchaser to have occurred, (a) to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of, and
the payment for, any Shares, by giving oral or written notice of such extension
to the Depository, and (b) to amend the Offer in any respect by giving oral or
written notice of such amendment to the Depository.
Purchaser also reserves the right, in its sole discretion, subject to the terms
of the Merger Agreement, in the event any of the conditions specified in
"--Section 12. Certain Conditions of the Offer" will not have been satisfied and
so long as Shares have not theretofore been accepted for payment, to delay
(except as otherwise required by applicable law) acceptance for payment of or
payment for Shares or to terminate the Offer and not accept for payment or pay
for Shares.
If Purchaser extends the Offer, or if Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its purchase of or payment for
Shares or is unable to pay for Shares pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depository
may retain tendered Shares on behalf of Purchaser, and such Shares may not be
withdrawn except to the extent tendering Stockholders are entitled to withdrawal
rights as described in "--Section 4. Withdrawal Rights." However, the ability of
Purchaser to delay the payment for Shares which Purchaser has accepted for
payment is limited by Rule 14e-1(c) promulgated under the Exchange Act, which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of such bidder's offer.
If Purchaser makes a material change in the terms of the Offer, or if it waives
a material condition to the Offer, Purchaser will extend the Offer and
disseminate additional tender offer materials to the extent required by Rules
14d-4(c), 14d-6(d) and 14e-1 promulgated under the Exchange Act. The minimum
period during which an offer must remain open following material changes in the
terms of the offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances, including the
materiality of the changes. In the Commission's view, an offer should remain
open for a minimum of five business days from the date the material change is
first published, sent or given to stockholders, and, if material changes are
made with respect to information that approaches the significance of price and
the percentage of securities sought, a minimum of ten business days may be
required to allow for adequate dissemination and investor response. With respect
to a change in price, a minimum ten business day period from the date of such
change is generally required
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50
under applicable Commission rules and regulations to allow for adequate
dissemination to stockholders. As used in this Offer to Purchase, "business day"
means any day other than a Saturday, Sunday or a federal holiday and consists of
the time period from 12:01 a.m. through 12:00 midnight, New York City time, as
computed in accordance with Rule 14d-1 promulgated under the Exchange Act.
14. Certain Legal Matters and Regulatory Approvals.
General. Based upon its examination of publicly available information with
respect to the Company and the review of certain information furnished by the
Company to Purchaser and Parent and discussions of representatives of Purchaser
and Parent with representatives of the Company during Purchaser and Parent's
investigation of the Company (See "SPECIAL FACTORS--Background of the Offer"),
neither Purchaser nor Parent is aware of any license or other regulatory permit
that appears to be material to the business of the Company, which might be
adversely affected by the acquisition of Shares by Purchaser pursuant to the
Offer or, except as set forth below, of any approval or other action by any
domestic (federal or state) or foreign governmental, administrative or
regulatory authority or agency which would be required prior to the acquisition
of Shares by Purchaser pursuant to the Offer. Should any such approval or other
action be required, it is Purchaser's present intention to seek such approval or
action. Purchaser does not currently intend, however, to delay the purchase of
Shares tendered pursuant to the Offer pending the outcome of any such action or
the receipt of any such approval (subject to Purchaser's right to decline to
purchase Shares if any of the conditions in "--Section 12. Certain Conditions of
the Offer," shall have occurred). There can be no assurance that any such
approval or other action, if needed, would be obtained without substantial
conditions or that adverse consequences might not result to the business of the
Company or Parent or that certain parts of the businesses of the Company or
Parent might not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or other action or in
the event that such approval was not obtained or such other action was not
taken. Purchaser's obligation under the Offer to accept for payment and pay for
Shares is subject to certain conditions, including conditions relating to the
legal matters discussed in this "--Section 14. Certain Legal Matters and
Regulatory Appraisals." See "--Section 12. Certain Conditions of the Offer."
State Takeover Laws. A number of states throughout the United States have
enacted takeover statutes that purport, in varying degrees, to be applicable to
attempts to acquire securities of corporations that are incorporated or have
assets, stockholders, executive offices or places of business in such states. In
CTS Corp. v. Dynamics Corp. of America, however, the United States Supreme Court
held that a state may, as a matter of corporate law and, in particular, those
laws governing corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining Stockholders, provided, that such laws were applicable
only under certain conditions. Subsequently, a number of Federal courts ruled
that various state takeover statutes were unconstitutional insofar as they apply
to corporations incorporated outside the state of enactment.
Section 203 of the DGCL prevents certain business combinations with an
interested stockholder for a period of three years following the time such
person became an interested stockholder, unless, among other things, prior to
the time the interested stockholder became such, the board of directors of the
corporation approved either the business combination or the transaction in which
the interested stockholder became such. In connection with the April 1998 Stock
Purchase, the Company Board took the actions necessary so that the provisions of
Section 203 of the DGCL would not be triggered. The Company Board confirmed and
ratified these actions in its approval of the Offer, the Merger and the other
transactions contemplated by the Merger Agreement, and no further action by the
Company Board with respect to Section 203 of the DGCL is required.
The Company conducts business in a number of states throughout the United
States, some of which states have enacted takeover laws. Purchaser and Parent do
not know whether any of these laws will, by their terms, apply to the Offer or
the Merger and has not complied with any such laws. Should any person seek to
apply any state takeover law, Purchaser and Parent will take such action as then
appears desirable, which may include challenging the validity or applicability
of any such statute in appropriate court proceedings. In the event it is
asserted that one or more state takeover laws are applicable to the Offer or the
Merger, and an appropriate court does not determine that it is inapplicable or
invalid as applied to the Offer, Purchaser or Parent might be required to file
certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, Purchaser might be unable to accept for
payment any Shares tendered pursuant to the Offer, or be delayed in continuing
or consummating the Offer and the Merger. In such case, Purchaser may not be
obligated to accept for payment any Shares tendered. See "--Section 12. Certain
Conditions of the Offer."
Antitrust. Under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended, and the rules that have been promulgated thereunder by the Federal
Trade Commission (the "FTC"), certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the United
States Department of Justice (the "Antitrust Department") and the FTC and
certain waiting period requirements have been satisfied. The acquisition of
Shares by Purchaser
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and Parent pursuant to the Offer is subject to such requirements. Parent intends
to make the required filing under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended, in the near future.
The FTC and the Antitrust Division frequently scrutinize the legality under the
antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deemed necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Purchaser, the Company or
their respective subsidiaries. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to Purchaser
and Parent relating to the businesses in which Parent and the Company and their
respective affiliates are engaged, Purchaser and Parent believe that the Offer
will not violate the antitrust laws. Nevertheless, there can be no assurance
that a challenge to the Offer on antitrust grounds will not be made or, if such
a challenge is made, what the result would be. See "--Section 12. Certain
Conditions of the Offer."
Litigation. Following the December 2nd Announcement, eight putative class
actions were filed by certain Stockholders in the Court of Chancery of the State
of Delaware, New Castle County, against the Company, its directors, its
president and chief executive officer and Parent. The complaints are entitled as
follows: (a) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Inc., et al., Civil Action No. 16819NC;
(b) Goldplate Holdings, Inc. v. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, et al., Civil Action No.
16820NC; (c) ▇▇▇▇▇ ▇▇▇▇ ▇. Brylane Inc., et al., Civil Action No. 16821NC; (d)
▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Inc., et al., Civil Action No. 16823NC; (e) ▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇ Inc., et al., Civil Action No. 16824NC; (f) Crandon Capital
Partners v. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, et al., Civil Action No. 16825NC; (g) ▇▇▇▇▇▇▇ ▇.
▇▇▇▇ v. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, et al., Civil Action No. 16827NC; and (h) ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇ Inc., et al., Civil Action No. 16829NC. The complaints seek relief on
behalf of a class of plaintiffs who own Shares (other than Parent), and allege
that the defendants breached their fiduciary duties in connection with the
proposed acquisition by Parent on the ground that the $20 price contained in the
Proposal was grossly inadequate and unfair, and seek injunctive relief and/or
damages or rescission of the transaction. The foregoing complaints are filed as
Exhibits (g)(1) through (g)(8) of the Schedule 14D-1.
In connection with the increase in the proposed price to $24.50, a Memorandum of
Understanding has been entered into by the defendants and counsel for the
plaintiffs in the above-referenced actions providing for the settlement of the
class actions, subject to certain conditions, including judicial approval and
the completion of discovery by the plaintiffs.
15. Fees and Expenses. Except as set forth below, neither Purchaser nor Parent
will pay any fees or commissions to any broker, dealer or other person for
soliciting tenders of Shares pursuant to the Offer.
▇.▇. ▇▇▇▇▇▇ is acting as exclusive financial advisor to Purchaser in connection
with the Offer and as exclusive Dealer Manager. As compensation for its
services, ▇.▇. ▇▇▇▇▇▇ will receive a fee of $1.35 million upon Purchaser
accepting Shares for payment pursuant to the Offer which constitute a majority
of Shares not currently beneficially owned by Parent. Parent has also agreed to
reimburse ▇.▇. ▇▇▇▇▇▇ for all reasonable out-of-pocket expenses incurred by it,
including the reasonable fees and expenses of legal counsel, and to indemnify
▇.▇. ▇▇▇▇▇▇ against certain liabilities and expenses in connection with its
engagement, including certain liabilities under the federal securities laws.
Parent has retained MacKenzie Partners, as the Information Agent, and
ChaseMellon Shareholder Services LLC, as the Depositary, in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
facsimile and personal interview, and may request banks, brokers, dealers and
other nominee shareholders to forward materials relating to the Offer to
beneficial owners.
As compensation for acting as Information Agent in connection with the Offer,
MacKenzie Partners will receive reasonable and customary compensation for its
services and will also be reimbursed for certain out-of-pocket expenses and may
be indemnified against certain liabilities and expenses in connection with the
Offer, including certain liabilities under the federal securities laws.
Purchaser will pay the Depositary reasonable and customary compensation for its
services in connection with the Offer, plus reimbursement for out-of-pocket
expenses, and will indemnify the Depositary against certain liabilities and
expenses in connection therewith, including certain liabilities under federal
securities laws. Brokers, dealers, commercial banks and trust companies will be
reimbursed by Parent for customary handling and mailing expenses incurred by
them in forwarding material to their customers.
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The following is an estimate of expenses, to be incurred by Purchaser and Parent
in connection with the Offer, some of which are dependent upon the Offer being
consummated.
Financial Advisor Fees and Expenses......................... $1,350,000
Legal Fees and Expenses..................................... 1,100,000
Printing and Mailing........................................ 350,000
Advertising................................................. 75,000
Filing Fees................................................. 46,389
Depository Fees............................................. 15,000
Information Agent Fees...................................... 7,500
Miscellaneous............................................... 56,111
----------
Total............................................. 3,000,000
==========
Pursuant to the Bear ▇▇▇▇▇▇▇ Letter Agreement, the Company agreed to pay Bear
▇▇▇▇▇▇▇ the following compensation: (i) an initial cash fee of $500,000; (ii) an
additional cash fee of $500,000 at the earlier of April 30, 1999 or at such time
Bear ▇▇▇▇▇▇▇ rendered an opinion; and (iii) a cash fee of $300,000 if Bear
▇▇▇▇▇▇▇ is called upon for testimony by deposition or trial in litigation
relating to any transaction. The Company has also agreed to reimburse Bear
▇▇▇▇▇▇▇ for its reasonable out-of-pocket expenses, including attorneys fees, and
to indemnify Bear ▇▇▇▇▇▇▇ against certain liabilities, including liabilities
under the federal securities laws. The Commission has taken the position that
such indemnification under the federal securities laws may not be enforceable if
it is found to be against public policy.
16. Miscellaneous. Purchaser and Parent are not aware of any jurisdiction in
which the making of the Offer is prohibited by any administrative or judicial
action pursuant to any valid state statute. If Purchaser or Parent becomes aware
of any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto, Purchaser or Parent will make a good faith effort to
comply with any such state statute. If, after such good faith effort, Purchaser
and Parent cannot comply with any such state statute, the Offer will not be made
to (nor will tenders be accepted from or on behalf of) the Stockholders in such
state. In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of Purchaser by the Dealer Manager or by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
ON BEHALF OF PURCHASER, PARENT OR THE COMPANY NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Pursuant to Rule 14d-3 promulgated under the Exchange Act, Purchaser and Parent
have filed with the Commission a Schedule 14D-1 (the "Schedule 14D-1") together
with exhibits, furnishing additional information with respect to the Offer.
Pursuant to Rule 14d-9 promulgated under the Exchange Act, the Company has filed
with the Commission a Schedule 14D-9 (the "Schedule 14D-9"). Purchaser and
Parent have filed a statement on Schedule 13E-3 with respect to the Offer and
may file amendments to the Schedule 13E-3 (as so amended from time to time, the
"Schedule 13E-3"). Such statements, including exhibits and any amendments
thereto, which furnish certain additional information with respect to the Offer,
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 7 (except that they will not be available at
the regional offices of the Commission).
BUTTONS ACQUISITION CORPORATION
March 16, 1999
50
53
SCHEDULE 1
LIST OF DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT, PURCHASER, ▇▇▇▇▇▇▇, S.A., S.C.A. FINANCIERE PINAULT AND
REDCATS S.A.
The name, business address, principal occupation or employment and five-year
employment history of each director and executive officer of Parent, Purchaser,
Artemis, S.A. ("Artemis"), S.C.A. Financiere Pinault ("SFP"), Redcats S.A.
("Redcats") and certain other information is set forth below. All of the
outstanding capital stock of Purchaser is held by Empire Stores Group plc., a
wholly owned direct subsidiary of Redcats ("Empire"). Redcats is a wholly owned
subsidiary of Parent. Approximately 42.6% of the capital stock and 58.4% of the
voting rights, respectively, of Parent are owned by ▇▇▇▇▇▇▇. All of the voting
stock of Artemis is owned by SFP. Mr. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, the Vice President of
the Supervisory Board of Parent is the general partner of SFP, and approximately
75% of the interests in SFP are owned by ▇▇. ▇▇▇▇▇▇▇, together with family
members. The principal business address of Parent is ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇. The principal business address of Purchaser is c/o
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇, ▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The
principal business address of Redcats is ▇▇▇, ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇. The principal place of business address of Empire is ▇▇ ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇, Great Britain. The principal business
address of SFP, Artemis and ▇▇. ▇▇▇▇▇▇▇ is ▇, ▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇.
None of the persons listed below has engaged in any transactions with respect to
Shares during the past 60 days. None of the persons listed below has been
convicted in a criminal proceeding during the last five years (excluding traffic
violations or similar misdemeanors); nor has any of said parties been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, federal or state securities laws or finding any violation of such
laws. Unless otherwise indicated, all directors and executive officers listed
below are citizens of France.
1. Parent. Unless otherwise indicated, each occupation set forth opposite such
director's or executive officer's name refers to employment with the Parent.
Unless otherwise indicated, the business address of each executive officer is ▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇.
NAME EMPLOYMENT HISTORY
▇▇▇▇▇▇▇▇ ▇▇▇▇...................................... President of Supervisory Board since December 1992. Retired
for more than five years.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇................................... Supervisor since January 1996. Managing Director of Societe
c/o Societe Generale Generale for more than 5 years.
29, boulevard ▇▇▇▇▇▇▇▇
75009 ▇▇▇▇▇
▇▇▇▇▇▇▇ Prot....................................... Supervisor since March 1998. President and Chief Operating
c/o Banque Nationale de Paris Officer of Banque Nationale de Paris since September 1996.
▇▇, ▇▇▇▇▇▇▇▇▇ des Italiens Deputy Managing Director of Banque Nationale de Paris from
75009 Paris 1992 to September 1996.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇..................................... Supervisor since May 1994. Advisor from May 1983 to May
c/o Credit Commercial de France 1994. Director of Insurance of Credit Commercial de France
▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇-▇▇▇▇▇▇▇ for more than 5 years.
75008 Paris
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇................................. Supervisor since January 1999. Chairman of ▇.▇. ▇▇▇▇▇▇ et
cie S.A. since 1998. Managing Director of Caisse Des Depots
et Consignations from 1992 to 1997.
▇▇▇▇▇ ▇▇▇▇......................................... Supervisor since November 1991. Chairman of A.M. Conseil
c/o A.M. Conseil since 1992.
▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇........................................ Supervisor since February 1994. General Partner of Banque
c/o Banque Lazard Freres & Cie. Lazard Freres & Cie (France) since 1978. Managing Director
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ of Lazard Freres & Co. (New York) since 1995.
75008 Paris
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54
NAME EMPLOYMENT HISTORY
▇▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇.................................. Supervisor since September 1996. Member of Executive
c/o Credit Lyonnais Committee of Credit Lyonnais since January 1999. Head of
▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ Retail Banking of Credit Lyonnais from March 1993 to
75002 Paris December 1998.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.................................... Supervisor since September 1995. Managing Partner of
c/o Rothschild & Cie Banque Rothschild et Cie Banque since March 1997. Chairman and CEO
▇▇, ▇▇▇▇▇▇ Matignon of Supervisory Board of Credit du Nord from 1995-1997. Chief
75008 Paris Executive Officer of Compagnie Bancaire from March 1993 to
September 1995.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇..................................... Chairman of Management Board and CEO since July 1995.
Director of Redcats since 1995. Chairman of the Board, CEO
and President of Purchaser since March 1999. President and
CEO of Rexel, S.A. from 1991 to 1995.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇............................. Member of Management Board since 1993. Chairman of the Board
and CEO of Pinault Distribution since 1991. Member of
Artemis since 1992. Chairman of the Board and CEO of la Fnac
since May 1997.
▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.............................. Member of Management Board since 1997. Chairman of the
Management Board of Conforama since 1997. Director and CEO
of Evian (Danone Group) from February 1994 to February 1997.
Per ▇▇▇▇▇▇▇▇....................................... Member of Management Board since February 1997. CEO of
Citizenship: Swedish France Printemps since October 1996. Chairman of the Board
and CEO of Ikea France 1992-1996.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇..................................... Member of Management Board. Chairman and CEO of Rexel, S.A.
since October 1996. CEO of Lhoist S.A. from June 1993 to
September 1996.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇..................................... Member of Management Board. Chairman of the Board and CEO of
Citizenship: German Redcats since 1998. Managing Partner of Peek & Coppenburg KG
Dusseldorf from 1989 to 1998.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇................................... Vice President Supervisory Board. Chairman and CEO of
Artemis for more than five years.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇.......................... Member of Supervisory Board. Managing Director of Artemis
since 1992. Chairman and CEO of Sefimeg since 1998.
▇▇▇▇ ▇▇▇▇▇▇▇....................................... Advisor since May 1993. Retired since 1998. Chairman of
Devanlay S.A. from 1984 to 1998.
Credit Lyonnais.................................... Advisor since May 1993.
represented by ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ Loyrette...................................... Advisor for more than 5 years. Partner of Gide Loyrette
Novel since 1957.
▇▇▇▇-▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇............................ Advisor for more than 3 years. Chairman and CEO of H.R.
Finance since 1990. .
▇▇▇▇-▇▇▇▇▇ ▇▇ ▇▇▇▇................................. Advisor since 1993. Chairman of S.A. Companie d'Arbitrage et
de Placement since 1990. Chairman of S.A. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
since 1991.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇..................................... Advisor since 1998. Chairman of the ▇▇▇▇▇▇▇▇ Supervisory
Board since 1992. Chairman and CEO of ▇▇▇▇▇▇▇▇ since 1968.
▇▇▇▇ ▇▇▇▇▇▇........................................ Advisor since January 1999. Supervisor from May 1986 to
January 1999. Retired for more than 5 years.
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55
2. The Purchaser. Unless otherwise indicated, each occupation set forth
opposite such director's or executive officer's name refers to employment with
the Parent. Unless otherwise indicated, the business address of each director or
executive officer is ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇.
NAME EMPLOYMENT HISTORY
▇▇▇▇▇ ▇▇▇▇▇▇▇▇..................................... Chairman of the Board, CEO and President of Purchaser since
March 1999. Chairman of Management Board and CEO since July
1995. Director of Redcats since 1995. President and CEO of
Rexel, S.A. from 1991 until 1995.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇..................................... Director, Vice President and Treasurer of Purchaser since
Citizenship: German March , 1999. Director since 1998. Chairman of the Board
and CEO of Redcats since 1998. Managing Partner of Peek &
Coppenburg KG Dusseldorf from 1989 to 1998.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.................................... Director, Vice President and Secretary of Purchaser since
March, 1999. Chief Financial Officer of Redcats since 1991.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇.................................... Director of Purchaser since March 1999. Director of
Citizenship: German strategy and development of Redcats since May 1997.
Consultant for Mercer Management Consulting from 1988 to
1997.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇..................................... Director of Purchaser since March 1999. Managing Director
Citizenship: U.K. of Empire Stores Group plc. since 1994.
3. Artemis. Unless otherwise indicated, each occupation set forth opposite such
director's or executive officer's name refers to employment with ▇▇▇▇▇▇▇. Unless
otherwise indicated, the business address of each director or executive officer
is ▇, ▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇.
NAME EMPLOYMENT HISTORY
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇................................... Managing General Partner of SFP for more than 5 years.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇.......................... Managing Director of Artemis since 1992. Chairman and CEO
of Sefimeg since 1998.
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇............................. Director for more than 5 years. Chairman of the Board and
CEO of Pinault Distribution since 1991. Chairman of the
Board and CEO of la Fnac since May 1997.
▇▇▇▇-▇▇▇▇▇ ▇▇ ▇▇▇▇................................. Director since 1993. Chairman of S.A. Companie d'Arbitrage
et de Placement since 1990. Chairman of S.A. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ since 1991.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇................................... Director.
Citizenship: American
4. SFP. Unless otherwise indicated, each occupation set forth opposite such
director's or executive officer's name refers to employment with SFP. Unless
otherwise indicated, the business address of each director or executive officer
is ▇, ▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇.
NAME EMPLOYMENT HISTORY
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇................................... Managing General Partner for more than five years.
▇, ▇▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
Pinault Trustee General Partner.
(S.A.R.L.).......... ▇, ▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
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56
5. Redcats. Unless otherwise indicated, each occupation set forth opposite such
director's or executive officer's name refers to employment with Redcats. Unless
otherwise indicated, the business address of each director or executive officer
is ▇▇▇ ▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇.
NAME EMPLOYMENT HISTORY
▇▇▇▇▇▇▇ ▇▇▇▇▇▇..................................... Chairman of the Board and CEO since 1998. Director of
Citizenship: German Parent since 1998. Director, Vice President and Treasurer
of Purchaser since March 1999. Managing Partner of Peek &
Coppenburg KG Dusseldorf from 1989 to 1998.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇..................................... Director since 1995. Chairman of the Board and CEO of
Parent since July, 1995. Chairman of the Board, CEO and
President of Purchaser since March, 1999. President and CEO
of Rexel, S.A. from 1991 until 1995.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇.................................... Director since June, 1996. CFO of PPR since 1995. Managing
Director Danone for Asia Pacific Area from 1994 to 1995.
Sapardis........................................... Director since September, 1997.
represented by ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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57
SCHEDULE II
[BEAR ▇▇▇▇▇▇▇ LETTERHEAD]
March 9, 1999
Special Committee of the Board of Directors
Brylane, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman
Gentlemen:
We understand that Brylane, Inc. ("Brylane"), Pinault-Printemps-Redoute S.A.
("PPR"), and Buttons Acquisition Corporation, a wholly-owned subsidiary of PPR,
("Purchaser") are considering entering into an Agreement and Plan of Merger (the
"Merger Agreement") or (the "Transaction") dated March 10, 1999. Pursuant to the
Merger Agreement Purchaser intends to purchase all of the outstanding Brylane
common stock currently held by holders other than PPR, the Company and their
respective wholly-owned subsidiaries (the "Public Stockholders"). Pursuant to
the terms of the Merger Agreement the Public Stockholders of Brylane will
receive $24.50 (the "Purchase Price") per share net to the sellers in cash in a
cash tender offer (the "Offer") made by Purchaser, and the Offer will be
followed by a merger, (the "Merger") in which each issued and outstanding share
of Common Stock of Brylane beneficially owned by the Public Stockholders at the
time of the Merger will be converted into the right to receive the Purchase
Price. You have provided us with a draft of the Merger Agreement dated March 9,
1999.
You have asked us to render our opinion as to whether the Purchase Price is
fair, from a financial point of view, to the Public Stockholders of Brylane.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the draft of the Merger Agreement dated March 9, 1999, which we
understand is in substantially the form to be executed by ▇▇▇▇▇▇▇;
2. reviewed ▇▇▇▇▇▇▇'s Initial Public Offering Prospectus dated February 21,
1997 and its Annual Report to Stockholders and Annual Report on Form
10-K for the fiscal year ended January 31, 1998 and its Quarterly
Reports on Form 10-Q for the periods ended May 2, 1998, August 1, 1998
and October 31, 1998;
3. reviewed preliminary financial information for the fiscal year ended
January 31, 1999 and the fiscal quarter ended January 31, 1999;
4. reviewed certain operating and financial information, including
projections, provided to us by management relating to ▇▇▇▇▇▇▇'s business
and prospects;
5. met with certain members of ▇▇▇▇▇▇▇'s management to discuss its
operations, historical financial statements and future prospects;
6. reviewed the historical prices and trading volume of the common shares
of Brylane;
7. reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to Brylane;
8. reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Brylane and the Merger Agreement; and
9. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information including, and without limitation, the projections provided to
us by ▇▇▇▇▇▇▇. With respect to ▇▇▇▇▇▇▇'s most recent projected financial
results, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of ▇▇▇▇▇▇▇ as to the expected future performance of Brylane. We have
not assumed any responsibility for the independent verification of any such
information or of the projections provided to us and we have further relied upon
the assurances of the management of Brylane that they are unaware of any facts
that would make the information or projections provided to us incomplete or
misleading. In
II-1
58
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities of Brylane, nor have we been furnished
with any such appraisals. In connection with the preparation of this opinion, we
have not been authorized by the Special Committee, Brylane, or the Board of
Directors to solicit, nor have we solicited, third party indications of interest
for the acquisition of all or any part of Brylane. Our opinion is necessarily
based on economic, market and other conditions, and the information made
available to us, as of the date hereof. We have assumed that the Merger
Agreement executed and delivered by the parties will contain identical financial
and economic terms to the draft Merger Agreement reviewed by us. We have assumed
that, in all respects material to our analysis, the representations and
warranties contained in the Merger Agreement are true and correct and the
conditions to the Merger will be met and the Merger will be consummated on the
terms and conditions contemplated in the Merger Agreement.
We have acted as a financial advisor to the Special Committee in connection with
the Merger Agreement and will receive a fee for such services.
In the ordinary course of business, Bear ▇▇▇▇▇▇▇ may actively trade the equity
securities of Brylane for its own account and for the account of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is intended for the benefit and use of the
Special Committee and the Board of Directors of ▇▇▇▇▇▇▇ and does not constitute
a recommendation to the Special Committee, the Board of Directors of Brylane or
any holders of Brylane common stock as to whether to tender their shares or how
to vote in connection with the Merger. This opinion does not address ▇▇▇▇▇▇▇'s
underlying business decision to pursue the Transaction. This letter is not to be
used for any other purpose, or reproduced, disseminated, quoted to or referred
to at any time, in whole or in part, without our prior written consent;
provided, however, that this letter may be included in its entirety in any
tender offer document, proxy statement or Schedule 13E-3 to be distributed to
the holders of Brylane Common Stock in connection with the Transaction.
Based on and subject to the foregoing, it is our opinion that the Purchase Price
is fair, from a financial point of view, to the Public Stockholders of Brylane
Inc.
Very truly yours,
BEAR, ▇▇▇▇▇▇▇ & CO. INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------------
Senior Managing Director
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SECTION 262 OF THE DELAWARE GENERAL CORPORATE LAW
APPRAISAL RIGHTS.
SCHEDULE III
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to sec.228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to sec.251 (other than a merger effected pursuant to sec.251(g) of this
title), sec.252, sec.254, sec.257, sec.258, sec.263 or sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
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60
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
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(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
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SCHEDULE IV
[CONFORMED]
AGREEMENT AND PLAN OF MERGER
DATED MARCH 10, 1999
BY AND AMONG
PINAULT-PRINTEMPS-REDOUTE S.A.
BUTTONS ACQUISITION CORPORATION
AND
BRYLANE INC.
63
TABLE OF CONTENTS
PAGE
ARTICLE I
THE OFFER................................................... IV-1
Section 1.1. The Offer.................................. IV-1
Section 1.2. Company Actions............................ IV-2
ARTICLE II
THE MERGER.................................................. IV-3
Section 2.1. The Merger................................. IV-3
Section 2.2. Effective Time............................. IV-3
Section 2.3. Effects of the Merger...................... IV-3
Section 2.4. Certificate of Incorporation and By-Laws of
the Surviving Corporation.............................. IV-3
Section 2.5. Directors.................................. IV-4
Section 2.6. Officers................................... IV-4
Section 2.7. Conversion of Shares of Common Stock....... IV-4
Section 2.8. Conversion of Purchaser Common Stock....... IV-4
Section 2.9. Options.................................... IV-4
Section 2.10. Stockholders' Meeting...................... IV-5
Section 2.11. Merger Without Meeting of Stockholders..... IV-5
Section 2.12. Additional Actions......................... IV-5
ARTICLE III
PAYMENT FOR SHARES.......................................... IV-5
Section 3.1. Dissenting Shares.......................... IV-5
Section 3.2. Payment for Shares of Common Stock......... IV-5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... IV-6
Section 4.1. Organization and Qualification;
Subsidiaries........................................... IV-6
Section 4.2. Certificate of Incorporation and By-Laws... IV-6
Section 4.3. Capitalization; Subsidiaries............... IV-7
Section 4.4. Authority Relative to this Agreement....... IV-7
Section 4.5. No Conflict; Required Filings and
Consents............................................... IV-8
Section 4.6. SEC Reports and Financial Statements....... IV-8
Section 4.7. Employee Benefit Matters................... IV-9
Section 4.8. Litigation................................. IV-10
Section 4.9. Information................................ IV-10
Section 4.10. Taxes...................................... IV-10
Section 4.11. Intellectual Property...................... IV-11
Section 4.12. Year 2000 Compliance....................... IV-11
Section 4.13. Certain Approvals.......................... IV-11
Section 4.14. Brokers.................................... IV-11
Section 4.15. Opinion of Financial Advisor............... IV-11
Section 4.16. Vote Required.............................. IV-11
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE
PURCHASER................................................. IV-12
Section 5.1. Organization and Qualification............. IV-12
Section 5.2. Authority Relative to this Agreement....... IV-12
Section 5.3. No Conflict; Required Filings and
Consents............................................... IV-12
Section 5.4. Information................................ IV-12
Section 5.5. Financing.................................. IV-13
IV-i
64
PAGE
ARTICLE VI
COVENANTS................................................... IV-13
Section 6.1. Conduct of Business of the Company......... IV-13
Section 6.2. Access to Information...................... IV-14
Section 6.3. Reasonable Best Efforts.................... IV-14
Section 6.4. Public Announcements....................... IV-14
Section 6.5. Indemnification............................ IV-14
Section 6.6. Notification of Certain Matters............ IV-15
Section 6.7. State Takeover Laws........................ IV-15
Section 6.8. Acquisition Transactions................... IV-15
Section 6.9. Management................................. IV-15
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER.................... IV-15
Section 7.1. Conditions................................. IV-15
ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER............................. IV-16
Section 8.1. Termination................................ IV-16
Section 8.2. Effect of Termination...................... IV-17
Section 8.3. Amendment.................................. IV-17
Section 8.4. Extension; Waiver.......................... IV-17
ARTICLE IX
MISCELLANEOUS............................................... IV-17
Section 9.1. Non-Survival............................... IV-17
Section 9.2. Entire Agreement; Assignment............... IV-17
Section 9.3. Validity................................... IV-18
Section 9.4. Notices.................................... IV-18
Section 9.5. Governing Law.............................. IV-18
Section 9.6. Descriptive Headings....................... IV-18
Section 9.7. Counterparts............................... IV-19
Section 9.8. Parties in Interest........................ IV-19
Section 9.9. Fees and Expenses.......................... IV-19
Section 9.10. Certain Definitions........................ IV-19
Section 9.11. Specific Performance....................... IV-19
ANNEXES
Annex I--Conditions to the Offer
IV-ii
65
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of March 10, 1999, by
and among Pinault-Printemps-Redoute S.A., a societe anonyme organized and
existing under the laws of the Republic of France ("Parent"), Buttons
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent (the "Purchaser"), and Brylane Inc., a Delaware corporation (the
"Company").
WHEREAS, Parent beneficially owns 8,617,017 shares (the "Parent Shares") of the
common stock, par value $0.01 per share, of the Company (the "Common Stock");
WHEREAS, ▇▇▇▇▇▇ has proposed that the Purchaser acquire all of the issued and
outstanding shares of Common Stock not beneficially owned by Parent or the
Purchaser (references to the Parent shall, where the context so requires, be
deemed to refer to the Purchaser as well);
WHEREAS, it is proposed that the Purchaser will make a cash tender offer (the
"Offer") in compliance with Section 14(d)(1) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations promulgated
thereunder to acquire all the issued and outstanding shares of Common Stock for
$24.50 per share (such amount, or any greater amount per share paid pursuant to
the Offer, being hereinafter referred to as the "Per Share Amount"), net to the
seller in cash, upon the terms and subject to the conditions of this Agreement;
and that the Offer will be followed by the merger (the "Merger") of the
Purchaser with and into the Company, with the Company being the surviving
corporation, in accordance with the General Corporation Law of the State of
Delaware ("DGCL"), pursuant to which each issued and outstanding share of Common
Stock not beneficially owned by Parent will be converted into the right to
receive the Per Share Amount, upon the terms and subject to the conditions
provided herein;
WHEREAS, a special committee (the "Special Committee") comprised of three
independent directors of the Board of Directors of the Company (the "Board") has
received the written opinion of Bear ▇▇▇▇▇▇▇ & Co. Inc. (the "Financial
Advisor") that, based on, and subject to, the various assumptions and
qualifications set forth in such opinion, as of the date of such opinion, the
consideration to be received by the holders of Common Stock (other than Parent
and the Purchaser) pursuant to the Offer and the Merger was fair to such holders
from a financial point of view;
WHEREAS, the Special Committee has determined that it is in the best interests
of the stockholders of the Company (the "Stockholders") to approve Parent's
acquisition of the shares of Common Stock not beneficially owned by Parent and
to waive the provisions of the Governance Agreement, dated as of April 3, 1998,
by and between the Company and Parent (the "Governance Agreement"), which would
otherwise limit Parent in making the Offer or effecting the Merger, and has
voted to recommend to the Board that the Board recommend that the Stockholders
(i) accept the Offer and tender their shares of Common Stock pursuant to the
Offer and (ii) approve the Merger following consummation of the Offer; and
WHEREAS, the Board has determined that it is in the best interests of the
Stockholders to approve Parent's proposed acquisition and has voted (i) to
recommend that the Stockholders accept the Offer and tender their shares of
Common Stock pursuant to the Offer and (ii) to approve the Merger of the
Purchaser with and into the Company, with the Company being the surviving
corporation, following consummation of the Offer;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, Parent,
the Purchaser and the Company agree as follows:
ARTICLE I
THE OFFER
Section 1.1. The Offer.
(a) Provided that this Agreement shall not have been terminated in accordance
with Section 8.1, the Purchaser shall, and Parent shall cause the Purchaser to,
commence within the meaning of Rule 14d-2 under the Exchange Act the Offer in no
later than five business days after the initial public announcement of Parent's
intention to commence the Offer. The Offer shall have a scheduled expiration
date 20 business days following commencement of the Offer (the "Initial
Expiration Date"). Notwithstanding any contrary provision of this Agreement, the
Purchaser (i) if so requested by the Company at the direction of the Special
Committee, will extend the Offer for up to 20 business days in the event upon
the Initial Expiration Date, the Purchaser shall not have accepted for payment
shares of Common Stock pursuant to the Offer as a result of one or more of the
conditions set forth in Annex I hereto not having been satisfied or waived by
the Purchaser, (ii) at its discretion may determine from time to time to extend
the Offer for no more than an aggregate of 20 business days following the later
of the Initial
IV-1
66
Expiration Date and the first expiration date thereafter on which all of the
conditions set forth in Annex I shall have been satisfied or waived, if
applicable; provided, however, that in the event that the Purchaser extends the
Offer pursuant to this clause (ii) all of the conditions to the Offer shall be
deemed to have been irrevocably satisfied for all purposes of the Offer and
shall not be asserted by Parent as a basis for not consummating the Offer and
(iii) may, from time to time at its discretion, extend the Offer in increments
of up to ten business days each, if one or more of the conditions set forth in
Annex I shall not have been satisfied or waived. The Purchaser shall not accept
for payment any shares of Common Stock tendered pursuant to the Offer unless
there shall have been validly tendered and not withdrawn prior to the expiration
of the Offer such number of shares of Common Stock which, together with the
Parent Shares, satisfy the Minimum Condition (as defined in Annex I). Under no
circumstances shall Parent or Purchaser waive the Minimum Condition. In addition
to the Minimum Condition, the obligation of the Purchaser to accept for payment
and pay for shares of Common Stock tendered pursuant to the Offer shall be
subject only to the satisfaction of the conditions set forth in Annex I hereto.
Parent expressly reserves the right to increase the Per Share Amount under such
circumstances, if any, as Parent, in its sole discretion, may deem appropriate.
Without the prior consent of the Special Committee, the Purchaser will not (i)
decrease the Per Share Amount; (ii) change the number of shares of Common Stock
to be purchased in the Offer; (iii) change the form of the consideration payable
in the Offer; (iv) add to the conditions to the Offer set forth in Annex I
hereto; or (v) make any other change in the terms or conditions of the Offer
which is adverse to the holders of shares of Common Stock. The Per Share Amount
shall, subject to any applicable withholding of taxes, be net to the seller in
cash, upon the terms and subject to the conditions of the Offer. Following the
satisfaction or waiver of the conditions to the Offer, Parent shall cause the
Purchaser to accept for payment and pay for, in accordance with the terms of the
Offer, all shares of Common Stock validly tendered pursuant to the Offer and not
withdrawn, pursuant to applicable law.
(b) As soon as reasonably practicable on the date of commencement of the Offer,
Parent shall file with the Securities and Exchange Commission (the "SEC") (i) a
Tender Offer Statement on Schedule 14D-1, including the exhibits thereto
(together with all amendments and supplements thereto, the "Schedule 14D-1"),
including the exhibits thereto with respect to the Offer and (ii) a Rule 13e-3
Transaction Statement on Schedule 13E-3, including the exhibits thereto
(together with all amendments and supplements thereto, the "Schedule 13E-3")
with respect to the Offer and the other transactions contemplated hereby (the
"Transactions"). The Schedule 14D-1 and the Schedule 13E-3 shall contain or
shall incorporate by reference an offer to purchase (the "Offer to Purchase")
and forms of the letter of transmittal and any summary advertisement (the
Schedule 14D-1, the Schedule 13E-3, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "Offer Documents"). Parent, the Purchaser and the
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become materially incorrect or
misleading, and Parent and the Purchaser further agree to take all steps
necessary to cause the Schedule 14D-1 and the Schedule 13E-3 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of shares of Common Stock, in each case as and to the
extent required by applicable law. The Company, the Special Committee and their
respective counsel shall be given the reasonable opportunity to review and
comment on the Offer Documents and any amendments thereto prior to the filing
thereof with the SEC. Parent and the Purchaser shall provide promptly the
Company, the Special Committee and their respective counsel with a copy of any
written comments or telephonic notification of any oral comments Parent or the
Purchaser may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt thereof. Parent and the Purchaser shall
provide the Company and the Special Committee, and their respective counsel,
with a reasonable opportunity to participate in all communications with the SEC
and its staff, including any meetings and telephone conferences, relating to the
Transactions or this Agreement.
Section 1.2. Company Actions.
(a) The Company hereby consents to the Offer and represents that (i) the Special
Committee and the Board at meetings duly held on March 9, 1999, have each, by
unanimous vote of all directors present and voting, (A) determined that each of
the Offer and the Merger, is fair to and in the best interests of the
Stockholders (other than Parent and the Purchaser), (B) approved this Agreement
and the Transactions, (C) determined that this Agreement is advisable and
resolved to recommend that the Stockholders (other than Parent and the
Purchaser) accept the Offer and tender their shares of Common Stock pursuant to
the Offer and approve and adopt this Agreement and the Merger; provided, that
such recommendation may be withdrawn, modified or amended to the extent the
Board or the Special Committee deems it necessary to do so in the exercise of
its fiduciary duties, as advised in writing by independent counsel, and (D)
waived the provisions of the Governance Agreement which would otherwise limit
Parent in making the Offer or effecting the Merger, and (ii) the Financial
Advisor has delivered to the Special Committee a written opinion that, based on,
and subject to, the various assumptions and qualifications set forth in such
opinion, as of the date thereof the consideration to be received by the
Stockholders (other than Parent and the Purchaser) pursuant to the Offer and the
Merger is fair to such holders from a financial point of view. The Company
hereby
IV-2
67
consents to the inclusion in the Offer Documents of the recommendations of the
Special Committee and the Board described in this Section 1.2(a).
(b) On the same day as the Parent first files the Schedule 14D-1 with the SEC,
the Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9, including all exhibits thereto (together with all amendments and
supplements thereto, the "Schedule 14D-9"), containing the recommendations of
the Special Committee and the Board described in Section 1.2(a) and shall
disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated
under the Exchange Act, and any other applicable law. The Company, Parent and
the Purchaser agree to correct promptly any information provided by any of them
for use in the Schedule 14D-9 which shall have become materially incorrect or
misleading, and the Company further agrees to take all steps necessary to cause
the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Common Stock, in each case as and to the extent required by
applicable law. Parent and its counsel shall be given the opportunity to review
and comment on the Schedule 14D-9 and any amendments thereto prior to the filing
thereof with the SEC. The Company shall provide Parent and its counsel with a
copy of any written comments or telephonic notification of any oral comments the
Company may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt thereof. The Company and its counsel shall provide
Parent and its counsel with a reasonable opportunity to participate in all
communications with the SEC and its staff, including any meetings and telephone
conferences, relating to the Transactions or this Agreement.
(c) In connection with the Transactions, the Company (i) shall promptly furnish
Parent with mailing labels containing the names and addresses of all record
holders of shares of Common Stock and with security position listings of shares
of Common Stock held in stock depositories, each as of a recent date, together
with all other available listings and computer files containing names, addresses
and security position listings of record holders and beneficial owners of shares
of Common Stock and (ii) shall furnish Parent with such additional information,
including, without limitation, updated listings and computer files of
Stockholders, mailing labels and security position listings, and such other
assistance as Parent, the Purchaser or their agents may reasonably request in
connection with the Offer and the Merger.
ARTICLE II
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the DGCL, at the Effective Time (as defined
below) the Purchaser shall be merged with and into the Company. Following the
Merger, the separate corporate existence of the Purchaser shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation"). At the option of Parent, and provided that such amendment does
not delay the Effective Time, the Merger may be structured so that, and this
Agreement shall thereupon be amended to provide that, the Company shall be
merged with and into the Purchaser or another direct or indirect wholly owned
subsidiary of Parent, with the Company, the Purchaser or such other subsidiary
of Parent continuing as the Surviving Corporation (as determined by Parent);
provided, however, that the Company shall be deemed not to have breached any of
its representations and warranties herein if and to the extent such breach would
have been attributable to such election. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to reflect the
foregoing and, where appropriate, to provide that the Purchaser (or another
subsidiary of Parent) shall be the Surviving Corporation.
Section 2.2. Effective Time. As soon as practicable after the satisfaction or
waiver of the conditions set forth in Sections 7.1(a) and 7.1(b) of this
Agreement, but subject to the satisfaction or waiver of the conditions set forth
in Section 7.1(c), 7.1(d) and 7.1(e) of this Agreement, the Company shall
execute, in the manner required by the DGCL and deliver to the Secretary of
State of the State of Delaware a duly executed and verified certificate of
merger, and the parties shall take such other and further actions as may be
required by law to make the Merger effective. The Merger shall be effective upon
the filing of the certificate of merger or such later time as specified in the
certificate of merger. The time the Merger becomes effective in accordance with
applicable law is referred to as the "Effective Time."
Section 2.3. Effects of the Merger. From and after the Effective Time, the
Merger shall have the effects set forth in Section 259 of the DGCL.
Section 2.4. Certificate of Incorporation and By-Laws of the Surviving
Corporation.
(a) The Certificate of Merger shall provide that at the Effective Time (i) the
Certificate of Incorporation of the Surviving Corporation as in effect
immediately prior to the Effective Time shall be amended as of the Effective
Time so as to contain the provisions and only the provisions, contained
immediately prior thereto in the Certificate of Incorporation of the Purchaser,
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except for Article I thereof, which shall continue to read as follows: "The name
of the corporation is Brylane Inc. (the "Corporation")."
(b) The By-Laws of the Purchaser in effect at the Effective Time shall be the
By-Laws of the Surviving Corporation until amended in accordance with the
provisions thereof and applicable law.
Section 2.5. Directors. Subject to applicable law, the directors of the
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation and shall hold office until their respective
successors are duly elected and qualified, or their earlier death, resignation
or removal. Prior to the Effective Time, the directors of the Company other than
those who are directors of the Purchaser and other than ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall
resign from the Board effective immediately after the Effective Time. For
purposes of the Amended and Restated Credit Agreement, dated as of April 30,
1997, amended and restated as of September 21, 1998, as further amended, among
▇▇▇▇▇▇▇, L.P., the Lenders listed therein and Credit Lyonnais New York Branch,
as Administrative Agent, the directors of Purchaser have been nominated to be
directors of the Surviving Corporation by the Board.
Section 2.6. Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
Section 2.7. Conversion of Shares of Common Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders thereof,
each share of Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Common Stock held by Parent, the
Purchaser, any wholly owned subsidiary of Parent or the Purchaser, in the
treasury of the Company or by any wholly owned subsidiary of the Company, which
shares of Common Stock, by virtue of the Merger and without any action on the
part of the holder thereof, shall be cancelled and retired and shall cease to
exist with no payment being made with respect thereto and other than Dissenting
Shares (as defined below)), shall be converted into the right to receive in cash
an amount equal to the Per Share Amount (the "Merger Price"), payable to the
holder thereof, without interest thereon, upon surrender of the certificate
formerly representing such share of Common Stock.
Section 2.8. Conversion of Purchaser Common Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder thereof,
each share of common stock of the Purchaser issued and outstanding immediately
prior to the Effective Time shall be converted into and become one validly
issued, fully paid and non-assessable share of common stock, par value $0.01 per
share, of the Surviving Corporation.
Section 2.9. Options. Prior to the Effective Time, the Board (or, if
appropriate, any Committee thereof) shall adopt appropriate resolutions and take
all other actions necessary to provide for the cancellation, effective at the
Effective Time, of all the outstanding stock options (the "Options") heretofore
granted under any stock option or similar plan of the Company (the "Stock
Plans"). Immediately prior to the Effective Time, (i) each Option, whether or
not then vested or exercisable, shall no longer be exercisable but shall entitle
each holder thereof who is an employee or director of the Company or any of its
subsidiaries at the Effective Time, in cancellation and settlement therefor, to
payments in cash (subject to any applicable withholding taxes, the "Cash
Payment"), at the Effective Time, equal to the product of (x) the total number
of shares of Common Stock subject or related to such Option, whether or not then
vested or exercisable and (y) the excess (if any) of the Merger Price over the
exercise price per share subject or related to such Option, each such Cash
Payment to be paid to each holder of an outstanding Option who is an employee or
director of the Company or any of its subsidiaries at the Effective Time as soon
as practicable following the Effective Time. The Stock Plans and any other plan,
program or arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company or any subsidiary shall terminate
as of the Effective Time. The Company will take all reasonable steps to ensure
that after the Effective Time none of the Parent, the Company or any of their
respective subsidiaries is or will be bound by any Options, other options,
warrants, rights or agreements which would entitle any Person, other than Parent
or its affiliates, to own any capital stock of the Surviving Corporation or any
of its subsidiaries or to receive any payment in respect thereof or have any
right under the Stock Plans to acquire any capital stock of the Company, Parent
or the Surviving Corporation. The Company will use its reasonable best efforts
to obtain all consents, if any, that are necessary to ensure that after the
Effective Time, the only rights of the holders of Options to purchase shares of
Common Stock in respect of such Options will be to receive the Cash Payment in
cancellation and settlement thereof.
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Section 2.10. Stockholders' Meeting.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through the Board, shall, in accordance with applicable law and
the Company's Certificate of Incorporation and By-laws:
(i) duly call, give notice of, convene and hold a special meeting of
its Stockholders (the "Special Meeting") as soon as practicable following
the acceptance for payment of shares of Common Stock by the Purchaser
pursuant to the Offer for the purpose of considering and taking action upon
this Agreement;
(ii) prepare and file with the SEC a preliminary proxy statement
relating to this Agreement, and use its reasonable best efforts (x) to
obtain and furnish the information required to be included by the SEC in
the Proxy Statement (as defined below) and, after consultation with Parent,
to respond promptly to any comments made by the SEC or its staff with
respect to the preliminary proxy statement and cause a definitive proxy
statement (the "Proxy Statement") to be mailed to its Stockholders and (y)
subject to the fiduciary duties of the Board under applicable law, to
obtain the necessary approvals of the Merger and this Agreement by its
Stockholders; and
(iii) subject to the fiduciary obligations of the Board and the
Special Committee under applicable law as provided in Section 1.2(a),
include in the Proxy Statement the recommendation of the Board and the
Special Committee that Stockholders vote in favor of the approval of this
Agreement.
(b) ▇▇▇▇▇▇ agrees that it will vote, or cause to be voted, all of the shares of
Common Stock then owned by it, the Purchaser or any of its other subsidiaries in
favor of the approval of this Agreement.
Section 2.11. Merger Without Meeting of Stockholders. Notwithstanding Section
2.10, in the event that Parent, the Purchaser or any other subsidiary of Parent
shall acquire, together with the Parent Shares, at least 90% of the outstanding
shares of Common Stock pursuant to the Offer, the parties hereto agree to take
all necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the acceptance for payment of and payment for shares
of Common Stock by the Purchaser pursuant to the Offer without a meeting of
Stockholders, in accordance with Section 253 of the DGCL.
Section 2.12. Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary or desirable to
(a) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company, or (b) otherwise carry out the provisions
of this Agreement, the Company and its officers and directors shall be deemed to
have granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such deeds, assignments or assurances in law and to take
all acts necessary, proper or desirable to vest, perfect or confirm title to and
possession of such rights, properties or assets in the Surviving Corporation and
otherwise to carry out the provisions of this Agreement, and the officers and
directors of the Surviving Corporation are authorized in the name of the Company
or otherwise to take any and all such action.
ARTICLE III
PAYMENT FOR SHARES
Section 3.1. Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Common Stock outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such shares in
accordance with the requirement of Section 262 of the DGCL ("Dissenting
Shares"), shall not be converted into the right to receive the Merger Price as
provided in Section 2.7, unless and until such holder fails to perfect or
withdraws or otherwise loses his or her right to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
withdraws or loses his or her right to appraisal, such Dissenting Shares shall
thereupon be treated as if they had been converted as of the Effective Time into
the right to receive the Merger Price to which such holder is entitled, without
interest or dividends thereon. The Company shall give Parent prompt notice of
any demands received by the Company for appraisal of shares of Common Stock and,
prior to the Effective Time, Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. Prior to the
Effective Time, the Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands.
Section 3.2. Payment for Shares of Common Stock.
(a) From and after the Effective Time, ChaseMellon Shareholder Services LLC, or
such other bank or trust company as shall be mutually acceptable to Parent and
the Company, shall act as paying agent (the "Paying Agent") in effecting the
payment of the Merger Price in respect of certificates (the "Certificates")
that, prior to the Effective Time, represented shares of Common
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Stock entitled to payment of the Merger Price pursuant to Section 2.7. At the
Effective Time, Parent or the Purchaser shall deposit, or cause to be deposited,
in trust with the Paying Agent the aggregate Merger Price to which holders of
shares of Common Stock shall be entitled at the Effective Time pursuant to
Section 2.7.
(b) Promptly after the Effective Time, the Paying Agent shall mail to each
record holder of Certificates that immediately prior to the Effective Time
represented shares of Common Stock (other than Certificates representing shares
of Common Stock held by Parent or the Purchaser, any wholly owned subsidiary of
Parent or the Purchaser, in the treasury of the Company or by any wholly owned
subsidiary of the Company and other than Certificates representing Dissenting
Shares) a form of letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Paying Agent and instructions
for use in surrendering such Certificates and receiving the Merger Price in
respect thereof. Upon the surrender of each such Certificate, the Paying Agent
shall pay the holder of such Certificate the Merger Price multiplied by the
number of shares of Common Stock formerly represented by such Certificate, in
consideration therefor, and such Certificate shall be cancelled. Until so
surrendered, each such Certificate (other than Certificates representing shares
of Common Stock held by Parent or the Purchaser, any wholly owned subsidiary of
Parent or the Purchaser, in the treasury of the Company or by any wholly owned
subsidiary of the Company and other than Certificates representing Dissenting
Shares) shall represent solely the right to receive the aggregate Merger Price
relating thereto. No interest or dividends shall be paid or accrued on the
Merger Price. If the Merger Price (or any portion thereof) is to be delivered to
any person other than the person in whose name the Certificate formerly
representing shares of Common Stock surrendered therefor is registered, it shall
be a condition to such right to receive such Merger Price that the Certificate
so surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person surrendering such shares of Common Stock shall pay
to the Paying Agent any transfer or other taxes required by reason of the
payment of the Merger Price to a person other than the registered holder of the
Certificate surrendered, or shall establish to the satisfaction of the Paying
Agent that such tax has been paid or is not applicable.
(c) Promptly following the date which is 180 days after the Effective Time (or
such later date as the Surviving Corporation shall request), the Paying Agent
shall deliver to the Surviving Corporation all cash, Certificates and other
documents in its possession relating to the Transactions, and the Paying Agent's
duties shall terminate. Thereafter, each holder of a Certificate formerly
representing a share of Common Stock may surrender such Certificate to the
Surviving Corporation and (subject to applicable abandoned property, escheat and
similar laws) receive in consideration therefor the aggregate Merger Price
relating thereto, without any interest or dividends thereon.
(d) After the Effective Time, there shall be no transfers on the stock transfer
books of the Surviving Corporation of any shares of Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates formerly representing shares of Common Stock are presented to
the Surviving Corporation or the Paying Agent, they shall be surrendered and
cancelled in return for the payment of the aggregate Merger Price relating
thereto, as provided in this Article III, subject to applicable law in the case
of Dissenting Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser that:
Section 4.1. Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Company's subsidiaries is a corporation or
partnership duly organized, validly existing and in good standing (where
applicable) under the laws of the jurisdiction of its incorporation or
formation. The Company and each of its subsidiaries has the requisite corporate
or partnership power and authority to own, operate or lease its properties and
to carry on its business as it is now being conducted, and is duly qualified or
licensed to do business, and is in good standing (where applicable), in each
jurisdiction in which the nature of its business or the properties owned,
operated or leased by it makes such qualification, licensing or good standing
(where applicable) necessary, except where the failure to have such power or
authority, or the failure to be so qualified, licensed or in good standing,
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company. The term "Material Adverse Effect on the
Company", as used in this Agreement, means any change in or effect on the
business, assets, liabilities, financial condition, results of operation or
prospects of the Company or any of its subsidiaries that is materially adverse
to the Company and its subsidiaries taken as a whole.
Section 4.2. Certificate of Incorporation and By-Laws. The Company has
heretofore made available to Parent and the Purchaser a complete and correct
copy of the certificate of incorporation and the by-laws or comparable
organizational documents, each as amended to the date hereof, of the Company and
each of its subsidiaries.
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Section 4.3. Capitalization; Subsidiaries. The authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). As of the
close of business on February 27, 1999, 17,248,296 shares of Common Stock were
issued and outstanding, all of which are entitled to vote on this Agreement, and
3,740,800 shares of Common Stock were held in treasury. 500,000 shares of Series
A Convertible Preferred Stock ("Series A Preferred Stock") are authorized. No
shares of Series A Preferred Stock are issued and outstanding. The Company has
no shares reserved for issuance, except that, as of March 8, 1999, there were
(i) 788,182 shares of Common Stock reserved for issuance pursuant to outstanding
Options granted under the 1996 Stock Option Plan and 765,309 available for
issuance pursuant to Options not yet granted under such Plan; (ii) 47,550 shares
of Common Stock reserved for issuance pursuant to outstanding Options granted
under the 1996 Performance Stock Option Plan and 160,000 available for issuance
pursuant to Options not yet granted under such Plan and (iii) no shares of
Common Stock reserved for issuance pursuant to outstanding Options granted under
the 1998 Performance Stock Option Plan and 900,000 available for issuance
pursuant to Options not yet granted under such Plan. As of March 8, 1999, the
Company has options to purchase shares of Common Stock outstanding and issued as
listed in the aggregate (including exercise price) in Section 4.3 of the
disclosure schedule delivered to Parent by the Company on the date hereof (the
"Company Disclosure Schedule"). Promptly following the date hereof, the Company
shall deliver to Parent the information set forth in Section 4.3 of the Company
Disclosure Schedule pursuant to the immediately preceding sentence listed by
individual. Since June 12, 1998, the Company has not issued any shares of
capital stock except pursuant to the exercise of Options outstanding as of such
date. All the outstanding shares of Common Stock are, and all shares of Common
Stock which may be issued pursuant to the exercise of outstanding Options will
be, when issued in accordance with the respective terms thereof, duly
authorized, validly issued, fully paid and nonassessable and are not subject to,
nor were they issued in violation of, any pre-emptive rights. There are no
bonds, debentures, notes or other indebtedness having general voting rights (or
convertible into securities having such rights) ("Voting Debt") of the Company
or any of its subsidiaries issued and outstanding. Except as set forth above and
except for the Transactions, there are no existing options, warrants, calls,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the issued or unissued capital stock of the Company or
any of its subsidiaries, obligating the Company or any of its subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
of its subsidiaries or securities convertible into or exchangeable for such
shares or equity interests and neither the Company nor any of its subsidiaries
is obligated to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment. Except as
contemplated by this Agreement and except for the Company's obligations in
respect of the Options under the Stock Plans, there are no outstanding
contractual obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of Common Stock or the capital stock or
other equity interests of the Company or any of its subsidiaries. Each of the
outstanding shares of capital stock or other equity interests of each of the
Company's subsidiaries is duly authorized, validly issued, fully paid, and to
the extent applicable, nonassessable, and, except as set forth in Section 4.3 of
the Company Disclosure Schedule, such shares or other equity interests of the
Company's subsidiaries as are owned by the Company or by a subsidiary of the
Company are owned in each case free and clear of any lien, claim, option,
charge, security interest, limitation, encumbrance and restriction of any kind
(any of the foregoing being a "Lien"). Except as set forth in Section 4.3 of the
Company Disclosure Schedule, the Company has not agreed to register any
securities under the Securities Act of 1933, as amended (the "Securities Act"),
or under any state securities law or granted registration rights to any person
or entity; copies of any registration rights agreements set forth in Section 4.3
of the Company Disclosure Schedule have previously been provided to Parent. Set
forth in Section 4.3 of the Company Disclosure Schedule is a complete and
correct list of each subsidiary (direct or indirect) of the Company and any
joint ventures, partnerships or similar arrangements in which the Company has an
interest (and the amount and percentage of any such interest). No entity in
which the Company owns, directly or indirectly, less than a 50% equity interest
is, individually or when taken together with all such other entities, material
to the business of the Company and its subsidiaries taken as a whole.
Section 4.4. Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the Transactions. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the Transactions have been
duly and validly authorized and approved by the Board and the Special Committee
and no other corporate proceedings on the part of the Company are necessary to
authorize or approve this Agreement or to consummate the Transactions (other
than, with respect to the Merger, the approval of this Agreement by the
affirmative vote of the holders of a majority of the then outstanding shares of
Common Stock entitled to vote thereon, to the extent required by applicable
law). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due and valid authorization, execution and delivery of
this Agreement by Parent and the Purchaser, constitutes a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.
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Section 4.5. No Conflict; Required Filings and Consents.
(a) Assuming (i) the filings required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), are made and the waiting
periods thereunder have been terminated or have expired, (ii) the requirements
of the Exchange Act and any applicable state securities, "blue sky" or takeover
law are met, (iii) the filing of the certificate of merger and other appropriate
merger documents, if any, as required by the DGCL, is made and (iv) approval of
this agreement by a majority of the holders of shares of Common Stock, if
required by the DGCL, is received, none of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the Transactions or
compliance by the Company with any of the provisions hereof will (a) conflict
with or violate the Certificate of Incorporation or By-Laws of the Company or
the comparable organizational documents of any of its subsidiaries, (b) conflict
with or violate any statute, ordinance, rule, regulation, order, judgment or
decree applicable to the Company or any of its subsidiaries, or by which any of
them or any of their respective properties or assets may be bound or affected,
or (c) result in a violation or breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in any loss of any material benefit, or the creation
of any Lien on any of the property or assets of the Company or any of its
subsidiaries (any of the foregoing referred to in clause (b) or this clause (c)
being a "Violation") pursuant to, any note, bond, mortgage, indenture, contract,
agreement, arrangement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties may be bound or affected, except in the case of the foregoing clauses
(b) or (c) for any such Violations which could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company, or could not, individually or in the aggregate, reasonably be expected
to prevent or materially delay consummation of the Transactions. Section 4.5 of
the Company Disclosure Schedule sets forth any such Violation of clause (c) of
the immediately preceding sentence.
(b) None of the execution and delivery of this Agreement by the Company, the
consummation by the Company of the Transactions or compliance by the Company
with any of the provisions hereof will require any consent, waiver, approval,
authorization or permit of, or registration or filing with or notification to
(any of the foregoing being a "Consent"), any federal, state, local or foreign
administrative, governmental or regulatory authority, agency, commission,
tribunal or body (a "Governmental Entity"), except for (i) compliance with any
applicable requirements of the Exchange Act, (ii) the filing of the certificate
of merger pursuant to the DGCL, (iii) compliance with the HSR Act and any
requirements of any foreign or supranational antitrust, competition, trade
regulatory or similar laws, rules or regulations ("Antitrust Laws") and (iv)
Consents the failure of which to obtain or make could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
Company or reasonably be expected to prevent or materially delay consummation of
the Transactions.
Section 4.6. SEC Reports and Financial Statements.
(a) The Company has filed with the SEC all forms, reports, schedules,
registration statements and definitive proxy statements required to be filed by
the Company with the SEC since February 26, 1997 (as they have been amended
since the time of their filing, collectively, the "SEC Reports"). As of their
respective dates, the SEC Reports (including but not limited to any financial
statements or schedules included or incorporated by reference therein) complied
in all material respects with the requirements of the Exchange Act and the
Securities Act, and the rules and regulations of the SEC promulgated thereunder
applicable, as the case may be, to such SEC Reports, and none of the SEC Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(b) The financial statements of the Company included in the SEC Reports at the
time filed (and, in the case of registration statements and proxy statements, on
the dates of effectiveness and the dates of mailing, respectively, and, in the
case of any SEC Report amended or superseded by a filing prior to the date of
this Agreement, then on the date of such amending or superseding filing)
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q of the SEC), and fairly
present (subject, in the case of unaudited statements, to normal, recurring
audit adjustments) the consolidated financial position of the Company and its
consolidated subsidiaries as at the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended. No subsidiary of
the Company is subject to the periodic reporting requirements of the Exchange
Act or required to file any form, report or other document with the SEC, the
NYSE, any other stock exchange or any other comparable Governmental Authority.
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(c) Except as reflected, reserved against or otherwise disclosed in the
financial statements of the Company included in the SEC Reports or as otherwise
disclosed in the SEC Reports, in each case, filed prior to the date of this
Agreement or as set forth in Section 4.6(c) of the Company Disclosure Schedule,
as of the date hereof, neither the Company nor any of its subsidiaries have any
liabilities or obligations (absolute, accrued, fixed, contingent or otherwise)
which would be required to be reflected on a balance sheet or the notes thereto
prepared in accordance with GAAP, other than liabilities incurred in the
ordinary course of business consistent with past practice since January 30, 1999
which could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company.
(d) Since January 30, 1999, (i) no development or event has occurred that has,
or could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company or on the ability of the Company to
consummate the Transactions, (ii) the Company and each of its subsidiaries has
conducted its respective operations in the ordinary and usual course of business
consistent with past practice and (iii) neither the Company nor any of its
subsidiaries has taken any action or omitted to take any action, which act or
omission, if after the date of this Agreement, would result in a breach or
violation of Section 6.1.
(e) The Company has heretofore furnished to Parent a complete and correct copy
of any amendments or modifications which have not yet been filed with the SEC to
agreements, documents or other instruments which previously had been filed by
the Company with the SEC pursuant to the Securities Act and the rules and
regulations promulgated thereunder or the Exchange Act and the rules and
regulations promulgated thereunder.
Section 4.7. Employee Benefit Matters.
(a) Section 4.7 of the Company Disclosure Schedule lists all material
compensation and benefit plans, contracts and arrangements maintained by,
sponsored or participated in by the Company and its subsidiaries in which any
current or former employees or directors of the Company or its subsidiaries
participate (the "Employee Benefit Plans").
(b) Except as could not, individually or in the aggregate, reasonably be
expected, to have a Material Adverse Effect on the Company (i) all Employee
Benefit Plans are in compliance with and have been administered in compliance
with all applicable requirements of law, including, but not limited to, the
Internal Revenue Code of 1986, as amended (the "Code"), and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and have been
operated in accordance with their terms, and all contributions required to be
made to each such plan under the terms of such plan, ERISA or the Code for any
period through the date hereof have been timely paid or made in full and through
the Effective Time will be timely paid or made in full; (ii) no "prohibited
transaction" (as defined in Section 4975 of the Code) has occurred with respect
to any Employee Benefit Plan which would reasonably be expected to subject any
Employee Benefit Plan (or its related trust), the Company or any subsidiary, to
a tax or penalty imposed under Section 4975 of the Code; (iii) the Company has
not incurred any material liability under Title IV of ERISA which has not been
satisfied in full, no event has occurred and no condition exists that would
reasonably be expected to result in the Company incurring a material liability
under Title IV of ERISA, and no Employee Benefit Plan has incurred an
"accumulated funding deficiency" as defined in Section 412 of the Code or
Section 302 of ERISA; (iv) none of the Company, its subsidiaries or any entity,
trade or business that is considered one employer with the Company or any of its
subsidiaries under Section 4001(a)(14) of ERISA or Section 414(b) or (c) of the
Code (an "ERISA Affiliate") is required to contribute to, or during the
five-year period ending on the Effective Time will have been required to
contribute to, any "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA); (v) each Employee Benefit Plan which is not maintained in the United
States is funded and/or book reserved for in accordance with applicable laws and
reasonable accounting assumptions; (vi) there is no pending or, to the knowledge
of the Company, threatened legal action, suit or claim relating to any current
or former employee of the Company or its subsidiaries or any Employee Benefit
Plan.
(c) The Transactions will not constitute a "change of control" under, require
the consent from or the giving of notice to a third party pursuant to, or
accelerate vesting or repurchase rights under the terms, conditions or
provisions of any employment, compensation, termination or severance agreement
of the Company or any of its subsidiaries. Neither the Company nor any of its
subsidiaries is a party to any agreement, contract or arrangement that could
result, on account of the Transactions (including upon any subsequent
termination of employment) in the payment of any excess parachute payments
within the meaning of Section 280G of the Code or any payment that would be
nondeductible under Section 162(m) of the Code. No such agreement, contract or
arrangement provides for the reimbursement of excise taxes under Section 1999 of
the code or any income taxes under the Code. The total amounts payable to the
executive officers of the Company, as set forth in Section 4.7 of the Company
Disclosure Schedule, as a result of the Transactions contemplated by this
Agreement and/or any subsequent employment termination (excluding any cash-out
or acceleration of options and restricted stock but including any "gross-up"
payments with respect thereto), based on compensation data applicable as of the
date hereof, calculated assuming effective tax rates of 39.6%, will not exceed
the amount set forth on such schedule.
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Section 4.8. Litigation. Except as specifically disclosed in the SEC Reports
filed prior to the date of this Agreement, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened, against the Company or any of its subsidiaries before any
Governmental Entity which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company or prevent or
materially delay the consummation of the Transactions. Except as specifically
disclosed in the SEC Reports filed prior to the date of this Agreement, neither
the Company nor any of its subsidiaries is subject to any outstanding order,
writ, injunction or decree which could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company or
prevent or materially delay the consummation of the Transactions.
Section 4.9. Information. None of the information supplied by the Company in
writing specifically for inclusion or incorporation by reference in (i) the
Offer Documents, (ii) the Proxy Statement or (iii) any other document to be
filed with the SEC or any other Governmental Entity prior to the Effective Time
(the "Other Filings") will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, at the
date it or any amendment or supplement is mailed to the Stockholders, at the
time of the Special Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent or the Purchaser in writing specifically
for inclusion in the Proxy Statement.
Section 4.10. Taxes.
(a) Except as set forth in Disclosure Schedule 4.10(a) and except as could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company: (i) all Tax Returns required to be filed (taking
into account extensions) on or before the Effective Time for taxable periods
ending on or before the Effective Time by, or with respect to any activities of,
or property owned by, the Company, its subsidiaries, or each affiliated,
consolidated, combined or unitary group that included or includes the Company or
any of its subsidiaries (a "Tax Group"), have been or will be filed in
accordance with all applicable laws and are true, correct and complete in all
material respects as filed, all Taxes shown as due on such Tax Returns have been
or will be timely paid, and reserves reflected on the most recent balance sheet
of the Company are in accordance with GAAP and are sufficient to cover all Taxes
(whether or not shown as due on any Tax Return) accrued as of such date and,
adjusted for the passage of time, will be sufficient to cover all Taxes as of
the Effective Time; (ii) all Taxes required to be withheld by the Company or its
subsidiaries have been withheld, and such withheld Taxes have either been duly
and timely paid to the proper Governmental Entities or set aside in accounts for
such purpose if not yet due; (iii) no Tax Return filed by the Company or any of
its subsidiaries is currently under audit by any Taxing Authority or is the
subject of any judicial or administrative proceeding, and to the knowledge of
the Company no Taxing Authority is threatening to commence any such audit; (iv)
no Taxing Authority is now asserting against the Company or any of its
subsidiaries any deficiency or claim for Taxes or any adjustment of Taxes; (v)
other than any Tax sharing or indemnification agreement to which the parties are
exclusively the Company and/or some or all of its subsidiaries, neither the
Company nor any of its subsidiaries is subject to or bound by any Tax sharing
agreement (or other arrangement or practice for the sharing of Taxes); (vi)
neither the Company nor any of its subsidiaries has ever been a member of a Tax
Group, other than one for which the Company or one of its subsidiaries was the
common parent; (vii) there are no liens for Taxes (other than Taxes not yet due)
upon any of the assets of the Company or any of its subsidiaries; (viii) the
Company has no liability for the Taxes of any person other than the Company and
its subsidiaries; and (ix) neither the Company nor any of its subsidiaries has
been a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(b) Prior to the date hereof, the Company has provided Parent with written
schedules of (i) the taxable years of the Company for which the statute of
limitations with respect to federal, state and local income Taxes has not yet
expired, and (ii) with respect to federal, state and local income Taxes, those
years for which examinations by a Taxing Authority have been completed, those
years for which examinations by a Taxing Authority have commenced but not yet
been completed, and those years for which examinations by a Taxing Authority
have not yet commenced.
(c) "Tax" or "Taxes" means any and all taxes, fees, assessments, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Taxing Authority, including, without limitation,
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, assets, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, severance, occupation, or net worth; taxes or other charges in the
nature of excise, withholding, ad valorem, stamp, transfer, estimated, value
added, or gains taxes; license, registration and documentation fees;
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and customs' duties, tariffs, and similar charges. "Taxing Authority" means any
Governmental Entity having jurisdiction over the assessment, determination,
collection or other imposition of any Tax. "Tax Return" means any return,
declaration, report, claim for refund, information statement, schedule or other
document (including any related or supporting information and including any Form
1099 or other document or report required to be provided by the Company or any
of its subsidiaries to third parties) relating to Taxes, including any document
required to be retained or provided to any Governmental Entity relating to the
Company or any of its subsidiaries or any consolidated group of which any such
entity was a member at the applicable time, and any amended Tax Returns.
Section 4.11. Intellectual Property. The Company owns, or possesses adequate
rights to use, all Intellectual Property that is used in the conduct of the
business of the Company and its subsidiaries, except as could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company. The Company has not received any notice of any conflict with or
violation or infringement of, any asserted rights of any other person with
respect to any Intellectual Property owned or licensed by the Company or any of
its subsidiaries, which could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company. To the knowledge of
the Company, the conduct of the Company's and its subsidiaries' respective
businesses as currently conducted does not conflict with any patents, patent
rights, licenses, trademarks, trademark rights, trade names, trade name rights
or copyrights of others, or any other rights with respect to Intellectual
Property, in any way that could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company. There is no
infringement of any proprietary right owned by or licensed by or to the Company
or any of its subsidiaries that could, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company.
"Intellectual Property" means all domestic or foreign trademarks (registered and
unregistered) and trademark applications and registrations, patents, patent
applications, inventions (whether or not patentable), processes, products,
technologies, discoveries, copyrightable and copyrighted works, apparatus, trade
secrets, brand names, certification marks, service marks and service mark
applications and registrations, trade names, trade dress, copyright
registrations, design rights, mask works, technical information (whether
confidential or otherwise), and all documentation thereof.
Section 4.12. Year 2000 Compliance. The Company has taken steps that are
reasonable to provide that the occurrence of the year 2000 will not materially
and adversely affect the information and business systems of the Company or its
subsidiaries, and it is the Company's reasonable expectation that no material
expenditures in excess of currently budgeted items will be required in order to
cause such systems to operate properly following the change of the year 1999 to
2000.
Section 4.13. Certain Approvals. The Board has taken appropriate action such
that the provisions of Section 203 of the DGCL will not apply to the execution
of this Agreement or any of the Transactions. No other state takeover law or
state law that purports to limit or restrict business combinations or the
ability to vote shares applies to the execution of this Agreement or any of the
Transactions contemplated hereby.
Section 4.14. Brokers. Except for the engagement of the Financial Advisor,
none of the Company, any of its subsidiaries, or any of their respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finder's fees in connection
with the Transactions. The Company has previously delivered to Parent a copy of
the Company's engagement letter with the Financial Advisor.
Section 4.15. Opinion of Financial Advisor. The Company has received the
written opinion of the Financial Advisor, to the effect that, as of the date of
such opinion, the consideration to be received in the Offer and the Merger by
the Stockholders is fair to the Stockholders (other than Parent and the
Purchaser) from a financial point of view. The Company has previously delivered
to Parent a copy of such opinion.
Section 4.16. Vote Required. The affirmative vote of the holders of a majority
of the outstanding shares of Common Stock entitled to vote with respect to this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock that may be necessary to approve this Agreement and the
Transactions.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as follows:
Section 5.1. Organization and Qualification. Parent is a societe anonyme duly
organized, validly existing and in good standing under the laws of the Republic
of France. The Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each of Parent and the
Purchaser has the requisite corporate power and authority to own, operate or
lease its properties and to carry on its business as it is now being conducted,
and is duly qualified or licensed to do business, and is in good standing, in
each jurisdiction in which the nature of its business or the properties owned,
operated or leased by it makes such qualification, licensing or good standing
necessary, except where the failure to have such power or authority, or the
failure to be so qualified, licensed or in good standing, could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent. The term "Material Adverse Effect on Parent", as used
in this Agreement, means any change in or effect on the business, assets,
liabilities, financial condition, results of operation or prospects of Parent or
any of its subsidiaries that would be materially adverse to Parent and its
subsidiaries taken as a whole.
Section 5.2. Authority Relative to this Agreement. Each of Parent and the
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement and to consummate the Transactions. The execution and delivery of
this Agreement by ▇▇▇▇▇▇ and the Purchaser and the consummation by Parent and
the Purchaser of the Transactions have been duly and validly authorized and
approved by the Supervisory Board of Parent and the Board of Directors of the
Purchaser and by Parent as sole stockholder of the Purchaser and no other
corporate proceedings on the part of Parent or the Purchaser are necessary to
authorize or approve this Agreement or to consummate the Transactions. This
Agreement has been duly executed and delivered by each of Parent and the
Purchaser and, assuming the due and valid authorization, execution and delivery
by the Company, constitutes a valid and binding obligation of each of Parent and
the Purchaser enforceable against each of them in accordance with its terms.
Section 5.3. No Conflict; Required Filings and Consents.
(a) Assuming (i) the filings required under the HSR Act are made and the waiting
periods thereunder have been terminated or have expired, (ii) the requirements
of the Exchange Act and any applicable state securities, "blue sky" or takeover
law are met and (iii) the filing of the certificate of merger and other
appropriate merger documents, if any, as required by the DGCL is made, none of
the execution and delivery of this Agreement by Parent or the Purchaser, the
consummation by Parent or the Purchaser of the Transactions or compliance by
Parent or the Purchaser with any of the provisions hereof will (i) conflict with
or violate the organizational documents of Parent or the Purchaser, (ii)
conflict with or violate any statute, ordinance, rule, regulation, order,
judgment or decree applicable to Parent or the Purchaser, or by which any of
them or any of their respective properties or assets may be bound or affected,
or (iii) result in a Violation pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or the Purchaser is a party or by which any of their
respective properties or assets may be bound or affected, except in the case of
the foregoing clauses (ii) and (iii) for any such Violations which could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent or could not, individually or in the aggregate,
reasonably be expected to prevent or materially delay consummation of the
Transactions.
(b) None of the execution and delivery of this Agreement by Parent and the
Purchaser, the consummation by Parent and the Purchaser of the Transactions or
compliance by Parent and the Purchaser with any of the provisions hereof will
require any Consent of any Governmental Entity, except for (i) compliance with
any applicable requirements of the Exchange Act and any state securities "blue
sky" or takeover law, (ii) the filing of the certificate of merger pursuant to
the GCL, (iii) compliance with the HSR Act and any requirements of any foreign
or supranational Antitrust Laws and (iv) Consents the failure of which to obtain
or make could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent or materially adversely affect the
ability of Parent or reasonably be expected to prevent or materially delay
consummation of the Transactions.
Section 5.4. Information. None of the information supplied or to be supplied
by Parent and the Purchaser in writing specifically for inclusion in (i) the
Schedule 14D-9, (ii) the Proxy Statement or (iii) the Other Filings will, at the
respective times filed with the SEC or such other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment or
supplement is mailed to the Stockholders, at the time of the Special Meeting and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
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Section 5.5. Financing. At the Effective Time, Parent and the Purchaser will
have available all of the funds necessary to consummate the Transactions.
ARTICLE VI
COVENANTS
Section 6.1. Conduct of Business of the Company. Except as permitted, required
or specifically contemplated by, or otherwise described in, this Agreement or
otherwise with the prior written consent of Parent, during the period from the
date of this Agreement to the Effective Time, the Company will, and will cause
each of its subsidiaries to, conduct its operations only in the ordinary and
usual course of business consistent with past practice and will use its
reasonable best efforts, and will cause each of its subsidiaries to use its
reasonable best efforts, to preserve intact the business organization of the
Company and each of its subsidiaries, to keep available the services of its and
their present officers and key employees, and to preserve the good will of those
having business relationships with it, including, without limitation,
maintaining satisfactory relationships with licensors, suppliers, distributors,
customers and others having business relationships with the Company. Without
limiting the generality of the foregoing, and except as otherwise expressly
permitted, required or specifically contemplated by, or otherwise described in,
this Agreement, the Company will not, and will not permit any of its
subsidiaries to, prior to the Effective Time, without the prior written consent
of Parent:
(a) adopt or propose any amendment to its Certificate of Incorporation
or By-Laws or comparable organizational documents;
(b) (i) issue, reissue, pledge or sell, or authorize the issuance,
reissuance, pledge or sale of (A) additional shares of capital stock of any
class, or securities convertible into capital stock of any class, or any
rights, warrants or options to acquire any convertible securities or
capital stock, other than the issuance of shares of Common Stock, in
accordance with the terms of the instruments governing such issuance on the
date hereof, pursuant to the exercise of Options outstanding on the date
hereof or (B) any other securities in respect of, in lieu of, or in
substitution for, shares of its capital stock outstanding on the date
hereof or (ii) make any other changes in its capital structure;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than between any
of the Company and any of its wholly owned subsidiaries;
(d) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any shares of its capital stock, or any of its other securities or create
any subsidiaries;
(e) (i) incur, assume or pre-pay any long-term debt or incur or assume
any short-term debt, except that the Company and its subsidiaries may incur
or pre-pay debt in the ordinary course of business in amounts and for
purposes consistent with past practice, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary
course of business consistent with past practice, or (iii) make any loans,
advances or capital contributions to, or investments in, any other person
except in the ordinary course of business consistent with past practice and
except for loans, advances or capital contributions between any wholly
owned subsidiary of the Company and the Company or another wholly owned
subsidiary of the Company;
(f) other than in the ordinary course of business, (i) modify, amend
or terminate any material contract, (ii) except as required by law, waive,
release, relinquish, settle, compromise or assign any material contract (or
any of the Company's rights thereunder), right or claim, or (iii) cancel or
forgive any indebtedness owed to the Company or any of its subsidiaries
except in the ordinary course of business consistent with past practice;
(g) file any Tax Return (except in the ordinary course of business),
or make or revoke any Tax election, or change any method of accounting,
except to the extent that such action would not have a Material Adverse
Effect on the Company;
(h) other than in the ordinary course of business, enter into any
contract or agreement that would be material to the Company and its
subsidiaries taken as a whole;
(i) except as may be required as a result of a change in applicable
law or in GAAP, make any change in its methods or principles of accounting;
or
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(j) agree in writing or otherwise to take any of the foregoing actions
prohibited under this Section 6.1 or any action which would cause any
representation or warranty in this Agreement to be or become untrue or
incorrect in any material respect.
Section 6.2. Access to Information. (a) From the date of this Agreement until
the Effective Time, the Company will, and will cause its subsidiaries, and each
of their respective officers, directors, employees, counsel, advisors and
representatives (collectively, the "Company Representatives") to, give Parent
and the Purchaser and their respective officers, employees, counsel, advisors
and representatives (collectively, the "Parent Representatives") reasonable
access, during normal business hours, to the offices and other facilities and to
the books and records of the Company and its subsidiaries and will cause the
Company Representatives and the Company's subsidiaries to furnish Parent, the
Purchaser and the Parent Representatives to the extent available with such
financial and operating data and such other information with respect to the
business and operations of the Company and its subsidiaries as Parent and the
Purchaser may from time to time reasonably request. The Company shall furnish to
Parent and the Purchaser prior to filing a copy of each report, schedule,
registration statement and other document to be filed by it or its subsidiaries
during such period pursuant to the requirements of federal or state securities
laws.
(b) No investigation pursuant to this Section 6.2 shall affect any
representation or warranty in this Agreement of the Company or any condition to
the obligations of the parties hereto.
Section 6.3. Reasonable Best Efforts.
(a) Subject to the terms and conditions provided herein, each of the Company,
Parent and the Purchaser shall, and the Company shall cause each of its
subsidiaries to, cooperate and use their respective reasonable best efforts to
take, or cause to be made, all filings necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including but not limited to
cooperation in the preparation and filing of the Offer Documents, the Schedule
14D-9, the Proxy Statement, any required filings under the HSR Act, or other
foreign filings and any amendments to any thereof.
(b) In addition, if at any time prior to the Effective Time any event or
circumstance relating to either the Company or Parent or the Purchaser or any of
their respective subsidiaries should be discovered by the Company or Parent, as
the case may be, which should be set forth in an amendment to the Offer
Documents or Schedule 14D-9, the discovering party will promptly inform the
other party of such event or circumstance.
(c) Each of the parties will use its reasonable best efforts to obtain as
promptly as practicable all Consents of any Governmental Entity or any other
person required in connection with, and waivers of any Violations that may be
caused by, the consummation of the transactions contemplated by the Offer and
this Agreement.
Section 6.4. Public Announcements. The Company, on the one hand, and Parent
and the Purchaser, on the other hand, agree to consult promptly with each other
prior to issuing any press release or otherwise making any public statement with
respect to the Offer, the Merger and the other Transactions, agree to provide to
the other party for review a copy of any such press release or statement, and
shall not issue any such press release or make any such public statement prior
to such consultation and review, unless required by applicable law or any
listing agreement with a securities exchange.
Section 6.5. Indemnification.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to indemnify and hold harmless the officers and directors of the
Company (the "Indemnified Parties") in respect of acts or omissions occurring
prior to the Effective Time to the extent currently provided under the Company's
Certificate of Incorporation, By-Laws or indemnification agreements in effect as
of the date of this Agreement.
(b) Parent agrees that the Company, and from and after the Effective Time, the
Surviving Corporation shall cause to be maintained in effect for not less than
six years (except as provided in the last sentence of this Section 6.5(b)) from
the Effective Time the current policies of the directors' and officers'
liability insurance maintained by the Company; provided, that the Surviving
Corporation may substitute therefor other policies not less advantageous in the
aggregate (other than to a de minimis extent) to the beneficiaries of the
current policies and provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time; and provided, further, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 150% of the last annual
premium paid by the Company prior to the date hereof (which the Company
represents to be $694,175 for the 36-month period ending July 10, 2001) and if
the Surviving Corporation is unable to obtain the insurance required by this
Section 6.5(b) it shall obtain the greatest comparable insurance coverage as
possible for an annual premium equal to such maximum amount. Notwithstanding the
foregoing, at any time on or after the second anniversary of the Effective Time,
Parent may, at its election, undertake to
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provide funds to the Surviving Corporation to the extent necessary so that the
Surviving Corporation may self-insure with respect to the level of insurance
coverage required under this Section 6.5(b) in lieu of causing to remain in
effect any directors' and officers' liability insurance policy.
(c) Any Indemnified Party wishing to claim indemnification under paragraph (a)
of this Section, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Parent thereof. In the event of any such
claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) Parent or the Surviving Corporation shall have
the right, from and after the purchase of shares of Common Stock pursuant to the
Offer, to assume the defense thereof if the relief sought therein is solely
monetary and Parent shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof (provided, that
if a conflict exists between Parent and the Indemnified Parties, the Indemnified
Parties may engage one separate counsel the reasonable expenses of such counsel
to be borne by Parent), (ii) the Indemnified Parties will cooperate in the
defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent; and provided, further,
that Parent shall not have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction shall ultimately determine, and
such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
Section 6.6. Notification of Certain Matters. Parent and the Company shall
promptly notify each other of (a) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (i) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (ii) to cause
any material covenant, condition or agreement under this Agreement not to be
complied with or satisfied in all material respects and (b) any failure of the
Company, Parent, or the Purchaser, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder in any material respect; provided, however, that no such notification
shall affect the representations or warranties of any party or the conditions to
the obligations of any party hereunder. Each of the Company, Parent and the
Purchaser shall give prompt notice to the other parties hereof of any notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection with the Transactions.
Section 6.7. State Takeover Laws. The Company shall, upon the request of the
Purchaser, take all reasonable steps to assist in any challenge by the Purchaser
to the validity or applicability to the Transactions, including the Offer and
the Merger, of any state takeover law or other similar law.
Section 6.8. Acquisition Transactions. From and after the execution of this
Agreement, the Company shall promptly advise Parent in reasonable detail of the
receipt, directly or indirectly, of any inquiries, discussions, negotiations or
proposals relating to a merger, liquidation, recapitalization, consolidation or
other business combination involving the Company or its subsidiaries or
acquisition of any capital stock or any material portion of the assets of the
Company or its subsidiaries, or any combination of the foregoing (an
"Acquisition Transaction"), including without limitation identifying the offeror
and the terms of any proposal relating to an Acquisition Transaction. The
Company shall promptly advise Parent of any material development relating to
such proposal, including the results of any discussions or negotiations with
respect thereto. The Company shall not provide any non-public information to any
third party (other than Parent, the Purchaser or any of their respective
affiliates or advisors) without having entered into a customary confidentiality
agreement with respect to such information.
Section 6.9. Management. Parent has no present intention to change senior
management of the Company or the terms of their employment following
consummation of the Transactions. Parent intends to work with senior management
of the Company to develop appropriate incentives for management of the Company
following consummation of the Transactions. Nothing contained herein shall be
deemed to constitute a contract to employ any person for any specific period of
time or to provide for any terms of employment beyond current contractual
arrangements.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1. Conditions. The respective obligations of Parent, the Purchaser
and the Company to consummate the Merger are subject to the satisfaction, at or
before the Effective Time, of each of the following conditions:
(a) Stockholder Approval. The Stockholders shall have duly approved
the Transactions, if required by the DGCL.
(b) Purchase of Common Stock. The Purchaser shall have accepted for
payment and paid for shares of Common Stock pursuant to the Offer in
accordance with the terms thereof; provided that this condition shall be
deemed to have
IV-15
80
been satisfied with respect to Parent and the Purchaser if the Purchaser
fails to accept for payment or pay for shares of Common Stock pursuant to
the Offer in violation of the terms of the Offer.
(c) Injunctions; Illegality. The consummation of the Merger shall not
be restrained, enjoined or prohibited by any order, judgment, decree,
injunction or ruling of a court of competent jurisdiction or any
Governmental Entity and there shall not have been any statute, rule or
regulation enacted, promulgated or deemed applicable to the Merger by any
Governmental Entity which prevents the consummation of the Merger or the
other transactions contemplated hereby or has the effect of making the
purchase of shares of Common Stock illegal.
(d) Litigation. There shall not be pending any claim, action, suit,
hearing, or proceeding ("Action") challenging or seeking to restrain or
prohibit the consummation of the Transactions, or any other Action filed
against the Company or any of its subsidiaries after the date of this
Agreement that, if adversely determined, could, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company or on the consummation of the Transactions.
(e) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or terminated and any
other approvals or requirements under any other Antitrust Laws shall have
been obtained or complied with.
ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER
Section 8.1. Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of the Company (with any
termination by Parent also being an effective termination by the Purchaser):
(a) by the mutual written consent of Parent and the Company, by action
of the Supervisory Board (with respect to Parent) and of the Special
Committee (with respect to the Company);
(b) by the Company if (i) the Purchaser fails to commence the Offer as
provided in Section 1.1 hereof, (ii) the Purchaser shall not have accepted
for payment and paid for shares of Common Stock pursuant to the Offer in
accordance with the terms thereof on or before June 30, 1999 (provided,
that if any Governmental Entity has made a request for additional
information under the HSR Act, such date shall be extended to a date which
is 60 days after substantial compliance with such request, but in no event
later than September 30, 1999) or (iii) the Purchaser fails to purchase
validly tendered shares of Common Stock in violation of applicable law;
(c) by Parent or the Company if the Offer is terminated or withdrawn
pursuant to its terms without any shares of Common Stock being purchased
thereunder; provided, however, that neither Parent nor the Company may
terminate this Agreement pursuant to this Section 8.1(c) if such party
shall have breached this Agreement in any material respect or, in the case
of Parent, if it or the Purchaser is in material violation of the terms of
the Offer;
(d) by Parent or the Company if any court or other Governmental Entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the acceptance
for payment of, or payment for, shares of Common Stock pursuant to the
Offer or the Merger and such order, decree or ruling or other action shall
have become final and nonappealable;
(e) by the Company if, prior to the purchase of shares of Common Stock
pursuant to the Offer in accordance with the terms of this Agreement, the
Special Committee approves or recommends another offer or an agreement to
effect a proposal made by a third party (other than an affiliate of Parent)
to effect an Acquisition Transaction, on terms which a majority of the
members of the Special Committee has determined in good faith (i) based
upon the advice of a nationally recognized investment banker, to be more
favorable to the Company and its Stockholders (other than Parent and the
Purchaser) than the Transactions and (ii) based upon the advice from its
outside counsel, that failure to approve such proposal and terminate this
Agreement would constitute a breach of fiduciary duties of the Board under
applicable law;
(f) by Parent prior to the purchase of shares of Common Stock pursuant
to the Offer if the Special Committee (i) shall have withdrawn or modified
(including by amendment of the Schedule 14D-9) in a manner adverse to the
Purchaser its approval or recommendation of the Offer, this Agreement or
the Merger, (ii) shall have approved or recommended another offer or an
agreement to effect a proposal made by a third party (other than an
affiliate of Parent) to effect an Acquisition Transaction or (iii) shall
have resolved to effect any of the foregoing;
IV-16
81
(g) by the Company prior to the consummation of the Offer, if (i)(A)
any of the representations and warranties of Parent or the Purchaser
contained in this Agreement and qualified as to materiality were when made
or have since become untrue or incorrect or (B) any other representations
or warranties of Parent or the Purchaser contained in this Agreement were
when made or have become untrue or incorrect and such breach could
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on Parent or on the ability of Parent or the
Purchaser to consummate the Offer and the Merger, or (ii) Parent or the
Purchaser shall have breached or failed to comply in any material respect
with any of their respective agreements or obligations under this
Agreement, which breach shall not have been cured prior to the earlier of
(X) 10 days following notice of such breach and (Y) two business days prior
to the date on which the Offer expires;
(h) by Parent prior to the purchase of shares of Common Stock pursuant
to the Offer, if (i)(A) any of the representations or warranties of the
Company (1) contained in this Agreement and qualified as to materiality or
(2) contained in Section 4.3 were when made or have since become untrue or
incorrect or (B) any other representations or warranties of the Company
contained in this Agreement (other than the representations and warranties
set forth in Section 4.3) were when made or have become untrue or incorrect
and such breach could reasonably be expected, individually or in the
aggregate, to have Material Adverse Effect on the Company or which could
reasonably be expected, individually or in the aggregate, to prevent or
materially delay the consummation of the Offer or (ii) the Company shall
have breached or failed to comply in any material respect with any of its
agreements or obligations under this Agreement, which breach shall not have
been cured prior the earlier of (X) 10 days following notice of such breach
and (Y) two business days prior to the date on which the Offer expires; or
(i) by Parent prior to the purchase of Shares pursuant to the Offer,
if the Minimum Condition shall not have been satisfied by the expiration
date of the Offer and on or prior to such date any person (other than
Parent or the Purchaser or any affiliate thereof) shall have made a
proposal or public announcement or communication to the Company with
respect to an Acquisition Transaction.
Section 8.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1, this Agreement shall forthwith become void
and have no effect, without any liability on the part of any party or its
directors, officers or stockholders, other than the provisions of this Section
8.2 and Section 9.9, which shall survive any such termination. Nothing contained
in this Section 8.2 shall relieve any party from liability for any breach of
this Agreement.
Section 8.3. Amendment. This Agreement may be amended by the Company, Parent
and the Purchaser at any time before or after any approval of this Agreement by
the shareholders of the Company but, after any such approval, no amendment shall
be made which decreases the Merger Price or which adversely affects the rights
of the Stockholders hereunder without the approval of such Stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all the parties.
Section 8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (ii) waive any inaccuracies
in the representations and warranties contained herein by any other party or in
any document, certificate or writing delivered pursuant hereto by any other
party or (iii) waive compliance with any of the agreements of any other party or
with any conditions to its own obligations. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Non-Survival. The representations, warranties and covenants made
in this Agreement shall not survive beyond the Effective Time. Notwithstanding
the foregoing, the agreements set forth in Section 2.3, Section 2.9, Section
2.12, Article III, Section 6.5, Section 6.6 and Section 6.9 shall survive the
Effective Time indefinitely (except to the extent a shorter period of time is
explicitly specified therein).
Section 9.2. Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments
referred to herein) constitute the entire agreement and supersede all prior
agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof and thereof.
IV-17
82
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto
(whether by operation of law or otherwise) without the prior written
consent of the other party (except that Parent may assign its rights and
the Purchaser may assign its rights, interest and obligations to any
affiliate or direct or indirect subsidiary of Parent without the consent of
the Company; provided, that no such assignment shall relieve Parent of any
liability for any breach by such assignee). Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and assigns.
Section 9.3. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
Section 9.4. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or facsimile to the
respective parties as follows:
If to Parent or the Purchaser:
Pinault-Printemps-Redoute S.A.
▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ Cedex 08
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇-▇▇-▇▇-▇▇
with a copy to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company:
Brylane Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
California Plaza
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
Section 9.5. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
Section 9.6. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
IV-18
83
Section 9.7. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 9.8. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and, except with respect to
Sections 2.9 and 6.5, nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement.
Section 9.9. Fees and Expenses. Whether or not the Merger is consummated,
except as otherwise specifically provided herein, all costs and expenses
incurred in connection with the Offer, this Agreement and the Transactions shall
be paid by the party incurring such expenses; provided, that if this Agreement
shall have been terminated by the Company pursuant to Section 8.1(b) or Section
8.1(g), Parent shall reimburse the out-of-pocket costs and expenses incurred by
the Company in connection with the Offer, this Agreement and the Transactions.
Section 9.10. Certain Definitions. As used in this Agreement:
(a) the term "affiliate", as applied to any person, shall mean any other person
directly or indirectly controlling, controlled by, or under common control with,
that person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise;
(b) the term "Person" or "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall include a
"group" as such term is defined in Section 13(d)(3) of the Exchange Act); and
(c) the term "subsidiary" when used with respect to any party means any
corporation or other organization, incorporated or unincorporated, (i) of which
such party or another subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party or
any subsidiary of such party do not have 50% or more of the voting interests in
such partnership) or (ii) 50% or more of the securities or other interests of
which having by their terms ordinary voting power to elect at least 50% of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or one or more of its subsidiaries (or if there are no such voting
securities or interests, 50% or more of the equity interests of which is
directly or indirectly owned or controlled by such party or one or more of its
subsidiaries).
Section 9.11. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity, provided, that this Section 9.11
shall have no force and effect from and after the termination of this Agreement
in accordance with Section 8.1.
IV-19
84
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
on its behalf by its respective officer thereunto duly authorized, all as of the
day and year first above written.
PINAULT-PRINTEMPS-REDOUTE S.A.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
BUTTONS ACQUISITION CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
BRYLANE INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President and
Chief Financial Officer
IV-20
85
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, the Purchaser shall not be
required to accept for payment or pay for any tendered shares of Common Stock,
unless (i) there are validly tendered and not properly withdrawn prior to the
expiration date for the Offer (the "Expiration Date") that number of shares of
Common Stock which, when aggregated with the shares of Common Stock currently
beneficially owned by Parent, represent at least 90% of the total number of
outstanding shares of Common Stock, on a fully diluted basis, on the date of
purchase; provided, that following the Initial Expiration Date, Purchaser may
accept for payment or pay for tendered shares of Common Stock which, when
aggregated with the shares of Common Stock currently beneficially owned by
Parent, represent at least 75% of the total number of outstanding shares of
Common Stock, on a fully diluted basis, on the date of purchase (the "Minimum
Condition") and (ii) any applicable waiting period under the HSR Act or under
any applicable foreign statutes or regulations shall have expired or been
terminated. Furthermore, notwithstanding any other provisions of the Offer, the
Purchaser may, subject to the terms of the Merger Agreement, amend or terminate
the Offer or postpone the acceptance for payment of or payment for tendered
shares of Common Stock if at any time on or after March 10, 1999 (unless
otherwise indicated below) and before the time of payment for any shares of
Common Stock, any of the following events (each, an "Event") shall occur:
(a) there shall be any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction enacted,
enforced, promulgated, amended, issued or deemed applicable to the Offer,
by any legislative body, court, government or governmental, administrative
or regulatory authority or agency, other than the routine application of
the waiting period provisions of the HSR Act to the Offer or to the Merger,
that would reasonably be expected to: (i) make illegal or otherwise
prohibit or materially delay consummation of the Offer or the Merger or
seek to obtain material damages or make materially more costly the making
of the Offer, (ii) prohibit or materially limit the ownership or operation
by Parent or the Purchaser of all or any material portion of the business
or assets of the Company or any of its subsidiaries taken as a whole or
compel Parent or the Purchaser to dispose of or hold separately all or any
material portion of the business or assets of Parent or the Purchaser or
the Company or any of its subsidiaries taken as a whole, or seek to impose
any material limitation on the ability of Parent or the Purchaser to
conduct its business or own such assets, (iii) impose material limitations
on the ability of Parent or the Purchaser effectively to acquire, hold or
exercise full rights of ownership of the shares of Common Stock, including,
without limitation, the right to vote any shares of Common Stock acquired
or owned by the Purchaser or Parent on all matters properly presented to
the Company's stockholders, or (iv) require divestiture by Parent or the
Purchaser of any shares of Common Stock;
(b) there shall be any pending Action challenging or seeking to
restrain or prohibit the consummation of the Transactions or any other
Action filed against the Company or any of its subsidiaries after the date
of this Agreement which, if adversely determined, could, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company or on the consummation of the Transactions;
(c) there shall have occurred any development or event that has, or
could reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the business, assets, liabilities, financial
condition, results of operations or prospects of the Company and its
subsidiaries taken as a whole, excluding any development or event arising
out of or attributable to the U.S. economy generally; or
(d) the Company and the Purchaser and Parent shall have reached an
agreement that the Offer or the Merger Agreement be terminated, or the
Merger Agreement shall have been terminated in accordance with its terms;
or
(e) (i) any of the representations and warranties of the Company (A)
set forth in the Merger Agreement that are qualified as to materiality or
(B) set forth in Section 4.3 of the Merger Agreement shall not be true and
correct, or (ii) any such representations and warranties that are not so
qualified (other than the representations and warranties set forth in
Section 4.3 of the Merger Agreement) shall not be true and correct in any
respect which could reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on the Company, in each case
as if such representations and warranties were made at the time of such
determination except as to any such representation or warranty which speaks
as of a specific date, which must be untrue or incorrect in the foregoing
respects as of such specific date; or
(f) the Company shall have failed to perform in any material respect
or to comply in any material respect with any of its obligations, covenants
or agreements under the Merger Agreement; or
IV-21
86
(g) (i) the Special Committee shall have withdrawn or modified in a
manner adverse to Parent or the Purchaser the adoption or recommendation of
the Offer, the Merger or the Merger Agreement, or (ii) the Special
Committee shall have resolved to do any of the foregoing;
(h) there shall have occurred, and continued to exist, (i) any general
suspension of, or limitation on prices for, trading in securities on the
New York Stock Exchange or on the Paris Bourse (excluding suspensions or
limitations resulting solely from physical damage or interference with such
exchanges not related to market conditions), (ii) any decline of at least
20% in either the Dow ▇▇▇▇▇ Average of Industrial Stocks or the Standard &
Poor's 500 Index from the close of business on the last trading day
immediately preceding the date of the Merger Agreement, (iii) any change in
currency exchange rates measured from the close of business on the date of
the Merger Agreement, resulting in an increase of 15% or more in the Per
Share Amount as translated from U.S. Dollars into French Francs, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States or France, (v) a commencement of a
war, armed hostilities or other significant national or international
crisis directly or indirectly involving the United States or France, or
(vi) in the case of any of the foregoing clauses (i) through (v) existing
at the time of the commencement of the Offer, a material acceleration or
worsening thereof.
The foregoing conditions (including those set forth in clauses (i) and (ii) of
the initial paragraph) are for the benefit of Parent and the Purchaser and may
be asserted by Parent or the Purchaser regardless of the circumstances giving
rise to any such conditions and may be waived by Parent or the Purchaser in
whole or in part at any time and from time to time in their reasonable
discretion, in each case, subject to the terms of the Merger Agreement. The
failure by Parent or the Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. Any determination by the Purchaser concerning the events described in this
Annex I will be final and binding on all parties.
The Offer may be terminated by Purchaser if the Merger Agreement is terminated
pursuant to its terms.
The capitalized terms used in this Annex I shall have the meanings set forth in
the Agreement to which it is annexed, except that the term "Merger Agreement"
shall be deemed to refer to the Agreement to which this Annex I is appended.
IV-22
87
SCHEDULE V
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Brylane Inc.
We have audited the accompanying consolidated balance sheets of Brylane
Inc. (the "Company"), including Brylane, L.P., a limited partnership, as of
February 1, 1997 and January 31, 1998, and the related consolidated statements
of income, cash flows and partnership/stockholders' equity of the Company for
the years ended February 3, 1996, February 1, 1997, and January 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements of the Company
referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of February 1, 1997 and January 31, 1998,
and the consolidated results of operations and cash flows for the years ended
February 3, 1996, February 1, 1997, and January 31, 1998, in conformity with
generally accepted accounting principles.
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ L.L.P.
Indianapolis, Indiana
March 27, 1998, except for
Note 16, as to which the date
is April 3, 1998
V-1
88
BRYLANE INC.
CONSOLIDATED BALANCE SHEETS
--------------------------
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
ASSETS
(Dollars in thousands)
Current Assets:
Cash and cash equivalents $ 3,285 $ 5,083
Deferred receivables, net of allowance for doubtful
accounts of $1,975 and $1,474, respectively 18,082 8,194
Accounts receivable, other 36,775 7,851
Inventories 168,821 219,553
Paper inventory 9,790 23,571
Catalog costs 31,222 28,411
Other 6,252 6,426
--------- ---------
TOTAL CURRENT ASSETS 274,227 299,089
Property and equipment, net 75,970 77,095
Organization and deferred financing costs 11,114 4,832
Intangibles and other assets 343,243 328,487
Deferred income taxes -- 10,697
Deferred offering costs 680 --
--------- ---------
TOTAL ASSETS $ 705,234 $ 720,200
========= =========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 93,928 $ 139,480
Accrued interest 8,612 7,153
Accrued expenses 45,356 27,528
Income taxes payable -- 4,024
Reserve for returns 18,603 17,844
Revolving line of credit-current portion -- 19,000
Current portion of long-term debt 26,000 10,000
--------- ---------
TOTAL CURRENT LIABILITIES 192,499 225,029
Long-term debt 401,362 329,753
Other long-term liabilities 6,010 9,010
--------- ---------
TOTAL LIABILITIES 599,871 563,792
Convertible redeemable preferred stock 1,500 1,370
Partnership/stockholders' equity:
General partner of Brylane, L.P., 2,562,500 units 25,625 --
Limited partners of Brylane, L.P., 12,908,945 units at
February 1, 1997 159,855 --
Common stock, $.01 par value 40,000,000 shares authorized;
19,910,519 shares issued and 17,410,519 shares
outstanding -- 199
Additional paid in capital -- 303,260
Reduction for predecessor cost--carryover basis (152,067) (152,067)
Loans to management investors (2,490) (1,025)
Retained earnings 72,940 119,671
Treasury stock, 2,500,000 shares at cost -- (115,000)
--------- ---------
Total partnership/stockholders' equity 103,863 155,038
--------- ---------
TOTAL LIABILITIES AND EQUITY $ 705,234 $ 720,200
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
V-2
89
BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME
-----------------------------------------
FISCAL YEAR ENDED
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
(53 WEEKS)
(Dollars in thousands, except shares and per unit/share
data)
Net sales $601,055 $ 705,353 $1,314,839
Cost of goods sold 298,983 348,229 677,639
-------- ---------- ----------
Gross margin 302,072 357,124 637,200
Operating expenses:
Catalog and advertising 174,446 186,985 302,232
Fulfillment 37,333 55,450 124,372
Support services 37,024 54,422 89,260
Intangibles and organization cost amortization 4,707 6,518 10,972
-------- ---------- ----------
Total operating expenses 253,510 303,375 526,836
Operating income 48,562 53,749 110,364
Interest expense, net 20,624 24,026 27,707
-------- ---------- ----------
Income before income taxes and extraordinary charge 27,938 29,723 82,657
Provision for income taxes (Note 4) 88 315 31,545
-------- ---------- ----------
Income before extraordinary charge 27,850 29,408 51,112
Extraordinary charge related to early retirement of debt,
net of tax -- 2,456 4,077
-------- ---------- ----------
Net income $ 27,850 $ 26,952 $ 47,035
======== ========== ==========
Basic earnings per unit/share:
Income per unit/share before extraordinary charge $ 2.22 $ 2.75
Extraordinary charge per unit/share 0.19 0.22
---------- ----------
Net income per unit/share $ 2.03 $ 2.53
========== ==========
Diluted earnings per unit/share:
Income per unit/share before extraordinary charge $ 2.05 $ 2.67
Extraordinary charge per unit/share 0.17 0.21
---------- ----------
Net income per unit/share $ 1.88 $ 2.46
========== ==========
Weighted average units/shares outstanding:
Basic 13,270,220 18,606,048
Diluted 14,389,835 19,412,973
The accompanying notes are an integral part of the consolidated financial
statements.
V-3
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BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
-----------------------------------------
FISCAL YEAR ENDED
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
(53 WEEKS)
(Dollars in thousands, except shares and per unit/share
data)
Supplemental data (Note 4):
Historical income before provision for income taxes and
extraordinary charge $ 27,938 $ 29,723 $ 82,657
Supplemental provision for income taxes 10,337 10,998 30,996
---------- ---------- ----------
Supplemental income before extraordinary charge 17,601 18,725 51,661
Extraordinary charge related to early retirement of debt,
net of tax -- 1,547 4,077
---------- ---------- ----------
Supplemental net income $ 17,601 $ 17,178 $ 47,584
========== ========== ==========
Supplemental basic earnings per unit/share:
Income per unit/share before extraordinary charge $ 1.39 $ 1.41 $ 2.78
Extraordinary charge per unit/share -- 0.12 0.22
---------- ---------- ----------
Net income per unit/share $ 1.39 $ 1.29 $ 2.56
========== ========== ==========
Supplemental diluted earnings per unit/share:
Income per unit/share before extraordinary charge $ 1.36 $ 1.31 $ 2.69
Extraordinary charge per unit/share -- 0.11 0.21
---------- ---------- ----------
Net income per unit/share $ 1.36 $ 1.20 $ 2.48
========== ========== ==========
Weighted average units/shares outstanding:
Basic 12,658,144 13,270,220 18,606,048
Diluted 12,933,969 14,389,835 19,412,973
The accompanying notes are an integral part of the consolidated financial
statements.
V-4
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BRYLANE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
FISCAL YEAR ENDED
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
(53 WEEKS)
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 27,850 $ 26,952 $ 47,035
Impact of other operating activities on cash flows:
Depreciation 3,650 4,821 10,376
Non-recurring inventory charge 569 1,657 3,315
Extraordinary charge related to early retirement of debt -- 2,456 6,524
Non-cash compensation expense -- 2,400 700
Deferred income taxes -- -- 8,168
Amortization:
Intangibles and organization costs 4,707 6,518 10,972
Deferred financing costs and discount on notes 1,566 1,700 1,190
Changes in operating assets and liabilities:
Accounts receivable (549) (15,137) 10,007
Inventories (4,019) (32,064) (54,047)
Catalog costs and paper inventory (8,933) (2,492) (10,970)
Accounts payable and accrued expenses 479 16,262 27,600
Accrued interest 831 2,246 (1,459)
Income taxes payable -- -- 4,024
Other assets and liabilities 7,411 (2,296) 3,169
--------- --------- ---------
Net cash provided by operating activities 33,562 13,023 66,604
--------- --------- ---------
INVESTING ACTIVITIES:
Purchase price adjustment related to ▇▇▇▇▇▇▇▇'▇ acquisition -- -- 32,888
Cash payment in connection with the ▇▇▇▇▇▇▇▇'▇ Acquisition,
net of cash acquired -- (222,951) --
Cash payments in connection with the KingSize Acquisition,
net of cash acquired (51,975) -- --
Acquisition related fees and expenses paid at closing (1,278) (6,215) --
Capital expenditures (7,290) (3,932) (12,740)
--------- --------- ---------
Net cash (used in) provided by investing activities (60,543) (233,098) 20,148
--------- --------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
V-5
92
BRYLANE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
-----------------------------------------
FISCAL YEAR ENDED
FEBRUARY 3, FEBRUARY 1, JANUARY 31,
1996 1997 1998
----------- ----------- -----------
(53 WEEKS)
(Dollars in thousands)
FINANCING ACTIVITIES:
Payments on bank credit facilities (22,524) (107,476) (591,162)
Proceeds from issuance of long-term debt 35,000 283,000 416,663
Proceeds from borrowing under revolver -- 5,000 115,500
Equity contributions from partners -- 51,329 --
Proceeds from issuance of preferred stock -- 1,500 --
Proceeds from initial public offering -- -- 96,000
Offering and debt issuance fees and expenses -- (7,685) (9,564)
Tax distributions to partners (6,562) (9,854) --
Purchase of treasury stock -- -- (115,000)
Other 41 77 2,609
--------- --------- ---------
Net cash provided by (used in) financing activities 5,955 215,891 (84,954)
--------- --------- ---------
Cash and cash equivalents, at beginning of year 28,495 7,469 3,285
--------- --------- ---------
Cash and cash equivalents, at end of year $ 7,469 $ 3,285 $ 5,083
========= ========= =========
Supplemental disclosure of cash flow information:
The amounts of interest and income taxes paid during each
of the periods presented were not material except as
follows:
Interest paid during the fiscal years ended $ 19,328 $ 20,581 $ 29,736
========= =========
Income taxes paid $ 14,505
=========
Supplemental disclosure of noncash financing activity:
Purchase price for KingSize acquisition, net of
acquisition costs $ 57,750
Cash portion of purchase price 52,500
---------
Partnership units issued for purchase $ 5,250
=========
Purchase price for ▇▇▇▇▇▇▇▇'▇ acquisition, net of
acquisition costs (See note 3) $ 242,954
Cash portion of purchase price 222,954
---------
Convertible note $ 20,000
=========
Conversion of note into shares of common stock $ 9,705
=========
Conversion of preferred stock to common stock $ 130
=========
The accompanying notes are an integral part of the consolidated financial
statements.
V-6
93
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY
--------------------------------------------------------------
GENERAL PARTNER
LIMITED PARTNERS COMMON STOCK ADDITIONAL
------------------------ -------------------- PAID IN
UNITS AMOUNT SHARES AMOUNT CAPITAL
----------- --------- ---------- ------ ----------
(Dollars in thousands)
Balance, January 28, 1995 12,547,500 $ 125,475 -- -- --
Net income -- -- -- -- --
Sale of units 365,000 5,475 -- -- --
Repurchase of units (10,000) (121) -- -- --
Tax distributions payable to partners -- -- -- -- --
----------- --------- ---------- ---- ---------
Balance, February 3, 1996 12,902,500 130,829 -- -- --
Net income -- -- -- -- --
Sale of units 2,573,945 51,441 -- -- --
Repurchase of units (5,000) (60) -- -- --
Exchange of stock options -- 3,270 -- -- --
Tax distributions payable to partners -- -- -- -- --
----------- --------- ---------- ---- ---------
Balance, February 1, 1997 15,471,445 185,480 -- -- --
Net income -- -- -- -- --
Tax distributions made to partners -- -- -- -- --
Proceeds from Initial Public Offering -- -- 4,000,000 $ 40 $ 95,960
Initial Public Offering expenses -- -- -- -- (8,850)
Exchange of partnership units for common
stock (15,471,445) (185,480) 15,471,445 155 185,325
Purchase of treasury stock -- -- (2,500,000) -- (115,000)
Recognition of deferred tax asset and
opening income tax adjustments -- -- -- -- 18,142
Repayment of management notes -- -- -- -- --
Conversion of convertible note -- -- 352,908 4 9,701
Conversion of preferred stock -- -- 6,500 -- 130
Exercise of stock options -- -- 79,666 -- 1,144
Tax benefit related to issuance of shares
under employee benefit plans -- -- -- -- 1,008
Exchange of stock options -- -- -- -- 700
----------- --------- ---------- ---- ---------
Balance, January 31, 1998 0 $ 0 17,410,519 $199 $ 188,260
=========== ========= ========== ==== =========
The accompanying notes are an integral part of the consolidated financial
statements.
V-7
94
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY--(CONTINUED)
-----------------------------------------------------
REDUCTION FOR
PREDECESSOR LOANS TO
COST-CARRYOVER MANAGEMENT RETAINED
BASIS INVESTORS EARNINGS TOTAL
-------------- ---------- -------- ---------
(Dollars in thousands)
Balance, January 28, 1995 $(152,067) $(2,453) $ 30,822 $ 1,777
Net income -- -- 27,850 27,850
Sale of units -- (112) -- 5,363
Repurchase of units -- 50 -- (71)
Tax distributions payable to partners -- -- (7,732) (7,732)
--------- ------- -------- ---------
Balance, February 3, 1996 (152,067) (2,515) 50,940 27,187
Net income -- -- 26,952 26,952
Sale of units -- 25 -- 51,466
Repurchase of units -- -- -- (60)
Exchange of stock options -- -- -- 3,270
Tax distributions payable to partners -- -- (4,952) (4,952)
--------- ------- -------- ---------
Balance, February 1, 1997 (152,067) (2,490) 72,940 103,863
Net income -- -- 47,035 47,035
Tax distributions made to partners -- -- (304) (304)
Proceeds from Initial Public Offering -- -- -- 96,000
Initial Public Offering expenses -- -- -- (8,850)
Exchange of partnership units for common stock -- -- -- --
Purchase of treasury stock -- -- -- (115,000)
Recognition of deferred tax asset and opening income
tax adjustments -- -- -- 18,142
Repayment of management notes -- 1,465 -- 1,465
Conversion of convertible note -- -- -- 9,705
Conversion of preferred stock -- -- -- 130
Exercise of stock options -- -- -- 1,144
Tax benefit related to issuance of shares under
employee benefit plans -- -- -- 1,008
Exchange of stock options -- -- -- 700
--------- ------- -------- ---------
Balance, January 31, 1998 $(152,067) $(1,025) $119,671 $ 155,038
========= ======= ======== =========
The accompanying notes are an integral part of the consolidated financial
statements.
V-8
95
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
Brylane Inc., a Delaware corporation ("Brylane" or the "Company"), is a leading
catalog retailer of special-size and regular-size women's and men's apparel. The
women's catalogs market apparel in the budget and low to moderate price range
and the men's catalogs market apparel in the moderate price range. Brylane
services the special-size customer through its Lane Bryant, ▇▇▇▇▇▇'s, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and KingSize (men's) catalogs, and the regular-size customer through its
Chadwick's, Lerner, Bridgewater and ▇▇▇▇▇ (men's) catalogs. Brylane also markets
apparel to these same customer segments through four catalogs which it
distributes under licensing arrangements with Sears Shop at Home Services, Inc.
("Sears").
▇▇▇▇▇▇▇'s merchandising strategy is to provide valued-priced, private label
apparel with a consistent quality and fit, to concentrate on apparel with
limited fashion risk and to offer a broader selection of sizes and styles in
special-size apparel than can be found at most retail stores and in other
competing catalogs. Each of Brylane's catalogs offers its customers
contemporary, traditional and basic apparel.
(2) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
Brylane Acquisition
In August 1993, certain affiliates of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. Incorporated
("FS&Co.") and of The Limited, Inc. ("The Limited") formed Brylane, L.P. (the
"Partnership"), a Delaware limited partnership, and acquired the ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇'s and ▇▇▇▇▇▇ catalog businesses (the "Brylane Acquisition") formerly
conducted by certain direct and indirect subsidiaries of The Limited
("Predecessor"). The aggregate purchase price was $335 million, and for
accounting purposes, the transaction was accounted for on the effective date of
August 1, 1993.
In connection with the Brylane Acquisition, certain affiliates of FS&Co. and
certain management investors contributed $75 million to the capital of Brylane
for a 60% aggregate interest. Certain affiliates of The Limited contributed
substantially all assets and liabilities of the catalog business to Brylane and
received cash of $285 million and a 40% aggregate interest in Brylane with an
assigned value of $50 million.
The Brylane Acquisition has been accounted for utilizing the purchase method of
accounting. The continuing interest of certain affiliates of The Limited in
Brylane was reflected at The Limited's historical basis (carryover basis). For
the proportionate interests of the affiliates of FS&Co. and members of
management who invested in the transaction, the purchase price was allocated to
the assets and liabilities of Brylane at their estimated fair values as
determined based on management's estimates. Partners' capital and the basis of
the transferred assets have been reduced for predecessor cost carryover basis.
Initial Public Offering
On February 26, 1997, in connection with the initial public offering of Brylane
Inc. ("Initial Public Offering"), Brylane, L.P. became a wholly-owned subsidiary
of Brylane Inc. pursuant to the First Amended and Restated Incorporation and
Exchange Agreement (the "Exchange Agreement"), whereby certain affiliates of
FS&Co., The Limited, M&P Distributing Company, WearGuard, Leeway & Co., and
NYNEX exchanged their shares of common stock of VP Holding Corporation or
ownership interests in the Partnership, except for the TJX noteholder ("TJX
Noteholder"), for 14,926,778 shares of $.01 par value common stock ("Common
Stock") of Brylane Inc. (the "Exchange Transaction"). Additionally, pursuant to
their respective stock subscription agreements with VP Holding Corporation,
members of management and others exchanged their shares of common stock of VP
Holding Corporation for an aggregate of 544,667 shares of Common Stock of
Brylane Inc. In connection with the Exchange Transaction, Brylane, L.P. retained
all of its assets, operations and liabilities.
Concurrently, Brylane Inc. offered 4,000,000 shares of Common Stock to the
public through its Initial Public Offering. The historical financial statements
presented herein for periods prior to February 26, 1997 are for Brylane, L.P.
This presentation is consistent with that of Brylane Inc.'s Form S-1
Registration Statement regarding the Initial Public Offering which contained the
historical financial statements of ▇▇▇▇▇▇▇, L.P.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of VP Holding
Corporation ("VPH"), VGP Corporation ("VGP"), VLP Corporation ("VLP"), Brylane
L.P. and its wholly-owned subsidiaries and partnerships, including Brylane
Capital Corp., ▇.▇. Management Services, Inc., ▇.▇. Catalog Distribution, Inc.,
▇.▇. Management Services Partnership, ▇.▇. Catalog Distribution Partnership,
B.N.Y. Services Corp., K.S. Management Services, Inc., C.O.B. Management
Services, Inc. and
V-9
96
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
▇▇▇▇▇▇▇▇'▇ Tradename Sub, Inc. These entities are collectively referred to as
Brylane or the Company. Material transactions between the consolidated entities
have been eliminated. Each of the wholly-owned subsidiaries and partnerships of
Brylane, L.P. (collectively, the "Subsidiary Guarantors") has guaranteed the
Partnership's Senior Subordinated Notes due 2003 (the "Notes"). Separate
financial statements of these Subsidiary Guarantors have not been included as
the subsidiaries guarantee the Notes on a full, unconditional, and joint and
several basis. Management believes that the aggregate assets, liabilities,
earnings, and equity of the Subsidiary Guarantors are currently inconsequential
to Brylane on a consolidated basis, both individually and combined, and that
information provided in separate financial statements of the Subsidiary
Guarantors is not deemed material to the readers of the financial statements.
Effective July 6, 1996, KingSize Catalog Sales, L.P., and KingSize Catalog
Sales, Inc. were merged into Brylane. All of the assets and liabilities of these
entities were transferred to Brylane, which continues to run the KingSize Big &
Tall catalog business.
(3) ACQUISITIONS:
In October 1995, KingSize Catalog Sales, L.P., an Indiana limited partnership
and an indirect wholly-owned entity of Brylane ("KingSize Partnership"),
completed the acquisition of the assets of the KingSize division of WearGuard
Corporation ("WearGuard"), a wholly-owned subsidiary of ARAMARK Corporation (the
"KingSize Acquisition"). The business acquired is a catalog business devoted to
big and tall men's apparel, footwear and related accessories. ▇▇▇▇▇▇▇, ▇.▇. paid
to WearGuard $52.5 million in cash and issued to WearGuard 350,000 newly issued
limited partnership units in Brylane, L.P. ▇▇▇▇▇▇▇, ▇.▇. financed the cash
portion of the purchase price out of available funds as well as additional
borrowings under its 1993 bank credit facility ("1993 Bank Credit Facility").
The Partnership acquired the inventory, contracts, customer lists, goodwill,
accounts receivable and certain equipment relating to the operation of the
business, assumed certain liabilities, and entered into a noncompetition
agreement.
For accounting purposes, the KingSize Acquisition was recorded using the
purchase method of accounting as of the effective date of October 1, 1995.
▇▇▇▇▇▇▇'s financial statements include the results of KingSize on a consolidated
basis from the effective date of the acquisition. The purchase price, including
acquisition costs of $1.4 million, was allocated to the assets and liabilities
of KingSize at their estimated fair values. The fair values of assets and
liabilities were determined based on management's estimates. The allocation of
the purchase price is as follows (in thousands):
Current assets $10,737
Property and equipment 331
Intangibles and other assets 51,903
Liabilities assumed (3,821)
-------
$59,150
=======
In December 1996, Brylane, L.P. completed the acquisition of certain assets of
the ▇▇▇▇▇▇▇▇'▇ of Boston catalog division ("▇▇▇▇▇▇▇▇'▇") of ▇▇▇▇▇▇▇▇'▇, Inc., a
wholly-owned subsidiary of The TJX Companies ("TJX") (the "▇▇▇▇▇▇▇▇'▇
Acquisition"). ▇▇▇▇▇▇▇▇'▇ is a catalog business devoted to selling off-price
women's career, casual and social apparel. The ▇▇▇▇▇▇▇▇'▇ Acquisition included
the purchase of inventory, property, plant and equipment, customer lists,
trademarks, goodwill and the assumption of certain liabilities relating to the
business by the Partnership. In addition, the parties entered into a services
agreement, as well as an inventory purchase agreement pursuant to which TJX has
committed to purchase certain amounts of ▇▇▇▇▇▇▇▇'▇ excess inventory through
January 2000.
▇▇▇▇▇▇▇, ▇.▇. paid TJX $189.8 million (net of purchase price adjustments of
$32.9 million) and issued to the TJX Noteholder a $20.0 million Convertible
Redeemable Note due 2006 (approximately $9.7 million of which was converted by
TJX into shares of Common Stock sold). To fund a portion of the cash paid in
connection with the ▇▇▇▇▇▇▇▇'▇ Acquisition and to repay its existing
indebtedness under its 1993 Bank Credit Facility, the Partnership entered into
the 1996 bank credit facility ("1996 Bank Credit Facility") and received
aggregate new equity of $51.3 million from certain affiliates of FS&Co., Leeway
& Co., NYNEX and WearGuard.
For accounting purposes, the ▇▇▇▇▇▇▇▇'▇ Acquisition has been recorded using the
purchase method of accounting. ▇▇▇▇▇▇▇'s financial statements include the
results of ▇▇▇▇▇▇▇▇'▇ on a consolidated basis from the closing date of the
acquisition. The purchase price, reflecting adjustments of $32.9 million and
acquisition costs of $7.1 million, has been allocated to the assets
V-10
97
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and liabilities of ▇▇▇▇▇▇▇▇'▇ at their estimated fair values. The fair values of
assets and liabilities have been determined based on management's estimates. The
allocation of the purchase price is as follows (in thousands):
Current assets $ 89,990
Property and equipment 45,805
Intangibles and other assets 179,734
Liabilities assumed (97,944)
--------
$217,585
========
The following unaudited pro forma results of operations for the year ended
February 1, 1997 assumes that the ▇▇▇▇▇▇▇▇'▇ Acquisition occurred as of February
4, 1996. In preparing the pro forma information, certain adjustments related to
the ▇▇▇▇▇▇▇▇'▇ Acquisition have been made for (i) the amortization of goodwill
and other intangible assets created in the ▇▇▇▇▇▇▇▇'▇ Acquisition; (ii) the
interest expense on the net increase in indebtedness which was used to finance a
portion of the purchase price; (iii) the sale of deferred billing receivables to
Alliance Data Systems Corporation ("ADS"); (iv) the non-recurring charge related
to the valuation of the acquired inventory; (v) the amortization of deferred
financing fees related to the 1996 Bank Credit Facility and the write-off and
reduction of amortization expense related to the repayment of the 1993 Bank
Credit Facility; and (vi) the elimination of interest expense and federal and
state taxes related to ▇▇▇▇▇▇▇▇'▇ as a division of TJX.
The pro forma information is provided for informational purposes only. It is
based on historical information and does not purport to be indicative of the
results that actually would have occurred had the ▇▇▇▇▇▇▇▇'▇ Acquisition been
made as of the indicated date or of results which may occur in the future (in
thousands):
----------------
UNAUDITED
FOR THE FISCAL
YEAR ENDED
FEBRUARY 1, 1997
----------------
Net sales $1,167,527
Operating income 87,118
Net income 49,246
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fiscal Year
▇▇▇▇▇▇▇'s fiscal year ends on the Saturday closest to January 31 and consists of
52 or 53 weeks. ▇▇▇▇▇▇▇'s fiscal years ended February 1, 1997 and January 31,
1998 consisted of 52 weeks, and the fiscal year ended February 3, 1996 consisted
of 53 weeks. The fiscal year is designated in the notes to the financial
statements by the calendar year in which the fiscal year commences.
Cash Equivalents
▇▇▇▇▇▇▇ considers amounts on deposit with financial institutions and money
market investments with initial maturities of three months or less to be cash
equivalents.
Accounts Receivable
▇▇▇▇▇▇▇ sells eligible accounts receivable generated through ▇▇▇▇▇▇▇▇'▇ deferred
billing programs to ADS (See note (14) "Related Party Transactions"). All sales
are accounted for in accordance with Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" which was effective for transactions
occurring after December 31, 1996. Costs associated with these transactions are
included in
V-11
98
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operations. Deferred billing accounts receivable balances are net of allowance
for doubtful accounts of $2.0 million and $1.5 million at February 1, 1997 and
January 31, 1998, respectively.
Inventories
Merchandise inventories are stated at the lower of cost or market, principally
valued on the average cost basis under a standard costing system or using the
retail method of accounting, except for inventories attributable to the initial
investment in KingSize and ▇▇▇▇▇▇▇▇'▇ which were recorded at estimated fair
value (unallocated costs). A non-recurring inventory charge representing the
estimated fair value in excess of its original historical cost, as of the date
of the KingSize Acquisition, was fully amortized in fiscal 1995 ($.6 million). A
non-recurring inventory charge representing the estimated fair value, as of the
date of the ▇▇▇▇▇▇▇▇'▇ Acquisition, of inventory in excess of its original
historical cost was amortized partly during fiscal year 1996 ($1.7 million) with
the remainder being amortized during fiscal year 1997 ($3.3 million).
Catalog Costs
Catalog costs primarily consist of catalog production and mailing costs that
have not yet been fully amortized. Catalog costs are amortized over the expected
revenue stream, which is approximately three months from the date catalogs are
mailed as determined based on management's estimates.
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging principally from
10-30 years for buildings and improvements, the lesser of 10 years or the life
of the lease for leasehold improvements and 3-10 years for other property and
equipment. The cost and related accumulated depreciation or amortization of
assets sold or retired are removed from the accounts, with any resulting gain or
loss included in net income. Repairs and maintenance are charged to expense as
incurred; renewals and betterments which extend service lives are capitalized.
The Company's policy is to expense as incurred internally developed software
costs.
Organization and Deferred Financing Costs
Organization costs of $.3 million relate to the formation of Brylane and its
wholly-owned subsidiaries and partnerships. Such costs are amortized over five
years using the straight-line method. Original deferred financing costs of $11.8
million incurred in connection with the Brylane Acquisition were capitalized and
amortized over the term of the related debt using the effective interest method.
In connection with the repayment of the 1993 Bank Credit Facility in December
1996, a pro rata portion of the deferred financing fees of $2.5 million
associated with the obligations to be repaid were written off as a charge to
operations. The remaining balance continues to be amortized over the remaining
life of the related obligations. Deferred financing costs of $7.0 million
incurred in connection with the 1996 Bank Credit Facility were capitalized and
amortized over the term of the related debt using the effective interest method.
In connection with the repayment of the 1996 Bank Credit Facility in April 1997,
deferred financing fees of $4.1 million (net of related taxes) were written off
as a charge to operations. Deferred financing costs of $1.2 million incurred in
connection with the amended 1997 bank credit facility ("Amended 1997 Bank Credit
Facility") were capitalized and are amortized over the term of the related debt
using the effective interest method. Accumulated amortization of organization
and deferred financing costs at February 1, 1997 and January 31, 1998 were $5.5
million and $6.1 million, respectively.
Intangible Assets
Intangible assets associated with the Brylane Acquisition include trademarks of
$8.8 million, customer lists of $2.2 million and goodwill of $114.5 million.
Subsequent to October 4, 1997 in connection with the repurchase of common stock,
the amortization of the remaining trademark agreement of $7.6 million was
accelerated to a ten-year period in accordance with the provisions of the
trademark agreement. Such intangibles are amortized over a 30-year composite
life using the straight-line method. Accumulated amortization of intangible
assets was $14.6 million, and $18.9 million at February 1, 1997, and January 31,
1998, respectively. Intangible assets associated with the KingSize Acquisition
include customer lists of $.5 million, a noncompetition agreement of $.3
million, and goodwill of $50.8 million. Amortization is computed using the
straight-line method over a life of eight years for the customer lists, five
years for the noncompetition agreement, and 40 years for goodwill. Accumulated
amortization was $1.9 million and $3.3 million, at February 1, 1997, and January
31, 1998, respectively.
V-12
99
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets associated with the ▇▇▇▇▇▇▇▇'▇ Acquisition include customer
lists of $4.0 million and goodwill of $175.7 million. Amortization is computed
using the straight-line method over a life of five years for the customer lists
and 40 years for goodwill. Accumulated amortization was $.9 million and $6.1
million at February 1, 1997 and January 31, 1998, respectively.
▇▇▇▇▇▇▇'s policy is to periodically review the value assigned to goodwill to
determine if it has been permanently impaired by adverse conditions which might
affect Brylane. Such reviews include an analysis of current results and take
into consideration the discounted value of projected operating cash flow
(earnings before interest, taxes and depreciation and amortization).
Income Taxes
Under the partnership form of doing business, the tax effects of profits and
losses of the Partnership were incurred by the partners. ▇▇▇▇▇▇▇ made cash
advances and annual distributions to partners in amounts sufficient for the
partners to pay income taxes on their ratable share of taxable income. As a
result, the provision for income taxes for the years ended February 3, 1996 and
February 1, 1997 represents federal, state and local income taxes relating only
to taxable income of the C-corporations included in the consolidated financial
statements of Brylane, L.P.
Subsequent to the Initial Public Offering on February 26, 1997, the tax status
of the consolidated entity, Brylane Inc., was changed to that of a
C-corporation. Brylane Inc. follows Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS No. 109) which requires the Company
to establish a deferred tax liability or asset for the future tax effects of
temporary differences between book and taxable income. Changes in future tax
rates will result in immediate adjustments to deferred taxes. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus the change during the period in deferred tax
assets and liabilities.
Revenue Recognition
Sales are recorded at the time of shipment. Brylane provides a reserve for
estimated merchandise returns, based on its prior customer returns experience.
Net Income Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, Earnings per Share, which replaces the presentation of primary earnings
per share ("EPS") with basic EPS and replaces fully diluted EPS with diluted
EPS. Basic net income per share is based on the weighted average number of
common shares outstanding during each period and diluted net income per share is
based on the weighted average number of common shares and dilutive common share
equivalents outstanding during each period. The Company's common share
equivalents consist of shares of common stock issuable upon exercise of
outstanding stock options, the conversion of preferred shares into common shares
and the conversion of a convertible note into shares of common stock.
Application of this standard resulted in a decrease in the weighted average
number of shares outstanding for basic EPS due to the exclusion of the common
stock equivalents identified above. The statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997,
with earlier application not permitted. All periods presented reflect the
adoption of SFAS No. 128. (See note (10) "Earnings Per Share").
Supplemental Net Income and Earnings per Share
Supplemental net income of Brylane Inc. represents the results of operations
adjusted to reflect a provision for income tax on historical income before
income taxes, which gives effect to the change in the consolidated entities tax
status to a C-corporation subsequent to the public sale of its Common Stock. The
difference between the pro forma income tax rates utilized and the federal
statutory rate of 35% relates primarily to state income taxes, net of federal
tax benefit.
Supplemental earnings per share of Brylane Inc. represents supplemental net
income divided by the weighted average partnership units outstanding prior to
the Initial Public Offering and the weighted average common stock and equivalent
units outstanding thereafter. In accordance with Securities and Exchange
commission rules, options granted in the one year prior to the filing of the
registration statement related to the Initial Public Offering are included as
outstanding for all periods presented using the treasury stock method assuming
the offering price of $24 per share.
V-13
100
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Plan
In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of
Stock-Based Compensation to Employees", which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 123 provides alternative accounting
treatment to Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees", with respect to stock-based compensation and
requires certain additional disclosures. ▇▇▇▇▇▇▇ adopted the disclosure
requirements of SFAS No. 123 in the first quarter of 1996, but has elected to
continue to measure compensation costs following present accounting rules under
APB Opinion No. 25. (See note (8) "Stock Option Plans.")
Reclassifications
Certain reclassifications have been made to the previous years' financial
statements to conform with the 1997 financial statement presentation. Such
reclassifications had no effect on previously reported net income.
(5) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment consist of
(in thousands):
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
Land, buildings and improvements $42,455 $42,540
Furniture, fixtures and equipment 44,184 53,043
Leasehold improvements 2,397 2,732
------- -------
89,036 98,315
Accumulated depreciation and amortization 13,066 21,220
------- -------
Property and equipment, net $75,970 $77,095
======= =======
V-14
101
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LONG-TERM DEBT:
To finance the Brylane Acquisition, ▇▇▇▇▇▇▇ secured financing through proceeds
from the 1993 Bank Credit Facility and the sale of the Notes. In connection with
the ▇▇▇▇▇▇▇▇'▇ Acquisition, ▇▇▇▇▇▇▇ repaid the 1993 Bank Credit Facility and
entered into a 1996 Bank Credit Facility. On April 30, 1997, ▇▇▇▇▇▇▇ entered
into a 1997 bank credit facility which it amended on October 20, 1997, the
Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit Facility and
Notes are fully and unconditionally guaranteed, jointly and severally, by the
Subsidiary Guarantors.
Amounts outstanding under long-term debt agreements are as follows (in
thousands):
--------------------------
FEBRUARY 1, JANUARY 31,
1997 1998
----------- -----------
1996 Bank Credit Facility ("Tranche A Term Loan"), bearing
interest at the rate of (i) a margin over the higher of
prime rate or federal funds rate plus 0.5% or (ii) a
margin over LIBOR. At February 1, 1997, the rate was LIBOR
plus 2.0%. Various maturities through 2001 $213,000 $ --
1996 Bank Credit Facility Tranche B Term Loan ("Tranche B
Term Loan"), bearing interest at (i) a margin over the
higher of prime rate or federal funds rate plus 0.5% or
(ii) a margin over LIBOR. At February 1, 1997 the rate was
LIBOR plus 2.5%. Various maturities through February 2003 70,000 --
1996 Bank Credit Facility revolving loan ("1996 Revolving
Credit Facility"), maximum borrowings of $125,000,
sublimit for letters of credit $75,000 -- --
Amended 1997 Bank Credit Facility ("Term Loan"), bearing
interest at (i) a margin over the higher of prime rate or
the federal funds rate plus 0.5% or (ii) a margin over
LIBOR. At January 31, 1998, the rate was LIBOR plus 1.25%.
Various maturities through August 2002 -- 175,000
Amended 1997 Bank Credit Facility revolving loan ("Revolving
Credit Facility"), maximum borrowings of $200,000 sublimit
for letters of credit $75,000 and sublimit for swingline
loans $15,000 -- 49,000
Convertible subordinated note, bearing interest at the rate
of 6% per annum, maturing December 9, 2006 20,000 10,295
Senior subordinated notes, bearing interest at the rate of
10.0% per annum, maturing September 1, 2003 125,000 125,000
-------- --------
428,000 359,295
Discount on senior subordinated notes (638) (542)
-------- --------
427,362 358,753
Less current portion (26,000) (29,000)
-------- --------
$401,362 $329,753
======== ========
In addition to scheduled maturities on the Term Loan, Brylane is obligated to
make certain mandatory prepayments of the loans and the Revolving Credit
Facility under certain circumstances. Mandatory prepayment of the Term Loan is
based on Brylane, L.P.'s excess cash flow, as defined. Mandatory prepayments, if
any, are applied to reduce the principal amount of the Term Loan.
At February 1, 1997, and January 31, 1998, interest terms available to Brylane
for borrowings similar to the Term Loan and the Convertible Subordinated Note
were similar to those presently provided under the Amended 1997 Bank Credit
Facility and the Convertible Subordinated Note. Accordingly, the recorded
obligations under the Term Loan and the Convertible Subordinated Note
approximated the fair value at February 1, 1997 and January 31, 1998.
Based on quoted market prices at February 1, 1997 and January 31, 1998 the fair
market value of the Notes was approximately $130.3 million and $132.7 million,
respectively. The change in fair market value is primarily attributable to
changes in bond ratings and market interest rates.
The 1996 Bank Credit Facility contained certain financial covenants which
required Brylane to meet financial ratios and tests, including a minimum
adjusted net worth test, a minimum fixed charge coverage ratio and a minimum
cash flow to net debt ratio. In addition, the 1996 Bank Credit Facility
contained covenants customarily found in credit agreements of such type
including, among other things, limitations on indebtedness, liens, asset sales,
distributions and other restricted payments,
V-15
102
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisitions, mergers, investments, capital expenditures and prepayment or
amendment of certain indebtedness. At February 1, 1997, ▇▇▇▇▇▇▇ was in
compliance with the required covenants.
The Amended 1997 Bank Credit Facility contains certain financial covenants which
require Brylane to meet financial ratios and tests, including a maximum debt to
cash flow ratio, a minimum fixed charge coverage ratio, and a minimum net worth
test. In addition, the Amended 1997 Bank Credit Facility contains covenants
customarily found in credit agreements including, among other things,
limitations on indebtedness, liens, Asset Sales (as defined), partnership
distributions and other restricted payments, mergers and certain acquisitions,
investments, transactions with affiliates, capital expenditures, the prepayment
or amendment of certain indebtedness, the granting of certain negative pledges
and the amendment of material agreements. At January 31, 1998, ▇▇▇▇▇▇▇ was in
compliance with the required covenants.
The obligations of Brylane under the Amended 1997 Bank Credit Facility are
collateralized by the intangible assets of the Partnership.
As of February 1, 1997, ▇▇▇▇▇▇▇ had no borrowings under the Revolving Credit
Facility and as of January 31, 1998, ▇▇▇▇▇▇▇ had $49.0 million in borrowings
under the Revolving Credit Facility. After giving effect to the issuance of
letters of credit for $47.9 million and $49.1 million, respectively, Brylane had
additional capacity under the Revolving Credit Facility of approximately $77.1
million and $101.9 million, respectively. As of February 1, 1997 and January 31,
1998, the aggregate principal balance outstanding under the Term Loans of the
1996 and Amended 1997 Bank Credit Facility was $283.0 million and $224.0
million, respectively.
At January 31, 1998, annual maturities of long-term debt by fiscal year are as
follows (in thousands):
1998 $ 10,000
1999 20,000
2000 40,000
2001 70,000
2002 84,000
Thereafter 135,295
--------
Total debt $359,295
========
(7) OPERATING LEASES:
Brylane leases office, outlet store and warehouse space and equipment under
leasing arrangements classified as operating leases which expire at various
times through fiscal 2012. Rent expense under these leases was $5.8 million,
$6.6 million and $8.7 million in the fiscal years 1995, 1996, and 1997,
respectively.
Future minimum lease payments required under these leases at January 31, 1998,
are as follows (in thousands):
1998 $ 8,991
1999 8,033
2000 6,348
2001 4,849
2002 4,248
Thereafter 20,244
-------
$52,713
=======
(8) STOCK OPTION PLANS:
1996 Performance Option Plan
In connection with the Initial Public Offering, the Company adopted the Brylane
Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option
Plan"), which acts as the successor to the Partnership's 1993 Performance
Partnership Unit Option Plan (as amended, the "1993 Option Plan") which was
adopted in connection with the Brylane Acquisition. An
V-16
103
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregate of 779,584 shares of Common Stock have been reserved for issuance
under the Brylane 1996 Performance Option Plan.
In connection with the ▇▇▇▇▇▇▇▇'▇ Acquisition, the Board of Representatives of
the Partnership authorized an amendment to the existing option agreement that
revised the performance criteria for the vesting of the options, and changed the
outside vesting date of the options from August 30, 2008 to August 30, 2002 and
reduced the term from 16 to 10 years. In addition, the exercise price of the
options outstanding under the 1993 Option Plan was increased from $10.00 per
partnership unit to $15.00 per partnership unit. In accordance with APB Opinion
No. 25, the options were deemed to have a new measurement date. Based on the new
measurement date, the Partnership incurred non-cash compensation expense of $2.4
million in the fourth quarter of 1996 and $0.7 million in fiscal 1997. Unless
canceled due to termination of employment, all options became exercisable on
January 31, 1998 and terminate 10 years from date of grant.
--------------------------------
1995 1996 1997
-------- --------- -------
Outstanding at beginning of year 615,209 622,709 644,584
Granted 15,000 669,584 --
Cancelled (7,500) (647,709) (25,000)
-------- --------- -------
Outstanding at end of year 622,709 644,584 619,584
======== ========= =======
Options exercisable at year-end -- -- 619,584
Weighted-average fair value of options granted during the
year $ 9.71 $ 9.99 --
1996 Option Plan
In connection with the Initial Public Offering, the Company adopted the Brylane
Inc. 1996 Stock Option Plan (the "Brylane 1996 Option Plan"), which acts as the
successor of the Partnership's 1995 Partnership Unit Option Plan (as amended,
the "1995 Option Plan") which was adopted in connection with the Brylane
Acquisition. As amended, an aggregate of 1,700,000 shares of Common Stock have
been reserved for issuance under the Brylane 1996 Option Plan. Other than as
described below, unless canceled due to termination of employment, all options
become exercisable in three equal annual installments on the first, second and
third anniversaries of the date of original grant.
In connection with the ▇▇▇▇▇▇▇▇'▇ Acquisition, ▇▇▇▇▇▇▇▇'▇ employees were granted
substitute options in exchange for options previously granted by TJX. The term,
exercise price and vesting criteria of the replacement options were determined
to preserve the economic value of the options being exchanged. The granting of
the options resulted in an adjustment to the ▇▇▇▇▇▇▇▇'▇ Acquisition purchase
price of $0.9 million for the related compensation expense.
A summary of ▇▇▇▇▇▇▇'s 1996 Option Plan as of February 3, 1996, February 1, 1997
and January 31, 1998, and changes during the years ending on those dates is
presented below:
--------------------------------------------------------------------
1995 1996 1997
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
UNITS PRICE UNITS PRICE SHARES PRICE
------- --------- ------- --------- ------- ---------
Outstanding at beginning of year -- 123,750 $15.00 464,604 $16.50
Granted 123,750 $15.00 340,854 17.04 268,597 35.92
Cancelled -- -- (32,686) 18.58
Exercised -- -- (79,666) 14.34
------- ------- -------
Outstanding at end of year 123,750 15.00 464,604 16.50 620,849 25.07
Options exercisable at year-end -- 41,250 123,387
Weighted-average fair value of options
granted during the year $ 5.81 $ 9.69 $11.58
V-17
104
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about the 1996 Option Plan at January
31, 1998:
OPTIONS OUTSTANDING
-----------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE
RANGE OF JANUARY 31, 1998 LIFE EXERCISE PRICE
EXERCISE PRICES ---------------- --------------------- ----------------
$ 5 to 10 26,435 7.7 years $ 6.05
$11 to 15 110,091 4.6 years 15.00
$16 to 30 226,073 6.8 years 18.95
$31 to 41 258,250 6.4 years 36.10
$ 5 to 41 620,849 6.3 years $25.07
OPTIONS EXERCISABLE
--------------------------------------------------------
RANGE OF NUMBER EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT JANUARY 31, 1998 EXERCISE PRICE
--------------- ------------------- ----------------
$ 5 to 10 5,679 $ 7.46
$11 to 15 68,008 15.00
$16 to 20 49,700 19.26
$ 5 to 20 123,387 $16.37
Pro Forma Disclosures Under Statement of Financial Accounting Standards No. 123
Pro forma information regarding net income as required by SFAS No. 123 has been
determined as if Brylane accounted for its stock options under the fair value
approach. The fair value of each option is estimated on the date of grant using
the Black-Scholes model with the following assumptions:
1995 1996 1997
---- ---- ----
Weighted-average risk-free interest rate 5.99% 6.04% 5.87%
Weighted-average expected life (years) 5.00 5.25 3.99
Expected volatility 31.2% 31.2% 28.5%
Had compensation costs been determined based on the fair value method of SFAS
No. 123, the Company's net income would have been adjusted to the pro forma
amounts indicated below. For purposes of pro forma disclosures, the estimated
fair value of the options is amortized to expense over the options vesting
period (in thousands).
1995 1996 1997
------- ------- -------
Net income:
As reported $27,850 $26,952 $47,035
Pro forma 27,658 28,351 45,283
Basic net income per unit/share:
As reported $ 2.03 $ 2.53
Pro forma 2.14 2.43
Diluted net income per unit/share:
As reported $ 1.88 $ 2.46
Pro forma 1.97 2.33
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, the Black-Scholes option valuation model requires the
input of highly subjective assumptions including the expected stock price
volatility. Because Brylane options have characteristics significantly different
from those of traded options, and because changes in subjective assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not provide a reliable single measure of the fair value of
V-18
105
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its stock options. The pro forma disclosures provided above may not be
representative of the effects on reported net income for future years.
(9) STOCK SUBSCRIPTION PLAN:
In connection with the Initial Public Offering, the Company adopted the Brylane
Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan") which is the
successor of the Brylane, L.P. Subscription Plan, whereby officers, certain key
employees and a member of the Board of Directors may purchase interests in
Brylane Inc. The portion of the purchase price received in the form of
promissory notes is recorded as a reduction of stockholders' equity. The price
at which the units are purchased is set at fair value at the date of issuance.
Activity under the Stock Subscription Plan for fiscal 1995, fiscal 1996 and
fiscal 1997 follows:
------------------------------
NUMBER OF AVERAGE PRICE
UNITS/SHARES PER UNIT/SHARE
------------ --------------
Units outstanding, January 28, 1995 500,500 $10.00
Activity during 1995:
Issued 15,000 15.00
Repurchased (10,000) 12.10
-------- ------
Units outstanding, February 3, 1996 505,500 10.15
Activity during 1996:
Issued 7,500 15.00
Repurchased (5,000) 12.10
-------- ------
Units outstanding, February 1, 1997 508,000 10.22
Activity during 1997:
Issued -- --
Repurchased -- --
Shares sold (160,022)
-------- ------
Shares outstanding, January 31, 1998 347,978 $10.22
======== ======
V-19
106
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EARNINGS PER SHARE:
As discussed in Note (4) above, SFAS No. 128 replaces the presentation of
primary and fully diluted earnings per share with basic and diluted earnings per
share, and requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. All periods presented reflect the
adoption of SFAS No. 128. The impact on amounts previously reported was not
material.
--------------------------------
FEBRUARY 1, JANUARY 31,
1997 1998
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER UNIT/SHARE DATA)
Basic EPS Computation:
Numerator $ 26,952 $ 47,035
=========== ===========
Denominator:
Weighted average common units/shares outstanding 13,270,220 18,606,048
=========== ===========
Basic EPS $ 2.03 $ 2.53
Diluted EPS Computation:
Numerator: $ 26,952 $ 47,035
Interest on convertible debt, net of income taxes 108 645
----------- -----------
Adjusted numerator $ 27,060 $ 47,680
=========== ===========
Denominator:
Weighted average common units/shares outstanding 13,270,220 18,606,048
Convertible redeemable preferred stock 75,000 68,500
Convertible debt 727,273 364,060
Incremental units/share from assumed exercise of
options 317,342 374,365
----------- -----------
Total units/shares 14,389,835 19,412,973
=========== ===========
Diluted EPS $ 1.88 $ 2.46
(11) RETIREMENT PLAN:
Effective August 30, 1993, ▇▇▇▇▇▇▇ adopted the Brylane, L.P. Savings and
Retirement Plan (the "Retirement Plan"). All of the Company's employees who have
attained twenty-one years of age and have completed one year of service are
eligible to participate in the Retirement Plan. Eligible employees can
contribute up to the lesser of $9,500 or ten percent of their compensation to
the Retirement Plan on a pre-tax basis. ▇▇▇▇▇▇▇ will match up to three percent
of the participants' eligible compensation. ▇▇▇▇▇▇▇ is required to make
additional contributions to the Retirement Plan equal to four percent of each
participant's compensation up to the Social Security taxable wage base and equal
to seven percent of each participant's compensation which exceeds that amount.
An additional one percent of eligible compensation is contributed on behalf of
those participants who have completed at least five years of service. ▇▇▇▇▇▇▇'s
contributions begin to vest after three years of service, at which time such
contributions are 20% vested. Thereafter, the contributions vest at a rate of
20% each year so that ▇▇▇▇▇▇▇'s contributions are fully vested after seven years
of service. ▇▇▇▇▇▇▇'s cost under these plans was $2.9 million, $3.6 million and
$5.9 million in the fiscal years 1995, 1996, and 1997, respectively.
As a result of the ▇▇▇▇▇▇▇▇'▇ Acquisition, ▇▇▇▇▇▇▇ participates in a
multi-employer plan that provides defined benefits to its union employees.
▇▇▇▇▇▇▇'s expense for this plan for the eight-weeks ended February 1, 1997 and
the year ended January 31, 1998 amounted to $252,750 and $1.8 million,
respectively.
V-20
107
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) INCOME TAXES:
The provision for income taxes consisted of (in thousands):
1997
-------
Current:
Federal $21,219
State 2,158
Deferred:
Federal 7,642
State 526
-------
Total provision $31,545
=======
Reconciliation between the Federal statutory rate of 35% to income before income
taxes and the income tax provision is as follows (in thousands):
1997
-------
Computed income taxes at statutory rate $28,930
State taxes net of Federal benefit 2,066
Other 549
-------
Income taxes $31,545
=======
The significant components of net deferred tax assets and deferred tax
liabilities included on the balance sheet at January 31, 1998 are (in
thousands):
1997
--------
Deferred tax asset:
Inventory $ 6,957
Deferred and other compensation related items 5,096
Intangibles 8,815
Fixed assets 417
Other 1,129
--------
Total deferred tax assets 22,414
--------
Deferred tax liability:
Prepaid catalog costs and other prepaids (11,659)
Other (58)
--------
Total deferred tax liability (11,717)
--------
Net deferred tax asset $ 10,697
========
A tax benefit of $1.0 million associated with the exercise of employee stock
options was recorded in equity in 1997.
(13) CONVERTIBLE REDEEMABLE PREFERRED STOCK:
In connection with the ▇▇▇▇▇▇▇▇'▇ Acquisition, certain members of ▇▇▇▇▇▇▇▇'▇
management purchased 75,000 shares of VP Holding Corporation Series A
Convertible Redeemable Preferred Stock for a purchase price of $1.5 million.
These shares were converted to shares of Convertible Redeemable Preferred Stock
of Brylane Inc. upon consummation of the Exchange Transaction. The shares of
Brylane Inc. Series A Convertible Redeemable Preferred Stock vest in three equal
annual installments beginning one year from the date of purchase and may not be
transferred or redeemed at the option of the holder for three years from their
date of purchase; thereafter, they may be transferred only after first offering
such shares to Brylane Inc. The redemption price has been set at $20 per share
(as appropriately adjusted for stock dividends, reclassifications or
V-21
108
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
splits). One third of the Brylane Inc. Series A Convertible Redeemable Preferred
Stock vested on December 9, 1997. Six thousand five hundred shares were
converted to common stock.
(14) RELATED PARTY TRANSACTIONS:
On August 30, 1993 (amended July 1, 1995), ▇▇▇▇▇▇▇ entered into a Credit Card
Agreement with World Financial Network National Bank ("World Financial") a
wholly-owned subsidiary of ADS, a joint venture 60% owned by affiliates of Welsh
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ and 40% owned by The Limited, Inc., pursuant to which
World Financial provides credit to customers of Brylane, issues five proprietary
credit cards and processes credit card transactions for a fee. The total expense
amounted to $10.3 million, $10.0 million and $10.1 million in fiscal 1995, 1996,
and 1997, respectively. In addition, ▇▇▇▇▇▇▇ sold accounts receivable to ADS and
incurred discount and processing fees of $142,000 and $14.1 million in the
fiscal years 1996 and 1997, respectively.
Certain affiliates of The Limited granted Brylane the use of certain trademarks
for a specified period, as defined in a trademark license agreement.
In connection with the ▇▇▇▇▇▇▇▇'▇ Acquisition, Brylane paid FS Management Co.
and FS&Co. Management L.P., both of which are affiliated with FS&Co., an
aggregate of $2.5 million in fees as compensation for services in structuring
and arranging financing. Such fees are included in intangibles and other assets.
(15) COMMITMENTS AND CONTINGENCIES:
▇▇▇▇▇▇▇ is involved in various legal proceedings that are incidental to the
conduct of its business. Although the amount of any liability with respect to
these proceedings cannot be determined, in the opinion of management after
consultation with legal counsel, any such liability will not have a material
adverse effect on the financial position or results of operations of Brylane.
The Company is under audit by the Indiana Department of Revenue ("IDR") and
anticipates an assessment will be issued. Based on discussions with the IDR, the
Company currently projects that the assessment, adjusted for the federal tax
benefit, will aggregate approximately $2.3 million including interest. The
Company intends to vigorously contest this assessment, and believes it has made
adequate provision such that final settlement of its Indiana tax liability for
the years under audit will not have a material adverse effect on its
consolidated financial statements.
(16) SUBSEQUENT EVENT:
On April 3, 1998, ▇▇▇▇▇▇▇ announced that Pinault-Printemps-Redoute, S.A.
("PPR"), of France, a leading retailer of consumer goods and distributor of
electrical supplies, completed the purchase of approximately 43.7% of the Common
Stock of Brylane for $51 per share from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. Incorporated and
The Limited, Inc. as well as certain other shareholders, including certain
members of management. PPR, listed on the Paris Bourse, is the parent company of
La Redoute, the largest catalog retailer in France.
V-22
109
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SCHEDULE VI
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Brylane Inc.
We have reviewed the accompanying consolidated balance sheet of Brylane Inc. as
of October 31, 1998, the related consolidated statements of operations for the
thirteen and thirty-nine weeks then ended, and the related consolidated
statements of cash flows and partnership/stockholders' equity for the
thirty-nine weeks then ended. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
December 4, 1998
VI-1
110
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
BRYLANE INC.
CONSOLIDATED BALANCE SHEETS
--------------------------
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
(UNAUDITED)
(Dollars in thousands, except shares and per share data)
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 5,083
Deferred receivables (net of allowance for doubtful
accounts of $2,098 and $1,474, respectively) 25,144 8,194
Accounts receivable, other 11,257 7,851
Inventories 240,936 219,553
Catalog costs and paper inventory 67,385 51,982
Other 7,334 6,426
--------- ---------
Total Current Assets 352,056 299,089
Property and equipment, net 79,998 77,095
Intangibles and deferred financing fees 323,711 333,319
Deferred income taxes 10,697 10,697
--------- ---------
Total Assets $ 766,462 $ 720,200
========= =========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable $ 154,301 $ 139,480
Accrued expenses 24,705 38,705
Reserve for returns 19,837 17,844
Revolving line of credit -- current portion 78,000 19,000
Current portion of long-term debt 17,500 10,000
--------- ---------
Total Current Liabilities 294,343 225,029
Long-term debt 282,500 329,753
Other long-term liabilities 11,570 9,010
--------- ---------
Total Liabilities 588,413 563,792
Convertible redeemable preferred stock -- 1,370
Stockholders' equity:
Common stock, $.01 par value 40,000,000 shares authorized;
20,980,396 shares issued and 17,239,596 shares
outstanding at October 31, 1998; 19,910,519 shares
issued and 17,410,519 shares outstanding at January 31,
1998 210 199
Additional paid in capital 181,263 150,168
Retained earnings 138,218 119,671
Treasury stock, at cost, 3,740,800 and 2,500,000 shares,
respectively (141,642) (115,000)
--------- ---------
Total stockholders' equity 178,049 155,038
--------- ---------
Total liabilities and equity $ 766,462 $ 720,200
========= =========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
VI-2
111
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BRYLANE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
--------------------------------------------------------
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Dollars in thousands, except shares and per share
data)
Net sales $ 348,118 $ 365,454 $ 996,254 $ 968,911
Cost of goods sold 177,251 185,536 506,190 498,322
----------- ----------- ----------- -----------
Gross margin 170,867 179,918 490,064 470,089
Operating expenses:
Catalog and advertising 99,411 90,118 249,193 227,997
Fulfillment 36,375 31,193 100,237 87,608
Support services 22,766 22,753 68,086 66,503
Intangibles and organization cost amortization 2,809 2,684 8,458 8,150
----------- ----------- ----------- -----------
Total operating expenses 161,361 146,748 425,974 390,258
----------- ----------- ----------- -----------
Operating income 9,506 33,170 64,090 79,831
Interest expense, net 7,897 6,427 22,999 20,112
----------- ----------- ----------- -----------
Income before income taxes and extraordinary
charge 1,609 26,743 41,091 59,719
Provision for income taxes 623 9,895 15,824 22,637
----------- ----------- ----------- -----------
Income before extraordinary charge 986 16,848 25,267 37,082
Extraordinary charge related to early retirement
of debt, net of tax 6,720 -- 6,720 4,110
----------- ----------- ----------- -----------
Net (loss) income $ (5,734) $ 16,848 $ 18,547 $ 32,972
=========== =========== =========== ===========
Basic earnings per share:
Income per share before extraordinary charge $ 0.06 $ 0.88 $ 1.40 $ 1.91
Extraordinary charge per share 0.38 -- 0.37 0.21
----------- ----------- ----------- -----------
Net (loss) income per share $ (0.32) $ 0.88 $ 1.03 $ 1.70
=========== =========== =========== ===========
Diluted earnings per share:
Income per share before extraordinary charge $ 0.05 $ 0.85 $ 1.38 $ 1.86
Extraordinary charge per share 0.37 -- 0.37 0.20
----------- ----------- ----------- -----------
Net (loss) income per share $ (0.32) $ 0.85 $ 1.01 $ 1.66
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 17,888,736 19,178,347 18,073,557 19,373,746
Diluted 17,949,756 20,081,115 18,359,687 20,185,900
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
VI-3
112
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BRYLANE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
--------------------------
THIRTY-NINE WEEKS ENDED
OCTOBER 31, NOVEMBER 1,
1998 1997
----------- -----------
(Dollars in thousands)
OPERATING ACTIVITIES:
Net income $ 18,547 $ 32,972
Impact of other operating activities on cash flows:
Depreciation 8,663 7,617
Amortization 9,175 9,187
Non-recurring inventory charge -- 3,315
Extraordinary charge related to early retirement of debt 10,927 6,524
Non-cash compensation expense 50 523
Loss on sale of assets 41 --
Changes in operating assets and liabilities:
Accounts receivable (20,356) (13,747)
Inventories (21,383) (42,795)
Catalog costs and paper inventory (15,403) (20,839)
Accounts payable 14,821 55,564
Accrued expenses (4,730) 20,110
Reserve for returns 1,993 7,665
Other assets and liabilities 2,890 5,151
--------- ---------
Net cash provided by operating activities 5,235 71,247
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (12,855) (10,319)
Purchase price adjustment related to ▇▇▇▇▇▇▇▇'▇
Acquisition -- 32,888
Proceeds from sale of asset 13 --
--------- ---------
Net cash (used in) provided by investing activities (12,842) 22,569
--------- ---------
FINANCING ACTIVITIES:
Payments on debt (175,000) (464,662)
Additions to debt 29,000 --
Proceeds from issuance of 1997 Bank Credit Facility -- 181,663
Proceeds from issuance of Amended and Restated 1997 Bank
Credit Facility 300,000 235,000
Redemption of Senior Subordinated Notes (131,250) --
Proceeds from initial public offering -- 96,000
Offering fees and expenses -- (8,170)
Debt issuance fees and expenses (3,703) (1,394)
Cash receipts on management notes 1,025 965
Proceeds received from exercise of options 9,094 349
Purchase of treasury stock (26,642) (115,000)
--------- ---------
Net cash provided by (used in) financing activities 2,524 (75,249)
--------- ---------
Cash and cash equivalents, at beginning of year 5,083 3,285
--------- ---------
Cash and cash equivalents, at end of period $ -- $ 21,852
========= =========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
VI-4
113
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY
-----------------------------------------------------------
OTHER ADDITIONAL
EQUITY COMMON STOCK PAID IN RETAINED
(NOTE A) SHARES AMOUNT CAPITAL EARNINGS
-------- ----------- ------ ---------- --------
(Dollars in thousands)
Balance, February 1, 1997 $ 30,923 -- -- -- $ 72,940
Net income -- -- -- -- 47,035
Tax distributions made to partners -- -- -- -- (304)
Proceeds from Initial Public Offering -- 4,000,000 $ 40 $ 95,960 --
Initial Public Offering expenses -- -- -- (8,850) --
Exchange of partnership units for common stock (33,413) 15,471,445 155 33,258 --
Purchase of treasury stock -- -- -- -- --
Recognition of deferred tax asset and opening
income tax adjustment -- -- -- 18,142 --
Loans to management investors 2,490 -- -- (2,490) --
Repayment of management notes -- -- -- 1,465 --
Conversion of convertible note -- 352,908 4 9,701 --
Conversion of preferred stock -- 6,500 -- 130 --
Exercise of stock options -- 79,666 -- 1,144 --
Tax benefit related to issuance of shares
under employee benefit plans -- -- -- 1,008 --
Exchange of stock options -- -- -- 700 --
-------- ----------- ---- -------- --------
Balance, January 31, 1998 -- 19,910,519 199 150,168 119,671
Net income -- -- -- -- 18,547
Purchase of treasury stock -- -- -- -- --
Exercise of stock options -- 627,013 6 9,088 --
Tax benefit related to options exercised -- -- -- 9,272 --
Conversion of convertible note -- 374,364 4 10,291 --
Conversion of preferred stock -- 68,500 1 1,369 --
Stock options outstanding, net -- -- -- 50 --
Repayment of management notes -- -- -- 1,025 --
-------- ----------- ---- -------- --------
Balance, October 31, 1998 (unaudited) $ -- 20,980,396 $210 $181,263 $138,218
======== =========== ==== ======== ========
Note A: The beginning balance includes general and limited partnership
interests, reduction for predecessor cost-carryover basis and loans to
management investors.
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
VI-5
114
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY -- (CONTINUED)
------------------------------------
TREASURY STOCK
------------------------------------
SHARES AMOUNT TOTAL
(Dollars in thousands) ---------- --------- ---------
Balance, February 1, 1997 -- -- $ 103,863
Net income -- -- 47,035
Tax distributions made to partners -- -- (304)
Proceeds from Initial Public Offering -- -- 96,000
Initial Public Offering expenses -- -- (8,850)
Exchange of partnership units for common stock -- -- --
Purchase of treasury stock (2,500,000) $(115,000) (115,000)
Recognition of deferred tax asset and opening income tax
adjustment -- -- 18,142
Loans to management investors -- -- --
Repayment of management notes -- -- 1,465
Conversion of convertible note -- -- 9,705
Conversion of preferred stock -- -- 130
Exercise of stock options -- -- 1,144
Tax benefit related to issuance of shares under employee
benefit plans -- -- 1,008
Exchange of stock options -- -- 700
---------- --------- ---------
Balance, January 31, 1998 (2,500,000) (115,000) 155,038
Net income -- -- 18,547
Purchase of treasury stock (1,240,800) (26,642) (26,642)
Exercise of stock options -- -- 9,094
Tax benefit related to options exercised -- -- 9,272
Conversion of convertible note -- -- 10,295
Conversion of preferred stock -- -- 1,370
Stock options outstanding, net -- -- 50
Repayment of management notes -- -- 1,025
---------- --------- ---------
Balance, October 31, 1998 (unaudited) (3,740,800) $(141,642) $ 178,049
========== ========= =========
Note A: The beginning balance includes general and limited partnership
interests, reduction for predecessor cost-carryover basis and loans to
management investors.
The accompanying notes are an integral part of the unaudited consolidated
financial statements
VI-6
115
BRYLANE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
Brylane Inc., a Delaware corporation ("Brylane" or the "Company"), is a leading
catalog retailer of special-size and regular-size women's and men's apparel. The
women's catalogs market apparel in the budget and low to moderate price range
and the men's catalogs market apparel in the moderate price range. Brylane
services the special-size customer through its ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇'s, ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and KingSize (men's) catalogs, and the regular-size customer through its
Chadwick's, Lerner, Bridgewater and ▇▇▇▇▇ (men's) catalogs. In addition, the
Company's home catalog, introduced in September 1998, offers value-priced home
products. Brylane also markets apparel to these same customer segments through
four catalogs which it distributes under licensing arrangements with Sears Shop
at Home Services, Inc. ("Sears").
▇▇▇▇▇▇▇'s merchandising strategy is to provide value-priced, private label
apparel with a consistent quality and fit, to concentrate on apparel with
limited fashion risk and to offer a broader selection of sizes and styles in
special-size apparel than can be found at most retail stores and in other
competing catalogs. Each of Brylane's catalogs offers its customers
contemporary, traditional and basic apparel.
(2) BASIS OF PRESENTATION:
The consolidated financial statements at October 31, 1998 are unaudited and have
been prepared from the books and records of the Company in accordance with
generally accepted accounting principles and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. All adjustments (consisting only of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of financial position and operating results for the interim
periods are reflected. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's most recent Annual Report on Form 10-K, which includes financial
statements for the year ended January 31, 1998.
(3) SIGNIFICANT STOCKHOLDER--PINAULT-PRINTEMPS-REDOUTE:
On April 3, 1998, Pinault-Printemps-Redoute, S.A., a company organized under the
laws of France ("PPR"), through an affiliate, acquired 43.7% of the outstanding
common stock from certain stockholders of the Company. Concurrently, the Company
and PPR entered into a governance agreement (the "Governance Agreement") that
includes a standstill period of three years which limits PPR's ability to
acquire additional common stock to approximately 47.5% of the outstanding shares
and restricts PPR from taking certain other actions. PPR's beneficial ownership
of the common stock outstanding increases from 46.7% as of August 17, 1998 to
approximately 49.9% (50.1% together with its other affiliates) as of December 2,
1998 due to additional shares acquired by PPR and the purchase of shares by the
Company pursuant to the Common Stock Repurchase Program approved by the Board of
Directors.
On December 2, 1998, at a special meeting of the Board of Directors, the
Company's independent directors consented, pursuant to the terms of the
Governance Agreement, to allow PPR to make a proposal to acquire all of the
outstanding common stock of Brylane not owned by PPR. Having received such
consent, PPR then made a proposal, in the form of a letter, to acquire all the
outstanding shares not previously owned for a price of $20 per share. The Board
has formed a special committee, comprised of the three independent directors, to
consider and evaluate the proposal. The special committee will retain its own
legal and financial advisors to assist in evaluating the proposal. No time
requirement has been placed on the review of the proposal. PPR has indicated to
the Company that if it is not able to consummate the proposal at a reasonable
price, it currently intends to continue to be a long-term stockholder of
Brylane.
(4) COMMITMENTS AND CONTINGENCIES:
▇▇▇▇▇▇▇ is involved in various legal proceedings that are incidental to the
conduct of its business. Although the amount of any liability with respect to
these proceedings cannot be determined, in the opinion of management after
consultation with legal counsel, any such liability will not have a material
adverse effect on the financial position or results of operations of Brylane.
The Company has been undergoing an audit by the Indiana Department of Revenue
("IDR") and had previously disclosed its expectation that an assessment against
the Company was probable. Following an in depth review of the circumstances, the
IDR has advised the Company that no assessment will be made as a result of this
audit.
VI-7
116
BRYLANE INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NEW ACCOUNTING STANDARDS:
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The standard is effective for fiscal
years beginning after December 15, 1998, with early adoption encouraged. The
Company applied the new rules prospectively beginning in the first quarter of
1998. During the thirty-nine weeks ended October 31, 1998 the Company
capitalized $0.9 million, net of tax ($0.05 per share on a diluted basis), of
expenditures related to internally developed software.
In April 1988, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Startup Activities" ("SOP 98-5"). SOP 98-5 requires that the costs of
startup activities, including organizational costs, be expensed as incurred and
is effective for the Company's fiscal 1999 financial statements. The Company has
historically expensed as incurred expenditures associated with startup
activities including new businesses.
(6) RECLASSIFICATIONS:
Certain amounts in the prior period financial statements have been reclassified
to be consistent with the current period presentation. Such reclassifications
had no effect on previously reported net income.
VI-8
117
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each holder or his broker, dealer,
commercial bank or other nominee to the Depositary at one of its addresses set
forth below.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES LLC
By Mail: By Hand: By Overnight Courier:
Post Office Box ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇ -- ▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ Mail Drop Reorg. Dept.
Attn: Reorganization Department Attn: Reorganization Department Ridgefield Park, NJ 07660
Facsimile Transmission: (▇▇▇) ▇▇▇-▇▇▇▇
Confirmation of Facsimile Transmission by Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Any questions or requests for assistance or additional copies of this Offer to
Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery may be
directed to the Information Agent or the Dealer Manager at their respective
telephone numbers and locations listed below. You may also contact your broker,
dealer, commercial bank or trust company or nominee for assistance concerning
the Offer.
The Information Agent for the Offer is:
[MACKENZIE PARTNERS LOGO]
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (CALL COLLECT)
OR
CALL TOLL FREE: (▇▇▇) ▇▇▇-▇▇▇▇
The Dealer Manager for the Offer is:
[▇.▇. ▇▇▇▇▇▇ & CO. LOGO]
▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
OR
CALL TOLL-FREE (▇▇▇) ▇▇▇-▇▇▇▇