-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, If+l5eOuR6pC+bHU8oCelGFxtgQUmxn0i4KnpeQ86b2sN0BVlk26qNI5XSzTzMZM LNUnhuzYz21fjHIg+062rg== 0000898430-98-001661.txt : 19980504 0000898430-98-001661.hdr.sgml : 19980504 ACCESSION NUMBER: 0000898430-98-001661 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980501 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRYLANE INC CENTRAL INDEX KEY: 0000932698 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 133794198 STATE OF INCORPORATION: DE FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12703 FILM NUMBER: 98607457 BUSINESS ADDRESS: STREET 1: 463 SEVENTH AVE - 21ST FLR CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2126139500 MAIL ADDRESS: STREET 1: 463 SEVENTH AVENUE STREET 2: 21ST FLOOR CITY: NEW YORK STATE: NY ZIP: 10018 10-K 1 FORM 10-K FOR THE PERIOD ENDED 1/31/1998 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-12703 BRYLANE INC. (Exact name of registrant as specified in its charter) Delaware 13-3794198 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 463 Seventh Avenue New York, NY 10018 (Address of principal executive offices) Registrant's telephone number, including area code: (212) 613-9500 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share Name of each exchange on which registered: New York Stock Exchange (the "NYSE") Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on April 16, 1998, based on the closing price at which the Common Stock was sold on the NYSE as of April 16, 1998, was $59.00. The number of shares of the Registrant's Common Stock outstanding as of April 16, 1998 was 18,408,650 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for the 1998 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A (including the Appendix thereto) are incorporated by reference in Part III of this Report. ================================================================================ BRYLANE INC. INDEX TO ANNUAL REPORT ON FORM 10-K For the fiscal year ended January 31, 1998
Page ---- PART I Item 1. Business.......................................... 2 Item 2. Properties........................................ 17 Item 3. Legal Proceedings................................. 17 Item 4. Submission of Matters to a Vote of Security Holders.................................. 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 18 Item 6. Selected Financial Data........................... 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 22 Item 8. Financial Statements and Supplementary Data....... 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 33 PART III Item 10. Directors and Executive Officers of the Registrant 34 Item 11. Executive Compensation............................ 34 Item 12. Security Ownership of Certain Beneficial Owners and Management............................. 34 Item 13. Certain Relationships and Related Transactions.... 34 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 35
PART I As used in this Annual Report on Form 10-K ("Form 10-K"), unless the context indicates otherwise, the terms "Company" and "Brylane" refer to Brylane Inc., a Delaware corporation, its wholly-owned subsidiaries VP Holding Corporation, a Delaware corporation ("VP Holding"), VGP Corporation, a Delaware corporation ("VGP"), VLP Corporation, a Delaware corporation ("VLP"), and Brylane, L.P., a Delaware limited partnership (the "Partnership"), and the Partnership's predecessor companies. The term "subsidiaries" refers to the following subsidiaries and partnerships of the Partnership: B.L. Catalog Distribution, Inc., a Delaware corporation and a wholly-owned subsidiary of the Partnership ("B.L. Distribution"), B.L. Catalog Distribution Partnership, an Indiana general partnership ("B.L. Distribution Partnership"), B.L. Management Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the Partnership ("B.L. Management"), B.L. Management Services Partnership, a New York general partnership ("B.L. Management Partnership"), B.N.Y. Service Corp., a Delaware corporation and a wholly-owned subsidiary of the Partnership ("B.N.Y. Service"), K.S. Management Services, Inc., a Delaware corporation and a wholly- owned subsidiary of the Partnership ("K.S. Management"), C.O.B. Management Services, Inc., a Delaware corporation and a wholly-owned subsidiary of the Partnership ("C.O.B. Management"), Chadwick's Tradename Sub., Inc., a Delaware corporation and a wholly-owned subsidiary of the Partnership ("Tradename Sub"), and Brylane Capital Corp., a Delaware corporation and a wholly-owned subsidiary of the Partnership ("Brylane Capital"), unless the context indicates otherwise. Unless otherwise indicated, as used in this Form 10-K: (i) all references to a fiscal year shall mean the fiscal year of the Company which commences in such year (for example, the fiscal year commencing February 2, 1997 and ending January 31, 1998 is referred to herein as "fiscal 1997" or "1997"), and (ii) all numerical and financial data for Brylane includes numerical and financial data for the Chadwick's catalog operations beginning December 9, 1996 for the eight weeks ended February 1, 1997, unless the context indicates otherwise. On February 26, 1997, as a result of the Exchange Transaction (as defined herein) and in connection with the Initial Public Offering (as defined herein) of Brylane Inc., the Partnership became an indirect wholly-owned subsidiary of Brylane Inc. Prior to the Exchange Transaction, Brylane Inc. had no stockholders and no assets. For periods presented prior to February 26, 1997, the information, including the financial statements, presented in this Form 10-K relate to the Partnership as if it had been a wholly-owned subsidiary of Brylane Inc. THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET FORTH UNDER "ITEM 1. BUSINESS-- GENERAL", "--MARKETING--LIST MANAGEMENT" AND "--COMPETITION", AND "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "--LIQUIDITY AND CAPITAL RESOURCES", AS WELL AS WITHIN THIS FORM 10-K GENERALLY. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW UNDER "RISK FACTORS". THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES. Lane Bryant(R), Roaman's(R), Lerner(R), Sue Brett(R), Chadwick's(R), Chadwick's of Boston, Ltd.(R), KingSize(R), Hunters Run(R), David Benjamin(R), Lasting Comfort(R), Venezia(R), Forenza(R) and Bridgewater(R) are federally registered trademarks which are owned or licensed by the Company. Jessica London, Brett and Peak Performance are common law trademarks which are owned or licensed by the Company. Sears(R) and Woman's View(R) are federally registered trademarks of, and Smart Choice, Classics and Big & Tall are common law trademarks which are owned by Sears, Roebuck and Co. 1 ITEM 1. BUSINESS GENERAL The Company is the nation's leading specialty catalog retailer of value- priced apparel, with catalogs that target consumers of both special and regular size apparel. Through its Lane Bryant and Roaman's catalogs, Brylane is the leading catalog retailer of women's special size apparel (sizes 14 through 56) and, through its KingSize catalog, is a leading catalog retailer of men's special size apparel (sizes XL to 9XL). The Company's Chadwick's of Boston catalog division ("Chadwick's"), which the Company acquired in December 1996, is the nation's largest off-price women's catalog retailer, and offers a broad selection of high quality apparel at prices typically 25% to 50% below the regular prices of department and specialty retail stores. Brylane also reaches the women's regular size apparel market (sizes 4 to 18) through its Lerner catalog. In addition, the Company has recently introduced and continues to develop several new catalog concepts. The Company successfully launched the Bridgewater (regular size women's, men's and children's apparel) in fiscal 1996 and Jessica London (off-price special size women's apparel) and Brett (regular size men's apparel) catalogs in fiscal 1997. Brylane also markets apparel to some of these same customer segments through four catalogs which it distributes under the "Sears" name to customers of Sears, Roebuck and Co. under an exclusive licensing arrangement with Sears Shop at Home Services, Inc. ("Sears"). Brylane's merchandising strategy is to provide value-priced apparel with a consistent quality and fit, to concentrate on apparel with limited fashion risk, and to offer a broad selection of sizes, styles and colors. HISTORY AND BACKGROUND Brylane's catalog retail business dates back to the mailing of the first Lane Bryant catalog in 1924 and the first Roaman's catalog during the 1940s. Both Lane Bryant and Roaman's were acquired by The Limited, Inc. ("The Limited") in the early 1980s. In 1985, the Lerner catalog business was launched to capitalize on the Lerner name, which had developed as The Limited's Lerner retail store operations grew to over 800 stores during the 1980s. On August 30, 1993, affiliates of Freeman Spogli & Co. Incorporated, a private investment firm ("FS&Co."), and The Limited formed the Partnership to acquire these catalog businesses (the "Brylane Acquisition"). FS&Co., together with certain members of management, acquired a 60% aggregate interest in the Partnership, while The Limited retained the remaining 40%. For accounting purposes, the Brylane Acquisition was recorded as of August 1, 1993. On October 16, 1995, the Partnership acquired the KingSize catalog division (the "KingSize Acquisition") of WearGuard Corporation ("WearGuard"), a wholly- owned subsidiary of ARAMARK Corporation ("ARAMARK"). In connection with the KingSize Acquisition, WearGuard assigned to Brylane its license to distribute the Sears Big & Tall catalog, as well as its interest in certain trademarks, including the KingSize(R) registered trademark. As consideration for the sale of the KingSize catalog division, WearGuard received a payment of $52.5 million and 350,000 newly issued limited partnership units in the Partnership. In order to fund a portion of the purchase price, the Company amended its then existing 1993 bank credit facility to provide for an additional $35.0 million term loan. For accounting purposes, the KingSize Acquisition was recorded as of October 1, 1995. On December 9, 1996, Brylane acquired the Chadwick's of Boston catalog division of The TJX Companies, Inc. ("TJX"), excluding substantially all accounts receivable (the "Chadwick's Acquisition"). In connection with the Chadwick's Acquisition, Brylane and TJX entered into a services agreement, as well as an inventory purchase agreement pursuant to which TJX has committed to purchase certain amounts of Chadwick's excess inventory through January 2000. As consideration for the sale of the Chadwick's of Boston catalog division, affiliates of TJX received aggregate cash payments of $189.8 million (which is net of purchase price adjustments of $32.9 million) and a $20.0 million Convertible Note due 2006 of the Partnership (all of which had been converted as of April 14, 1998). In order to fund a portion of the cash paid in connection with the Chadwick's Acquisition and to repay its then existing indebtedness under its 1993 bank credit facility, the Partnership entered into the 1996 Bank Credit Facility (as defined herein). See "Item 7. Management's Discussion and Analysis of Financial Condition and 2 Results of Operations--Liquidity and Capital Resources". In addition, in connection with the Chadwick's Acquisition, the Partnership received an aggregate of $51.3 million in new equity from certain affiliates of FS&Co., Leeway & Co., a Massachusetts partnership, as nominee for the Long-Term Investment Trust, a trust governed by the laws of the State of New York ("Leeway & Co."), NYNEX Master Trust, a trust governed by the laws of the State of New York ("NYNEX"), and WearGuard. On February 26, 1997, in connection with the initial public offering of Brylane Inc. (the "Initial Public Offering"), the Partnership became a wholly- owned subsidiary of Brylane Inc. pursuant to an exchange transaction in which Brylane Inc. acquired, directly, and indirectly through the acquisition of wholly-owned subsidiaries, a 100% ownership interest in the Partnership in exchange for shares of the common stock, $.01 par value (the "Common Stock"), of Brylane Inc. (the "Exchange Transaction"). In connection with the Exchange Transaction, the Partnership retained all of its assets, operations and liabilities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". In October 1997, certain stockholders of the Company (including affiliates of FS&Co. and an affiliate of The Limited) completed an offering of 5,000,000 shares of Common Stock at a price to the public of $46.00 per share, and concurrent therewith, the Company repurchased from these same stockholders an aggregate of 2,500,000 shares of Common Stock at the same price (the "Common Stock Repurchase"). The Company financed the Common Stock Repurchase (and related fees) through the incurrence of additional long-term debt in the aggregate principal amount of approximately $116.8 million. On April 3, 1998, Pinault-Printemps-Redoute, S.A., a company organized under the laws of France ("PPR"), through an affiliate, REDAM LLC, a Delaware limited liability company, acquired Common Stock from certain stockholders of the Company (including all of the Common Stock held by affiliates of FS&Co. and an affiliate of The Limited, as well as 533,109 shares held by certain members of management of the Company) (the "PPR Stock Purchase"). As a result of the PPR Stock Purchase, PPR acquired approximately 43.7% of the outstanding shares of Common Stock. In connection with the PPR Stock Purchase, the Company and PPR entered into a governance agreement (the "Governance Agreement") pursuant to which PPR's ability to acquire additional Common Stock and to take other actions is limited. As consideration for the sale, PPR paid the selling stockholders a price of $51.00 per share. CUSTOMERS The Company has a substantial and loyal customer base. As of December 31, 1997, Brylane's combined customer files contained 23.4 million customer names (including 2.7 million names from the Sears catalogs customer file), of which approximately 10.9 million are active customers (including 1.2 million customers from the Sears catalogs customer file). Over 40% of the Lane Bryant, Roaman's and Lerner active customers placed an order three or more times during the 12 months ended December 31, 1997. The Company defines a customer as someone who has placed an order with any of the Company's established catalogs, excluding its Sears catalogs, within the last 48 months, and an active customer as one who has placed at least one order with these catalogs within the last 12 months. Certain of the Company's customers purchase from more than one of the Company's catalogs and are therefore considered to be a separate customer of each such catalog. CHADWICK'S. The Chadwick's catalog targets women between the ages of 25 and 55 who wear regular size apparel (sizes 4 to 20) and seek high quality merchandise at prices well below those offered by department and specialty stores. In addition, Chadwick's has expanded its merchandise offerings to target women who wear petite and special size apparel (sizes 2 to 26). Brylane believes that the median age of the Chadwick's customer is 42, and that the typical customer has an income level equal to or above the national average. As of December 31, 1997, the Chadwick's customer file contained 11.0 million customer names, of which 4.8 million names are active customers. The average order by a Chadwick's customer during fiscal 1997 was approximately $87. LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's catalogs target value-conscious women who wear special sizes (sizes 14 to 56). Brylane believes that the median age of its women's special size customer segment is 51, and that the typical customer has an income level somewhat below that of the national average. As 3 of December 31, 1997, the Lane Bryant and Roaman's customer files contained 4.2 million and 2.1 million customer names, respectively, of which approximately 2.2 million and 1.1 million names are active customers of Lane Bryant and Roaman's, respectively. The average order by a Lane Bryant and Roaman's customer during fiscal 1997 was approximately $75 and $74, respectively. LERNER. The Lerner catalog targets younger, value-conscious women age 25 and up who wear sizes 4 to 18 and purchase at low to budget prices. The Company believes that the median age of the Lerner customer is 38, and that the average Lerner customer has an income level approximately equal to the national average. As of December 31, 1997, the Lerner customer file contained 2.7 million customer names, of which 1.2 million are active customers. The average order by a Lerner customer during fiscal 1997 was approximately $78. SEARS CATALOGS. Through its licensing agreement with Sears, the Company has expanded its customer base by offering Lane Bryant, Roaman's, Lerner, Sue Brett (discontinued March 1998) and KingSize merchandise through its Sears versions of these catalogs to selected individuals from the over 30 million name customer file of Sears, Roebuck and Co. who are not already existing customers of the Company. Brylane believes that the median age and income level of its Sears customer is close to that of the average customer of the Company's comparable catalogs. As of December 31, 1997, the Sears catalogs customer file contained 2.7 million customer names, of which 1.2 million are active customers. The average order by a Sears customer during fiscal 1997 was approximately $76 for women's apparel and $100 for men's apparel. See "--Sears Agreement". KINGSIZE. The KingSize catalog targets value-conscious men who wear special sizes (sizes XL to 9XL). The Company believes that the median age of its men's special size customer segment is 52, and that the typical KingSize customer has an income level above the national average. As of December 31, 1997, the KingSize customer file contained 378,000 customer names, of which 193,000 are active customers. The average order by a KingSize customer during fiscal 1997 was approximately $93. SUE BRETT. The Sue Brett catalog targets mature regular size women who wear sizes 6 to 24. The Company believes that the median age of the Sue Brett customer is 45, and that the average Sue Brett customer has an income level somewhat above the national average. As of December 31, 1997, the Sue Brett customer file contained 434,000 customer names, of which 251,000 are active customers. The average order by a Sue Brett customer during fiscal 1997 was approximately $71. As a result of the Chadwick's Acquisition, and the Company's conclusion that the Sue Brett catalog targeted customers very similar to those targeted by Chadwick's and Lerner, the Company has determined to discontinue its circulation of the Sue Brett (and Sears Classics) catalogs effective March 1998. The Company intends to continue to utilize the Sue Brett customer file in connection with the circulation of its Chadwick's and Lerner catalogs, and to continue to use the Sue Brett trade name in connection with its other catalogs' apparel offerings. MERCHANDISING As a result of its targeted merchandising strategies, the Company has succeeded in developing distinct identities for each of its catalogs. The Company's merchandising strategy across all of its catalog titles is (i) to provide value-priced apparel with a consistent quality and fit, (ii) to concentrate on apparel with limited fashion risk, and (iii) to offer a broad selection of sizes, styles and colors. The Company intends to continue to refine and broaden its merchandise offerings in order to satisfy the apparel needs of its customers, to freshen the appeal of each catalog's assortment of merchandise and to stimulate increased sales. CHADWICK'S. The Company believes that Chadwick's is unique in its ability to offer value across its merchandise lines, which feature a wide array of colors, styles and sizes designed to satisfy its customers' wardrobe needs for career, casual and social wear. Chadwick's offers merchandise which includes both basic styles and current fashion. Chadwick's offers approximately 73,000 stock keeping units ("SKUs"), in sizes 2 to 26. The average price point per item sold by Chadwick's in fiscal 1997 was approximately $27. Chadwick's offers nationally recognized brand names, including Pierre Cardin, Herman Geist, JG Hook and Blassport. The private label brand names featured in the Chadwick's catalog include, among others, Savannah (which Brylane uses under license from TJX), Fads, Stephanie Andrews and JL Plum. 4 Chadwick's has successfully introduced a number of complementary merchandise categories to its customers. These categories, which have been tested and offered on a limited basis, include men's apparel, children's apparel, women's special size apparel, accessories, gifts and cosmetics. Since Chadwick's began offering complementary merchandise categories in 1992, net sales of these products have grown to represent approximately 22% of Chadwick's net sales in 1997. LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's special size catalogs focus primarily on contemporary, traditional and basic women's apparel and also include a limited offering of certain fashion-oriented items. While both the Lane Bryant and Roaman's catalogs offer the same merchandise classifications, the Lane Bryant catalog offers greater style selections in certain classifications, especially in basic apparel items. Both catalogs offer extensive selections of merchandise over size 26, in many cases offering three to four times more SKUs than its competitors. Approximately 45% of Lane Bryant and Roaman's net sales are in sizes 26 or larger. Lane Bryant and Roaman's catalogs offer approximately 83,000 and 49,000 SKUs, respectively, in sizes 14 to 56. The average price point per item sold by both Lane Bryant and Roaman's in fiscal 1997 was approximately $22. Lane Bryant and Roaman's catalogs feature private label brand names which have higher gross profit margins than national brand merchandise. Private label brand names used on merchandise included in the Lane Bryant and Roaman's catalogs include, among others, Hunters Run, Venezia, Lasting Comfort and Forenza, which Brylane uses under licenses from The Limited and the Roaman's private label brand name, which is owned by the Company. See "--Trademarks, Tradenames and Licenses". LERNER. The Lerner catalog offers a broad selection of quality contemporary, traditional and basic women's apparel in sizes 4 to 18. Compared to Chadwick's, the Lerner catalog targets a younger customer and offers slightly more fashion forward merchandise. Recently, the Company has made significant changes to the merchandise offerings contained in its Lerner catalog, including the addition of an increased number of career wear selections and additional sizes. The average price point per item sold by Lerner in fiscal 1997 was approximately $23. Consistent with the Company's other catalogs, the Lerner catalog places great emphasis on its product sourcing strategy to enable the Company to offer quality, value-priced, private label merchandise. The private label brand names featured on merchandise included in the Lerner catalog include, among others, David Benjamin and Forenza, which Brylane uses under license from The Limited, as well as certain other private label brand names which are owned by certain of Brylane's vendors. See "--Trademarks, Tradenames and Licenses". SEARS CATALOGS. The merchandise offered in the Sears catalogs is the same as that offered in the comparable Company catalog: Woman's View (Lane Bryant and Roaman's); Smart Choice (Lerner); Classics (Sue Brett); and Big & Tall (KingSize). This allows the Company to fill the orders generated by these catalogs with minimal incremental inventory risk. The Company has discontinued circulation of its Classics catalogs effective March 1998. See "Customers--Sue Brett" and "--Sears Agreement". KINGSIZE. The KingSize catalog offers a broad selection of quality contemporary, traditional and basic men's apparel in sizes XL to 9XL. Although the KingSize catalog also offers some fashion-oriented items, most of the merchandise in the KingSize catalog has limited fashion risk. Brylane believes that KingSize offers a broader selection of sizes and styles than most specialty and department stores and competing catalogs. Approximately 59% of KingSize's sales (including Big & Tall) are in sizes 3XL or larger. The average price point per item sold by KingSize in fiscal 1997 was approximately $27. In addition, in October 1997, the Company mailed its first stand-alone Brett catalog, which is targeted at the regular size men's apparel segment. The KingSize catalog features private label brand names which have higher gross profit margins than national brand merchandise. Private label brand names used on merchandise included in the KingSize catalog are KingSize and Peak Performance, both of which are owned by the Company. SUE BRETT. The Sue Brett catalog (discontinued March 1998) offered quality contemporary, traditional and basic women's merchandise in sizes 6 to 24. The average price point per item sold by Sue Brett in fiscal 1997 was approximately $28. 5 MARKETING There are several important elements to the Company's marketing strategy. PROMOTIONAL STRATEGIES. The Company has implemented highly effective promotional incentives in many of its catalogs. Promotional incentives include deferred and installment billing, free delivery for new customers, free express delivery for orders of a certain size, "buy one, get one free" strategies, pricing discounts when purchasing an additional item, and discount offers. Brylane also uses promotions based on its private label credit cards, such as credit limit increases to stimulate additional sales from existing customers and to promote customer loyalty. The Company has significantly increased the use of deferred billing programs, under which merchandise purchased is not billed to the customer's credit card until 90 to 120 days after the applicable catalog is mailed. Deferred billing programs have resulted in a significant increase in net sales and average order size, particularly in the Company's Chadwick's and Lerner catalogs. In addition, the Company has expanded the use of these programs to its other catalogs. PRIVATE LABEL CREDIT CARDS. Brylane views the use of credit as an important marketing tool with existing and new customers. Approximately 92.5% of the Company's total fiscal 1997 sales (including sales from the Company's Sears catalogs) were paid for using credit cards. Approximately 51% of the Company's fiscal 1997 sales (excluding sales from Company's Sears catalogs) from the Lane Bryant, Roaman's, Lerner, Sue Brett and KingSize catalogs were paid for using Brylane's private label credit cards. Through private label cards, the total amount of credit available to the Company's customers who hold third party cards can be increased, and credit may be made available to certain of its customers who may not qualify for third party cards, but are eligible for the generally lower credit limits available under the private label cards. The Company successfully tested a Chadwick's private label credit card in the fall of 1997. For catalogs distributed under the Sears Agreement (as defined herein), customers can use the Sears credit card (but not Brylane's private label cards). The Sears credit card is administered by an affiliate of Sears, which assumes all risks associated with the collection of those credit card receivables. The Company offers its customers the Lane Bryant, Roaman's, Lerner, Sue Brett and KingSize private label credit cards which are issued by World Financial Network National Bank ("World Financial"), pursuant to the Credit Card Processing Agreement between Brylane and World Financial (as amended, the "Credit Card Agreement"). The Lane Bryant and Lerner private label credit cards are also issued to customers of the Lane Bryant and Lerner retail stores, and Lane Bryant and Lerner cardholders can use them either for catalog or store purchases. Under the Credit Card Agreement, World Financial determines the credit worthiness of a particular customer based on a standard credit rating system and generally assumes all risks associated with the collection of receivables generated by credit card sales without recourse to the Company. World Financial processes credit card transactions for a fee equal to a percentage of the sale amount generated by such transactions (exclusive of shipping, handling and taxes) and remits the balance of such amount to Brylane within two business days of its incurrence. The fee payable to World Financial under this arrangement is currently set at 2.4% of net sales generated using these credit cards. In the event of a legislated or judicial reduction in the annual percentage rate that may be charged by World Financial to cardholders, Brylane and World Financial have agreed to negotiate in good faith an increase in the fee. In addition, in the event that the aggregate amount of receivables generated through the use of the credit cards exceeds $525 million, the fee shall be adjusted to reimburse World Financial for its borrowing costs with respect to such receivables in excess of $525 million. Furthermore, the fee may be adjusted every six months based on the average finance charges per cardholder statement. However, the fee may not exceed 2.5% (subject to certain exceptions). Pursuant to the terms of the Credit Card Agreement, Brylane is obligated to use its best efforts to promote the use of credit cards in the Business (as defined) and to acquire new cardholders through, among other things, "instant credit", pre-approved solicitations and applications inserted into catalogs. World Financial has the right to review and approve any credit marketing materials used in these promotional activities prior to their use, which approval shall not be unreasonably withheld. The cost of these credit solicitation activities are shared equally by Brylane and World Financial. In addition, the Credit Card Agreement requires World Financial to provide without charge to Brylane a list of all Lerner and Lane Bryant retail cardholders on no more than one occasion per month. Brylane is authorized to use the lists for the purpose of increasing its catalog mailing lists. 6 The Credit Card Agreement will remain in effect until terminated (i) by either party on not less than twelve months' notice delivered on or after July 1, 2005, (ii) by either party upon a breach by the other party of any of its material obligations under the Credit Card Agreement, (iii) by World Financial on not less than twelve months' notice if any competitor of The Limited or any of its affiliates acquires "control" of Brylane (as defined in the Credit Card Agreement), or (iv) automatically upon certain bankruptcy events involving Brylane. See "Risk Factors--Relationship with The Limited". In the event that the Credit Card Agreement should terminate, Brylane would be obligated to repurchase from World Financial certain then-outstanding Lerner and Lane Bryant mail order account balances, and all Roaman's, Sue Brett and KingSize account balances, at the face amount thereof (subject to certain exceptions). LIST MANAGEMENT. An important element of the Company's marketing strategy is the improved segmentation of its existing customer files. Brylane currently employs customer file segmentation analyses, based on the recency, frequency and monetary value of past purchases, to create catalog circulation strategies that are designed to increase customer response rates and average sales per catalog. In the fall of 1997, Brylane installed (and is currently testing) a modeling and scoring software program that uses more sophisticated multi-variable regression analyses to create its predictive purchasing models. The Company believes that the development and refinement of Brylane's predictive purchasing models will allow Brylane to better target its catalog mailings and more effectively utilize its customer file. In addition, Chadwick's is currently testing increasingly sophisticated statistical circulation models to improve its ability to predict customer purchasing behavior based on a wide range of variables. The Company believes that its ability to better predict customer purchasing behavior maximizes the effectiveness of its catalog mailings to current and prospective customers. CUSTOMER ACQUISITION. The Company's prospect acquisition programs are designed to attract new customers in a cost effective manner. The Company utilizes various sources to acquire new names, including list rentals or purchases from competitors and related catalog concepts; access to lists of credit card holders of The Limited's Lane Bryant and Lerner retail stores; licensing arrangements; magazine solicitations; cable television advertising; promotional inserts; friends' name cards inserted in mailed catalogs; and reactivation of previous customers of Brylane. The Company has implemented a program of cable television advertising to solicit catalog requests for its KingSize catalog, as well as tests of similar programs for its Lane Bryant and Roaman's catalogs. Based on the successful results of the KingSize program and the test results of the Lane Bryant and Roaman's commercials, the Company has increased significantly its use of cable television advertising as part of its efforts to solicit catalog requests and to acquire new customers. In conjunction with Sears, the Company has been improving the segmentation of the over 30 million name Sears, Roebuck and Co. customer file to increase its success rate with prospects. CUSTOMER SERVICE AND TELEMARKETING. Providing superior service to customers is a key element of the Company's marketing strategy, and is supported by the Company's toll-free telephone service for orders and other customer needs, an emphasis on customer service and friendliness in training for its telephone sales representatives, and an unconditional guarantee of its merchandise at any time. The Company's return policy provides that if a customer is not satisfied with a purchase for any reason, the merchandise can be returned to the Company for a refund or exchange. The return rate for Brylane (which includes exchanges) for fiscal 1995, 1996 and 1997 was 22.6%, 24.1%, and 25.0% respectively, of shipped sales. In fiscal 1997, Brylane received approximately 82.1% of customer orders through its toll-free phone service. Brylane utilizes a toll-free service with separate telemarketing groups and toll-free numbers for each catalog. The Company's telemarketing operations are conducted in Indianapolis and Greenwood, Indiana, San Antonio, Texas and West Bridgewater, Massachusetts. The Company's telemarketing operations are open 24 hours a day, seven days a week, and currently have an aggregate of approximately 1,900 telemarketing/customer service stations. In fiscal 1997, Brylane processed approximately 30.4 million calls at its Indianapolis, Greenwood, San Antonio and West Bridgewater facilities, and Brylane outsourced 3.6 million calls to a third-party call center. The number of associates manning these stations varies greatly during the hours of each day of each selling season, based on anticipated call volume. The Company trains its telephone sales representatives to determine the correct size for its special size customers. The proper fit for all customers is ensured by the Company's merchandising emphasis on consistent 7 sizing and fit across its product lines. Brylane's computerized database provides the sales representatives with on-line information about previous customer orders, which allows the sales representatives to personalize each transaction. Brylane's computerized database also includes an inventory control system, which allows Brylane's telephone sales representatives to inform customers immediately about merchandise availability and estimated delivery dates for back-ordered merchandise. As part of its efforts in this area, Brylane's sales representatives are trained to describe current sales items or other promotions to customers. Brylane's promotional selling efforts resulted in an additional $31.5 million in net sales during fiscal 1997 and an additional $24.0 million in fiscal 1996. The telephone switches at Brylane's four facilities enable it to efficiently balance its incoming telephone calls during periods of heavy call volume. Brylane's telephone switch at its Indianapolis telephone center enabled it to significantly increase its telephone volume capacity and to reduce costs by providing more accurate and timely information to management. Brylane has the ability to reroute calls between each catalog's telemarketing groups and Brylane's four telemarketing centers during periods of heavy activity. In addition, in June 1996, Brylane renegotiated its agreement with its long- distance telephone service provider to, among other things, reduce the rates charged to Brylane for its long-distance telephone service. The Company plans to integrate its existing Brylane and Chadwick's telemarketing order entry systems in order to provide its customer service representatives with improved information including past purchases, data on customer orders and updated catalog information. This additional information is expected to increase the ability of these sales representatives to personalize transactions, market additional products that complement the purchases being made by the customer and recommend alternatives for items that are either unavailable or on back order. The integrated systems will utilize "universal agents" that receive both telephone orders and customer service calls which the Company believes will lead to an increase in productivity. The Company also expects that the integrated systems will permit it to process orders more efficiently. FULFILLMENT, DELIVERY AND CATALOG PRODUCTION Through its fulfillment, delivery and catalog production methods, the Company works to maintain its position as a low-cost operator in the catalog industry. FULFILLMENT CENTERS. The Company's commitment to customer service is supported by its 750,000 square foot Indianapolis, Indiana fulfillment center, which supports its Brylane catalogs, and its 700,000 square foot West Bridgewater, Massachusetts facilities, which support its Chadwick's catalogs. Designed to process and ship customer orders rapidly and in a cost effective manner, each fulfillment center utilizes high speed conveyor belts, laser beam bar code scanning and tilt tray sorters. The Indianapolis facility processed approximately 19.5 million shipments in fiscal 1997. In the fall of 1994, Brylane developed and implemented "one-pass picking", a highly sophisticated and efficient method for gathering the merchandise needed to fill customer orders, at its Indianapolis fulfillment center. In September 1995, Brylane completed an $8.0 million enhancement of the package sorting and shipping capabilities of the Indianapolis fulfillment center, including the addition of a second high speed tilt tray sorter. These enhancements to the fulfillment center approximately doubled Brylane's shipping and receiving capabilities. In addition, Brylane completed a $2.7 million project to replace the original tilt tray sorter, which replacement became operational in the fourth quarter of 1996. The West Bridgewater facility processed over 14.5 million shipments in 1997 and has the capacity to process approximately 25% more shipments before any capital expansion of the center will be required. DELIVERY. The Company minimizes order delivery costs through careful management of its shipping techniques. For example, third and fourth class mailing costs, which accounted for approximately 73% and 88% of orders shipped from the Indianapolis facility and the West Bridgewater facility, respectively, in fiscal 1997, are managed to obtain the benefits of various mailing rate discount programs offered by the United States Postal Service ("USPS"). The Company sorts packages by zip code, prints the zip bar codes and automatically calculates the weight of each parcel to be shipped to determine if discounted bulk rate postage may be available. The Company believes that the volume of its mailings provides it with a competitive advantage over smaller catalog retailers who cannot take full advantage of this rate structure. The Company also reduces order shipping costs by sorting and sending packages by truck to up to 21 USPS drop points around the country, where the packages enter the USPS 8 system for delivery to customers. In addition to third class and fourth class mail delivery, the Company offers United Parcel Service ("UPS") delivery and UPS Express Delivery. CATALOG PRODUCTION. The Company closely manages the catalog production process to control printing and mailing costs while maintaining attractive and effective catalog presentations. The Company has contracts with various printers which cover its production requirements and afford protection against certain cost increases. The Company also employs bulk sorting and drop shipping of catalogs to take maximum advantage of available USPS rate discounts. PRIVATE LABEL PURCHASING AND VENDOR RELATIONSHIPS The Company emphasizes private label merchandise, which accounted for 83.0% of Brylane's net sales (excluding the Chadwick's catalog) in fiscal 1997. Brylane's private label apparel and accessories produce higher gross profit margins than the national brand merchandise found in its catalogs. The emphasis on private label merchandise also affords Brylane greater control over the manufacturing process, allowing it to achieve its objective of consistency of quality and fit in the various merchandise categories offered, and enabling it to offer a greater number of sizes, styles and colors than its competitors. The Company believes this approach both increases customer loyalty and confidence in making a purchase and reduces merchandise returns. While Chadwick's also benefits from private label merchandise offerings, it offers a significantly larger percentage of nationally recognized brand name merchandise. Chadwick's private label merchandise accounted for approximately 53% of Chadwick's net sales in fiscal 1997. The Company's private label merchandise is sourced from a diverse group of established vendors who work directly with the Company's buyers and are provided with rigorous design specifications and quality control procedures. The Company is the major customer of and has long-standing relationships with many of its private label and national brand vendors, resulting in close and cooperative working relationships and enabling the Company to obtain merchandise at favorable prices. Brylane's 10 largest vendors accounted for 21.3% of purchased merchandise in fiscal 1997. No single supplier, however, accounted for more than 4.7% of merchandise purchased in fiscal 1997. Brylane's purchases from foreign suppliers accounted for 30.3% of merchandise purchased in fiscal 1997. To ensure the distinct merchandising focus of its catalogs, the Company conducts purchasing separately for its Chadwick's, Lane Bryant, Roaman's, Lerner and KingSize catalogs and, within each catalog, has dedicated buyers for specific product lines. The Company's merchandising staff actively monitors the apparel markets and offerings by other catalog and retail stores in an effort to ensure that the Company's offerings are competitive in design and price. To improve purchasing efficiency, the Company also relies on "pre-mailing" programs (i.e., limited catalog distribution prior to the start of a selling season) to test customer acceptance of new product offerings. INVENTORY MANAGEMENT The Company's inventory management systems are designed to maintain inventory levels that provide optimum in-stock positions, while maximizing inventory turnover rates and minimizing the amount of unsold merchandise at the end of each season. The Company maintains higher inventory levels for basic apparel items which are not generally fashion sensitive. Inventory levels for items with greater fashion risk are maintained at lower levels, with the goal of selling all such merchandise prior to the end of a season. The Company's disciplined inventory control systems enable it to maintain minimum inventory levels, which the Company is able to replenish quickly as a result of its close relationships with its domestic suppliers. These lower levels of inventory enable the Company to avoid excessive markdowns and to reduce its losses on overstocks at the end of each selling season. When overstocks do occur, Brylane is generally successful in selling the goods through relationships it has established with merchandise brokers (who then resell such merchandise to retailers) and with discount retailers. Chadwick's historically has been successful in selling its overstock through its twice-yearly, end-of-season clearance catalogs, through its retail outlet stores located in Nashua, New Hampshire and Brockton, Massachusetts, and to TJX and other third parties. In addition, in connection with the Chadwick's Acquisition, the Partnership has entered into an inventory purchase agreement with TJX pursuant to which TJX has committed to purchase certain amounts of Chadwick's excess inventory through January 2000. 9 Despite its careful inventory management, the Company experiences out-of- stock and back order inventory conditions, both of which are common in catalog retailing. As a result, the Company experiences some order cancellations. During fiscal 1995, 1996 and 1997, cancellations were 5.1%, 5.7% and 7.8%, respectively, of the total dollar value of orders received. MANAGEMENT INFORMATION SYSTEMS Brylane's management information systems provide support to all segments of its operations, including merchandising, marketing, telemarketing, fulfillment, customer service, financial reporting and inventory management. Chadwick's management information systems are currently supported by TJX's mainframe computer. In connection with the Chadwick's Acquisition, Brylane entered into a services agreement with TJX whereby TJX agreed to provide services relating to the Chadwick's business for approximately three years. During this period, the Company will evaluate alternative sources for these services, including transferring certain of the functions to Brylane and having Chadwick's perform certain of the functions itself. Brylane's management information systems are supported by an IBM mainframe computer that processes up to 85 million transactions per month. This computer is connected to approximately 2,350 terminals between Brylane's three telemarketing facilities and its New York and Hingham, Massachusetts offices. See "Item 2. Properties". SEARS AGREEMENT In March 1994, Brylane entered into an exclusive licensing agreement with Sears (as amended, the "Sears Agreement") to produce a special size women's apparel catalog (Woman's View), based on Brylane's Lane Bryant and Roaman's catalogs, for distribution to customers of Sears, Roebuck and Co. Brylane has also been mailing catalogs based on Brylane's Lerner catalog (Smart Choice) since the first quarter of 1994, and the Sue Brett catalog (Classics) since the third quarter of 1994, to these customers. In October 1995, in connection with the KingSize Acquisition, Brylane and Sears expanded the Sears Agreement to include an exclusive license to produce and distribute the Sears Big & Tall catalog, based on Brylane's KingSize catalog, to customers of Sears, Roebuck and Co. The Woman's View, Smart Choice and Big & Tall catalogs are currently being mailed to individuals who are not existing customers of Brylane and who are included in the more than 30 million name customer file of Sears, Roebuck and Co. As amended, the initial term of the Sears Agreement continues through July 31, 2001. The Sears Agreement can be renewed by the parties for additional one year terms thereafter; provided, that the Company and Sears may terminate the agreement upon twelve months' and eighteen months' notice, respectively, prior to the end of the initial term or any renewal thereof. Under the Sears Agreement, the catalogs mailed are substantially similar to Brylane's comparable catalogs, but have a Sears logo and a different name. The merchandise is identical to that contained in Brylane's comparable catalogs, which allows Brylane to fill incremental customer orders by increasing the amount of merchandise that it purchases, rather than increasing the number of different kinds of merchandise categories that it keeps in inventory. This approach limits Brylane's incremental inventory risk. Customers' calls are answered by telemarketing representatives using the Sears Shop At Home name for the women's and men's apparel catalogs, and customers can pay for their purchases using a Sears credit card or various bank credit cards. Brylane performs all merchandising, fulfillment, telemarketing and management information functions through its existing facilities. In the event that the Sears Agreement terminates, Brylane will retain the names of all customers who have purchased through the Sears catalogs covered by such agreement and, at that point, Brylane will be able to mail Brylane's other catalogs to these customers. COMPETITION The retail apparel business is highly competitive. Lane Bryant, Roaman's and Woman's View compete in the sale of special size women's apparel primarily with other mail order companies, department stores and specialty retailers, including the Lane Bryant retail stores operated by The Limited, Catherines Stores and United Retail Group (which is partially owned by The Limited). Brylane's principal competitors in the mail order retailing of special size women's apparel include J.C. Penney (general catalog and Liz Baker), Arizona Mail Order (Old 10 Pueblo and Regalia), Blair and Hanover Direct (Silhouettes). Chadwick's, Lerner and Smart Choice compete in the sale of value-priced women's fashion sportswear with many other mail order companies, specialty retailers, discount stores and department stores, including the Lerner retail stores operated by The Limited and T.J. Maxx and Marshalls, each of which is owned by TJX. KingSize and Big & Tall compete in the sale of special size men's apparel with specialty retailers (including Casual Male and Repp Stores), department stores, other mail order companies (including Blair as well as the J.C. Penney catalog and Phoenix Big & Tall catalogs) and discount stores. In addition, sales of clothing through home television shopping networks or other electronic media could provide additional sources of competition for the Company. The Company does not believe that it has any significant competition in the special size or off-price segment of the women's apparel catalog retail market. However, there can be no assurance that other retailers of apparel will not decide to enter into the Company's markets. The Company competes on the basis of its extensive merchandise selection, product quality and price, credit extension and customer service. The Company believes that its long-standing relationship with many of its customers, reputation for quality merchandise, extensive customer files and low-cost, efficient infrastructure allow it to compete effectively in all of its other market segments. See "Risk Factors--Competition and Other Business Factors". As a result of the PPR Stock Purchase, certain noncompetition and nonsolicitation provisions previously contained in the Transaction Agreement pursuant to which affiliates of FS&Co. and The Limited formed the Partnership (the "Transaction Agreement"), and that were binding upon The Limited, have terminated, and The Limited can now compete directly with Brylane in the retail catalog business for special size women's apparel. However, the Company continues to retain the use in connection with its business of the Lane Bryant(R), Lerner(R) and other trademarks licensed to it by The Limited pursuant to the terms of the Trademark Agreement, as specified further therein. See "-- Trademarks, Trade Names and Licenses" and "Risk Factors--Competition and Other Business Factors". In addition, pursuant to that certain Asset Purchase Agreement dated October 18, 1996 by and among TJX, Chadwick's, Inc. and Brylane (the "Chadwick's Purchase Agreement"), TJX agreed, for a period of five years, to not own or conduct (with an exception for passive ownership of less than 10% of a company) any business that sells merchandise through printed women's or men's apparel catalogs which are substantially similar to the "Chadwick's of Boston" catalog. TJX is permitted, however, (i) to sell merchandise through the Internet and other electronic media, (ii) to use print advertising for apparel and merchandise sold through stores and electronic media even if such items may be purchased by mail or telephone, and (iii) to print catalogs in which less than 10% of the merchandise is men's or women's apparel. Also, TJX may acquire a company that conducts a competitive business if such competitive business accounts for less than 25% of such acquired company's annual revenues and TJX uses its commercially reasonable efforts to divest itself within one to two years of such acquisition of any competitive business which accounts for more than 5% of the annual revenues of such acquired company. TRADEMARKS, TRADE NAMES AND LICENSES The Company is the owner in the United States of the Roaman's, Sue Brett, KingSize, Chadwick's, Chadwick's of Boston, Ltd., Bridgewater, Jessica London and Brett trademarks, as well as certain other trademarks which it uses as private label brand names. In connection with the Brylane Acquisition, Brylane became a party to a trademark license agreement with The Limited and certain of its affiliates (the "Licensors") (as amended, the "Trademark Agreement") pursuant to which Brylane uses the Lane Bryant and Lerner registered trademarks, as well as certain other trademarks used as private label brand names (collectively, the "Trademarks"), under a royalty-free license from The Limited (the "License"). The Partnership may assign the Trademark Agreement and the License without the consent of The Limited (i) to the purchaser of all or substantially all of the assets of the Lane Bryant, Roaman's and Lerner catalog businesses operated by the Company (the "Business") or (ii) to any corporation which is a successor to the Partnership or any successor thereto. The Trademark Agreement will terminate on the earliest to occur of the following: (i) October 20, 2007 (March 31, 1999 for use in connection with men's wear) (ii) two years after any person which competes with any retail or catalog business conducted by The Limited or its affiliates as of August 20, 1993 acquires control of the Business, and (iii) if the Company is party to a business combination voted against 11 by The Limited or any of its affiliates, (A) two years after such event (or ten years after such event if The Limited has sold either of its Lane Bryant or Lerner retail businesses prior to such event with respect to the Trademarks used in the businesses sold by The Limited) if the other party in such combination competes with The Limited or any of its affiliates or (B) four years after such event (or ten years after such event if The Limited has sold either of its Lane Bryant or Lerner retail businesses prior to such event with respect to the Trademarks used in the businesses sold by The Limited) in any other circumstance. The Trademark Agreement may also be terminated (a) by The Limited (i) upon 30 days' notice upon a material breach of the Trademark Agreement by Brylane which breach remains uncured or (ii) upon the bankruptcy or insolvency of Brylane, and (b) by the Company, upon six months' notice on or after August 20, 1998. See "Risk Factors--Relationship with The Limited". In addition to the Trademark Agreement, the Partnership became a party to an Electronic Media Trademark License Agreement pursuant to which the Licensors granted to the Partnership a non-exclusive right, permission and privilege to use the Trademarks in connection with the promotion, distribution and sale of special size women's apparel, moderately priced fashion apparel and related accessories through television and other electronic media, subject to prior reasonable determination by The Limited that any proposed electronic marketing activity would not disparage or diminish the stature, image or quality of such Trademarks or cause confusion or deception among Lerner or Lane Bryant retail customers. Brylane uses the Woman's View, Smart Choice and Big & Tall trademarks pursuant to the licensing arrangements contained in the Sears Agreement. See "--Sears Agreement". In addition, the Company also licenses certain other marks from TJX and other third parties. While certain of these licensed names are important to the Company's business, management does not believe that the loss of any of the marks licensed from TJX would have a material adverse effect upon the Company's business, financial condition and results of operations. The Company uses the Lane Bryant, Lerner, Woman's View, Smart Choice, Big & Tall, Chadwick's, Chadwick's of Boston, Ltd., Bridgewater, Jessica London and Brett trademarks, and the Classics name, only on the covers of its catalogs and in general advertising and promotional materials, and not as labels or tags on any garments or other merchandise it distributes. The Company's other owned and licensed trademarks, including Sue Brett, KingSize, Peak Performance, Hunters Run, David Benjamin, Lasting Comfort, Forenza, Venezia, Savannah, Fads, JL Plum and Stephanie Andrews, are used for certain of the Company's apparel offerings, as well as in other marketing and merchandising activities. Such trademarks are important to the operations of the Company. See "Risk Factors--Relationship with The Limited". ASSOCIATES The Company's skilled and dedicated associates are a key resource. At January 31, 1998, the Company employed (directly or indirectly through its subsidiaries) approximately 6,400 individuals, including part-time and full-time associates. During peak sales periods, the Company hires approximately 1,200 additional part-time and temporary associates. Approximately 1,400 of Chadwick's associates are covered under one of TJX's collective bargaining agreements with the Union of Needletrades, Industrial and Textile Employees. This agreement expires on December 31, 2000. The Company considers its labor relations and overall employee relations to be good. REGULATORY MATTERS The Company currently collects sales and use tax on merchandise sales in the states of Indiana, Maryland, Massachusetts, New York and Texas because the Partnership has physical presence in those states. Prior to June 30, 1996, the Partnership collected applicable sales and use taxes in approximately 41 states, regardless of whether the Partnership was otherwise required to collect such taxes in those states, generally pursuant to a Multistate Sales Tax Agreement, dated as of January 1, 1988, among the Partnership, the Multistate Tax Commission and a consortium of 35 states represented by the Multistate Tax Commission, which governed the Brylane business when it was acquired by the Partnership. In March 1996, the Partnership advised the Multistate Tax Commission, based on advice received from legal counsel, that it was not extending the Multistate Sales Tax Agreement beyond its expiration date of June 30, 1996. Based upon present law, the Company believes that it is not generally required to collect and remit sales and use taxes on merchandise sold in states in which it does not have a physical presence, absent the Multistate Sales Tax Agreement. It is possible that there may be a judicial 12 decision or that Congress may pass legislation in the future permitting states in which the Company does not have a physical presence to require it to collect and remit sales and use taxes with respect to sales in such states. Accordingly, there can be no assurance that the Company will not have an obligation to collect and remit sales and use taxes in states in addition to those states in which it is presently required to collect and remit such taxes. The Company's business, and the direct mail industry in general, is subject to regulation by a variety of state and federal laws and regulations related to, among other things, advertising, offering and extending credit, imports and sales tax. Legislation has been proposed in the past designed to impose a ceiling on the rates charged in connection with the extension of credit through credit cards. It is impossible to predict whether such legislation will be enacted and, if enacted, what form it will take. However, any such legislation could have an adverse impact on the Company's credit card financing arrangements. The Company's imported products are subject to United States customs duties, and some of the Company's imported products are subject to import quotas when imported from particular countries. In the ordinary course of its business, the Company may from time to time be subject to claims for duties, and the Company's imported products may be subject to other import restrictions. United States customs duties currently are between 0% and 48.0% (with an average rate of 15.3%) of appraised value on certain items of inventory. During fiscal 1997, Brylane made approximately 30.3% of its merchandise purchases from foreign suppliers. See "Risk Factors--Dependence on Suppliers; Foreign Sourcing". RISK FACTORS The following risk factors should be carefully reviewed in addition to the other information contained in this Annual Report on Form 10-K. COMPETITION AND OTHER BUSINESS FACTORS The retail apparel business is highly competitive. Each of the Company's women's catalogs compete in the sale of women's apparel with other catalog retailers, department stores, discount stores and specialty retailers. In particular, Lane Bryant, Roaman's, Jessica London and Woman's View compete in the sale of special size women's apparel with the Lane Bryant retail stores operated by The Limited, and Lerner and Smart Choice compete in the sale of women's sportswear and other apparel with the Lerner retail stores operated by The Limited. Chadwick's competes with many retail sellers of apparel, including T.J. Maxx and Marshalls, each of which is owned by TJX. The Company's KingSize and Big & Tall catalogs compete in the sale of special size men's apparel with specialty retailers, department stores, other mail order companies and discount stores. In addition, sales of clothing through home television shopping networks or other electronic media could provide additional sources of competition for Brylane in the future. Some of the Company's competitors may have greater financial resources than the Company. An increase in the amount of competition faced by the Company could have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 1. Business--Competition". The Company's future performance will be subject to a number of other factors beyond its control, including declines in discretionary consumer spending or in demand for apparel generally, which could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, although the Company believes that its strategy of providing a broad range of basic merchandise that is current, but not "leading edge", limits fashion risk, it is still subject to risks associated with changes in fashion preferences. Misjudgment by the Company as to fashion trends or consumer preferences, or a downturn in discretionary consumer spending, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company benefits from the name recognition and reputation generated by the Lane Bryant retail stores and the Lerner retail stores which are operated by The Limited. At present, The Limited operates over 775 Lane Bryant stores and over 725 Lerner stores. The Limited is under no obligation to continue to own or operate the Lane Bryant and Lerner stores, and there can be no assurance that The Limited will not change the focus of such stores in a manner that would be adverse to Brylane's catalog concepts bearing the same trademarks, although The Limited has agreed that, during the term of the Trademark Agreement (as defined herein), it will not disparage or diminish the stature, image or quality of any of the trademarks subject to the Trademark Agreement. 13 The Transaction Agreement pursuant to which affiliates of FS&Co. and The Limited formed the Partnership (as amended, the "Transaction Agreement") contained certain noncompetition and nonsolicitation provisions pursuant to which The Limited agreed, in general, and subject to certain exceptions, not to compete with Brylane's catalog business for special size women's apparel by publishing similar catalogs, or to solicit any person who is an employee of such business to terminate his or her relationship with Brylane. These provisions terminated as a result of the PPR Stock Purchase. Consequently, The Limited can now compete directly with Brylane in the retail catalog business for special size women's apparel. However, the Company has continued to retain the use in connection with its business of the Lane Bryant(R), Lerner(R) and other trademarks licensed to it by The Limited pursuant to the terms of the Trademark Agreement (as defined), as specified further therein. There can be no assurance that such competition will not have a material adverse effect on Brylane. See "Business--Trademarks, Tradename and Licenses" and "--Relationship with The Limited". RELATIONSHIP WITH THE LIMITED In connection with the Brylane Acquisition, Brylane became a party to a trademark license agreement with The Limited (as amended, the "Trademark Agreement") pursuant to which the Company has use of the Lane Bryant(R), Lerner(R) and certain other trademarks, on a royalty-free basis, until October 20, 2007 (except in connection with the use of the trademarks on men's wear, for which the termination date is March 31, 1999), subject to earlier termination as described in the paragraphs that follow. The Company has determined to use the Lane Bryant(R) and Lerner(R) trademarks in its catalogs and in general advertising and promotional materials, and not as labels or tags on any garments or other merchandise it distributes. The other trademarks covered by the Trademark Agreement are used for certain of the Company's apparel offerings, as well as other marketing and merchandising activities. The Trademark Agreement and each of the licenses granted thereunder will terminate on October 20, 2007 (March 31, 1999 for use in connection with men's wear), unless earlier terminated by (i) the Company with six months' notice on or after August 20, 1998, (ii) The Limited in the event of (x) a breach by the Company of any of its material obligations under the Trademark Agreement or (y) certain bankruptcy or insolvency events involving the Company, or (iii) subject to certain extensions, (x) two years after any competitor of The Limited acquires "control" of the Lane Bryant, Roaman's and Lerner catalog businesses operated by the Company, or (y) two or four years after the occurrence of certain mergers, consolidations or business combinations. See "Business-- Trademarks, Tradename and Licenses". Unless renewed, upon a termination of the Trademark Agreement, the Company would need to create new names and trademarks for its catalogs using the licensed trademarks, as well as for the merchandise offerings that currently utilize the licensed trademarks, and effect a transition of customer recognition and acceptance of such new names and trademarks. While the Company believes that the termination provisions of the Trademark Agreement would afford it sufficient time to achieve this transition, no assurance can be given that it would be successful or that the termination of the Trademark Agreement would not have a material adverse effect on the Company. LEVERAGE AND CERTAIN RESTRICTIONS IMPOSED BY LENDERS As of January 31, 1998, after giving effect to the Common Stock Repurchase, the Company had total outstanding indebtedness of $358.8 million, as compared with total stockholders' equity of $155.0 million. The Company will require substantial cash to fund scheduled payments of principal and interest on its outstanding indebtedness as well as any increased working capital requirements. The Company will be restricted in its ability to incur debt, make distributions (including cash dividends), incur liens, make capital expenditures and make investments or acquisitions by the terms of both the Amended 1997 Bank Credit Facility as well as the indenture (the "Indenture") that currently governs the Company's Senior Subordinated Notes (the "Senior Subordinated Notes"). As a result of these restrictions, the ability of the Company to secure additional financing, if needed, is constrained, and the Company may be prevented from engaging in transactions that might otherwise be considered beneficial to the Company. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". 14 SEARS AGREEMENT In March 1994, Brylane entered into the Sears Agreement which, as amended, provides the Company with an exclusive license to distribute its Woman's View, Smart Choice, Classics and Big & Tall catalogs to customers selected by the Company from the more than 30 million name customer file of Sears, Roebuck and Co. (as amended, the "Sears Agreement"). As amended, the initial term of the Sears Agreement expires on July 31, 2001 and automatically continues for additional one-year terms thereafter; provided, that the Company and Sears may terminate the Sears Agreement upon twelve months' and eighteen months' written notice, respectively, prior to the end of the initial term or any renewal thereof. In addition, upon the default of either Sears or the Company, the Sears Agreement may be terminated by the non-defaulting party either immediately or upon the payment of all sums owed by such non-defaulting party under the Sears Agreement, depending on the type of default. Events of default under the Sears Agreement include, among others, (i) the material failure of the Company to comply with the operating policies and procedures set forth in the Sears Agreement; (ii) the material failure of the Company to actively follow any mutually agreed upon circulation and mailing plan; (iii) any bankruptcy or insolvency proceedings being commenced against either party; and (iv) the inability of either party to pay debts as they come due. A termination of the Sears Agreement could have a material adverse effect on the Company's business, financial condition and results of operations. Upon termination of the Sears Agreement, the Company will retain the names of all customers who have purchased through the Sears catalogs covered by such agreement and, at that point, the Company will be able to mail the Company's other catalogs to these customers. However, no assurance can be given as to the extent that the Company will be able to retain these individuals as customers of the Company. See "Item 1. Business--Sears Agreement". IMPACT OF INCREASES IN COSTS OF POSTAGE, PAPER AND PRINTING Increases in postal rates and paper and printing costs have a direct impact on the cost of the production and mailing of the Company's catalogs and promotional materials, as well as the Company's order fulfillment. Like others in the catalog industry, the Company passes on a significant portion of the costs of order fulfillment directly to its customers, but it does not directly pass on the costs of preparing and mailing catalogs and other promotional materials. The Company relies heavily on discounts from the basic postal rate structure, such as discounts for bulk mailings and pre-sorting by zip code and carrier routes. Brylane and Chadwick's historically have not entered into long- term contracts for their paper purchases. Consequently, no assurances can be given that the Company will not be subject to increases in paper costs or to shortages in the supply of paper in the future. Over the last several months paper prices have generally increased within the range anticipated by the Company. In addition, the Company believes that paper prices will increase in the first half of fiscal 1998 and the increase should be in a range anticipated by the Company. In addition, although the Company currently has contracts for printing of its catalogs, the remaining terms of these contracts range from one to five years, and no assurance can be given that the Company's printing costs will not increase upon renegotiation of these contracts. Significant increases in postal rates or in paper or printing costs could have a material adverse effect on the Company's business, financial condition and results of operations, particularly to the extent that the Company is unable to pass on such increases directly to its customers or to offset such increases by either raising prices or reducing other costs. Brylane and Chadwick's each experienced an increase in postal rates in January 1995 and an increase in paper costs from the fall of 1994 through the fall of 1995. While Brylane and Chadwick's were able to partially mitigate these cost increases, no assurances can be given that similar increases in postal rates or in the Company's costs of paper will not occur in the future. In particular, the Company believes that a postal rate increase within the next twelve months is likely. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". CONTROL OF THE COMPANY PPR beneficially owns approximately 44% of the Company. By virtue of its ownership of a large percentage of the outstanding Common Stock, PPR is in a position to exercise substantial influence over actions that require the consent of stockholders. In addition, pursuant to the terms of the Governance Agreement, the Company has agreed to use its best efforts to have the Board of Directors of the Company include up to five nominees of PPR in the slate of nominees presented by the Board of Directors for election at each stockholder meeting at which 15 directors are to be elected. The number of directors that PPR may nominate declines with its percentage of Common Stock. DEPENDENCE ON SUPPLIERS; FOREIGN SOURCING Brylane's concentration on private label merchandise in its special size catalogs, and the broad range of merchandise offered in its Chadwick's catalogs, requires that the Company maintain good relationships with many manufacturing sources and suppliers. Moreover, the number of available manufacturers and suppliers for special size apparel is more limited when compared with the number available for apparel generally. Although the Company believes that it has established excellent relationships with its principal manufacturing sources and suppliers, the Company does not have long-term contracts, and its future success will depend in some measure upon its ability to maintain such relationships. The inability of the Company to source quality goods in a timely fashion at favorable prices could have a material adverse effect on the Company's business, financial condition and results of operations. In fiscal 1997, Brylane made approximately 30.3% of its merchandise purchases from foreign suppliers. Although all of the Company's foreign purchases are denominated in U.S. dollars, the Company is subject to a number of risks which are beyond its control, including currency and exchange risks, changes in duties, quotas or other import restrictions, the imposition of taxes or other charges on imports, disruptions or delays in shipments and transportation, political instability, and labor disputes and strikes. There can be no assurance that the occurrence of any destabilizing event abroad will not have a material adverse effect on the Company's business, financial condition and results of operations. See "Item 1. Business--Private Label Purchasing and Vendor Relationships" and "Item 1. Business--Regulatory Matters". RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS An element of the Company's growth strategy is to pursue strategic acquisitions that either expand or complement the Company's business. Acquisitions involve a number of special risks, including the diversion of management's attention to the assimilation of the operations and the assimilation and retention of the personnel of the acquired companies, and potential adverse short-term effects on the Company's operating results. In addition, the Company may require additional debt or equity financing for future acquisitions, which may not be available on terms favorable to the Company, if at all. The inability of the Company to successfully finance, complete and integrate strategic acquisitions in a timely manner could have an adverse impact on the Company's ability to effect a portion of its growth strategy. RISK OF DISASTER The Company conducts its fulfillment operations from facilities located in Indianapolis, Indiana and West Bridgewater, Massachusetts. If a disaster (such as a tornado or fire) were to destroy or significantly damage either of these facilities, the Company would need to obtain alternative facilities from which to conduct its fulfillment operations and would need to replenish its inventory, both of which would result in significantly increased operating costs and significant delays in the fulfillment of customer orders. While the Company maintains business interruption insurance, such increased costs or delays would have a material adverse effect on the Company's business, financial condition and results of operations. RISKS RELATED TO UNIONIZED EMPLOYEES At January 31, 1998, the Company had approximately 6,400 associates, including approximately 1,400 associates of Chadwick's who were members of a labor union. The Company's agreement with such labor union expires on December 31, 2000. If unionized associates were to engage in a strike or other work stoppage or if additional associates were to become unionized, the Company could experience a significant disruption of operations and higher labor costs, all of which could have a material adverse effect on the Company's business, financial condition and results of operations. 16 ITEM 2. PROPERTIES The principal executive offices of the Company are located in New York, New York in approximately 90,000 square feet of leased office space. The Company owns its 750,000 square foot fulfillment and telemarketing center located on approximately 26 acres of land in Indianapolis, Indiana. Recently, the Company leased an additional 125,000 square feet of warehouse space in Plainfield, Indiana. The Company also leases approximately 73,000 square feet in San Antonio, Texas, and approximately 13,400 square feet in Greenwood, Indiana, for telemarketing operations related to the Brylane catalogs. The executive offices of the Company's KingSize operations, currently occupying approximately 8,000 square feet of leased office space, were moved in April 1998 from Hingham, Massachusetts to New York, New York. In addition, the executive offices, telemarketing center, warehouse and fulfillment center of the Company's Chadwick's operations are located in a Company-owned facility in West Bridgewater, Massachusetts that contains approximately 580,000 square feet of space. The Company leases an additional 126,000 square foot facility in West Bridgewater, Massachusetts for returns processing and customer service related to Chadwick's. The Company has recently entered into a lease for a 330,000 square foot facility to be constructed in Taunton, Massachusetts that the Company will use for returns processing and customer service related to Chadwick's and that will replace the 126,000 square foot West Bridgewater facility. The Company took possession of the Taunton facility immediately upon its completion, which occurred in Spring 1998. As of April 14, 1998, the Company also leases from TJX approximately 11,000 square feet and 12,500 square feet of retail space for Chadwick's outlet stores in Brockton, Massachusetts and Nashua, New Hampshire, respectively, and has an arrangement with TJX whereby it has access to use a 7,500 square foot buying office located in New York, New York. ITEM 3. LEGAL PROCEEDINGS The Company is a party to litigation in the ordinary course of business. The Company does not believe that unfavorable outcomes in such litigation would have a material adverse effect on its business, financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 17 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the New York Stock Exchange under the symbol "BYL" and began trading on February 21, 1997. The following table sets forth, for the periods indicated, the high and low closing prices for the Common Stock as reported on the New York Stock Exchange.
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 (through April 16, 1998)........ $61.1250 $49.4375
The closing price of the Common Stock on April 16, 1998 was $59.00 per share. As of April 16, 1998, there were approximately 118 holders of the Company's Common Stock named as holders of record by ChaseMellon Shareholder Services, L.L.C., the Company's registrar and transfer agent. Although the Partnership has made tax distributions to its partners, the Company has never declared or paid a cash dividend on the Common Stock. The Company anticipates that all of its earnings in the foreseeable future will be used for the repayment of indebtedness and for the development and expansion of its business and, therefore, does not anticipate paying dividends on the Common Stock in the foreseeable future. The Partnership is restricted in its ability to make distributions that would enable the Company to pay dividends on the Common Stock by the terms of both the Indenture and the Amended 1997 Bank Credit Facility. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". At January 31, 1998, the Partnership could not have made any such distribution to the Company by virtue of the restrictions contained in the Amended 1997 Bank Credit Facility. Any determination to pay cash dividends in the future will be at the discretion of the Board of Directors of the Company and will be dependent, among other things, upon the Company's results of operations and financial condition, contractual restrictions, and other factors deemed relevant at that time. RECENT SALES OF UNREGISTERED SECURITIES On February 26, 1997, in connection with the closing of the Exchange Transaction, (i) M&P Distributing Company, an affiliate of The Limited (the "Limited Stockholder"), WearGuard, Leeway & Co. and NYNEX received shares of Common Stock in exchange for their interests in the Partnership; (ii) Chadwick's, Inc., a wholly-owned subsidiary of TJX ("Chadwick's, Inc." or the "TJX Noteholder"), received from the Company the substitute Convertible Subordinated Note Due 2006 issued by Brylane Inc., and the Partnership (the "Convertible Note") on substantially the same terms and conditions as the Partnership Note (as defined herein); (iii) certain affiliates of FS&Co. (FS Equity Partners II, L.P. ("FSEP II"), FS Equity Partners III, L.P. ("FSEP III"), and FS Equity Partners International, L.P. ("FSEP International")), and Mr. Sodini and Ms. Bourneuf received shares of Common Stock in exchange for their shares of common stock of VP Holding; (iv) the officer and director holders of shares of common stock of VP Holding received shares of Common Stock pursuant to the Brylane Subscription Plan (as defined herein) or the Senior Management Plan (as defined herein); and (v) Mr. Rao and Ms. Meyrowitz received shares of Series A Preferred Stock (as defined herein) in exchange for their shares of VP Holding Preferred Stock. Such exchanges were on a one-to-one basis. Since each of the holders of the shares of common stock and preferred stock of VP Holding, the interests in the Partnership and the Convertible Subordinated Note Due 2006 in the original principal amount of $20.0 million (bearing interest at an initial rate of 6%) issued by the Partnership to the TJX Noteholder in connection with the Chadwick's Acquisition (the "Partnership Note") agreed at the time of their respective original acquisitions of their shares or partnership interests or Partnership Note to exchange their shares, 18 partnership interests or Partnership Note for shares of Common Stock or the Convertible Note, as the case may be, in connection with the Exchange Transaction, the Company believes that none of the foregoing transactions involved a "sale" within the meaning of the Securities Act. Such exchanges would also be exempt from registration under the Securities Act pursuant to Section 4(2) of the Securities Act. No underwriter participated in the transaction. The Series A Preferred Stock is convertible into shares of Common Stock on a one-to-one basis. The shares of Series A Preferred Stock "vest" or become convertible in three equal annual installments commencing December 9, 1997, as long as Mr. Rao or Ms. Meyrowitz, as applicable, remain employed by Brylane (subject to certain accelerating events). On December 9, 1999, "vested" shares will, at the option of the holders thereof, either be redeemed by the Company for $20.00 per share (subject to adjustment for stock splits, dividends or reclassifications) or converted into one share of Common Stock (subject to adjustment for stock splits, dividends or reclassifications). In the event of a "change of control" (as defined in Brylane Inc.'s Certificate of Designation of the Series A Preferred Stock) each "vested" share, at the option of the holder thereof, may be redeemed for $20.00 per share or converted into one share of Common Stock, while "unvested" shares must be redeemed for $20.00 per share. The Convertible Note is convertible at any time, in whole or in part, at the option of the TJX Noteholder into a total of 727,273 shares of Common Stock at a conversion price of $27.50 per share (subject to adjustment for stock splits and similar events). As of April 14, 1998, the entire principal amount of the Convertible Note had been converted into 727,273 shares at $27.50 per share. 19 ITEM 6. SELECTED FINANCIAL DATA The following table presents certain historical data of Brylane for the periods indicated. The balance sheet data as of July 31, 1993, January 29, 1994, January 28, 1995, February 3, 1996 and February 1, 1997, and the statements of operations data for the twenty-six weeks ended July 31, 1993 and January 29, 1994, and the fiscal years ended January 28, 1995, February 3, 1996 and February 1, 1997, have been derived from the combined and consolidated financial statements of the predecessor company of Brylane (the "Predecessor") and the Partnership, as appropriate. The balance sheet data at January 31, 1998 and the statements of operations data for the fiscal year ended January 31, 1998 have been derived from the consolidated financial statements of the Company. The information below should be read in conjunction with the audited financial statements and related notes thereto included elsewhere in this Form 10-K.
PREDECESSOR PARTNERSHIP COMPANY ------------- ------------------------------------------------------------ ------------ FISCAL YEAR FISCAL YEAR ENDED ENDED ------------------------------------------ TWENTY-SIX TWENTY-SIX WEEKS ENDED WEEKS ENDED JAN. 28, FEB. 3, FEB. 1, JAN. 31, JULY 31, 1993 JAN. 29, 1994 1995 1996(1) 1997(2) 1998 ------------- --------------- ---------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT PER UNIT/SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net sales............................. $242,086 $ 247,780 $578,530 $ 601,055 $ 705,353 $ 1,314,839 Cost of goods sold.................... 122,530 124,224 288,217 298,414 346,572 674,324 Non-recurring inventory charge(3)..... -- 11,487 2,614 569 1,657 3,315 -------- --------- -------- ----------- ----------- ----------- Gross margin.......................... 119,556 112,069 287,699 302,072 357,124 637,200 Operating expenses: Catalog and advertising.............. 61,165 66,860 153,830 174,446 186,985 302,232 Fulfillment.......................... 18,335 21,477 41,656 37,333 55,450 124,372 Support services..................... 12,964 13,377 35,152 37,024 54,422 89,260 Intangibles and organization cost amortization....................... -- 2,121 4,242 4,707 6,518 10,972 -------- --------- -------- ----------- ----------- ----------- Total operating expenses......... 92,464 103,835 234,880 253,510 303,375 526,836 -------- --------- -------- ----------- ----------- ----------- Operating income...................... 27,092 8,234 52,819 48,562 53,749 110,364 Interest expense, net................. -- 10,060 19,576 20,624 24,026 27,707 -------- --------- -------- ----------- ----------- ----------- Income (loss) before income taxes and extraordinary charge................ 27,092 (1,826) 33,243 27,938 29,723 82,657 Provision for income taxes(4)......... 10,600 75 89 88 315 31,545 -------- --------- -------- ----------- ----------- ----------- Net income (loss) before extraordinary charge............................... 16,492 (1,901) 33,154 27,850 29,408 51,112 Extraordinary charge, net of tax(5)... -- -- -- -- 2,456 4,077 -------- --------- -------- ----------- ----------- ----------- Net income (loss)..................... $ 16,492 $ (1,901) $ 33,154 $ 27,850 $ 26,952 $ 47,035 ======== ========= ======== =========== =========== =========== (table continued on following page)
20
PREDECESSOR PARTNERSHIP COMPANY ------------- ------------------------------------------------------------ ------------ FISCAL YEAR FISCAL YEAR ENDED ENDED ------------------------------------------ TWENTY-SIX TWENTY-SIX WEEKS ENDED WEEKS ENDED JAN. 28, FEB. 3, FEB. 1, JAN. 31, JULY 31, 1993 JAN. 29, 1994 1995 1996(1) 1997(2) 1998 ------------- --------------- ----------- ------------- ------------ ------------ (IN THOUSANDS, EXCEPT PER UNIT/SHARE DATA) SUPPLEMENTAL STATEMENTS OF OPERATIONS DATA: Income (loss) before income taxes and extraordinary charge................ $ 27,092 $ (1,826) $ 33,243 $ 27,938 $ 29,723 $ 82,657 Provision for income taxes(6)........ 10,600 (676) 12,300 10,337 10,998 30,996 -------- --------- -------- ----------- ----------- ----------- Income (loss) before extraordinary charge.............................. 16,492 (1,150) 20,943 17,601 18,725 51,661 Extraordinary charge, net of related taxes............................... -- -- -- -- 1,547 4,077 -------- --------- -------- ----------- ----------- ----------- Net income (loss).................... $ 16,492 $ (1,150) $ 20,943 $ 17,601 $ 17,178 $ 47,584 ======== ========= ======== =========== =========== =========== Supplemental basic earnings per unit/share: Income per unit/share before extraordinary charge.............. $ 1.39 $ 1.41 $ 2.78 Extraordinary charge per unit/share. -- 0.12 0.22 ----------- ----------- ----------- Net income per unit/share........... $ 1.39 $ 1.29 $ 2.56 =========== =========== =========== Supplemental diluted earnings per unit/share: Income per unit/share before extraordinary charge.............. $ 1.36 $ 1.31 $ 2.69 Extraordinary charge per unit/share. -- 0.11 0.21 ----------- ----------- ----------- Net income per unit/share........... $ 1.36 $ 1.20 $ 2.48 =========== =========== =========== Weighted average unit/shares outstanding: Basic................................ 12,658,144 13,270,220 18,606,048 Diluted.............................. 12,933,969 14,389,835 19,412,973 BALANCE SHEET DATA (END OF PERIOD): Total assets.......................... $ 95,882 $ 255,051 $286,491 $ 327,903 $ 705,234 $ 720,200 Long-term debt (including current portion and revolver)................ -- 229,070 214,168 226,740 427,362 358,753 Partnership/Stockholders' equity (deficit)............................ 42,789 (31,333) 1,777 27,187 103,863 155,038 OPERATING AND OTHER DATA: EBITDA(7)............................. $ 28,566 $ 23,425 $ 62,785 $ 57,488 $ 69,145 $ 135,727 Cash flows from operating activities.. 14,059 7,512 39,002 33,562 13,023 66,604 Cash flows from investing activities.. (165) (295,870) (5,287) (60,543) (233,098) 20,148 Cash flows from financing activities.. (13,894) 298,393 (15,255) 5,955 215,891 (84,954)
_________________ (1) The fiscal year ended February 3, 1996 was a 53-week period. All other fiscal years shown are 52-week periods. (2) The Company's financial statements include the results of Chadwick's on a consolidated basis from December 9, 1996, the closing date of the Chadwick's Acquisition. (3) The non-recurring inventory charges resulted from increasing inventory by $14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect the fair market value of the inventory at the respective acquisition dates, as more fully described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". The increases in inventory value had been fully amortized into cost of goods sold as of April 30, 1994 for the Brylane Acquisition, as of February 3, 1996 for the KingSize Acquisition and as of January 31, 1998 for the Chadwick's Acquisition. (4) Represents provision for income taxes as a corporate division of The Limited for the twenty-six weeks ended July 31, 1993, as a partnership for the twenty-six weeks ended January 29, 1994 and the fiscal years ended January 28, 1995, February 3, 1996 and February 1, 1997, and as a corporation for the fiscal year ended January 31, 1998. (5) Consists of deferred financing fees written off in connection with the repayment of the 1993 Bank Credit Facility and the 1996 Bank Credit Facility. 21 (6) Amount reflects adjustments for federal and state income taxes as if the Partnership had been taxed as a C-corporation during these periods. (7) EBITDA represents earnings before taking into consideration interest expense, income tax expense, depreciation and amortization expense, non- recurring inventory charges, extraordinary charge related to write-off of deferred financing fees and non-cash compensation expense related to the Brylane, L.P. 1993 Partnership Unit Option Plan. The use of such information is intended only to supplement the conventional income statement presentation and is not considered as an alternative to net income or any other indicator of Brylane's operating performance which is presented in accordance with generally accepted accounting principles above. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Item 6. Selected Financial Data" and the consolidated and combined financial statements and related notes thereto which appear elsewhere in this Form 10-K. The Company uses a 53/52 week fiscal year for financial reporting purposes. As a result of the Chadwick's Acquisition and the application of purchase accounting related thereto, the Company's results of operations for fiscal 1996 and 1997 reflect non-recurring inventory charges of $1.7 million and $3.3 million, respectively, related to the write-up of Chadwick's inventory of $5.0 million. The subsequent amortization of such write-up into cost of goods sold reduced the Company's gross margin in fiscal 1996 and 1997. In addition, the Company's results reflect additional amortization expense of $5.2 million per year associated with the write-up of certain intangible assets related to the Chadwick's Acquisition. Furthermore, Brylane entered into an agreement whereby a third party has committed to purchase certain accounts receivable generated by Chadwick's deferred billing programs. Consequently, since the Chadwick's Acquisition, accounts receivable related to the Chadwick's catalog have been significantly lower than in Chadwick's historical periods. In addition to the amortization expense related to the Chadwick's Acquisition described above, the Company's results reflect the amortization of intangible assets related to the Brylane Acquisition of $4.4 million per year, step-up depreciation associated with the write-up of certain fixed assets in connection with the Brylane Acquisition of $0.4 million per year, and the amortization of intangible assets related to the KingSize Acquisition of $1.4 million per year. See "Item 6. Selected Financial Data". The termination date of the Company's Trademark Agreement with The Limited was accelerated to October 20, 2007 in October 1997. The amortization of intangible assets described above reflects such acceleration. In connection with certain amendments to options previously granted under the Brylane, L.P. 1993 Partnership Unit Option Plan, the Company incurred non- cash compensation expense totalling $3.1 million, of which $2.4 million was expensed in the fourth quarter of fiscal 1996 and $0.7 million was expensed in fiscal 1997. The Company used the net proceeds received from the Initial Public Offering to prepay approximately $89.3 million of borrowings outstanding under the term loans of the 1996 Bank Credit Facility, which resulted in an extraordinary charge of approximately $1.3 million, net of taxes, related to the write off of deferred financing costs. Subsequent thereto, the Company made an additional $10.0 million of prepayments on the 1996 Bank Credit Facility prior to April 30, 1997. On April 30, 1997, the Company replaced the 1996 Bank Credit Facility with the 1997 Bank Credit Facility (which resulted in lower interest expense, and an extraordinary charge of approximately $2.8 million, net of taxes, related to the write off of deferred financing costs), and made $2.1 million of prepayments on the 1997 Bank Credit Facility. On May 2, 1997, the Company used an additional $10.0 million of excess cash to prepay indebtedness outstanding under the 1997 Bank Credit Facility. Subsequent to May 3, 1997, the Company used the $28.8 million in cash received from TJX in connection with the preliminary purchase price adjustment, as well as cash generated from operations, to prepay an additional $51.2 million in indebtedness outstanding under the 1997 Bank Credit Facility as well as a mandatory payment of $1.8 million. See "--Liquidity and Capital Resources". To finance the Common Stock Repurchase, the Company entered into an amendment to its 1997 Bank Credit Facility (the "Amended 1997 Bank Credit Facility") and borrowed approximately $116.8 million thereunder. Borrowings under the Amended 1997 Bank Credit Facility bear interest at LIBOR plus 1.25%. The Amended 1997 Bank Credit Facility contains financial and operating covenants including, among other provisions, requirements that the Company maintain certain financial ratios and satisfy certain financial tests, restrictions on the ability to incur 22 indebtedness, and limitations on the amount of the Company's capital expenditures and common stock dividends. See "--Liquidity and Capital Resources". As a result of the Incorporation Plan, Brylane Inc. became subject to the payment of federal and state income taxes. Previously, income tax expense was not recorded on the books and records of Brylane, L.P.; however, payments approximating such taxes were distributed to all of Brylane, L.P.'s partners based upon the tax liabilities with respect to the income allocated to certain of Brylane, L.P.'s partners. See "--Liquidity and Capital Resources" and "--Certain Tax Matters". RESULTS OF OPERATIONS The following tables set forth certain operating data of the Company for the periods indicated.
PARTNERSHIP COMPANY --------------------------------- ------------- FISCAL YEAR ENDED ------------------------------------------------ FEB. 3, 1996(1) FEB. 1, 1997(2) JAN. 31, 1998 ---------------- --------------- ------------- (IN THOUSANDS) Net sales....................................................................... $601,055 $705,353 $1,314,839 Gross margin before non-recurring inventory charge.............................. 302,641 358,781 640,515 Non-recurring inventory charge.................................................. 569 1,657 3,315 -------- -------- ---------- Gross margin.................................................................... 302,072 357,124 637,200 Operating expenses: Catalog and advertising...................................................... 174,446 186,985 302,232 Fulfillment.................................................................. 37,333 55,450 124,372 Support services............................................................. 37,024 54,422 89,260 Amortization of acquisitions intangibles and organization costs.............. 4,707 6,518 10,972 -------- -------- ---------- Operating income................................................................ 48,562 53,749 110,364 Add back: Non-recurring inventory charge(3)................................. 569 1,657 3,315 Amortization of acquisitions intangibles and organization costs(4) 4,707 6,518 10,972 Non-cash compensation expense(5).................................. -- 2,400 700 -------- -------- ---------- Operating income before acquisitions related and non-recurring adjustments... $ 53,838 $ 64,324 $ 125,351 ======== ======== ==========
23 The following table sets forth certain operating data of the Company expressed as a percentage of net sales for the periods indicated.
PARTNERSHIP COMPANY --------------------------------- ------------- FISCAL YEAR ENDED ------------------------------------------------ FEB. 3, 1996(1) FEB. 1, 1997(2) JAN. 31, 1998 ---------------- --------------- ------------- Net sales.................................................................. 100.0% 100.0% 100.0% Gross margin before non-recurring inventory charge......................... 50.4 50.8 48.7 Non-recurring inventory charge............................................. 0.1 0.2 0.2 ----- ----- ----- Gross margin............................................................... 50.3 50.6 48.5 Operating expenses: Catalog and advertising.................................................. 29.0 26.5 23.0 Fulfillment.............................................................. 6.2 7.9 9.5 Support services......................................................... 6.2 7.7 6.8 Amortization of acquisitions intangibles and organization costs.......... 0.8 0.9 0.8 ----- ----- ----- Operating income........................................................... 8.1 7.6 8.4 Add back: Non-recurring inventory charge(3)........................... 0.1 0.2 0.2 Amortization of acquisitions intangibles and organization costs(4).................................................. 0.8 0.9 0.8 Non-cash compensation expense(5)............................ -- 0.4 0.1 ----- ----- ----- Operating income before acquisitions related and non-recurring adjustments. 9.0% 9.1% 9.5% ===== ===== =====
_____________________ (1) The fiscal year ended February 3, 1996 was a 53-week period. All other fiscal years shown are 52-week periods. (2) The Company's financial statements include the results of Chadwick's on a consolidated basis from December 9, 1996, the closing date of the Chadwick's Acquisition. (3) The non-recurring inventory charges resulted from increasing inventory by $569,000 for the KingSize Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect the fair market value of the inventory at October 1, 1995, the effective date of the KingSize Acquisition, and at December 9, 1996 the effective date of the Chadwick's Acquisition, respectively. The increases in inventory value had been fully amortized into cost of goods sold as of February 3, 1996 for the KingSize Acquisition, and as of January 31, 1998 for the Chadwick's Acquisition. (4) Represents amortization of goodwill and other intangible assets related to the Brylane Acquisition of $125,450,000 over a 30-year composite life and of organizational costs of $300,000 over five years and, subsequent to October 4, 1997, includes amortization of the remaining trademark of $7,578,000 over a ten-year life. Subsequent to October 1, 1995, includes amortization related to the KingSize Acquisition of goodwill of $50,762,000 over a 40- year life, of customer file of $520,000 over an eight-year life, and of a noncompetition agreement of $300,000 over a five-year life. Subsequent to December 9, 1996, includes amortization related to the Chadwick's Acquisition of $175,715,000 over a 40-year life, and a customer file of $4,020,000 over a five-year life. (5) Represents non-cash compensation expense related to amendments to options granted under the Brylane, L.P. 1993 Partnership Unit Option Plan. 24 The following table sets forth certain historical operating data of Brylane and Chadwick's on an unaudited combined basis for the fiscal years 1996 and 1997 to include net sales, cost of sales and operating expenses for Chadwick's. The unaudited combined information for the year ended February 1, 1997 is included for comparative purposes only and is not meant to be indicative of what the consolidated statements of operations data would have been had the transaction occurred at February 4, 1996 (the first day of fiscal 1996).
FISCAL YEAR ENDED ------------------------------- FEB. 1, JAN. 31, 1997(1) 1998 ------------------------------- (IN THOUSANDS) Net sales.................................................................... $1,167,527 $1,314,839 Gross margin before non-recurring inventory charge........................... 566,910 640,515 Non-recurring inventory charge............................................... 1,657 3,315 ---------- ---------- Gross margin................................................................. 565,253 637,200 Operating expenses: Catalog and advertising..................................................... 279,582 302,232 Fulfillment................................................................. 101,218 124,372 Support services............................................................ 82,026 89,260 Amortization of acquisitions intangibles and organization costs............. 6,518 10,972 ---------- ---------- Operating income............................................................. 95,909 110,364 Add back: Non-recurring inventory charge(2)................................. 1,657 3,315 Amortization of acquisitions intangibles and organization costs(3) 6,518 10,972 Non-cash compensation expense(4).................................. 2,400 700 ---------- ---------- Operating income before acquisitions related and non-recurring adjustments... $ 106,484 $ 125,351 ========== ==========
The following table expresses the above operating data as a percentage of net sales for the periods indicated.
FISCAL YEAR ENDED ------------------------ FEB. 1, JAN. 31, 1997(1) 1998 ------------------------ Net sales........................................................................... 100.0% 100.0% Gross margin before non-recurring inventory charge.................................. 48.5 48.7 Non-recurring inventory charge...................................................... 0.1 0.2 ----- ----- Gross margin........................................................................ 48.4 48.5 Operating expenses: Catalog and advertising............................................................ 23.9 23.0 Fulfillment........................................................................ 8.7 9.5 Support services................................................................... 7.0 6.8 Amortization of acquisitions intangibles and organization costs.................... 0.6 0.8 ----- ----- Operating income.................................................................... 8.2 8.4 Add back: Non-recurring inventory charge(2)........................................ 0.1 0.2 Amortization of acquisitions intangibles and organization costs(3)....... 0.6 0.8 Non-cash compensation expense(4)......................................... 0.2 0.1 ----- ----- Operating income before acquisitions related and non-recurring adjustments.......... 9.1% 9.5% ===== =====
(footnotes on following page) 25 _______________ (1) The fiscal year ended February 1, 1997 includes a 53-week period for Chadwick's. (2) The non-recurring inventory charges resulted from increasing inventory by $4,972,000 for the Chadwick's Acquisition to reflect the fair market value of the inventory at December 9, 1996 the effective date of the Chadwick's Acquisition. The increase in inventory value has been fully amortized into cost of goods sold as of January 31, 1998. (3) Represents amortization of goodwill and other intangible assets related to the Brylane Acquisition of $125,450,000 over a 30-year composite life and of organizational costs of $300,000 over five years and subsequent to October 4, 1997, includes amortization of the remaining trademark of $7,578,000 over a 10-year life. Subsequent to October 1, 1995, includes amortization related to the KingSize Acquisition of goodwill of $50,762,000 over a 40- year life, of customer file of $520,000 over an eight-year life, and of a noncompetition agreement of $300,000 over a five-year life. Subsequent to December 9, 1996, includes amortization related to the Chadwick's Acquisition of $175,715,000 over a 40-year life, and a customer file of $4,020,000 over a five-year life. (4) Represents non-cash compensation expense related to amendments to options granted under the Brylane, L.P. 1993 Partnership Unit Option Plan. FISCAL 1997 COMPARED TO FISCAL 1996 NET SALES. Net sales as reported for the fiscal year ended January 31, 1998 increased to $1,314.8 million from $705.4 million for the fiscal year ended February 1, 1997. The increase in net sales came principally from the inclusion of the net sales from Chadwick's and also from the Company's other catalogs. Net sales on a combined basis including Chadwick's for fiscal 1996 increased 12.6% to $1,314.8 million from $1,167.5 million. The sales gain was due primarily to an increase in circulation and an increase in the average order size across all businesses. GROSS MARGIN. Gross margin for the fiscal year ended January 31, 1998 increased to $637.2 million (48.5% of net sales) from $357.1 million (50.6% of net sales) for fiscal 1996. The lower gross margin as a percent of net sales is due to the inclusion of the Chadwick's catalogs which have lower mark-ups on merchandise sold as compared to the Company's other catalog titles. Gross margin on a combined basis including Chadwick's for fiscal 1996 and eliminating the effects of the non-recurring inventory charge in the 1997 period increased to $640.5 million (48.7% of net sales) in 1997 from $566.9 million (48.5% of net sales) in 1996. The gross margin as a percent of net sales increased due to higher initial mark-ups from improved merchandise sourcing. CATALOG AND ADVERTISING EXPENSE. Catalog and advertising expense is comprised of the costs to produce and distribute catalogs, primarily paper, printing and catalog mailing costs, and the cost of acquiring names of prospective customers. For fiscal 1997, catalog and advertising expense increased to $302.2 million (23.0% of net sales) from $187.0 million (26.5% of net sales) for fiscal 1996. The decrease on a percent of net sales basis was primarily due to the inclusion of Chadwick's and its associated catalog and advertising expense and net sales. Catalog and advertising expense on a combined basis including Chadwick's for fiscal 1996 decreased on a percent of net sales basis to 23.0% ($302.2 million) in 1997 from 23.9% ($279.6 million) in 1996. This decrease on a percent of net sales basis was primarily due to the renegotiation of certain printing contracts and an increase in the sales productivity per catalog. FULFILLMENT EXPENSE. Fulfillment expense includes distribution center, telemarketing, credit services and customer service expenses, partially offset by net merchandise postage revenue. Fulfillment expense as reported for fiscal 1997 increased to $124.4 million (9.5% of net sales) from $55.5 million (7.9% of net sales) for fiscal 1996. The increase on a percent of net sales basis was primarily due to the acquisition of Chadwick's, which incurs higher fulfillment costs primarily as a result of its specialized garment packing techniques. 26 Fulfillment expense on a combined basis including Chadwick's for fiscal 1996 increased on a percent of net sales basis to 9.5% ($124.4 million) in 1997 from 8.7% ($101.2 million) in 1996. This increase on a percent of net sales basis was primarily due to increased payroll in the distribution centers, telemarketing and other areas to meet increased customer demand and to ensure a high level of customer service, as well as increased shipping promotions. SUPPORT SERVICES EXPENSE. Support services expense includes staffing and other administrative overhead costs associated with the operation of the business and the license fees associated with the Company's agreements with Sears Shop at Home. Support services expense as reported for fiscal 1997 increased to $89.3 million (6.8% of net sales) from $54.4 million (7.7% of net sales) for fiscal 1996. The decrease on a percent of net sales basis was primarily due to the inclusion of Chadwick's and its associated overhead costs and net sales. Support services expense on a combined basis including Chadwick's for fiscal 1996 decreased as a percent of net sales to 6.8% ($89.3 million) in 1997 from 7.0% ($82.0 million) in 1996. The decrease on a percent of net sales basis is primarily due to expense management as well as the leverage resulting from strong sales performance. AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost amortization expense for fiscal 1997 included $4.4 million related to the Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $5.2 million related to the Chadwick's Acquisition. Acquisition related intangibles and organization cost amortization expense for fiscal 1996 included $4.2 million related to the Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $0.9 million related to the Chadwick's Acquisition. OPERATING INCOME. Operating income before acquisitions related and non- recurring adjustments for fiscal 1997 increased to $125.4 million (9.5% of net sales) from $64.3 million (9.1% of net sales) for fiscal 1996. As a percent of net sales, operating income increased primarily as a result of the decrease in catalog and advertising and support services expenses, partially offset by the increase in fulfillment expense, as described above. Operating income before acquisitions related and non-recurring adjustments, on a combined basis including Chadwick's for fiscal 1996 increased to $125.4 million (9.5% of net sales) in 1997 from $106.5 million (9.1% of net sales) in 1996. As a percent of net sales, operating income increased primarily as a result of the decrease in catalog and advertising and support services expenses, partially offset by the increase in fulfillment expense, as described above. INTEREST EXPENSE. Interest expense, net, in fiscal 1997 increased to $27.7 million (2.1% of net sales) from $24.0 million (3.4% of net sales) for fiscal 1996. The increase is due to borrowings of $210.0 million incurred in connection with the Chadwick's Acquisition, offset by the prepayment of debt from the proceeds of the Initial Public Offering and other prepayments on the 1997 Bank Credit Facility (as defined) and lower interest rates on the term loans of the 1997 Bank Credit Facility and the term loan of the Amended 1997 Bank Credit Facility. In October 1997, the Company also increased borrowings to provide additional funding for the repurchase of 2,500,000 shares of Common Stock. INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE. Income as reported before income taxes and extraordinary charge increased to $82.7 million for fiscal 1997 from $29.7 million for fiscal 1996. This increase was due to the inclusion of Chadwick's. INCOME TAXES. Income taxes for fiscal 1997 were $31.5 million or 38.2% of income before extraordinary charge. Income taxes on supplemental income before extraordinary charge were $31.0 million or 37.5%. The difference between the effective income tax rate as reported and the effective tax rate on supplemental net income relates primarily to the allocation of loss to the Partnership for the period prior to the Initial Public Offering. The difference between the effective tax rate on supplemental net income of 37.5% and the federal statutory rate of 35% relates primarily to state income taxes, net of federal tax benefit. EXTRAORDINARY CHARGE. An extraordinary charge of $4.1 million, net of tax, was recorded in fiscal 1997 as a result of the early retirement of the debt outstanding under the 1996 Bank Credit Facility. 27 NET INCOME. After giving effect to the extraordinary charge, net income increased to $47.0 million ($2.53 per share) for fiscal 1997 from $27.0 million ($2.03 per unit) for fiscal 1996. FISCAL 1996 COMPARED TO FISCAL 1995 NET SALES. Net sales for the fifty-two weeks ended February 1, 1997 increased 17.4% to $705.4 million from $601.1 million in the fifty-three weeks ended February 3, 1996. The increase in net sales is primarily due to the acquisition of Chadwick's in December 1996. Excluding sales from Chadwick's, net sales increased by 6.8% to $642.0 million for fiscal 1996 from $601.1 million in fiscal 1995 primarily due to the acquisition of the KingSize and Big & Tall catalogs, as well as increased sales from the Lerner catalog. Excluding both net sales of $11.8 million related to Brylane's fifty-third week of fiscal 1995 as well as sales from Chadwick's, net sales increased by 8.9% to $642.0 million for fiscal 1996 from $589.3 million in fiscal 1995. GROSS MARGIN. Gross margin in fiscal 1996 improved to $357.1 million (50.6% of net sales) from $302.1 million (50.3% of net sales) for fiscal 1995. The gross margin for fiscal 1996 and 1995 includes the effect of non-recurring charges of $1.7 million and $0.6 million, respectively, related to the step-up of the value of inventory in connection with the Chadwick's Acquisition and the KingSize Acquisition, respectively. Excluding the non-recurring inventory charges, gross margin for fiscal 1996 improved to $358.8 million (50.8% of net sales) from $302.6 million (50.4% of net sales) for fiscal 1995. The increase in gross margin as a percent of net sales is primarily due to higher initial mark-ups resulting from improved merchandise sourcing. CATALOG AND ADVERTISING EXPENSE. For fiscal 1996, catalog and advertising expense increased to $187.0 million (26.5% of net sales) from $174.4 million (29.0% of net sales) for fiscal 1995. The decrease in catalog and advertising expense as a percent of net sales in fiscal 1996 was due to a decrease in catalog production costs per catalog produced, an increase in the sales productivity per catalog, and the addition of the Chadwick's catalog with lower overall advertising costs for the eight week period ended February 1, 1997. FULFILLMENT EXPENSE. Fulfillment expense in fiscal 1996 increased to $55.5 million (7.9% of net sales) from $37.3 million (6.2% of net sales) for fiscal 1995. As a percent of net sales, fulfillment expense was higher due to increased shipping promotions used to stimulate sales. SUPPORT SERVICES EXPENSE. Support services expense for fiscal 1996 increased to $54.4 million (7.7% of net sales) from $37.0 million (6.2% of net sales) for fiscal 1995. The increase in support services expense as a percent of net sales is due to an increase in staffing to support the growth of the business and to an increase in the license fee paid to Sears, partially offset by an increase in licensing revenue received from third parties. AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost amortization expense in fiscal 1996 included $4.2 million related to the Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $0.9 million related to the Chadwick's Acquisition. Acquisition related intangibles and organization cost amortization expense in fiscal 1995 included $4.2 million related to the Brylane Acquisition and $0.5 million related to the KingSize Acquisition. OPERATING INCOME. Operating income before acquisitions related amortization, extraordinary charge and non-cash compensation expense in fiscal 1996 increased to $64.7 million (9.2% of net sales) from $54.2 million (9.0% of net sales) for fiscal 1995. As a percent of net sales, operating income increased as a result of the decrease in catalog and advertising expense as discussed above and an increase in gross margin, partially offset by an increase in fulfillment and support services expenses. INTEREST EXPENSE. Interest expense, net, in fiscal 1996 increased to $24.0 million (3.4% of net sales) from $20.6 million (3.4% of net sales) for fiscal 1995 due to the effects of the borrowings of $35.0 million incurred in connection with the KingSize Acquisition on October 16, 1995 and since December 9, 1996, the effect of the increase in indebtedness for the financing of the Chadwick's Acquisition, partially offset by slightly lower interest rates on the term loans of the 1993 Bank Credit Facility. 28 EXTRAORDINARY CHARGE. An extraordinary charge of $2.5 million was recorded in fiscal 1996 as a result of the early retirement of a portion of the debt outstanding under the 1993 Bank Credit Facility. NET INCOME. After giving effect to the extraordinary charge, net income decreased to $27.0 million for fiscal 1996 from $27.9 million for fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has historically met its working capital needs, principally building inventory to meet increased sales, and its capital expenditure requirements through funds generated from operations. The Company's liquidity requirements have also included servicing the debt incurred to finance various acquisitions and will also include servicing the debt incurred to finance the Common Stock Repurchase. Cash flow provided by operating activities increased to $66.6 million in fiscal 1997, from $13.0 million in fiscal 1996. This increase was due primarily to an increase in net income, before non-cash related expenses, of $88.3 million in fiscal 1997 compared to $46.5 million in fiscal 1996. During fiscal 1997, the Company used the proceeds from its Initial Public Offering to prepay a portion of its outstanding indebtedness by $89.3 million, and used cash from operations and the proceeds from a purchase price adjustment to further reduce its outstanding indebtedness by $103.9 million (which included prepayments of $10.0 million on the 1996 Bank Credit Facility and $92.1 million on the 1997 Bank Credit Facility and a mandatory payment of $1.8 million), as well as to effect $12.7 million in capital expenditures as discussed further below. The Company's capital expenditures were $12.7, $3.9 million and $7.3 million for fiscal 1997, 1996 and 1995, respectively. Of the total capital expenditures of $12.7 million made in fiscal 1997, $3.0 million was incurred for fulfillment center enhancements, $7.0 million for telemarketing systems replacement and enhancements, $1.3 million in office improvements for the San Antonio and New York locations, and $1.4 million for miscellaneous improvements. The Company's capital expenditures for fiscal 1998 are currently estimated to be $13.0 million, including $2.5 million for expenditures at the Taunton, Massachusetts facility, $3.5 million for management information systems, $1.2 million for expenditures related to Gramercy Home, and $4.0 million related to a new receiving system for the Indianapolis fulfillment center. The remaining $1.8 million of capital expenditures in fiscal 1998 will be spent on routine maintenance and upgrades for the Company's fulfillment centers. Brylane plans to fund its capital expenditures for fiscal 1998 using cash generated from operations and drawing on its available funds under its Revolving Credit Facility. In connection with the Chadwick's Acquisition, in December 1996 the Partnership entered into a $408 million credit facility (the "1996 Bank Credit Facility"). The proceeds of the 1996 Bank Credit Facility were used to fund a portion of the cash paid upon the closing of the Chadwick's Acquisition (including related fees and expenses) as well as to repay Brylane's then existing indebtedness under its 1993 Bank Credit Facility. In connection with the Initial Public Offering, and the use of the net proceeds received therefrom, the Company repaid $89.3 million in indebtedness under its 1996 Bank Credit Facility. Subsequently, the Company made an additional $10.0 million of prepayments on the 1996 Bank Credit Facility prior to April 30, 1997. On April 30, 1997, the Partnership entered into a credit agreement among Brylane, Morgan Guaranty Trust Company of New York, as administrative agent ("Morgan Guaranty"), Merrill Lynch Capital Corporation, as documentation agent ("Merrill Lynch Capital"), and the other lenders party thereto, and guaranteed by each of the Company's subsidiaries (the "1997 Bank Credit Facility") which consisted of (i) a $111.7 million four-year nine-month term loan (the "Tranche A Term Loan"), (ii) a $70.0 million five-year and ten-month term loan (the "Tranche B Term Loan", and collectively with the Tranche A Term Loan, the "1997 Term Loans"), and (iii) a $125.0 million four-year nine-month revolving credit facility with a $75.0 million sublimit for letters of credit. The proceeds of the 1997 Term Loans were used to repay Brylane's existing indebtedness under the 1996 Bank Credit Facility. 29 The Company prepaid $62.1 million on the Tranche A Term Loan of the 1997 Bank Credit Facility during fiscal 1997. In addition, the Company made $1.8 million of scheduled payments on the 1997 Term Loans during fiscal 1997. To finance the Common Stock Repurchase, in October 1997 the Company entered into the Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit Facility is comprised of (i) a $175.0 million five-year amortizing Term Loan (the "Term Loan"), and (ii) a $200.0 million (subject to a borrowing base limit) five-year revolving credit facility (the "Revolving Credit Facility") with a $75.0 million sublimit for letters of credit and a $15.0 million "Swingline Facility" (borrowings under which, while outstanding, would reduce availability under the Revolving Credit Facility). The proceeds of the Term Loan provided a portion of the funds necessary to effect the Common Stock Repurchase, as well as to repay Brylane's existing indebtedness under its 1997 Bank Credit Facility. The Revolving Credit Facility can be used for general corporate purposes, including working capital needs, letters of credit and permitted acquisitions, and was also available to provide a portion of the funds necessary to effect the Common Stock Repurchase. The Term Loan requires scheduled quarterly principal payments over its term. In addition, Brylane is obligated to make certain mandatory prepayments of the Term Loan and the Revolving Credit Facility under certain circumstances. Borrowings under the Term Loan and Revolving Credit Facility bear interest at one of two rates selected by the Partnership: (i) a margin over the higher of (A) the Prime Rate and (B) the federal funds rate plus 0.5% or (ii) a margin over LIBOR (as defined) for specified interest periods. The margin for each rate varies based on the ratio of the Partnership's net debt to operating cash flow ratio. Borrowings under the Revolving Credit Facility and the Term Loan currently bear interest at LIBOR plus 1.25%. The Term Loan begins amortizing on May 1, 1998 and scheduled principal payments on the Term Loan of the Amended 1997 Bank Credit Facility will aggregate approximately $10.0 million in fiscal 1998 and $20.0 million in fiscal 1999. The Amended 1997 Bank Credit Facility contains financial and operating covenants including, among other provisions, requirements that the Company maintain certain financial ratios and satisfy certain financial tests, restrictions on the ability to incur indebtedness, and limitations on the amount of the Company's capital expenditures and common stock dividends. As of January 31, 1998, Brylane had $49.0 million of borrowings under the Revolving Credit Facility and, after giving effect to the issuance of letters of credit for $49.1 million which the Company intends to pay through funds generated from operations, had additional capacity under the Revolving Credit Facility of approximately $101.9 million. In connection with the Brylane Acquisition, the Partnership issued $125.0 million aggregate principal amount of its Senior Subordinated Notes. The Senior Subordinated Notes bear interest at 10% per annum, payable semi-annually, and mature in 2003. The Amended 1997 Bank Credit Facility and the Indenture contain covenants (the "Covenants") that, among other things, restrict the Partnership's ability to incur debt, make distributions, incur liens, make capital expenditures and make investments or acquisitions. Brylane's capital expenditures in fiscal 1997 were in compliance with the Covenants. See "--Certain Tax Matters". In connection with the Chadwick's Acquisition, Brylane entered into an Accounts Receivables Purchase Agreement dated as of December 9, 1996 with Alliance Data Systems Corporation ("ADS") (as amended on January 27, 1997, the "Receivables Purchase Agreement") pursuant to which ADS has agreed to purchase from the Company eligible customer accounts receivable generated through Chadwick's deferred billing programs. ADS' commitment to purchase receivables is limited to $100.0 million outstanding at any time. ADS' obligation to purchase additional deferred billing receivables renews as it collects amounts sufficient to bring outstanding receivables amounts below this $100 million limitation. ADS purchases the receivables on a limited recourse basis at a discount from face value. The Company pays transaction costs including a fee of $0.03 per purchased account, and carrying costs equal to, at the Company's election, LIBOR plus 95 basis points or the lesser of (a) a defined prime rate plus 15 basis points and (b) the federal funds rate plus 110 basis points. The receivables purchase facility has a three-year term and is subject to early 30 termination upon occurrence of certain events, including chargebacks and customer default ratios above specified levels or an uncured default by the Partnership under its Amended 1997 Bank Credit Facility. Based on current and projected operating results and giving effect to its total indebtedness discussed above, the Company believes that cash flow from operations and availability under its Revolving Credit Facility will provide adequate funds for ongoing operations, debt service on its indebtedness (including scheduled prepayments under the Amended 1997 Bank Credit Facility), and planned capital expenditures for the foreseeable future. SEASONALITY The Company has two annual six-month selling seasons, Spring/Summer and Fall/Winter. The Company is not dependent on the year-end holiday season for a disproportionate share of its business. The Company's sales and operating results are more influenced throughout the year by the timing of the mailings of its catalogs and by its merchandising strategies than by seasonal fluctuations. Because the Company offers different products in each season, trends that are manifested in one selling season may not be carried over into the next season. INFLATION AND FOREIGN CURRENCY EXPOSURE The results of operations for the periods discussed have not been significantly affected by inflation. Foreign purchase orders are all denominated in U.S. dollars and, therefore, foreign currency fluctuations are not material to the Company's operating results. COMPUTERIZED OPERATIONS AND THE YEAR 2000 During recent years, there has been significant global awareness raised regarding the potential disruption to business operations worldwide resulting from the inability of current technology to process properly the change from the year 1999 to 2000. The Company has evaluated the significance of the change from the year 1999 to the year 2000 on its existing computer systems and has taken steps designed to ensure that its computer systems will not be adversely affected thereby. The financial impact of such steps is not anticipated to be material. In addition, the Company's systems rely in part on computer-based systems of other companies. As a result, if any such company failed to become Year 2000 compliant, the Company could be adversely affected. CERTAIN TAX MATTERS DEPRECIATION AND AMORTIZATION. Prior to the PPR Stock Purchase, FS&Co. and The Limited treated the Brylane Acquisition for federal income tax purposes as a purchase by the Partnership of a proportionate part of the assets of Brylane (approximately 57% of each asset) and as a contribution by certain affiliates of The Limited of the remaining portion of such assets. See "Item 1. Business-- History and Background". FS&Co. and The Limited have allocated a substantial portion of the purchase price paid for the purchased portion of the assets to intangible assets which are being amortized for federal income tax purposes over a 15-year period. The Partnership has elected under Section 754 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), for its 1997 tax year to increase the tax basis of its assets by approximately $47.2 million to reflect the federal tax gain that The Limited and its affiliates recognized in connection with the Limited Stockholder's contribution to the Company of its partnership interest in the Partnership pursuant to the Exchange Transaction. A substantial portion of this adjustment in tax basis will be allocated to intangible assets, which will be amortized for federal income tax purposes over 15 years. This adjustment to tax basis does not require a comparable basis adjustment in the Company's financial statements, but the future tax benefit that the Company will recognize through the amortization thereof for tax purposes is included in a deferred tax asset of approximately $10.7 million. TAX DISTRIBUTION. To the extent that the partners of the Partnership recognized taxable income resulting from the allocation of income of the Partnership prior to the Initial Public Offering, pursuant to the Partnership Agreement, such partners received a distribution to cover their federal and state tax liabilities attributable thereto. Subsequent to the Initial Public Offering, the Company has filed tax returns on a consolidated basis, and as such, 31 Brylane, L.P. will continue to make tax distributions to its general partner, VGP Corporation, a Delaware corporation ("VGP"), and to its limited partner, VLP Corporation, a Delaware corporation ("VLP"), both of which are wholly-owned subsidiaries of VP Holding Corporation, a Delaware corporation and wholly-owned subsidiary of the Company ("VP Holding"). The Company is under audit by the Indiana Department of Revenue ("IDR") and anticipates an assessment will be issued. Based on discussions with the IDR, the Company currently projects that the assessment, adjusted for the federal tax benefit, will aggregate approximately $2.3 million including interest. The Company intends to vigorously contest this assessment, and believes it has made adequate provision such that final settlement of its Indiana tax liability for the years under audit will not have a material adverse effect on its consolidated financial statements. ADOPTION OF ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which is effective for fiscal years beginning after December 31, 1997. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components (revenues, expenses, gains and losses). The Company intends to adopt this standard and include the required disclosures in the financial statements prepared for its fiscal year ending January 30, 1999. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", which is effective for fiscal years beginning after December 15, 1997. SFAS No. 131 requires that public business enterprises report certain information about operating segments in complete sets of financial statements and in condensed financial statements of interim periods issued to stockholders. The Company intends to adopt this standard and include the required disclosures in the financial statements prepared for its fiscal year ending January 30, 1999. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits", which is effective for fiscal years beginning after December 15, 1997. SFAS No. 132 changes disclosure requirements under previous accounting standards. SFAS No. 132 standardizes disclosure requirements for pensions and other postretirement benefits and requires additional information be disclosed for other changes in plans and increased disclosures for certain plans. The Company intends to adopt this standard and include the required disclosures in the financial statements prepared for its fiscal year ending January 30, 1999. In March 1998, the Accounting Standards Executive Committee issued Statement of Position ("SOP") No. 98-1, "Accounting For The Costs Of Computer Software Developed Or Obtained For Internal Use", which is effective for fiscal years beginning after December 15, 1998. SOP No. 98-1 establishes guidelines for accounting for costs associated with internally developed or obtained software. The Company is currently expensing all internally developed software costs. The impact of SOP 98-1, if any, has not been determined. 32 BRYLANE INC. QUARTERLY DATA (UNAUDITED) (IN THOUSANDS, EXCEPT SHARES AND PER UNIT/SHARE DATA)
THREE MONTHS ENDED -------------------------------------------------------------- MAY 3, 1997 AUG. 2, 1997 NOV. 1, 1997 JAN. 31, 1998 FULL YEAR ----------- ------------ ------------ ------------- ---------- 1997 - ---- Net sales............................... $328,801 $274,656 $365,454 $345,928 $1,314,839 Gross margin............................ 159,754 130,417 179,918 167,111 637,200 Income before extraordinary charge...... 9,586 10,648 16,848 14,030 51,112 Net income.............................. 5,476 10,648 16,848 14,063 47,035 Income per share before extraordinary charge, basic(1)....................... $ .52 $ .55 $ .88 $ .81 $ 2.75 Income per share before extraordinary charge, diluted(1)..................... .50 .53 .85 .77 2.67 Stock price range(2) High................................... $ 29.375 $ 39.500 $ 49.375 $ 54.875 Low.................................... 21.250 26.500 37.750 42.000
THREE MONTHS ENDED ------------------------------------------------------------- MAY 4, 1996 AUG. 3, 1996 NOV. 2, 1996 FEB. 1, 1997 FULL YEAR ----------- ------------ ------------ ------------ --------- 1996 - ---- Net sales............................... $150,680 $157,945 $158,384 $238,344 $705,353 Gross margin............................ 78,018 80,709 82,574 115,823 357,124 Income before extraordinary charge...... 4,688 11,304 7,313 6,103 29,408 Net income.............................. 4,688 11,304 7,313 3,647 26,952 Income per unit before extraordinary charge, basic(1)....................... $ .36 $ .88 $ .57 $ .42 $ 2.22 Income per unit before extraordinary charge, diluted(1)..................... .35 .85 .55 .41 2.05
The first quarter of 1997 includes an extraordinary charge of $4.1 million, net of tax, related to the write off of deferred financing fees in connection with the repayment of the 1993 Bank Credit Facility. The estimate of related taxes was revised during the fourth quarter of 1997. The fourth quarter of 1996 includes an extraordinary charge of $2.5 million related to the write off of deferred financing fees in connection with the repayment of the 1996 Bank Credit Facility. As of April 3, 1998 there were 118 registered holders of record of the Company's Common Stock. Since February 21, 1997, the Company has not declared or paid cash dividends to its holder of Common Stock. The Company does not intend to change such policy in the foreseeable future. ______________ (1) Earnings per unit/share information has been restated to reflect adoption of SFAS No. 128. (2) Brylane began trading under the symbol "BYL" on February 21, 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index included at "Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K". ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item will be contained in the Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to be filed with the Securities and Exchange Commission within 120 days after January 31, 1998, and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will be contained in the Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to be filed with the Securities and Exchange Commission within 120 days after January 31, 1998, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will be contained in the Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to be filed with the Securities and Exchange Commission within 120 days after January 31, 1998, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will be contained in the Company's Proxy Statement for its Annual Stockholders Meeting to be held May 28, 1998, to be filed with the Securities and Exchange Commission within 120 days after January 31, 1998, and is incorporated herein by reference. 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
PAGE NUMBER ------ (a)(1) INDEX TO FINANCIAL STATEMENTS: BRYLANE INC. AND SUBSIDIARIES AND PARTNERSHIPS Report of Independent Accountants............................................... F-1 Consolidated Balance Sheets as of February 1, 1997 and January 31, 1998......... F-2 Consolidated Statements of Income for the fiscal years ended February 3, 1996, February 1, 1997 and January 31, 1998......................................... F-3 Consolidated Statements of Cash Flows for the fiscal years ended February 3, 1996, February 1, 1997 and January 31, 1998................................ F-5 Statements of Partnership/Stockholders' Equity for the fiscal years ended February 3, 1996, February 1, 1997 and January 31, 1998....................... F-6 Notes to Consolidated Financial Statements...................................... F-7 (a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES: None. (a)(3) EXHIBITS 2.1@@@@ First Amended and Restated Incorporation and Exchange Agreement dated as of December 9, 1996 by and among FSEP II, FSEP III, FSEP International, Lane Bryant Direct Holding, Inc., The Limited, WearGuard, Leeway & Co., NYNEX, Chadwick's, Inc. and Brylane Inc. 3.1+ Certificate of Limited Partnership of the Partnership. 3.2+ Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") dated as of August 30, 1993 (with forms of Registration Rights Agreement (Newco) and Stockholders Agreement (Newco) attached as exhibits thereto). 3.3+ Certificate of Incorporation of Brylane Capital Corp. ("Brylane Capital"). 3.4+ Bylaws of Brylane Capital. 3.5+++ Amendment No. 1 to Partnership Agreement dated as of November 22, 1993. 3.6* Amendment No. 2 to Partnership Agreement dated as of January 28, 1994. 3.7** Amendment No. 3 to Partnership Agreement dated as of March 16, 1994. 3.8@@@ Amendment No. 4 to Partnership Agreement dated October 14, 1994. 3.9@@ Amendment No. 5 to Partnership Agreement dated September 22, 1995.
35 3.10@@ Amendment No. 6 to Partnership Agreement dated October 16, 1995. 3.11@@@@ Amendment No. 7 to Partnership Agreement dated October 14, 1996. 3.12@@@@ Amendment No. 8 to the Partnership Agreement dated December 5, 1996. 3.13# Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 26, 1997. 3.14*** Certificate of Incorporation of Brylane Inc. 3.15#### Bylaws of Brylane Inc., as amended April 3, 1998. 3.16@@@@ Certificate of Amendment of Certificate of Incorporation of VP Holding, as filed with the Office of the Secretary of State of Delaware on December 5, 1996. 3.17@@@@ Certificate of Designation of the Series A Convertible Redeemable Preferred Stock of VP Holding as filed with the Office of the Secretary of State of Delaware on December 6, 1996. 3.18@@@@@@ Form of Certificate of Designation of the Series A Convertible Redeemable Preferred Stock of Brylane Inc. filed with the Office of the Secretary of State of Delaware on February 14, 1997. 4.1+ Purchase Agreement dated August 20, 1993 among the Partnership, Brylane Capital, VGP and each of the Initial Purchasers named therein. 4.2+ Registration Rights Agreement made and entered into the 30th day of August, 1993 among the Partnership, Brylane Capital and the Initial Purchasers. 4.3+ Indenture dated as of August 30, 1993 among the Partnership and Brylane Capital, as Issuers, B.L. Management, B.L. Distribution, B.L. Management Partnership and B.L. Distribution Partnership, as Guarantors, and United States Trust Company of New York, as Trustee (the "Indenture"). 4.4+ Form of Old Note (included at page 37 of the Indenture). 4.5+ Form of New Note (included at page 42 of the Indenture, as amended at page 2 of the First Supplemental Indenture). 4.6+ Form of Guarantee by B.L. Management, B.L. Distribution, B.L. Management Partnership and B.L. Distribution Partnership (included at page 57 and in Article Fourteen of the Indenture). 4.7+ Form of Intercompany Note (included as Exhibit A to the Indenture). 4.8+++ First Supplemental Indenture dated as of November 22, 1993 by and among the Partnership and Brylane Capital, as Issuers, and United States Trust Company of New York, as Trustee. 4.9* Second Supplemental Indenture dated as of January 28, 1994 among the Partnership, Brylane Capital, B.N.Y. Service Corp. and United States Trust Company of New York, as Trustee. 4.10@@ Third Supplemental Indenture dated as of October 16, 1995 by and among the Partnership, Brylane Capital, KingSize Catalog Sales, L.P., K.S. Management, KingSize Catalog Sales, Inc. and United States Trust Company of New York, as Trustee.
36 4.11@@@@ Fourth Supplemental Indenture dated as of December 9, 1996 by and among the Partnership, Brylane Capital, C.O.B. Management Services, Inc., Chadwick's Tradename Sub, Inc. and United States Trust Company of New York, as Trustee. 4.12# Registration Rights Agreement dated as of February 26, 1997 by and among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P Distributing Company, The Limited, WearGuard, TJX, Leeway & Co. and NYNEX. 4.13# Stockholders Agreement dated as of February 26, 1997 by and among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P Distributing Company, The Limited, WearGuard, TJX, Leeway & Co. and NYNEX. 10.1+ Transaction Agreement dated as of July 13, 1993 among VGP, VLP and the Transferors referred to therein (the "Transaction Agreement"). 10.2+ Amendment No. 1 to Transaction Agreement dated as of August 30, 1993. 10.3+ Addendum to Transaction Agreement dated August 30, 1993 executed by the Partnership. 10.4+ Credit Card Processing Agreement (the "Credit Card Agreement") made as of the 30th day of August, 1993 between World Financial Network National Bank ("World Financial") and the Partnership. 10.5@@@ Amendment No. 1 to Credit Card Agreement dated as of July 1, xx 1995 between World Financial and the Partnership. 10.6+ Trademark License Agreement (the "Trademark License Agreement") made as of the 20th day of August, 1993 among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc. (collectively, the "Licensors"), Lane Bryant Direct, Inc., and Lerner Direct, Inc. (collectively, the "Licensees"). 10.7@@@@ Amendment No. 1 to Trademark License Agreement entered into as of the 9th day of December, 1996 by and among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant Direct Holding, Inc. and the Partnership. 10.8##### Amendment to Trademark License Agreement dated as of February 18, 1998 by and between Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lerner Stores, Inc., Lane Bryant Direct Holding, Inc. and the Partnership. 10.9+ Electronic Media Trademark License Agreement made as of the 20th day of August, 1993 among the Licensors and the Licensees. 10.10+ Agreement to be Bound by the Trademark License Agreement and the Electronic Media Trademark License Agreement executed by the Partnership. 10.11+ Service Agreement made as of the 30th day of August, 1993 between B.L. Management and the Partnership. 10.12+ Catalog Production Agreement made and entered into as of the 30th day of August, 1993 between B.L. Distribution Partnership and B.L. Management Partnership.
37 10.13++ Catalog Production, Distribution, License and Administrative Services Agreement made and entered into as of the 30th day of August, 1993 between the Partnership and B.L. Distribution Partnership. 10.14++ Credit Agreement dated as of April 30, 1997 (the "Credit Agreement") among the Partnership, the Lenders listed on the signature pages thereof, Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), as Administrative Agent, and Merrill Lynch Capital Corporation ("Merrill Lynch"), as Documentation Agent. 10.15++ Security Agreement dated as of April 30, 1997 among the Partnership, the Subsidiary Grantors (as defined therein), and Morgan Guaranty, as Security Agent. 10.16++ Pledge Agreement dated as of April 30, 1997 among the Partnership, the Subsidiary Pledgors (as defined therein), and Morgan Guaranty, as Security Agent. 10.17++ Form of Tranche A Term Notes dated April 30, 1997, executed by the Partnership in favor of each of the various Lenders which are signatories to the Credit Agreement. 10.18++ Form of Tranche B Term Notes dated April 30, 1997, executed by the Partnership in favor of each of the various Lenders which are signatories to the Credit Agreement. 10.19++ Guarantee Agreement dated as of April 30, 1997 among the Guarantors (as defined therein), Morgan Guaranty, as Administrative Agent, and the Issuing Banks (as defined in the Credit Agreement). 10.20@@@@@@@@ Form of Amended and Restated Credit Agreement among the Partnership, the Lenders listed therein, Morgan Guaranty, as Administrative Agent and Merrill Lynch, as Documentation Agent. 10.21##### Second Amendment dated as March 10, 1998 to the Credit Agreement, as amended and restated as of October 20, 1997 among the Partnership, the Lenders party thereto, Morgan Guaranty, as Administrative Agent and Merrill Lynch, as Documentation Agent. 10.22++ Trademark Collateral Agreement dated as of April 30, 1997 among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores, Inc., Lane Bryant, Inc. and Morgan Guaranty, as Security Agent. 10.23**** Loan Agreement made as of August 30, 1993 by and between FSEP II, VP Holding and VGP. 10.24**** No Interest Demand Promissory Note made by FSEP II in favor of VP Holding. 10.25**** Loan Agreement made as of August 30, 1993 by and between FSEP III, VP Holding and VGP. 10.26**** No Interest Demand Promissory Note made by FSEP III in favor of VP Holding. 10.27+ Form of Indemnity Agreement made by and between the Partnership and each of the members of the Board of Representatives of the Partnership. 10.28+ Indemnity Agreement dated as of September 1993 made by and between B.L. Management and Robert A. Pulciani. 10.29+ Indemnity Agreement dated as of September 1993 made by and between B.L. Distribution and Robert A. Pulciani.
38 10.30+[X] 1993 Employee Stock Subscription Plan of VP Holding (the "Subscription Plan"). 10.31***[X] Amendment No. 1 to the Subscription Plan dated February 18, 1994. 10.32+[X] Stock Subscription Agreement made and entered into as of August 30, 1993 by and between VP Holding and Peter Canzone (with Secured Promissory Note and Stock Pledge Agreement attached as exhibits thereto). 10.33+[X] Form of Stock Subscription Agreement made by and between VP Holding and each of Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and Jessie Bourneuf who purchased common stock of VP Holding under the Subscription Plan with cash and, in certain cases, promissory note (with forms of Secured Promissory Note and Stock Pledge Agreement attached as exhibits thereto). 10.34+[X] Form of Stock Subscription Agreement made by and between VP Holding and each of Arlene Silverman, Kevin McGrain, Kevin Doyle and certain other management investors who purchased common stock of VP Holding under the Subscription Plan with cash and, in certain cases, promissory note (with forms of Secured Promissory Note and Stock Pledge Agreement attached as exhibits thereto). 10.35***[X] Addendum dated February 18, 1994 to Stock Subscription Agreement between VP Holding and Jules Silbert. 10.36***[X] Stock Subscription Agreement made and entered into as of May 27, 1994 by and between VP Holding and William C. Johnson. 10.37+[X] 1993 Performance Partnership Unit Option Plan of the Partnership (the "1993 Option Plan"). 10.38+[X] Form of Performance Partnership Unit Option Agreement entered into by and between the Partnership and each of Peter J. Canzone, Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and Jessie Bourneuf under the 1993 Option Plan. 10.39+[X] Form of Performance Partnership Unit Option Agreement entered into by and between the Partnership and each of Arlene Silverman, Kevin McGrain, Kevin Doyle and certain other participants under the 1993 Option Plan. 10.40***[X] Performance Partnership Unit Option Agreement entered into as of May 27, 1994 by and between the Partnership and William C. Johnson. 10.41@@@@[X] Form of Amendment to Performance Partnership Unit Option Agreement under the 1993 Option Plan. 10.42@[X] 1995 Partnership Unit Option Plan of the Partnership (the "1995 Option Plan"). 10.43@[X] Form of Partnership Unit Option Agreement entered into by and between the Partnership and each of Peter J. Canzone, Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce G. Clark, Arlene Silverman, Jules Silbert, Loida Noriega-Wilson, Jessie Bourneuf and William C. Johnson under the 1995 Option Plan.
39 10.44@[X] Form of Partnership Unit Option Agreement entered into by and between the Partnership and each of Kevin McGrain, Kevin Doyle and certain other participants under the 1995 Option Plan. 10.45@@@@[X] Brylane Inc. 1996 Senior Management Stock Subscription Plan (the "Senior Management Plan"). 10.46@@@@[X] Form of Stock Subscription Agreement entered into by and between Brylane Inc. and nine management investors who were issued Common Stock of Brylane Inc. under the Senior Management Plan. 10.47@@@@[X] Form of Stock Subscription Agreement entered into by and between Brylane Inc. and William C. Johnson under the Senior Management Plan. 10.48@@@@[X] Brylane Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan"). 10.49@@@@[X] Form of Stock Subscription Agreement entered into by and between Brylane Inc. and certain management employees who were issued Common Stock of Brylane Inc. under the Brylane Subscription Plan. 10.50@@@@[X] Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option Plan"). 10.51#####[X] Brylane Inc. 1998 Performance Stock Option Plan. 10.52@@@@[X] Form of Stock Option Agreement entered into by and between Brylane Inc. and certain participants under the Brylane 1996 Performance Option Plan. 10.53@@@@[X] Form of Stock Option Agreement entered into by and between Brylane Inc. and William C. Johnson under the Brylane 1996 Performance Option Plan. 10.54#####[X] Brylane Inc. 1996 Stock Option Plan, as amended April 1998 (the "Brylane 1996 Option Plan"). 10.55@@@@[X] Form of Stock Option Agreement entered into by and between Brylane Inc. and certain participants under the Brylane 1996 Option Plan. 10.56#####[X] Form of Amendment to Stock Option Agreements entered into by and between Brylane Inc. and each of Peter J. Canzone, Robert A. Pulciani, Sheila R. Garelik and Jules Silbert. 10.57#####[X] Form of Amendment to Stock Option Agreements entered into by and between Brylane Inc. and each of Dhananjaya K. Rao and Carol Meyrowitz. 10.58@ License Agreement effective as of March 1, 1994 by and between x the Partnership and Sears Shop At Home Services, Inc. ("Sears") (with Exhibits E and F attached thereto). 10.59@ License Agreement effective as of August 1, 1994 by and between x WearGuard Corporation ("WearGuard") and Sears (with Exhibits E and F attached thereto). 10.60@ First Amendment to License Agreement effective as of August 1, 1995 by and between Sears and WearGuard. 10.61@@@@ License Amendment made as of July 23, 1996 between the xxx Partnership and Sears. 10.62##### Second Amendment to License Agreement entered into effective March 1, 1998 by and between Sears and the Company.
40 10.63@@ Asset Purchase Agreement dated September 22, 1995 by and among the Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as guarantor. 10.64@@ Letter Amendment to the Purchase Agreement dated September 22, 1995 by and between the Partnership and WearGuard. 10.65@ Consent to Assignment dated October 10, 1995 between and among Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize Partnership"). 10.66@@ Letter Amendment to the Purchase Agreement dated October 16, 1995 by and between the Partnership and WearGuard. 10.67@@ Assignment of Purchase Agreement dated October 16, 1995 by and among the Partnership, KingSize Partnership and K.S. Management. 10.68@@ Transition Services Agreement dated as of October 16, 1995 by and among the Partnership, KingSize Partnership, ARAMARK and WearGuard. 10.69@@ Noncompetition Agreement dated as of October 16, 1995 by and among the Partnership, KingSize Partnership, ARAMARK and WearGuard. 10.70#####[X] Form of Employment Agreement dated as of April 1, 1998 between B.L. Management and each of Peter J. Canzone, Robert A. Pulciani, Jules Silbert, Kevin Doyle, Loida D. Noriega-Wilson and Kevin McGrain. 10.71#####[X] Form of Employment Agreement dated as of April 1, 1998 between B.L. Management and each of Sheila Garelik and Arlene Silverman. 10.72#####[X] Form of Employment Agreement dated as of April 1, 1998 between the Partnership and each of Richard Bennett, William Brosius, Daniel L. Carr, Bruce Clark, Robert Evans, Lawrence Kinney and Henry Wren. 10.73@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and among TJX, Chadwick's and the Partnership. 10.74@@@@ Amendment Number One to the Asset Purchase Agreement made as of the 9th day of December, 1996 among TJX, Chadwick's and the Partnership. 10.75@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and among CDM Corp. and the Partnership. 10.76@@@@ Services Agreement dated as of December 9, 1996 between TJX and the Partnership. 10.77@@@@@ Amendment to Services Agreement dated as of December 9, 1996 between TJX and the Partnership. 10.78@@@@ Inventory Purchase Agreement effective as of December 9, 1996 by xxx and between the Partnership and TJX. 10.79#####[X] Form of Employment Agreement dated as of April 1, 1998 between the Partnership and each of Dhananjaya K. Rao and Carol Meyrowitz. 10.80@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made as of December 9, 1996 by and between VP Holding and Dhananjaya K. Rao.
41 10.81@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made as of December 9, 1996 by and between VP Holding and Carol Meyrowitz. 10.82@@@@[X] Form of Brylane Inc. Stock Subscription Agreement for Preferred Stock made as of December 9, 1996 by and between Brylane Inc. and each of Dhananjaya K. Rao and Carol Meyrowitz. 10.83@@@@ Brylane, L.P. Convertible Subordinated Note Due 2006 dated December 9, 1996 made by the Partnership in favor of Chadwick's (with Brylane Inc. and Brylane, L.P. Convertible Subordinated Note Due 2006 made by Brylane Inc. and the Partnership in favor of Chadwick's filed as an exhibit thereto). 10.84@@@@ Unit Subscription Agreement entered into as of December 5, 1996 by and among the Partnership, VP Holding, FSEP II, FSEP III, FSEP International, VGP, VLP, WearGuard, Leeway and NYNEX. 10.85@@@@ Accounts Receivable Purchase Agreement dated as of December 9, 1996 between the Partnership and Alliance Data Systems Corporation. 10.86@@@@@@@ Form of Repurchase Agreement entered into as of September 29, 1997 by and between the Company and each of FSEP II, FSEP III, FSEP International, M&P Distributing Company, WearGuard, TJX, Leeway & Co., NYNEX and William C. Johnson. 10.87### Stock Purchase Agreement among FSEP II, FSEP III, FSEP International and PPR dated as of February 19, 1998. 10.88### Stock Purchase Agreement among M&P Distributing Company and PPR dated as of February 19, 1998. 10.89#### Governance Agreement by and between the Company and PPR dated as of April 3, 1998. 10.90#### Registration Rights Agreement dated as of April 3, 1998 between the Company and PPR. 21.1##### Subsidiaries of Brylane Inc./Brylane, L.P. 23.1##### Consent of Coopers & Lybrand L.L.P. regarding Brylane Inc. 27.1##### Financial Data Schedule for fiscal year ended January 31, 1998. 27.2##### Restated Financial Data Schedule for quarter ended May 3, 1997. 27.3##### Restated Financial Data Schedule for quarter ended August 2, 1997. 27.4##### Restated Financial Data Schedule for quarter ended November 1, 1997.
_______________ + Filed as an exhibit to the Partnership's Registration Statement on Form S-4 (Registration No. 33-69532) on September 29, 1993 and incorporated by reference herein. ++ Filed as an exhibit to Amendment No. 1 to the Partnership's Registration Statement on Form S-4 (Registration No. 33-69532) on November 9, 1993 and incorporated by reference herein. +++ Filed as an exhibit to Amendment No. 2 to the Partnership's Registration Statement on Form S-4 (Registration No. 33-69532) on November 23, 1993 and incorporated by reference herein. * Filed on April 25, 1994 as an exhibit to the Partnership's Annual Report on Form 10-K for the fiscal year ended January 29, 1994 and incorporated by reference herein. ** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1994 and incorporated by reference herein. *** Filed as an exhibit to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on November 9, 1994 and incorporated by reference herein. **** Filed as an exhibit to Amendment No. 1 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995 and incorporated by reference herein. 42 @ Filed on December 12, 1995 as an exhibit to the Partnership's Quarterly Report on Form 10-Q for the quarterly period ended October 28, 1995 (the "1995 Third Quarter Form 10-Q") and incorporated by reference herein. @@ Filed on December 30, 1995 as an exhibit to the Partnership's Amendment of Current Report on Form 8-K/A (File No. 33-69532) and incorporated by reference herein. @@@ Filed on May 3, 1996 as an exhibit to the Partnership's Annual Report on Form 10-K for the fiscal year ended February 3, 1996 ("1995 Form 10-K") and incorporated by reference herein. @@@@ Filed as an exhibit to Amendment No. 2 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996 and incorporated by reference herein. @@@@@ Filed as an exhibit to Amendment No. 3 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997 and incorporated by reference herein. @@@@@@ Filed as an exhibit to Amendment No. 4 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997 and incorporated by reference herein. @@@@@@@ Filed as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 333-35715) on September 30, 1997 and incorporated by reference herein. @@@@@@@@ Filed as an exhibit to Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-35715 on October 14, 1997 and incorporated by reference herein. x Certain portions of this exhibit have been omitted from the copies incorporated by reference from the Partnership's 1995 Third Quarter Form 10-Q (as defined herein) and are the subject of an order granting confidential treatment with respect thereto. xx Certain portions of this exhibit have been omitted from the copies incorporated by reference from the Partnership's 1995 Form 10-K (as defined herein) and are the subject of an order granting confidential treatment with respect thereto. xxx Certain portions of this exhibit have been omitted from the copies filed as part of Amendment No. 2 to Brylane Inc.'s Registration Statement on Form S-1 and are the subject of a request for confidential treatment with respect thereto. # Filed on May 2, 1997 as an exhibit to the Company's Annual Report on 10-K for the fiscal year ended February 1, 1997 and incorporated by reference herein. ## Filed on June 17, 1997 as an exhibit to the Company's Quarterly Report on 10-Q for the quarterly period ended May 3, 1997 and incorporated by reference herein. ### Filed on March 4, 1998 as an exhibit to the Company's Current Report on Form 8-K and incorporated by reference herein. #### Filed on April 17, 1998 as an exhibit to the Company's Current Report on Form 8-K and incorporated by reference herein. ##### Filed herewith. [X] Management contract or executive compensation plan or arrangement. (b) REPORTS ON FORM 8-K On March 4, 1998, Brylane Inc. filed a Current Report on Form 8-K (File No. 33-86154) to include, under "Item 5. Other Events", a description of the agreements whereby Pinault Printemps-Redoute, S.A., a company organized under the laws of France ("PPR"), agreed to acquire Common Stock from certain stockholders of the Company (including all of the Common Stock held by affiliates of Freeman Spogli & Co. Incorporated and an affiliate of The Limited, Inc., as well as certain shares held by certain members of management of the Company) and to include the following exhibits relating to PPR's acquisition of Common Stock: (i) the definitive Stock Purchase Agreements dated February 19, 1998, (ii) the Form of Governance Agreement between Brylane Inc. and PPR and (iii) other documents relating to PPR's purchase of Common Stock. On April 17, 1998, Brylane Inc. filed a Current Report on Form 8-K (File No. 33-86154) to include, under "Item 1. Changes in Control of Registrant", a description of the arrangements whereby PPR acquired approximately 43% of the Common Stock held by certain stockholders of the Company (including all of the Common Stock held by affiliates of Freeman Spogli & Co. Incorporated and an affiliate of The Limited, Inc., as well as certain shares held by certain members of management of the Company) and to include the following exhibits relating to PPR's acquisition of Common Stock: (i) the definitive Governance Agreement between Brylane Inc. and PPR, (ii) the amended Bylaws of Brylane Inc., (iii) the definitive Registration Rights Agreement between Brylane Inc. and PPR and (iv) other documents relating to PPR's purchase of Common Stock. 43 (c) EXHIBITS The Exhibits listed on the accompanying Index to Exhibits are filed as part of this Form 10-K. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 30th day of April, 1998. Brylane Inc. By: /s/ ROBERT A. PULCIANI ------------------------- Robert A. Pulciani Executive Vice President, Chief Financial Officer, Secretary and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- /s/ PETER J. CANZONE Chief Executive Officer and Director April 30, 1998 - ----------------------- (Principal Executive Officer) Peter J. Canzone /s/ ROBERT A. PULCIANI Executive Vice President, Chief Financial April 30, 1998 - ------------------------ Officer, Secretary and Treasurer (Principal Robert A. Pulciani Financial and Accounting Officer) /s/ SERGE WEINBERG Director April 30, 1998 - ------------------------ Serge Weinberg /s/ HARTMUT KRAMER Director April 30, 1998 - ------------------------- Harmut Kramer /s/ JOHANNES LONING Director April 30, 1998 - ------------------------- Johannes Loning /s/ ANTOINE METZGER Director April 30, 1998 - ------------------------- Antoine Metzger /s/ RICHARD SIMONIN Director April 30, 1998 - ------------------------- Richard Simonin /s/ WILLIAM C. JOHNSON Director April 30, 1998 - ------------------------- William C. Johnson /s/ PETER M. STARRETT Director April 30, 1998 - ------------------------- Peter M. Starrett /s/ JUDITH E. CAMPBELL Director April 30, 1998 - ------------------------- Judith E. Campbell
45 EXHIBIT INDEX -------------
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------ 2.1@@@@ First Amended and Restated Incorporation and Exchange Agreement dated as of December 9, 1996 by and among FSEP II, FSEP III, FSEP International, Lane Bryant Direct Holding, Inc., The Limited, WearGuard, Leeway & Co., NYNEX, Chadwick's, Inc. and Brylane Inc. 3.1+ Certificate of Limited Partnership of the Partnership. 3.2+ Agreement of Limited Partnership of the Partnership (the "Partnership Agreement") dated as of August 30, 1993 (with forms of Registration Rights Agreement (Newco) and Stockholders Agreement (Newco) attached as exhibits thereto). 3.3+ Certificate of Incorporation of Brylane Capital Corp. ("Brylane Capital"). 3.4+ Bylaws of Brylane Capital. 3.5+++ Amendment No. 1 to Partnership Agreement dated as of November 22, 1993. 3.6* Amendment No. 2 to Partnership Agreement dated as of January 28, 1994. 3.7** Amendment No. 3 to Partnership Agreement dated as of March 16, 1994. 3.8@@@ Amendment No. 4 to Partnership Agreement dated October 14, 1994. 3.9@@ Amendment No. 5 to Partnership Agreement dated September 22, 1995. 3.10@@ Amendment No. 6 to Partnership Agreement dated October 16, 1995. 3.11@@@@ Amendment No. 7 to Partnership Agreement dated October 14, 1996. 3.12@@@@ Amendment No. 8 to the Partnership Agreement dated December 5, 1996. 3.13# Amended and Restated Agreement of Limited Partnership of the Partnership dated as of February 26, 1997. 3.14*** Certificate of Incorporation of Brylane Inc. 3.15#### Bylaws of Brylane Inc., as amended April 3, 1998. 3.16@@@@ Certificate of Amendment of Certificate of Incorporation of VP Holding, as filed with the Office of the Secretary of State of Delaware on December 5, 1996. 3.17@@@@ Certificate of Designation of the Series A Convertible Redeemable Preferred Stock of VP Holding as filed with the Office of the Secretary of State of Delaware on December 6, 1996. 3.18@@@@@@ Form of Certificate of Designation of the Series A Convertible Redeemable Preferred Stock of Brylane Inc. filed with the Office of the Secretary of State of Delaware on February 14, 1997. 4.1+ Purchase Agreement dated August 20, 1993 among the Partnership, Brylane Capital, VGP and each of the Initial Purchasers named therein.
46
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------ 4.2+ Registration Rights Agreement made and entered into the 30th day of August, 1993 among the Partnership, Brylane Capital and the Initial Purchasers. 4.3+ Indenture dated as of August 30, 1993 among the Partnership and Brylane Capital, as Issuers, B.L. Management, B.L. Distribution, B.L. Management Partnership and B.L. Distribution Partnership, as Guarantors, and United States Trust Company of New York, as Trustee (the "Indenture"). 4.4+ Form of Old Note (included at page 37 of the Indenture). 4.5+ Form of New Note (included at page 42 of the Indenture, as amended at page 2 of the First Supplemental Indenture). 4.6+ Form of Guarantee by B.L. Management, B.L. Distribution, B.L. Management Partnership and B.L. Distribution Partnership (included at page 57 and in Article Fourteen of the Indenture). 4.7+ Form of Intercompany Note (included as Exhibit A to the Indenture). 4.8+++ First Supplemental Indenture dated as of November 22, 1993 by and among the Partnership and Brylane Capital, as Issuers, and United States Trust Company of New York, as Trustee. 4.9* Second Supplemental Indenture dated as of January 28, 1994 among the Partnership, Brylane Capital, B.N.Y. Service Corp. and United States Trust Company of New York, as Trustee. 4.10@@ Third Supplemental Indenture dated as of October 16, 1995 by and among the Partnership, Brylane Capital, KingSize Catalog Sales, L.P., K.S. Management, KingSize Catalog Sales, Inc. and United States Trust Company of New York, as Trustee. 4.11@@@@ Fourth Supplemental Indenture dated as of December 9, 1996 by and among the Partnership, Brylane Capital, C.O.B. Management Services, Inc., Chadwick's Tradename Sub, Inc. and United States Trust Company of New York, as Trustee. 4.12# Registration Rights Agreement dated as of February 26, 1997 by and among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P Distributing Company, The Limited, WearGuard, TJX, Leeway & Co. and NYNEX. 4.13# Stockholders Agreement dated as of February 26, 1997 by and among Brylane Inc., FSEP II, FSEP III, FSEP International, M&P Distributing Company, The Limited, WearGuard, TJX, Leeway & Co. and NYNEX. 10.1+ Transaction Agreement dated as of July 13, 1993 among VGP, VLP and the Transferors referred to therein (the "Transaction Agreement"). 10.2+ Amendment No. 1 to Transaction Agreement dated as of August 30, 1993. 10.3+ Addendum to Transaction Agreement dated August 30, 1993 executed by the Partnership.
47
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------ 10.4+ Credit Card Processing Agreement (the "Credit Card Agreement") made as of the 30th day of August, 1993 between World Financial Network National Bank ("World Financial") and the Partnership. 10.5@@@ Amendment No. 1 to Credit Card Agreement dated as of July 1, xx 1995 between World Financial and the Partnership. 10.6+ Trademark License Agreement (the "Trademark License Agreement") made as of the 20th day of August, 1993 among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc. (collectively, the "Licensors"), Lane Bryant Direct, Inc., and Lerner Direct, Inc. (collectively, the "Licensees"). 10.7@@@@ Amendment No. 1 to Trademark License Agreement entered into as of the 9th day of December, 1996 by and among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant Direct Holding, Inc. and the Partnership. 10.8##### Amendment to Trademark License Agreement dated as of February 18, 1998 by and between Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc., Lerner Stores, Inc., Lane Bryant Direct Holding, Inc. and the Partnership. 10.9+ Electronic Media Trademark License Agreement made as of the 20th day of August, 1993 among the Licensors and the Licensees. 10.10+ Agreement to be Bound by the Trademark License Agreement and the Electronic Media Trademark License Agreement executed by the Partnership. 10.11+ Service Agreement made as of the 30th day of August, 1993 between B.L. Management and the Partnership. 10.12+ Catalog Production Agreement made and entered into as of the 30th day of August, 1993 between B.L. Distribution Partnership and B.L. Management Partnership. 10.13++ Catalog Production, Distribution, License and Administrative Services Agreement made and entered into as of the 30th day of August, 1993 between the Partnership and B.L. Distribution Partnership. 10.14++ Credit Agreement dated as of April 30, 1997 (the "Credit Agreement") among the Partnership, the Lenders listed on the signature pages thereof, Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), as Administrative Agent, and Merrill Lynch Capital Corporation ("Merrill Lynch"), as Documentation Agent. 10.15++ Security Agreement dated as of April 30, 1997 among the Partnership, the Subsidiary Grantors (as defined therein), and Morgan Guaranty, as Security Agent. 10.16++ Pledge Agreement dated as of April 30, 1997 among the Partnership, the Subsidiary Pledgors (as defined therein), and Morgan Guaranty, as Security Agent. 10.17++ Form of Tranche A Term Notes dated April 30, 1997, executed by the Partnership in favor of each of the various Lenders which are signatories to the Credit Agreement.
48
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------ 10.18++ Form of Tranche B Term Notes dated April 30, 1997, executed by the Partnership in favor of each of the various Lenders which are signatories to the Credit Agreement. 10.19++ Guarantee Agreement dated as of April 30, 1997 among the Guarantors (as defined therein), Morgan Guaranty, as Administrative Agent, and the Issuing Banks (as defined in the Credit Agreement). 10.20@@@@@@@@ Form of Amended and Restated Credit Agreement among the Partnership, the Lenders listed therein, Morgan Guaranty, as Administrative Agent and Merrill Lynch, as Documentation Agent. 10.21##### Second Amendment dated as of March 10, 1998 to the Credit Agreement, as amended and restated as of October 20, 1997 among the Partnership, the Lenders party thereto, Morgan Guaranty, as Administrative Agent and Merrill Lynch, as Documentation Agent. 10.22++ Trademark Collateral Agreement dated as of April 30, 1997 among Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores, Inc., Lane Bryant, Inc. and Morgan Guaranty, as Security Agent. 10.23**** Loan Agreement made as of August 30, 1993 by and between FSEP II, VP Holding and VGP. 10.24**** No Interest Demand Promissory Note made by FSEP II in favor of VP Holding. 10.25**** Loan Agreement made as of August 30, 1993 by and between FSEP III, VP Holding and VGP. 10.26**** No Interest Demand Promissory Note made by FSEP III in favor of VP Holding. 10.27+ Form of Indemnity Agreement made by and between the Partnership and each of the members of the Board of Representatives of the Partnership. 10.28+ Indemnity Agreement dated as of September 1993 made by and between B.L. Management and Robert A. Pulciani. 10.29+ Indemnity Agreement dated as of September 1993 made by and between B.L. Distribution and Robert A. Pulciani. 10.30+[X] 1993 Employee Stock Subscription Plan of VP Holding (the "Subscription Plan"). 10.31***[X] Amendment No. 1 to the Subscription Plan dated February 18, 1994. 10.32+[X] Stock Subscription Agreement made and entered into as of August 30, 1993 by and between VP Holding and Peter Canzone (with Secured Promissory Note and Stock Pledge Agreement attached as exhibits thereto). 10.33+[X] Form of Stock Subscription Agreement made by and between VP Holding and each of Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and Jessie Bourneuf who purchased common stock of VP Holding under the Subscription Plan with cash and, in certain cases, promissory note (with forms of Secured Promissory Note and Stock Pledge Agreement attached as exhibits thereto).
49
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER ------ ----------- ------ 10.34+[X] Form of Stock Subscription Agreement made by and between VP Holding and each of Arlene Silverman, Kevin McGrain, Kevin Doyle and certain other management investors who purchased common stock of VP Holding under the Subscription Plan with cash and, in certain cases, promissory note (with forms of Secured Promissory Note and Stock Pledge Agreement attached as exhibits thereto). 10.35***[X] Addendum dated February 18, 1994 to Stock Subscription Agreement between VP Holding and Jules Silbert. 10.36***[X] Stock Subscription Agreement made and entered into as of May 27, 1994 by and between VP Holding and William C. Johnson. 10.37+[X] 1993 Performance Partnership Unit Option Plan of the Partnership (the "1993 Option Plan"). 10.38+[X] Form of Performance Partnership Unit Option Agreement entered into by and between the Partnership and each of Peter J. Canzone, Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce G. Clark, Jules Silbert, Loida Noriega-Wilson and Jessie Bourneuf under the 1993 Option Plan. 10.39+[X] Form of Performance Partnership Unit Option Agreement entered into by and between the Partnership and each of Arlene Silverman, Kevin McGrain, Kevin Doyle and certain other participants under the 1993 Option Plan. 10.40***[X] Performance Partnership Unit Option Agreement entered into as of May 27, 1994 by and between the Partnership and William C. Johnson. 10.41@@@@[X] Form of Amendment to Performance Partnership Unit Option Agreement under the 1993 Option Plan. 10.42@[X] 1995 Partnership Unit Option Plan of the Partnership (the "1995 Option Plan"). 10.43@[X] Form of Partnership Unit Option Agreement entered into by and between the Partnership and each of Peter J. Canzone, Sheila R. Garelik, Robert A. Pulciani, Richard L. Bennett, William G. Brosius, Bruce G. Clark, Arlene Silverman, Jules Silbert, Loida Noriega-Wilson, Jessie Bourneuf and William C. Johnson under the 1995 Option Plan. 10.44@[X] Form of Partnership Unit Option Agreement entered into by and between the Partnership and each of Kevin McGrain, Kevin Doyle and certain other participants under the 1995 Option Plan. 10.45@@@@[X] Brylane Inc. 1996 Senior Management Stock Subscription Plan (the "Senior Management Plan"). 10.46@@@@[X] Form of Stock Subscription Agreement entered into by and between Brylane Inc. and nine management investors who were issued Common Stock of Brylane Inc. under the Senior Management Plan. 10.47@@@@[X] Form of Stock Subscription Agreement entered into by and between Brylane Inc. and William C. Johnson under the Senior Management Plan
50
Exhibit Page Number Description Number ------- ----------- ------ 10.48@@@@[X] Brylane Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan"). 10.49@@@@[X] Form of Stock Subscription Agreement entered into by and between Brylane Inc. and certain management employees who were issued Common Stock of Brylane Inc. under the Brylane Subscription Plan. 10.50@@@@[X] Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option Plan"). 10.51#####[X] Brylane Inc. 1998 Performance Stock Option Plan. 10.52@@@@[X] Form of Stock Option Agreement entered into by and between Brylane Inc. and certain participants under the Brylane 1996 Performance Option Plan. 10.53@@@@[X] Form of Stock Option Agreement entered into by and between Brylane Inc. and William C. Johnson under the Brylane 1996 Performance Option Plan. 10.54#####[X] Brylane Inc. 1996 Stock Option Plan, as amended April 1998 (the "Brylane 1996 Option Plan"). 10.55@@@@[X] Form of Stock Option Agreement entered into by and between Brylane Inc. and certain participants under the Brylane 1996 Option Plan. 10.56#####[X] Form of Amendment to Stock Option Agreements entered into by and between Brylane Inc. and each of Peter J. Canzone, Robert A. Pulciani, Sheila R. Garelik and Jules Silbert. 10.57#####[X] Form of Amendment to Stock Option Agreements entered into by and between Brylane Inc. and each of Dhananjaya K. Rao and Carol Meyrowitz. 10.58@ License Agreement effective as of March 1, 1994 by and between x the Partnership and Sears Shop At Home Services, Inc. ("Sears") (with Exhibits E and F attached thereto). 10.59@ License Agreement effective as of August 1, 1994 by and between x WearGuard Corporation ("WearGuard") and Sears (with Exhibits E and F attached thereto). 10.60@ First Amendment to License Agreement effective as of August 1, 1995 by and between Sears and WearGuard. 10.61@@@@ License Amendment made as of July 23, 1996 between the xxx Partnership and Sears. 10.62##### Second Amendment to License Agreement entered into effective March 1, 1998 by and between Sears and the Company. 10.63@@ Asset Purchase Agreement dated September 22, 1995 by and among the Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as guarantor. 10.64@@ Letter Amendment to the Purchase Agreement dated September 22, 1995 by and between the Partnership and WearGuard. 10.65@ Consent to Assignment dated October 10, 1995 between and among Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize Partnership").
51
Exhibit Page Number Description Number ------- ----------- ------ 10.66@@ Letter Amendment to the Purchase Agreement dated October 16, 1995 by and between the Partnership and WearGuard. 10.67@@ Assignment of Purchase Agreement dated October 16, 1995 by and among the Partnership, KingSize Partnership and K.S. Management. 10.68@@ Transition Services Agreement dated as of October 16, 1995 by and among the Partnership, KingSize Partnership, ARAMARK and WearGuard. 10.69@@ Noncompetition Agreement dated as of October 16, 1995 by and among the Partnership, KingSize Partnership, ARAMARK and WearGuard. 10.70#####[X] Form of Employment Agreement dated as of April 1, 1998 between B.L. Management and each of Peter J. Canzone, Robert A. Pulciani, Jules Silbert, Kevin Doyle, Loida D. Noriega-Wilson and Kevin McGrain. 10.71#####[X] Form of Employment Agreement dated as of April 1, 1998 between B.L. Management and each of Sheila Garelik and Arlene Silverman. 10.72#####[X] Form of Employment Agreement dated as of April 1, 1998 between the Partnership and each of Richard Bennett, William Brosius, Daniel L. Carr, Bruce Clark, Robert Evans, Lawrence Kinney and Henry Wren. 10.73@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and among TJX, Chadwick's and the Partnership. 10.74@@@@ Amendment Number One to the Asset Purchase Agreement made as of the 9th day of December, 1996 among TJX, Chadwick's and the Partnership. 10.75@@@@ Asset Purchase Agreement dated as of October 18, 1996 by and among CDM Corp. and the Partnership. 10.76@@@@ Services Agreement dated as of December 9, 1996 between TJX and the Partnership. 10.77@@@@@ Amendment to Services Agreement dated as of December 9, 1996 between TJX and the Partnership. 10.78@@@@ Inventory Purchase Agreement effective as of December 9, 1996 by xxx and between the Partnership and TJX. 10.79#####[X] Form of Employment Agreement dated as of April 1, 1998 between the Partnership and each of Dhananjaya K. Rao and Carol Meyrowitz. 10.80@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made as of December 9, 1996 by and between VP Holding and Dhananjaya K. Rao. 10.81@@@@[X] VP Holding Stock Subscription Agreement for Preferred Stock made as of December 9, 1996 by and between VP Holding and Carol Meyrowitz. 10.82@@@@[X] Form of Brylane Inc. Stock Subscription Agreement for Preferred Stock made as of December 9, 1996 by and between Brylane Inc. and each of Dhananjaya K. Rao and Carol Meyrowitz.
52
Exhibit Page Number Description Number ------- ----------- ------ 10.83@@@@ Brylane, L.P. Convertible Subordinated Note Due 2006 dated December 9, 1996 made by the Partnership in favor of Chadwick's (with Brylane Inc. and Brylane, L.P. Convertible Subordinated Note Due 2006 made by Brylane Inc. and the Partnership in favor of Chadwick's filed as an exhibit thereto). 10.84@@@@ Unit Subscription Agreement entered into as of December 5, 1996 by and among the Partnership, VP Holding, FSEP II, FSEP III, FSEP International, VGP, VLP, WearGuard, Leeway and NYNEX. 10.85@@@@ Accounts Receivable Purchase Agreement dated as of December 9, 1996 between the Partnership and Alliance Data Systems Corporation. 10.86@@@@@@@ Form of Repurchase Agreement entered into as of September 29, 1997 by and between the Company and each of FSEP II, FSEP III, FSEP International, M&P Distributing Company, WearGuard, TJX, Leeway & Co., NYNEX and William C. Johnson. 10.87### Stock Purchase Agreement among FSEP II, FSEP III, FSEP International and PPR dated as of February 19, 1998. 10.88### Stock Purchase Agreement among M&P Distributing Company and PPR dated as of February 19, 1998. 10.89#### Governance Agreement by and between the Company and PPR dated as of April 3, 1998. 10.90#### Registration Rights Agreement dated as of April 3, 1998 between the Company and PPR. 21.1##### Subsidiaries of Brylane Inc./Brylane, L.P. 23.1##### Consent of Coopers & Lybrand L.L.P. regarding Brylane Inc. 27.1##### Financial Data Schedule for fiscal year ended January 31, 1998. 27.2##### Restated Financial Data Schedule for quarter ended May 3, 1997. 27.3##### Restated Financial Data Schedule for quarter ended August 2, 1997. 27.4##### Restated Financial Data Schedule for quarter ended November 1, 1997.
_______________ + Filed as an exhibit to the Partnership's Registration Statement on Form S-4 (Registration No. 33-69532) on September 29, 1993 and incorporated by reference herein. ++ Filed as an exhibit to Amendment No. 1 to the Partnership's Registration Statement on Form S-4 (Registration No. 33-69532) on November 9, 1993 and incorporated by reference herein. +++ Filed as an exhibit to Amendment No. 2 to the Partnership's Registration Statement on Form S-4 (Registration No. 33-69532) on November 23, 1993 and incorporated by reference herein. * Filed on April 25, 1994 as an exhibit to the Partnership's Annual Report on Form 10-K for the fiscal year ended January 29, 1994 and incorporated by reference herein. ** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly Report on Form 10-Q for the quarterly period ended April 30, 1994 and incorporated by reference herein. *** Filed as an exhibit to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on November 9, 1994 and incorporated by reference herein. **** Filed as an exhibit to Amendment No. 1 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995 and incorporated by reference herein. @ Filed on December 12, 1995 as an exhibit to the Partnership's Quarterly Report on Form 10-Q for the quarterly period ended October 28, 1995 (the "1995 Third Quarter Form 10-Q") and incorporated by reference herein. 53 @@ Filed on December 30, 1995 as an exhibit to the Partnership's Amendment of Current Report on Form 8-K/A (File No. 33-69532) and incorporated by reference herein. @@@ Filed on May 3, 1996 as an exhibit to the Partnership's Annual Report on Form 10-K for the fiscal year ended February 3, 1996 ("1995 Form 10-K") and incorporated by reference herein. @@@@ Filed as an exhibit to Amendment No. 2 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996 and incorporated by reference herein. @@@@@ Filed as an exhibit to Amendment No. 3 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997 and incorporated by reference herein. @@@@@@ Filed as an exhibit to Amendment No. 4 to Brylane Inc.'s Registration Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997 and incorporated by reference herein. @@@@@@@ Filed as an exhibit to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 333-35715) on September 30, 1997 and incorporated by reference herein. @@@@@@@@ Filed as an exhibit to Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-35715 on October 14, 1997 and incorporated by reference herein. x Certain portions of this exhibit have been omitted from the copies incorporated by reference from the Partnership's 1995 Third Quarter Form 10-Q (as defined herein) and are the subject of an order granting confidential treatment with respect thereto. xx Certain portions of this exhibit have been omitted from the copies incorporated by reference from the Partnership's 1995 Form 10-K (as defined herein) and are the subject of an order granting confidential treatment with respect thereto. xxx Certain portions of this exhibit have been omitted from the copies filed as part of Amendment No. 2 to Brylane Inc.'s Registration Statement on Form S-1 and are the subject of a request for confidential treatment with respect thereto. # Filed on May 2, 1997 as an exhibit to the Company's Annual Report on 10-K for the fiscal year ended February 1, 1997 and incorporated by reference herein. ## Filed on June 17, 1997 as an exhibit to the Company's Quarterly Report on 10-Q for the quarterly period ended May 3, 1997 and incorporated by reference herein. ### Filed on March 4, 1998 as an exhibit to the Company's Current Report on Form 8-K and incorporated by reference herein. #### Filed on April 17, 1998 as an exhibit to the Company's Current Report on Form 8-K and incorporated by reference herein. ##### Filed herewith. [X] Management contract or executive compensation plan or arrangement. 54 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders Brylane Inc. We have audited the accompanying consolidated balance sheets of Brylane Inc. (the "Company"), including Brylane, L.P., a limited partnership, as of February 1, 1997 and January 31, 1998, and the related consolidated statements of income, cash flows and partnership/stockholders' equity of the Company for the years ended February 3, 1996, February 1, 1997, and January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements of the Company referred to above present fairly, in all material respects, the consolidated financial position of the Company as of February 1, 1997 and January 31, 1998, and the consolidated results of operations and cash flows for the years ended February 3, 1996, February 1, 1997, and January 31, 1998, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Indianapolis, Indiana March 27, 1998, except for Note 16, as to which the date is April 3, 1998 F-1 BRYLANE INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
FEBRUARY 1, JANUARY 31, 1997 1998 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents..................................................... $ 3,285 $ 5,083 Deferred receivables, net of allowance for doubtful accounts of $1,975 and $1,474, respectively.............................................. 18,082 8,194 Accounts receivable, other.................................................... 36,775 7,851 Inventories................................................................... 168,821 219,553 Paper inventory............................................................... 9,790 23,571 Catalog costs................................................................. 31,222 28,411 Other......................................................................... 6,252 6,426 --------- --------- TOTAL CURRENT ASSETS 274,227 299,089 Property and equipment, net..................................................... 75,970 77,095 Organization and deferred financing costs....................................... 11,114 4,832 Intangibles and other assets.................................................... 343,243 328,487 Deferred income taxes........................................................... -- 10,697 Deferred offering costs......................................................... 680 -- --------- --------- TOTAL ASSETS $ 705,234 $ 720,200 ========= ========= LIABILITIES AND EQUITY ---------------------- CURRENT LIABILITIES: Accounts payable.............................................................. $ 93,928 $ 139,480 Accrued interest.............................................................. 8,612 7,153 Accrued expenses.............................................................. 45,356 27,528 Income taxes payable.......................................................... -- 4,024 Reserve for returns........................................................... 18,603 17,844 Revolving line of credit-current portion...................................... -- 19,000 Current portion of long-term debt............................................. 26,000 10,000 --------- --------- TOTAL CURRENT LIABILITIES 192,499 225,029 Long-term debt.................................................................. 401,362 329,753 Other long-term liabilities..................................................... 6,010 9,010 --------- --------- TOTAL LIABILITIES 599,871 563,792 Convertible redeemable preferred stock.......................................... 1,500 1,370 Partnership/stockholders' equity: General partner of Brylane, L.P., 2,562,500 units............................. 25,625 -- Limited partners of Brylane, L.P., 12,908,945 units at February 1, 1997....... 159,855 -- Common stock, $.01 par value 40,000,000 shares authorized; 19,910,519 shares issued and 17,410,519 shares outstanding.............................. -- 199 Additional paid in capital.................................................... -- 303,260 Reduction for predecessor cost - carryover basis.............................. (152,067) (152,067) Loans to management investors................................................. (2,490) (1,025) Retained earnings............................................................. 72,940 119,671 Treasury stock, 2,500,000 shares at cost...................................... -- (115,000) --------- --------- Total partnership/stockholders' equity..................................... 103,863 155,038 --------- --------- TOTAL LIABILITIES AND EQUITY $ 705,234 $ 720,200 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-2 BRYLANE INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARES AND PER UNIT/SHARE DATA)
FISCAL YEAR ENDED ---------------------------------------- FEBRUARY 3, FEBRUARY 1, JANUARY 31, 1996 1997 1998 ----------- ------------ ----------- (53 WEEKS) 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. F-3 BRYLANE INC. CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) (IN THOUSANDS, EXCEPT SHARES AND PER UNIT/SHARE DATA)
FISCAL YEAR ENDED ---------------------------------------- FEBRUARY 3, FEBRUARY 1, JANUARY 31, 1996 1997 1998 ----------- ----------- ----------- (53 WEEKS) 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. F-4 BRYLANE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED ------------------------------------------ FEBRUARY 3, FEBRUARY 1, JANUARY 31, 1996 1997 1998 ------------ ------------ ------------ (53 WEEKS) OPERATING ACTIVITIES: Net income.............................................................................. $ 27,850 $ 26,952 $ 47,035 Impact of other operating activities on cash flows: Depreciation.......................................................................... 3,650 4,821 10,376 Non-recurring inventory charge........................................................ 569 1,657 3,315 Extraordinary charge related to early retirement of debt.............................. -- 2,456 6,524 Non-cash compensation expense......................................................... -- 2,400 700 Deferred income taxes................................................................. -- -- 8,168 Amortization: Intangibles and organization costs.................................................. 4,707 6,518 10,972 Deferred financing costs and discount on notes...................................... 1,566 1,700 1,190 Changes in operating assets and liabilities: Accounts receivable................................................................. (549) (15,137) 10,007 Inventories......................................................................... (4,019) (32,064) (54,047) Catalog costs and paper inventory................................................... (8,933) (2,492) (10,970) Accounts payable and accrued expenses............................................... 479 16,262 27,600 Accrued interest.................................................................... 831 2,246 (1,459) Income taxes payable................................................................ -- -- 4,024 Other assets and liabilities........................................................ 7,411 (2,296) 3,169 -------- --------- --------- Net cash provided by operating activities................................................ 33,562 13,023 66,604 -------- --------- --------- INVESTING ACTIVITIES: Purchase price adjustment related to Chadwick's acquisition............................. -- -- 32,888 Cash payment in connection with the Chadwick's Acquisition, net of cash acquired........ -- (222,951) -- Cash payments in connection with the KingSize Acquisition, net of cash acquired......... (51,975) -- -- Acquisition related fees and expenses paid at closing................................... (1,278) (6,215) -- Capital expenditures.................................................................... (7,290) (3,932) (12,740) -------- --------- --------- Net cash (used in) provided by investing activities....................................... (60,543) (233,098) 20,148 -------- --------- --------- FINANCING ACTIVITIES: Payments on bank credit facilities...................................................... (22,524) (107,476) (591,162) Proceeds from issuance of long-term debt................................................ 35,000 283,000 416,663 Proceeds from borrowing under revolver.................................................. -- 5,000 115,500 Equity contributions from partners...................................................... -- 51,329 -- Proceeds from issuance of preferred stock............................................... -- 1,500 -- Proceeds from initial public offering................................................... -- -- 96,000 Offering and debt issuance fees and expenses............................................ -- (7,685) (9,564) Tax distributions to partners........................................................... (6,562) (9,854) -- Purchase of treasury stock.............................................................. -- -- (115,000) Other................................................................................... 41 77 2,609 -------- --------- --------- Net cash provided by (used in) financing activities....................................... 5,955 215,891 (84,954) -------- --------- --------- Cash and cash equivalents, at beginning of year........................................... 28,495 7,469 3,285 -------- --------- --------- Cash and cash equivalents, at end of year................................................. $ 7,469 $ 3,285 $ 5,083 ======== ========= ========= Supplemental disclosure of cash flow information: The amounts of interest and income taxes paid during each of the periods presented were not material except as follows: Interest paid during the fiscal years ended........................................... $ 19,328 $ 20,581 $ 29,736 ======== ========= ========= Income taxes paid..................................................................... $ 14,505 ========= Supplemental disclosure of noncash financing activity: Purchase price for KingSize acquisition, net of acquisition costs....................... $ 57,750 Cash portion of purchase price.......................................................... 52,500 -------- Partnership units issued for purchase................................................... $ 5,250 ======== Purchase price for Chadwick's acquisition, net of acquisition costs (See note 3)........ $ 242,954 Cash portion of purchase price.......................................................... 222,954 --------- Convertible note........................................................................ $ 20,000 ========= Conversion of note into shares of common stock.......................................... $ 9,705 ========= Conversion of preferred stock to common stock........................................... $ 130 =========
The accompanying notes are an integral part of the consolidated financial statements. F-5 BRYLANE INC. CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
GENERAL PARTNER LIMITED PARTNERS COMMON STOCK ADDITIONAL --------------------------- --------------------- PAID IN UNITS AMOUNT SHARES AMOUNT CAPITAL ------------ ------------ ----------- -------- ------------ 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 ============ ============ =========== ======== ===========
REDUCTION FOR PREDECESSOR LOANS TO COST-CARRYOVER MANAGEMENT RETAINED BASIS INVESTORS EARNINGS TOTAL ---------------- -------------- --------------- ---------- 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. F-6 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) NATURE OF OPERATIONS: Brylane Inc., a Delaware corporation ("Brylane" or the "Company"), is a leading catalog retailer of special-size and regular-size women's and men's apparel. The women's catalogs market apparel in the budget and low to moderate price range and the men's catalogs market apparel in the moderate price range. Brylane services the special-size customer through its Lane Bryant, Roaman's, Jessica London and KingSize (men's) catalogs, and the regular-size customer through its Chadwick's, Lerner, Bridgewater and Brett (men's) catalogs. Brylane also markets apparel to these same customer segments through four catalogs which it distributes under licensing arrangements with Sears Shop at Home Services, Inc. ("Sears"). Brylane's merchandising strategy is to provide valued-priced, private label apparel with a consistent quality and fit, to concentrate on apparel with limited fashion risk and to offer a broader selection of sizes and styles in special-size apparel than can be found at most retail stores and in other competing catalogs. Each of Brylane's catalogs offers its customers contemporary, traditional and basic apparel. (2) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION: Brylane Acquisition In August 1993, certain affiliates of Freeman Spogli & Co. Incorporated ("FS&Co.") and of The Limited, Inc. ("The Limited") formed Brylane, L.P. (the "Partnership"), a Delaware limited partnership, and acquired the Lane Bryant, Roaman's and Lerner catalog businesses (the "Brylane Acquisition") formerly conducted by certain direct and indirect subsidiaries of The Limited ("Predecessor"). The aggregate purchase price was $335 million, and for accounting purposes, the transaction was accounted for on the effective date of August 1, 1993. In connection with the Brylane Acquisition, certain affiliates of FS&Co. and certain management investors contributed $75 million to the capital of Brylane for a 60% aggregate interest. Certain affiliates of The Limited contributed substantially all assets and liabilities of the catalog business to Brylane and received cash of $285 million and a 40% aggregate interest in Brylane with an assigned value of $50 million. The Brylane Acquisition has been accounted for utilizing the purchase method of accounting. The continuing interest of certain affiliates of The Limited in Brylane was reflected at The Limited's historical basis (carryover basis). For the proportionate interests of the affiliates of FS&Co. and members of management who invested in the transaction, the purchase price was allocated to the assets and liabilities of Brylane at their estimated fair values as determined based on management's estimates. Partners' capital and the basis of the transferred assets have been reduced for predecessor cost carryover basis. Initial Public Offering On February 26, 1997, in connection with the initial public offering of Brylane Inc. ("Initial Public Offering"), Brylane, L.P. became a wholly-owned subsidiary of Brylane Inc. pursuant to the First Amended and Restated Incorporation and Exchange Agreement (the "Exchange Agreement"), whereby certain affiliates of FS&Co., The Limited, M&P Distributing Company, WearGuard, Leeway & Co., and NYNEX exchanged their shares of common stock of VP Holding Corporation or ownership interests in the Partnership, except for the TJX noteholder ("TJX Noteholder"), for 14,926,778 shares of $.01 par value common stock ("Common Stock") of Brylane Inc. (the "Exchange Transaction"). Additionally, pursuant to their respective stock subscription agreements with VP Holding Corporation, members of management and others exchanged their shares of common stock of VP Holding Corporation for an aggregate of 544,667 shares of Common Stock of Brylane Inc. In connection with the Exchange Transaction, Brylane, L.P. retained all of its assets, operations and liabilities. Concurrently, Brylane Inc. offered 4,000,000 shares of Common Stock to the public through its Initial Public Offering. The historical financial statements presented herein for periods prior to February 26, 1997 are for F-7 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Brylane, L.P. This presentation is consistent with that of Brylane Inc.'s Form S-1 Registration Statement regarding the Initial Public Offering which contained the historical financial statements of Brylane, L.P. Basis of Financial Statement Presentation The consolidated financial statements include the accounts of VP Holding Corporation ("VPH"), VGP Corporation ("VGP"), VLP Corporation ("VLP"), Brylane L.P. and its wholly-owned subsidiaries and partnerships, including Brylane Capital Corp., B.L. Management Services, Inc., B.L. Catalog Distribution, Inc., B.L. Management Services Partnership, B.L. Catalog Distribution Partnership, B.N.Y. Services Corp., K.S. Management Services, Inc., C.O.B. Management Services, Inc. and Chadwick's Tradename Sub, Inc. These entities are collectively referred to as Brylane or the Company. Material transactions between the consolidated entities have been eliminated. Each of the wholly- owned subsidiaries and partnerships of Brylane, L.P. (collectively, the "Subsidiary Guarantors") has guaranteed the Partnership's Senior Subordinated Notes due 2003 (the "Notes"). Separate financial statements of these Subsidiary Guarantors have not been included as the subsidiaries guarantee the Notes on a full, unconditional, and joint and several basis. Management believes that the aggregate assets, liabilities, earnings, and equity of the Subsidiary Guarantors are currently inconsequential to Brylane on a consolidated basis, both individually and combined, and that information provided in separate financial statements of the Subsidiary Guarantors is not deemed material to the readers of the financial statements. Effective July 6, 1996, KingSize Catalog Sales, L.P., and KingSize Catalog Sales, Inc. were merged into Brylane. All of the assets and liabilities of these entities were transferred to Brylane, which continues to run the KingSize Big & Tall catalog business. (3) ACQUISITIONS: In October 1995, KingSize Catalog Sales, L.P., an Indiana limited partnership and an indirect wholly-owned entity of Brylane ("KingSize Partnership"), completed the acquisition of the assets of the KingSize division of WearGuard Corporation ("WearGuard"), a wholly-owned subsidiary of ARAMARK Corporation (the "KingSize Acquisition"). The business acquired is a catalog business devoted to big and tall men's apparel, footwear and related accessories. Brylane, L.P. paid to WearGuard $52.5 million in cash and issued to WearGuard 350,000 newly issued limited partnership units in Brylane, L.P. Brylane, L.P. financed the cash portion of the purchase price out of available funds as well as additional borrowings under its 1993 bank credit facility ("1993 Bank Credit Facility"). The Partnership acquired the inventory, contracts, customer lists, goodwill, accounts receivable and certain equipment relating to the operation of the business, assumed certain liabilities, and entered into a noncompetition agreement. For accounting purposes, the KingSize Acquisition was recorded using the purchase method of accounting as of the effective date of October 1, 1995. Brylane's financial statements include the results of KingSize on a consolidated basis from the effective date of the acquisition. The purchase price, including acquisition costs of $1.4 million, was allocated to the assets and liabilities of KingSize at their estimated fair values. The fair values of assets and liabilities were determined based on management's estimates. The allocation of the purchase price is as follows (in thousands): Current assets................. $10,737 Property and equipment......... 331 Intangibles and other assets... 51,903 Liabilities assumed............ (3,821) ------- $59,150 ======= In December 1996, Brylane, L.P. completed the acquisition of certain assets of the Chadwick's of Boston catalog division ("Chadwick's") of Chadwick's, Inc., a wholly-owned subsidiary of The TJX Companies ("TJX") (the "Chadwick's Acquisition"). Chadwick's is a catalog business devoted to selling off-price women's career, casual and social apparel. The Chadwick's Acquisition included the purchase of inventory, property, plant and F-8 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS equipment, customer lists, trademarks, goodwill and the assumption of certain liabilities relating to the business by the Partnership. In addition, the parties entered into a services agreement, as well as an inventory purchase agreement pursuant to which TJX has committed to purchase certain amounts of Chadwick's excess inventory through January 2000. Brylane, L.P. paid TJX $189.8 million (net of purchase price adjustments of $32.9 million) and issued to the TJX Noteholder a $20.0 million Convertible Redeemable Note due 2006 (approximately $9.7 million of which was converted by TJX into shares of Common Stock sold). To fund a portion of the cash paid in connection with the Chadwick's Acquisition and to repay its existing indebtedness under its 1993 Bank Credit Facility, the Partnership entered into the 1996 bank credit facility ("1996 Bank Credit Facility") and received aggregate new equity of $51.3 million from certain affiliates of FS&Co., Leeway & Co., NYNEX and WearGuard. For accounting purposes, the Chadwick's Acquisition has been recorded using the purchase method of accounting. Brylane's financial statements include the results of Chadwick's on a consolidated basis from the closing date of the acquisition. The purchase price, reflecting adjustments of $32.9 million and acquisition costs of $7.1 million, has been allocated to the assets and liabilities of Chadwick's at their estimated fair values. The fair values of assets and liabilities have been determined based on management's estimates. The allocation of the purchase price is as follows (in thousands): Current assets................. $ 89,990 Property and equipment......... 45,805 Intangibles and other assets... 179,734 Liabilities assumed............ (97,944) -------- $217,585 ======== The following unaudited pro forma results of operations for the year ended February 1, 1997 assumes that the Chadwick's Acquisition occurred as of February 4, 1996. In preparing the pro forma information, certain adjustments related to the Chadwick's Acquisition have been made for (i) the amortization of goodwill and other intangible assets created in the Chadwick's Acquisition; (ii) the interest expense on the net increase in indebtedness which was used to finance a portion of the purchase price; (iii) the sale of deferred billing receivables to Alliance Data Systems Corporation ("ADS"); (iv) the non-recurring charge related to the valuation of the acquired inventory; (v) the amortization of deferred financing fees related to the 1996 Bank Credit Facility and the write-off and reduction of amortization expense related to the repayment of the 1993 Bank Credit Facility; and (vi) the elimination of interest expense and federal and state taxes related to Chadwick's as a division of TJX. The pro forma information is provided for informational purposes only. It is based on historical information and does not purport to be indicative of the results that actually would have occurred had the Chadwick's Acquisition been made as of the indicated date or of results which may occur in the future (in thousands): UNAUDITED FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997 --------------- Net sales............. $1,167,527 Operating income...... 87,118 Net income............ 49,246 (4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and F-9 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fiscal Year Brylane's fiscal year ends on the Saturday closest to January 31 and consists of 52 or 53 weeks. Brylane's fiscal years ended February 1, 1997 and January 31,1998 consisted of 52 weeks, and the fiscal year ended February 3, 1996 consisted of 53 weeks. The fiscal year is designated in the notes to the financial statements by the calendar year in which the fiscal year commences. Cash Equivalents Brylane considers amounts on deposit with financial institutions and money market investments with initial maturities of three months or less to be cash equivalents. Accounts Receivable Brylane sells eligible accounts receivable generated through Chadwick's deferred billing programs to ADS (See note (14) "Related Party Transactions"). All sales are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" which was effective for transactions occurring after December 31, 1996. Costs associated with these transactions are included in operations. Deferred billing accounts receivable balances are net of allowance for doubtful accounts of $2.0 million and $1.5 million at February 1, 1997 and January 31, 1998, respectively. Inventories Merchandise inventories are stated at the lower of cost or market, principally valued on the average cost basis under a standard costing system or using the retail method of accounting, except for inventories attributable to the initial investment in KingSize and Chadwick's which were recorded at estimated fair value (unallocated costs). A non-recurring inventory charge representing the estimated fair value in excess of its original historical cost, as of the date of the KingSize Acquisition, was fully amortized in fiscal 1995 ($.6 million). A non-recurring inventory charge representing the estimated fair value, as of the date of the Chadwick's Acquisition, of inventory in excess of its original historical cost was amortized partly during fiscal year 1996 ($1.7 million) with the remainder being amortized during fiscal year 1997 ($3.3 million). Catalog Costs Catalog costs primarily consist of catalog production and mailing costs that have not yet been fully amortized. Catalog costs are amortized over the expected revenue stream, which is approximately three months from the date catalogs are mailed as determined based on management's estimates. Property and Equipment Additions to property and equipment are recorded at cost. Depreciation and amortization of property and equipment are computed for financial reporting purposes on a straight-line basis, using service lives ranging principally from 10-30 years for buildings and improvements, the lesser of 10 years or the life of the lease for leasehold improvements and 3-10 years for other property and equipment. The cost and related accumulated depreciation or amortization of assets sold or retired are removed from the accounts, with any resulting gain or loss included in net income. Repairs and maintenance are charged to expense as incurred; renewals and betterments which extend service lives are capitalized. The Company's policy is to expense as incurred internally developed software costs. F-10 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Organization and Deferred Financing Costs Organization costs of $.3 million relate to the formation of Brylane and its wholly-owned subsidiaries and partnerships. Such costs are amortized over five years using the straight-line method. Original deferred financing costs of $11.8 million incurred in connection with the Brylane Acquisition were capitalized and amortized over the term of the related debt using the effective interest method. In connection with the repayment of the 1993 Bank Credit Facility in December 1996, a pro rata portion of the deferred financing fees of $2.5 million associated with the obligations to be repaid were written off as a charge to operations. The remaining balance continues to be amortized over the remaining life of the related obligations. Deferred financing costs of $7.0 million incurred in connection with the 1996 Bank Credit Facility were capitalized and amortized over the term of the related debt using the effective interest method. In connection with the repayment of the 1996 Bank Credit Facility in April 1997, deferred financing fees of $4.1 million (net of related taxes) were written off as a charge to operations. Deferred financing costs of $1.2 million incurred in connection with the amended 1997 bank credit facility ("Amended 1997 Bank Credit Facility") were capitalized and are amortized over the term of the related debt using the effective interest method. Accumulated amortization of organization and deferred financing costs at February 1, 1997 and January 31, 1998 were $5.5 million and $6.1 million, respectively. Intangible Assets Intangible assets associated with the Brylane Acquisition include trademarks of $8.8 million, customer lists of $2.2 million and goodwill of $114.5 million. Subsequent to October 4, 1997 in connection with the repurchase of common stock, the amortization of the remaining trademark agreement of $7.6 million was accelerated to a ten-year period in accordance with the provisions of the trademark agreement. Such intangibles are amortized over a 30-year composite life using the straight-line method. Accumulated amortization of intangible assets was $14.6 million, and $18.9 million at February 1, 1997, and January 31, 1998, respectively. Intangible assets associated with the KingSize Acquisition include customer lists of $.5 million, a noncompetition agreement of $.3 million, and goodwill of $50.8 million. Amortization is computed using the straight-line method over a life of eight years for the customer lists, five years for the noncompetition agreement, and 40 years for goodwill. Accumulated amortization was $1.9 million and $3.3 million, at February 1, 1997, and January 31, 1998, respectively. Intangible assets associated with the Chadwick's Acquisition include customer lists of $4.0 million and goodwill of $175.7 million. Amortization is computed using the straight-line method over a life of five years for the customer lists and 40 years for goodwill. Accumulated amortization was $.9 million and $6.1 million at February 1, 1997 and January 31, 1998, respectively. Brylane's policy is to periodically review the value assigned to goodwill to determine if it has been permanently impaired by adverse conditions which might affect Brylane. Such reviews include an analysis of current results and take into consideration the discounted value of projected operating cash flow (earnings before interest, taxes and depreciation and amortization). Income Taxes Under the partnership form of doing business, the tax effects of profits and losses of the Partnership were incurred by the partners. Brylane made cash advances and annual distributions to partners in amounts sufficient for the partners to pay income taxes on their ratable share of taxable income. As a result, the provision for income taxes for the years ended February 3, 1996 and February 1, 1997 represents federal, state and local income taxes relating only to taxable income of the C-corporations included in the consolidated financial statements of Brylane, L.P. Subsequent to the Initial Public Offering on February 26, 1997, the tax status of the consolidated entity, Brylane Inc., was changed to that of a C- corporation. Brylane Inc. follows Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) which requires the Company to establish a deferred tax liability or asset for the future tax effects of temporary differences between book and taxable income. F-11 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Changes in future tax rates will result in immediate adjustments to deferred taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus the change during the period in deferred tax assets and liabilities. Revenue Recognition Sales are recorded at the time of shipment. Brylane provides a reserve for estimated merchandise returns, based on its prior customer returns experience. Net Income Per Share In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, Earnings per Share, which replaces the presentation of primary earnings per share ("EPS") with basic EPS and replaces fully diluted EPS with diluted EPS. Basic net income per share is based on the weighted average number of common shares outstanding during each period and diluted net income per share is based on the weighted average number of common shares and dilutive common share equivalents outstanding during each period. The Company's common share equivalents consist of shares of common stock issuable upon exercise of outstanding stock options, the conversion of preferred shares into common shares and the conversion of a convertible note into shares of common stock. Application of this standard resulted in a decrease in the weighted average number of shares outstanding for basic EPS due to the exclusion of the common stock equivalents identified above. The statement is effective for financial statements for both interim and annual periods ending after December 15, 1997, with earlier application not permitted. All periods presented reflect the adoption of SFAS No. 128. (See note (10) "Earnings Per Share"). Supplemental Net Income and Earnings per Share Supplemental net income of Brylane Inc. represents the results of operations adjusted to reflect a provision for income tax on historical income before income taxes, which gives effect to the change in the consolidated entities tax status to a C-corporation subsequent to the public sale of its Common Stock. The difference between the pro forma income tax rates utilized and the federal statutory rate of 35% relates primarily to state income taxes, net of federal tax benefit. Supplemental earnings per share of Brylane Inc. represents supplemental net income divided by the weighted average partnership units outstanding prior to the Initial Public Offering and the weighted average common stock and equivalent units outstanding thereafter. In accordance with Securities and Exchange commission rules, options granted in the one year prior to the filing of the registration statement related to the Initial Public Offering are included as outstanding for all periods presented using the treasury stock method assuming the offering price of $24 per share. Stock Option Plan In October 1995, the FASB issued SFAS No. 123, "Accounting for Awards of Stock-Based Compensation to Employees", which is effective for fiscal years beginning after December 15, 1995. SFAS No.123 provides alternative accounting treatment to Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", with respect to stock-based compensation and requires certain additional disclosures. Brylane adopted the disclosure requirements of SFAS No. 123 in the first quarter of 1996, but has elected to continue to measure compensation costs following present accounting rules under APB Opinion No. 25. (See note (8) "Stock Option Plans"). F-12 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reclassifications Certain reclassifications have been made to the previous years' financial statements to conform with the 1997 financial statement presentation. Such reclassifications had no effect on previously reported net income. (5) PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost. Property and equipment consist of (in thousands):
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 ======= =======
(6) LONG-TERM DEBT: To finance the Brylane Acquisition, Brylane secured financing through proceeds from the 1993 Bank Credit Facility and the sale of the Notes. In connection with the Chadwick's Acquisition, Brylane repaid the 1993 Bank Credit Facility and entered into a 1996 Bank Credit Facility. On April 30, 1997, Brylane entered into a 1997 bank credit facility which it amended on October 20, 1997, the Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit Facility and Notes are fully and unconditionally guaranteed, jointly and severally, by the Subsidiary Guarantors. Amounts outstanding under long-term debt agreements are as follows (in thousands):
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 ======== ========
F-13 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In addition to scheduled maturities on the Term Loan, Brylane is obligated to make certain mandatory prepayments of the loans and the Revolving Credit Facility under certain circumstances. Mandatory prepayment of the Term Loan is based on Brylane, L.P.'s excess cash flow, as defined. Mandatory prepayments, if any, are applied to reduce the principal amount of the Term Loan. At February 1, 1997, and January 31, 1998, interest terms available to Brylane for borrowings similar to the Term Loan and the Convertible Subordinated Note were similar to those presently provided under the Amended 1997 Bank Credit Facility and the Convertible Subordinated Note. Accordingly, the recorded obligations under the Term Loan and the Convertible Subordinated Note approximated the fair value at February 1, 1997 and January 31, 1998. Based on quoted market prices at February 1, 1997 and January 31, 1998 the fair market value of the Notes was approximately $130.3 million and $132.7 million, respectively. The change in fair market value is primarily attributable to changes in bond ratings and market interest rates. The 1996 Bank Credit Facility contained certain financial covenants which required Brylane to meet financial ratios and tests, including a minimum adjusted net worth test, a minimum fixed charge coverage ratio and a minimum cash flow to net debt ratio. In addition, the 1996 Bank Credit Facility contained covenants customarily found in credit agreements of such type including, among other things, limitations on indebtedness, liens, asset sales, distributions and other restricted payments, acquisitions, mergers, investments, capital expenditures and prepayment or amendment of certain indebtedness. At February 1, 1997, Brylane was in compliance with the required covenants. The Amended 1997 Bank Credit Facility contains certain financial covenants which require Brylane to meet financial ratios and tests, including a maximum debt to cash flow ratio, a minimum fixed charge coverage ratio, and a minimum net worth test. In addition, the Amended 1997 Bank Credit Facility contains covenants customarily found in credit agreements including, among other things, limitations on indebtedness, liens, Asset Sales (as defined), partnership distributions and other restricted payments, mergers and certain acquisitions, investments, transactions with affiliates, capital expenditures, the prepayment or amendment of certain indebtedness, the granting of certain negative pledges and the amendment of material agreements. At January 31, 1998, Brylane was in compliance with the required covenants. The obligations of Brylane under the Amended 1997 Bank Credit Facility are collateralized by the intangible assets of the Partnership. As of February 1, 1997, Brylane had no borrowings under the Revolving Credit Facility and as of January 31, 1998, Brylane had $49.0 million in borrowings under the Revolving Credit Facility. After giving effect to the issuance of letters of credit for $47.9 million and $49.1 million, respectively, Brylane had additional capacity under the Revolving Credit Facility of approximately $77.1 million and $101.9 million, respectively. As of February 1, 1997 and January 31, 1998, the aggregate principal balance outstanding under the Term Loans of the 1996 and Amended 1997 Bank Credit Facility was $283.0 million and $224.0 million, respectively. At January 31, 1998, annual maturities of long-term debt by fiscal year are as follows (in thousands): 1998........... $ 10,000 1999........... 20,000 2000........... 40,000 2001........... 70,000 2002........... 84,000 Thereafter..... 135,295 -------- Total debt..... $359,295 ======== F-14 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) OPERATING LEASES: Brylane leases office, outlet store and warehouse space and equipment under leasing arrangements classified as operating leases which expire at various times through fiscal 2012. Rent expense under these leases was $5.8 million, $6.6 million and $8.7 million in the fiscal years 1995, 1996, and 1997, respectively. Future minimum lease payments required under these leases at January 31, 1998, are as follows (in thousands): 1998......... $ 8,991 1999......... 8,033 2000......... 6,348 2001......... 4,849 2002......... 4,248 Thereafter... 20,244 ------- $52,713 ======= (8) STOCK OPTION PLANS: 1996 Performance Option Plan In connection with the Initial Public Offering, the Company adopted the Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option Plan"), which acts as the successor to the Partnership's 1993 Performance Partnership Unit Option Plan (as amended, the "1993 Option Plan") which was adopted in connection with the Brylane Acquisition. An aggregate of 779,584 shares of Common Stock have been reserved for issuance under the Brylane 1996 Performance Option Plan. In connection with the Chadwick's Acquisition, the Board of Representatives of the Partnership authorized an amendment to the existing option agreement that revised the performance criteria for the vesting of the options, and changed the outside vesting date of the options from August 30, 2008 to August 30, 2002 and reduced the term from 16 to 10 years. In addition, the exercise price of the options outstanding under the 1993 Option Plan was increased from $10.00 per partnership unit to $15.00 per partnership unit. In accordance with APB Opinion No. 25, the options were deemed to have a new measurement date. Based on the new measurement date, the Partnership incurred non-cash compensation expense of $2.4 million in the fourth quarter of 1996 and $0.7 million in fiscal 1997. Unless canceled due to termination of employment, all options became exercisable on January 31, 1998 and terminate 10 years from date of grant.
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 --
F-15 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1996 Option Plan In connection with the Initial Public Offering, the Company adopted the Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option Plan"), which acts as the successor of the Partnership's 1995 Partnership Unit Option Plan (as amended, the "1995 Option Plan") which was adopted in connection with the Brylane Acquisition. As amended, an aggregate of 1,700,000 shares of Common Stock have been reserved for issuance under the Brylane 1996 Option Plan. Other than as described below, unless canceled due to termination of employment, all options become exercisable in three equal annual installments on the first, second and third anniversaries of the date of original grant. In connection with the Chadwick's Acquisition, Chadwick's employees were granted substitute options in exchange for options previously granted by TJX. The term, exercise price and vesting criteria of the replacement options were determined to preserve the economic value of the options being exchanged. The granting of the options resulted in an adjustment to the Chadwick's Acquisition purchase price of $0.9 million for the related compensation expense. A summary of Brylane's 1996 Option Plan as of February 3, 1996, February 1, 1997 and January 31, 1998, and changes during the years ending on those dates is presented below:
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
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 EXERCISE PRICES JANUARY 31, 1998 LIFE EXERCISE PRICE - -------------------------- ------------------ ---------------------- ------------------ $ 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 =======
F-16 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPTIONS EXERCISABLE ------------------------------------------------------------------ NUMBER EXERCISABLE WEIGHTED-AVERAGE RANGE OF 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 its stock options. The pro forma disclosures provided above may not be representative of the effects on reported net income for future years. F-17 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK SUBSCRIPTION PLAN: In connection with the Initial Public Offering, the Company adopted the Brylane Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan") which is the successor of the Brylane, L.P. Subscription Plan, whereby officers, certain key employees and a member of the Board of Directors may purchase interests in Brylane Inc. The portion of the purchase price received in the form of promissory notes is recorded as a reduction of stockholders' equity. The price at which the units are purchased is set at fair value at the date of issuance. Activity under the Stock Subscription Plan for fiscal 1995, fiscal 1996 and fiscal 1997 follows:
AVERAGE NUMBER OF PRICE PER UNITS/SHARES 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 ======== =======
(10) EARNINGS PER SHARE: As discussed in Note (4) above, SFAS No. 128 replaces the presentation of primary and fully diluted earnings per share with basic and diluted earnings per share, and requires dual presentation of basic and diluted earnings per share on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per share computation to the numerator and denominator of the diluted earnings per share computation. All periods presented reflect the adoption of SFAS No. 128. The impact on amounts previously reported was not material. F-18 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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/shares from assumed exercise of options... 317,342 374,365 ---------- ---------- Total units/shares........................................... 14,389,835 19,412,973 ========== ========== Diluted EPS....................................................... $ 1.88 $ 2.46
(11) RETIREMENT PLAN: Effective August 30, 1993, Brylane adopted the Brylane, L.P. Savings and Retirement Plan (the "Retirement Plan"). All of the Company's employees who have attained twenty-one years of age and have completed one year of service are eligible to participate in the Retirement Plan. Eligible employees can contribute up to the lesser of $9,500 or ten percent of their compensation to the Retirement Plan on a pre-tax basis. Brylane will match up to three percent of the participants' eligible compensation. Brylane is required to make additional contributions to the Retirement Plan equal to four percent of each participant's compensation up to the Social Security taxable wage base and equal to seven percent of each participant's compensation which exceeds that amount. An additional one percent of eligible compensation is contributed on behalf of those participants who have completed at least five years of service. Brylane's contributions begin to vest after three years of service, at which time such contributions are 20% vested. Thereafter, the contributions vest at a rate of 20% each year so that Brylane's contributions are fully vested after seven years of service. Brylane's cost under these plans was $2.9 million, $3.6 million and $5.9 million in the fiscal years 1995, 1996, and 1997, respectively. As a result of the Chadwick's Acquisition, Brylane participates in a multi- employer plan that provides defined benefits to its union employees. Brylane's expense for this plan for the eight-weeks ended February 1, 1997 and the year ended January 31, 1998 amounted to $252,750 and $1.8 million, respectively. F-19 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. F-20 BRYLANE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) CONVERTIBLE REDEEMABLE PREFERRED STOCK: In connection with the Chadwick's Acquisition, certain members of Chadwick's management purchased 75,000 shares of VP Holding Corporation Series A Convertible Redeemable Preferred Stock for a purchase price of $1.5 million. These shares were converted to shares of Convertible Redeemable Preferred Stock of Brylane Inc. upon consummation of the Exchange Transaction. The shares of Brylane Inc. Series A Convertible Redeemable Preferred Stock vest in three equal annual installments beginning one year from the date of purchase and may not be transferred or redeemed at the option of the holder for three years from their date of purchase; thereafter, they may be transferred only after first offering such shares to Brylane Inc. The redemption price has been set at $20 per share (as appropriately adjusted for stock dividends, reclassifications or splits). One third of the Brylane Inc. Series A Convertible Redeemable Preferred Stock vested on December 9, 1997. Six thousand five hundred shares were converted to common stock. (14) RELATED PARTY TRANSACTIONS: On August 30, 1993 (amended July 1, 1995), Brylane entered into a Credit Card Agreement with World Financial Network National Bank ("World Financial") a wholly-owned subsidiary of ADS, a joint venture 60% owned by affiliates of Welsh Carson Anderson & Stowe and 40% owned by The Limited, Inc., pursuant to which World Financial provides credit to customers of Brylane, issues five proprietary credit cards and processes credit card transactions for a fee. The total expense amounted to $10.3 million, $10.0 million and $10.1 million in fiscal 1995, 1996, and 1997, respectively. In addition, Brylane sold accounts receivable to ADS and incurred discount and processing fees of $142,000 and $14.1 million in the fiscal years 1996 and 1997, respectively. Certain affiliates of The Limited granted Brylane the use of certain trademarks for a specified period, as defined in a trademark license agreement. In connection with the Chadwick's Acquisition, Brylane paid FS Management Co. and FS&Co. Management L.P., both of which are affiliated with FS&Co., an aggregate of $2.5 million in fees as compensation for services in structuring and arranging financing. Such fees are included in intangibles and other assets. (15) COMMITMENTS AND CONTINGENCIES: Brylane is involved in various legal proceedings that are incidental to the conduct of its business. Although the amount of any liability with respect to these proceedings cannot be determined, in the opinion of management after consultation with legal counsel, any such liability will not have a material adverse effect on the financial position or results of operations of Brylane. The Company is under audit by the Indiana Department of Revenue ("IDR") and anticipates an assessment will be issued. Based on discussions with the IDR, the Company currently projects that the assessment, adjusted for the federal tax benefit, will aggregate approximately $2.3 million including interest. The Company intends to vigorously contest this assessment, and believes it has made adequate provision such that final settlement of its Indiana tax liability for the years under audit will not have a material adverse effect on its consolidated financial statements. (16) SUBSEQUENT EVENT: On April 3, 1998, Brylane announced that Pinault-Printemps-Redoute, S.A. ("PPR"), of France, a leading retailer of consumer goods and distributor of electrical supplies, completed the purchase of approximately 43.7% of the Common Stock of Brylane for $51 per share from Freeman Spogli & Co. Incorporated and The Limited, Inc. as well as certain other shareholders, including certain members of management. PPR, listed on the Paris Bourse, is the parent company of La Redoute, the largest catalog retailer in France. F-21 EX-10.8 2 AMENDMENT TO TRADEMARK LICENSE AGREEMENT EXHIBIT 10.8 AMENDMENT TO TRADEMARK LICENSE AGREEMENT ---------------------------------------- THIS AMENDMENT NO. 2 (the "Amendment") is made and entered into as of this 18th day of February, 1998, by and between Lanco, Inc., a Delaware corporation ("Lanco"), Lernco, Inc., a Delaware corporation ("Lernco"), Limited Stores, Inc., a Delaware corporation ("Limited Stores"), Lane Bryant, Inc., a Delaware corporation ("Lane Bryant"), Lerner Stores, Inc., a Delaware corporation ("Lerner Stores"), Lane Bryant Direct Holding, Inc., a Delaware corporation ("LBDH") (as successor corporation to Lane Bryant Direct, Inc., and Lerner Direct Inc.) (the above all collectively referred to as "Licensor"), and Brylane, L.P., a Delaware Limited Partnership ("Brylane") ("Licensee"). WHEREAS, on August 20, 1993, certain of the parties hereto entered into a Trademark License Agreement providing for (i) the licensing of certain trademarks by Lanco, Lernco, Limited Stores and Lane Bryant to LBDH pursuant to the terms and subject to the conditions set forth in the Agreement and (ii) the assignment by LBDH of the Agreement and the licenses therewith to Brylane; and WHEREAS, on December 9, 1996, the parties entered into Amendment No. 1 to Trademark License Agreement (as so amended, the "Agreement"); and WHEREAS, Pinault Printemps-Redoute, S.A. ("PPR") has entered into a Stock Purchase Agreement with Licensee (the "Investment"). WHEREAS, the parties hereto desire to amend the Agreement on the terms hereinafter set forth and to include in the Agreement all of the provisions of this Amendment including the foregoing recitals; NOW THEREFORE, in consideration of the material agreements hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Section 1 of the Agreement shall be amended to include the following subsection. Section 1(c). Additional Categories The scope of the Agreement shall --------------------- include mens' wear, intimate apparel and shoes (the "Additional Categories"), as follows: (i) Licensor acknowledges that, prior to the Amendment of the Agreement, Licensee has used the Marks in connection with the Additional Categories through Catalogues and on Advertising Materials (the "Additional Use"). Licensor hereby expressly waives any claims it may have against Licensee which arise by virtue of any use by Licensee, prior to this Amendment of the Agreement, of the Marks in connection with the sale of products in the Additional Categories. This waiver does not constitute an admission by Brylane that any breach of the Trademark License Agreement has occurred. (ii) Licensor hereby expressly grants to Licensee the right to continue to use the Marks in connection with the Additional Categories through Catalogues and on Advertising Materials in a manner substantially identical to Licensee's use of the Marks, prior to the Amendment of the Agreement, through Licensee's Fall 1998 media buying period, such period to terminate no later than March 31, 1999 (the "Additional Period") except that Licensee's use in connection with intimate apparel and shoes may continue following the expiration of the Additional Period for the Mark "Lerner" and for the Mark "Lane Bryant" (provided the Lane Bryant Mark was used for such products prior to August 20, 1993). 2. Section 2.7 of the Agreement shall be amended to include the following subsection: Section 2.7.7 Licensor acknowledges that Licensee may use the Marks with other trademarks of Licensee for the purpose of the transition from use of the Marks in connection with Apparel and the Additional Categories, provided that Licensee obtains the prior consent of Licensor to any such use, which consent shall not be unreasonably withheld. Licensee acknowledges that Licensor's consent will be withheld if usage of the Marks would, in the opinion of Licensor, create any confusion among consumers with respect to Licensor's retail stores or disparage or adversely impacts the goodwill associated with the Marks. 3. Section 6 of the Agreement shall be amended to add the following subsection: Section 6.2. Non-Competition For the purpose of Section 6.1, PPR's --------------- business as presently conducted is not competitive with The Limited or any of its Affiliates. Accordingly, it is specifically agreed by the parties hereto that PPR's Investment in Licensee will not trigger an early termination of the Agreement. The substance of the immediately preceding sentence, however, shall not limit or waive any of The Limited's rights to early termination pursuant to the Agreement in the event that subsequent to the effective date of this Amendment, PPR's business activities compete with any retail or catalog business conducted by The Limited or any of its Affiliates as of January 20, 1993. 2 The parties hereto have caused this Amendment to be executed on the day and year first above written. LANCO, INC. LERNCO, INC. LIMITED STORES, INC. LANE BRYANT, INC. LERNER STORES, INC. LANE BRYANT DIRECT HOLDING, INC. By: /s/ Timothy B. Lyons ------------------------------ Name: Timothy B. Lyons Title: Vice President BRYLANE, L.P. By: /s/ Robert A. Pulciani ----------------------------- Name: Robert A. Pulciani Title: Executive Vice President, Chief Financial Officer, Secretary and Treasurer Acknowledged and accepted as those portions of this Amendment granting rights to, or imposing obligations on The Limited, Inc. THE LIMITED, INC. By: Timothy B. Lyons -------------------- Name: Timothy B. Lyons Title: Vice President 3 EX-10.21 3 SECOND AMENDMENT TO THE CREDIT AGREEMENT EXHIBIT 10.21 SECOND AMENDMENT dated as of March 10, 1998, to the Amended and Restated Credit Agreement dated as of April 30, 1997, as amended and restated as of October 20, 1997, and as subsequently amended (the "Credit Agreement"), among BRYLANE, L.P. (the "Borrower"), the LENDERS party thereto (the "Lenders"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent for the Lenders (in such capacity, the "Agent"), and MERRILL LYNCH CAPITAL CORPORATION, as Documentation Agent. A. The Borrower, the Lenders and the Agent have heretofore entered into the Credit Agreement. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement. B. The Borrower wishes, and the undersigned Lenders and the Agent are willing, upon the terms and subject to the conditions set forth herein, to amend the definition of "Initial Control Group" in, and add certain other definitions to, the Credit Agreement so that the sale by FS&Co. and its affiliates and The Limited and its subsidiaries of their ownership interests in the Parent Corporation to Pinault Printemps-Redoute, S.A. (or one or more of its direct or indirect majority-owned subsidiaries or affiliates) will not constitute a Change of Control. Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the Borrower, the Lenders and the Agent hereby agree as follows: SECTION 1. Amendment of the Credit Agreement. (a) Section 1.01 of the --------------------------------- Credit Agreement is hereby amended as of the Amendment Effective Date (as defined below) by (i) deleting the existing definition of "Initial Control Group" and (ii) inserting in the appropriate alphabetical locations the following new definitions: (A) "Initial Control Group" means (a) prior to the Purchase, (i) FS&Co. and its affiliates and (ii) The Limited and its subsidiaries and (b) after the Purchase, PPR and its affiliates and subsidiaries; provided that the -------- Borrower and its Subsidiaries shall not be considered to be affiliates of FS&Co. or PPR or subsidiaries of The Limited or PPR for purposes of identifying the "Initial Control Group". (B) "PPR" means Pinault Printemps-Redoute, S.A., a French corporation. (C) "Purchase" means the purchase by PPR (or one or more of its direct or indirect majority-owned subsidiaries or affiliates) of the equity interests of FS&Co. and The Limited in the Parent Corporation. (b) Section 9.01 of the Credit Agreement is hereby amended as of the Amendment Effective Date by inserting the words "prior to the Purchase," immediately following the parenthetical in the fifth line thereof. SECTION 2. Representations and Warranties. The Borrower hereby represents ------------------------------ and warrants on and as of the Amendment Effective Date that (i) the representations and warranties of the Borrower set forth in the Loan Documents are true and correct in all material respects and (ii) no Default has occurred and is continuing. SECTION 3. Effectiveness. This Second Amendment shall become effective on ------------- the date (the "Amendment Effective Date") of receipt by the Agent (or its counsel) of counterparts hereof signed by the Borrower and the Required Lenders or, in the case of any such party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party. SECTION 4. Expenses. The Borrower shall pay all reasonable out-of-pocket -------- expenses of the Agent, including the reasonable fees and disbursements of Cravath, Swaine & Moore, special counsel for the Agent, in connection with the preparation of this Second Amendment. SECTION 5. NEW YORK LAW. THIS SECOND AMENDMENT SHALL BE CONSTRUED IN ------------ ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. SECTION 6. Counterparts. This Second Amendment may be signed in any number ------------ of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. SECTION 7. Headings. The headings of this Second Amendment are for -------- convenience of reference only and are not part of this Second Amendment and are not to be taken into consideration in interpreting this Second Amendment. SECTION 8. Effect of Amendment. Unless and until this Second Amendment ------------------- becomes effective, the Credit Agreement shall continue in effect on the terms thereof in effect on the date hereof. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed by their respective authorized officers as of the day and year first above written. BRYLANE, L.P., by BRYLANE INC., General Partner, by ------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent, by -------------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, by -------------------------------------- Title: 2 MERRILL LYNCH CAPITAL CORPORATION, by ------------------------------------------- Title: BANKBOSTON, N.A., by ------------------------------------------- Title: FLEET NATIONAL BANK, by ------------------------------------------- Title: WELLS FARGO BANK, N.A., by ------------------------------------------- Title: THE FUJI BANK, LIMITED, by ------------------------------------------- Title: THE LONG-TERM CREDIT BANK OF JAPAN, LTD., by ------------------------------------------- Title: ROYAL BANK OF CANADA, by ------------------------------------------- Title: 3 UNION BANK OF CALIFORNIA, N.A., by ------------------------------------------- Title: CORESTATES BANK, N.A., by ------------------------------------------- Title: CREDIT AGRICOLE INDOSUEZ, by --------------------------- Title: NATIONAL CITY BANK OF INDIANA, by --------------------------- Title: THE SUMITOMO BANK, LTD., by --------------------------- Title: by --------------------------- Title: ARAB BANKING CORPORATION, by --------------------------- Title: AMSOUTH BANK OF ALABAMA, by --------------------------- Title: 4 THE BANK OF NEW YORK, by ------------------------------ Title: BANK LEUMI TRUST COMPANY OF NEW YORK, by --------------------------- Title: by --------------------------- Title: CREDIT LYONNAIS, by ------------------------------ THE FIRST NATIONAL BANK OF CHICAGO, by ------------------------------ Title: BANQUE PARIBAS, by ------------------------------ Title: by ------------------------------ Title: VAN KAMPEN AMERICAN, by ------------------------------ Title: 5 EX-10.51 4 BRYLANE INC. 1998 PREFORMANCE STOCK OPTION PLAN EXHIBIT 10.51 BRYLANE INC. 1998 PERFORMANCE STOCK OPTION PLAN Section 1. Description of Plan. This is the 1998 Performance Stock ------------------- Option Plan, dated April 21, 1998 (the "Plan"), of Brylane Inc., a Delaware corporation (the "Company"). Under this Plan, officers, key employees and consultants of the Company or any of its subsidiaries and members of the Board of Directors of the Company, to be selected as set forth below, may be granted options ("Options") to purchase shares of the common stock of the Company ("Common Stock"). For purposes of this Plan, the term "subsidiary" means any directly or indirectly majority or wholly owned entity of the Company (individually, a "Subsidiary" and collectively, the "Subsidiaries"). It is intended that the Options under this Plan will either qualify for treatment as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and be designated "Incentive Stock Options" or not qualify for such treatment and be designated "Nonqualified Stock Options." Incentive Stock Options may only be granted to employees. Section 2. Purpose of Plan. The purpose of the Plan and of granting --------------- Options to specified persons is to promote the growth, development and financial success of the Company and its Subsidiaries by providing additional incentives to certain officers, key employees, consultants and members of the Board of Directors (or equivalent bodies) of the Company and its Subsidiaries which will be realized by such persons if the Company achieves targeted performance goals as specified in particular option grants. By linking such Options to the Company's financial performance, the Company can provide the means for such persons to benefit directly from the Company's and its Subsidiaries' growth, development and financial success. In furtherance of such purposes, Options granted under the Plan shall be subject to performance criteria established as provided herein (and may also be subject to time vesting). Section 3. Eligibility. The persons who shall be eligible to receive ----------- grants of Options under the Plan shall be (a) the officers, key employees and consultants of the Company and the Subsidiaries and (b) members of the Board of Directors (or equivalent bodies) of the Company and its Subsidiaries. A person who holds an Option is herein referred to as a "Participant," and more than one Option may be granted to any Participant. The aggregate fair market value (determined as of the time an Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant in any calendar year under this Plan and any other incentive stock option plans (which qualify under Section 422 of the Code) of the Company or any Subsidiary shall not exceed $100,000. Section 4. Administration. -------------- (a) The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee") to be composed of not less than two members of the Board. Members of the Committee shall be appointed, both initially and as vacancies occur, by the Board, to serve at the pleasure of the Board. A majority of its members shall constitute a quorum, and the decision of a majority of those present at any meeting at which a quorum is present shall constitute the decision of the Committee. A memorandum signed by all of its members shall constitute the decision of the Committee without necessity, in such event, for holding an actual meeting. (b) The Committee is authorized and empowered to administer the Plan and, subject to the Plan, (i) to select the Participants, to determine the number of shares of Common Stock that are subject to each Option, to grant Options, and to extend the time period during which an Option may be exercised; (ii) to determine the dates upon which Options shall be granted and the terms and conditions thereof (including the performance criteria and any related matters), which terms and conditions need not be identical as to the various Options granted; (iii) to determine which Options are to be Incentive Stock Options and which Options are to be Nonqualified Stock Options; (iv) to interpret the Plan; (v) to prescribe, amend and rescind rules relating to the Plan; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to determine the rights and obligations of Participants under the Plan; (viii) to specify the exercise price to be paid by Participants upon exercise of an Option; (ix) to accelerate the time during which an Option may be exercised in accordance with the provisions of Section 16 hereof, and to otherwise accelerate the time during which an Option may be exercised (but not reduce the time of exercise for Options which have vested), in each case notwithstanding the provisions in the Option Agreement (as defined in Section 13) stating the time during which it may be exercised; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. The interpretation and construction by the Committee of any provision of the Plan or of any Option granted under it shall be final, conclusive and binding. No member of the Committee shall be liable for any action or determination made with respect to the Plan or any Option granted hereunder. Section 5. Shares Subject to Plan. The aggregate amount of shares of ---------------------- Common Stock for which Options may be granted pursuant to the Plan shall be 900,000 subject to adjustment as provided in Section 11 hereof. The maximum number of shares that may be granted to a single Participant is 500,000. The number of shares of Common Stock which may be purchased by a Participant upon exercise of each Option shall be determined by the Committee and set forth in each Option Agreement. Upon the expiration or termination, in whole or in part, for any reason of an outstanding Option or any portion thereof which shall not have vested or shall not have been exercised in full or in the event that any shares of Common Stock acquired pursuant to the Plan are reacquired by the Company, (a) any shares of Common Stock which have not been purchased or (b) the shares of Common Stock reacquired, as the case may be, shall again become available for the granting of additional Options under the Plan. Notwithstanding the preceding sentence, shares subject to a terminated option shall continue to be considered to be outstanding for purposes of determining the maximum number of shares that may be issued to a single Participant. Similarly, the repricing of an Option will be considered the grant of a new Option for this purpose. Section 6. Option Price. Except as provided in Section 11 or Section ------------ 12 hereof, the purchase price per share (the "Option Price") of the shares of Common Stock underlying each Option shall not be less than 100 percent of the fair market value of such shares on the date of grant of Option; provided, however, that if the Participant is a 10-percent stockholder of the Company (as defined in Code Section 422(b)(6)) immediately before such Participant is granted an Incentive Stock Option, the Option Price shall be not less than 110 percent of said fair market value. Such fair market value shall be determined by the Committee (a) if the Company's securities are traded on a national securities exchange or on the National Association of Securities Dealers Automated Quotation System (or a similar successor system), on the basis of the reported closing sales price on such date or, in the absence of a reported sales price on such date, on the basis of the average of the reported closing bid and asked price on such date, or (b) in the absence of both a reported sales price and a reported bid and asked price under clause (a), the Committee shall determine such fair market value on the basis of such evidence as it deems appropriate in its sole discretion. Section 7. Terms and Restrictions on Grants of Options. ------------------------------------------- Notwithstanding any other provisions set forth herein or in any Option Agreement, no Options may be granted under the Plan subsequent to 10 years from the date hereof. The vesting of all Options may be based on the Company's attaining of performance criteria as specified at the time of the granting thereof and may also be based on the passage of time. The Committee shall determine the performance criteria (which may be based, without limitation, on financial performance criteria established for the Company, the stock prices of the Company's publicly traded securities, or other factors determined by the Committee), the performance measurement period and the vesting schedule applicable to each Option or group of Options in a schedule, a copy of which shall be filed with the records of the Committee and attached to each Option Agreement to which the same applies. The performance 2 criteria, the performance measurement period and the vesting schedule need not be identical for all Options granted hereunder. Following the conclusion of each applicable performance measurement period, the Committee shall determine the extent, if at all, to which each Option subject thereto shall have vested based upon the applicable performance criteria and vesting schedule. To the extent each such Option shall not have vested, and does not also vest based on the passage of time, it shall, automatically terminate and cease to be exercisable to such extent, notwithstanding the stated term during which it may be exercised. The Committee shall promptly notify each affected Participant of such determination. The Committee may periodically review the performance criteria applicable to any Option or Options and, in its sole judgment, may adjust the same to reflect unanticipated major events, including but not limited to catastrophic occurrences, mergers and acquisitions. Section 8. Exercise of Options. Once vested, and prior to its ------------------- termination date, an Option may be exercised by the Participant by giving written notice to the Company specifying the number of shares of Common Stock to be purchased and accompanied by payment of the full purchase price therefor in cash, by check or in such other form of lawful consideration as the Committee may approve from time to time, including without limitation and in the sole discretion of the Committee, the assignment and transfer by the Participant to the Company of outstanding shares of Common Stock theretofore held by the Participant in a manner intended to comply with the provisions of Rule l6b-3 under the Exchange Act, if applicable. After giving due considerations of the consequences under Section 16 of the Exchange Act and under the Code, the Committee may also authorize the exercise of Options by the delivery to the Company or its designated agent of an irrevocable written notice of exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares of Common Stock and to deliver the sale or margin loan proceeds directly to the Company to pay the exercise price of the Option. Once vested, and prior to its termination date, an Option may only be exercised by the Participant or in the event of death of the Participant, by the person or persons (including the deceased Participant's estate) to whom the deceased Participant's rights under such Option shall have passed by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event of disability (within the meaning of Section 22(e)(3) of the Code) of a Participant, a designee of the Participant (or the legal representative of the Participant if the Participant has no designee) may exercise the Option on behalf of such Participant (provided such Option would have been exercisable by such Participant) until the right to exercise such Option expires, as set forth in such Participant's particular Option Agreement or this Plan. Section 9. Issuance of Common Stock. The Company's obligation to ------------------------ issue its shares of Common Stock upon exercise of an Option is expressly conditioned upon the compliance by the Company with any registration or other qualification obligations with respect to such shares of Common Stock under any state and/or federal law or rulings and regulations of any government regulatory body and/or the making of such investment representations or other representations and undertakings by the Participant (or the Participant's designee, legal representative, heir or legatee, as the case may be) in order to comply with the requirements of any exemption from any such registration or other qualification obligations with respect to such shares of Common Stock which the Company in its sole discretion shall deem necessary or advisable. Such required representations and undertakings may include representations and agreements that such Participant (or the Participant's designee, legal representative, heir or legatee): (a) is purchasing such shares of Common Stock for investment and not with any present intention of selling or otherwise disposing of such shares of Common Stock; and (b) agrees to have a legend placed upon the face and reverse of any certificates evidencing such shares of Common Stock (or, if applicable, an appropriate data entry made in the ownership records of the Company) setting forth (i) any representations and undertakings which such Participant has given to the Company or a reference thereto, and (ii) that, prior to effecting any sale or other disposition of any such shares of Common Stock, the Participant must furnish to the Company an opinion of counsel, satisfactory to the Company and its counsel, to the effect that such sale or disposition will not violate the applicable requirements of state and federal laws and regulatory agencies; provided, however, that any such legend or data entry shall be removed when no longer applicable without the necessity of an opinion of counsel. Inability of the Company to obtain, from any regulatory body having jurisdiction, authority deemed by the Company's counsel to be 3 necessary for the lawful issuance and sale of any shares of Common Stock hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares of Common Stock as to which such requisite authority shall not have been obtained. Any shares of Common Stock issued by the Company upon exercise of an Option granted hereunder may be subject to a right of first refusal of the Company with respect to all shares of Common Stock proposed to be transferred by Participant, as described in Section 13 hereof and certain other restrictions set forth in each particular Option Agreement. Section 10. Nontransferability. An Option may not be sold, pledged, ------------------ assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. Any permitted transferee shall be required prior to any transfer of an Option or shares of Common Stock acquired pursuant to the exercise of an Option to execute a written undertaking to be bound by the provisions of the applicable Option Agreement. Section 11. Recapitalization, Reorganization; Merger or Consolidation. --------------------------------------------------------- (a) Subject to Section 11(b) hereof, if the outstanding shares of Common Stock of the Company are exchanged for different securities of the Company through a reorganization, recapitalization or reclassification or if the number of outstanding shares is changed through a stock split or stock dividend, an appropriate adjustment shall be made (i) in the number or kind of shares which may be purchased pursuant to the exercise of Options, as provided in Section 5 hereof, and (ii) in the number, exercise price, or kind of securities subject to any outstanding Option granted under the Plan. Any such adjustment in an outstanding Option, however, shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share covered by the Option. In making such adjustments, or in determining that no such adjustments are necessary, the Committee may rely upon the advice of counsel and accountants to the Company, and the determination of the Committee shall be final, conclusive and binding. No fractional shares of stock shall be issued or issuable under the Plan on account of any such adjustment. (b) Subject to Section 16 hereof (i) upon the dissolution, liquidation or sale of all or substantially all of the business, properties and assets of the Company, (ii) upon any reorganization, merger, consolidation or exchange of securities in which the Company does not survive or (iii) upon any reorganization, merger, consolidation or exchange of securities in which the Company does survive and any of the Company's stockholders have the opportunity to receive cash, securities and/or other property in exchange for their shares of Common Stock of the Company (each of the events described in clauses (i), (ii) or (iii) is referred to herein as an "Extraordinary Event"), the Plan and each outstanding Option shall terminate. In such event, each Participant who is not tendered an option by the surviving entity in accordance with all of the terms of the immediately succeeding sentence, or who does not accept any such substituted option which is so tendered, shall have the right until 10 days before the effective date of such Extraordinary Event to exercise, in whole or in part, any unexpired Option or Options issued to the Participant, to the extent that said Option is then vested and exercisable pursuant to the provisions of said Option or Options and of Section 7 of the Plan. The Company shall request that the surviving entity in any Extraordinary Event to tender to any Participant an option or options to purchase other securities of the surviving entity on the same basis as any Participant may purchase shares of Common Stock hereunder and under the applicable Option Agreement (including satisfaction of similar vesting provisions). The Company shall request that such new option or options contain such terms and provisions as shall substantially preserve the rights and benefits of any Option then outstanding under the Plan with any changes to take into account the circumstances of the surviving entity. (c) The grant of an Option under the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structures or to merge, consolidate, dissolve, or liquidate or to sell or transfer all or any part of its business or assets. 4 Section 12. Substitute Options. If the Company at any time should ------------------ succeed to the business of another entity through a merger, consolidation, corporate reorganization or exchange, or through the acquisition of stock or assets of such entity or its subsidiaries or otherwise, Options may be granted under the Plan to option holders of such entity or its subsidiaries, in substitution for options to purchase interests in such entity held by them at the time of succession. The Committee, in its sole and absolute discretion, shall determine the extent to which such substitute Options shall be granted (if at all), the person or persons to receive such substitute Options (who need not be all option holders of such entity), the number of Options to be received by each such person, the Option Price of such Option (which may be determined without regard to Section 6 hereof) and the terms and conditions of such substitute Options; provided, however, that the Option Price of each such substituted Option which is an Incentive Stock Option shall be an amount such that, in the sole and absolute judgment of the Committee (and in compliance with Section 424(a) of the Code), the economic benefit provided by such Option is not greater than the economic benefit represented by the option in the acquired entity as of the date of the Company's acquisition of such entity. Section 13. Option Agreement. Each Option granted under the Plan ---------------- shall be evidenced by a written option agreement (an "Option Agreement") executed by the Company and the Participant which (a) shall contain each of the provisions and agreements herein specifically required to be contained therein; (b) shall indicate whether such Option is to be an Incentive Stock Option or a Nonqualified Stock Option, and if an Incentive Stock Option shall contain terms and conditions permitting such Option to qualify for treatment as an incentive stock option under Section 422 of the Code; (c) may contain provisions which give the Company a right of first refusal to purchase any shares of Common Stock issued pursuant to the exercise of Options granted under the Plan which a Participant proposes to sell and (d) may contain such other terms and conditions as the Committee deems desirable and which are not inconsistent with the Plan. Section 14. Rights as a Stockholder. No Participant (or any legal ----------------------- representative, heir or legatee) shall have any rights as a stockholder with respect to any shares covered by any Option until the date of the issuance of a stock certificate to such person upon the due exercise of such Option. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 11 hereof. Section 15. Termination of Options. Each Option granted under the ---------------------- Plan shall set forth a termination date thereof, in addition to any other termination events set forth in the Plan and in each particular Option Agreement, which, with respect to Nonqualified Stock Options, shall be no later than ten years from the date such Option is granted and with respect to Incentive Stock Options, shall be no later than ten years from the date such Option is granted, unless the Participant is a 10-percent stockholder of the Company (as described in Section 422(b)(6) of the Code) immediately before such Option is granted, in which case the Option shall terminate no later than five years from the date of the grant thereof. An Incentive Stock Option shall contain any termination events required by Section 422 of the Code. Section 16. Acceleration of Options. Notwithstanding the provisions ----------------------- of Section 7 or Section 15 hereof, or any provision to the contrary contained in a particular Option Agreement, the Committee, in its sole discretion, at any time, or from time to time, may elect to accelerate the vesting of all or any portion of any Option then outstanding. The decision by the Committee to accelerate an Option or to decline to accelerate an Option shall be final, conclusive and binding. In the event of the acceleration of the exercisability of Options as the result of a decision by the Committee pursuant to this Section 16, each outstanding Option so accelerated shall be exercisable for a period of at least five days from and after the date of such acceleration and upon such other terms and conditions as the Committee may determine in its sole discretion; provided, that such terms and conditions (other than terms and -------- conditions relating solely to the acceleration of exercisability and the related termination of an Option) may not adversely affect the rights of any Participant without the consent of the Participant so adversely affected. Any outstanding Option which has not been exercised by the holder at the end of such period shall again become subject to the terms and conditions in effect prior to the acceleration. 5 Section 17. Withholding of Taxes. The Company, or a Subsidiary, as -------------------- the case may be, may deduct and withhold from the wages, salary, bonus and other income paid by the Company (or such Subsidiary) to the Participant the requisite tax upon the amount of taxable income, if any, recognized by the Participant in connection with the exercise in whole or in part of any Option, or the sale of shares of Common Stock issued to the Participant upon the exercise of an Option, as may be required from time to time under any federal or state tax laws and regulations. This withholding of tax shall be made from the Company's (or such Subsidiary's) concurrent or next payment of wages, salary, bonus or other income to the Participant or by payment to the Company (or such Subsidiary) by the Participant of the acquired withholding tax, as the Committee may determine; provided, however, that, in the sole discretion of the Committee, the Participant may pay such tax by reducing the number of shares of Common Stock issued upon exercise of an Option or by surrendering shares previously acquired by the Participant (for which purpose such shares of Common Stock shall be valued at fair market value as determined by the Committee, which determination shall be final, conclusive and binding). Section 18. Effectiveness and Termination of the Plan. The Plan shall ----------------------------------------- become effective on April 21, 1998, subject to stockholder approval. All Options granted prior to stockholder approval shall state that such grant is subject to and the exercisability of such Options is contingent upon stockholder approval. If the Plan is not approved by the stockholders, the Plan and any Options granted thereunder shall terminate. The Plan shall terminate, in addition to the other termination events set forth in the Plan, at the earliest of ten years and the time when all shares of Common Stock which may be issued hereunder have been so issued; provided, however, that the Board may in its sole discretion terminate the Plan at any other time. Subject to Section 11 hereof, no such termination shall in any way affect any Option then outstanding. Section 19. Time of Granting Options. The date of grant of an Option ------------------------ shall, for all purposes, be the date on which the Committee makes the determination granting such Option. Notice of the determination shall be given to each Participant to whom an Option is so granted. Section 20. Amendment of Plan. The Board of Directors of the Company ----------------- may make such amendments to the Plan and, with the consent of each Participant adversely affected, the Committee may make such changes in the terms and conditions of granted Options as it shall deem advisable, taking into account the provisions of Code Section 424(h) in the case of an Incentive Stock Option. Such amendments and changes shall include, but not be limited to, acceleration of the time at which an Option may be exercised, but may not, without the approval of the stockholders (a) increase the maximum number of shares subject to Options, except pursuant to Section 11 hereof, or (b) change the designation of the class of employees eligible to receive Incentive Stock Options. Section 21. Transfers and Leaves of Absence. For purposes of the ------------------------------- Plan, (a) a transfer of a Participant's employment or consulting relationship, without an intervening period, between the Company and a Subsidiary shall not be deemed a termination of employment or a termination of a consulting relationship and (b) a Participant who is granted in writing a leave of absence shall be deemed to have remained in the employ of, or in a consulting relationship with, the Company (or a Subsidiary, whichever is applicable) during such leave of absence except that for purposes of exercising an Incentive Stock Option, the Participant will be considered to have terminated employment on the 91st day of the leave, unless his or her right to re-employment is guaranteed by statute or contract. Section 22. Indemnification. In addition to such other rights of --------------- indemnification as they may have as members of the Board, the members of the Committee shall be indemnified by the Company to the fullest extent permitted by law against the reasonable expenses, including reasonable attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding except in relation to matters as 6 to which it shall be adjudged in such action, suit or proceeding that such Committee member is not entitled to indemnification under applicable law; provided that within 60 days after institution of any such action, suit or proceeding such Committee member shall in writing offer the Company the opportunity, at the Company's expense, to handle and defend the same, and that the Company shall not be required to indemnify a person any amount incurred through any settlement unless the Company consents in writing to the settlement. Section 23. Not an Employment or Other Agreement. Nothing contained ------------------------------------ in the Plan or in any Option Agreement shall confer, intend to confer or imply any rights of employment or any rights to a consulting or other relationship or rights to continued employment by, or rights to a continued consulting or other relationship with, the Company or any Subsidiary in favor of any Participant or limit the ability of the Company, any Subsidiary or any other entity to terminate, with or without cause, in its sole and absolute discretion, the employment of, or consulting or other relationship with, any Participant, subject to the terms of any written employment or consulting agreement to which a Participant is a party. 7 EX-10.54 5 BRYLANE INC. 1996 STOCK OPTION PLAN EXHIBIT 10.54 As Amended, April 1998 BRYLANE INC. 1996 STOCK OPTION PLAN Section 1. Description of Plan. This is the 1996 Stock Option Plan, ------------------- dated October 11, 1996 (the "Plan"), of Brylane Inc., a Delaware corporation (the "Company"). Under this Plan, officers, key employees and consultants of the Company or any of its subsidiaries and certain members of the Board of Directors of the Company, to be selected as set forth below, may be granted options ("Options") to purchase shares of the common stock of the Company ("Common Stock"). For purposes of this Plan, the term "subsidiary" means any directly or indirectly majority or wholly owned entity of the Company (individually, a "Subsidiary" and collectively, the "Subsidiaries"). It is intended that the Options under this Plan will either qualify for treatment as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and be designated "Incentive Stock Options" or not qualify for such treatment and be designated "Nonqualified Stock Options." Incentive Stock Options may only be granted to employees. This Plan is a successor to the Brylane, L.P. 1995 Partnership Unit Option Plan and has been established, in part, to issue Options to purchase shares of Common Stock under Section 12 hereof in exchange for options to acquire equity interests in Brylane, L.P. Section 2. Purpose of Plan. The purpose of the Plan and of granting --------------- Options to specified persons is to further the growth, development and financial success of the Company and its Subsidiaries by providing additional incentives to certain officers, key employees, consultants and members of the Board of Directors (or equivalent bodies) of the Company or its Subsidiaries. By assisting such persons in acquiring shares of Common Stock, the Company can ensure that such persons will themselves benefit directly from the Company's and its Subsidiaries' growth, development and financial success. Section 3. Eligibility. The persons who shall be eligible to receive ----------- grants of Options under the Plan shall be (i) the officers, key employees and consultants of the Company and the Subsidiaries; provided that bona fide services shall be rendered to the Company or its Subsidiaries by such consultant and such services shall not have been in connection with the offer and sale of securities in a capital-raising transaction and (ii) members of the Board of Directors (or equivalent bodies) of the Company or its Subsidiaries who are not designees of FS Stockholders (as defined in that certain Stockholders' Agreement of Brylane, Inc.) or Lane Bryant Direct Holding, Inc. A person who holds an Option is herein referred to as a "Participant," and more than one Option may be granted to any Participant. The aggregate fair market value (determined as of the time an Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant in any calendar year under this Plan and any other incentive stock option plans (which qualify under Section 422 of the Code) of the Company or any Subsidiary shall not exceed $100,000. Section 4. Administration. -------------- (a) The Plan shall be administered by a committee (the "Committee") to be composed of not less than two members of the Board. Members of the Committee shall be appointed, both initially and as vacancies occur, by the Board, to serve at the pleasure of the Board. Upon the first registration of an equity security of the Company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the extent possible and advisable, the Committee may be constituted so as to permit this Plan to comply with Rule 16b-3 promulgated under Section 16 of the Exchange Act and Section 162(m) of the Code. The Committee shall meet at such times and places as it determines and may meet through a telephone conference call. A majority of its members shall constitute a quorum, and the decision of a majority of those present at any meeting at which a quorum is present shall constitute the decision of the Committee. A memorandum signed by all of its members shall constitute the decision of the Committee without necessity, in such event, for holding an actual meeting. (b) The Committee is authorized and empowered to administer the Plan and, subject to the Plan, (i) to select the Participants, to determine the number of shares of Common Stock which may be purchased and in general to grant Options and to extend the time period during which a Nonqualified Stock Option may be exercised; (ii) to determine the dates upon which Options shall be granted and the terms and conditions thereof in a manner not inconsistent with the Plan, which terms and conditions need not be identical as to the various Options granted; (iii) to determine which Options are to be Incentive Stock Options and which Options are to be Nonqualified Stock Options; (iv) to interpret the Plan; (v) to prescribe, amend and rescind rules relating to the Plan; (vi) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted by the Committee; (vii) to determine the rights and obligations of Participants under the Plan; (viii) to specify the purchase price to be paid by Participants for shares of Common Stock; (ix) to accelerate the time during which an Option may be exercised in accordance with the provisions of Section 16 hereof, and to otherwise accelerate the time during which an Option may be exercised (but not reduce the time of exercise for Options which have vested), in each case notwithstanding the provisions in the Option Agreement (as defined in Section 13) stating the time during which it may be exercised; and (x) to make all other determinations deemed necessary or advisable for the administration of the Plan. The good faith interpretation and construction by the Committee of any provision of the Plan or of any Option granted under it shall be final, conclusive and binding. No member of the Committee shall be liable for any action or determination made with respect to the Plan or any Option granted hereunder. Section 5. Shares Subject to Plan. The aggregate amount of shares of ---------------------- Common Stock for which Options may be granted pursuant to the Plan shall be 1,700,000 subject to adjustment as provided in Section 11 hereof. The maximum number of shares that may be granted to a single Participant is 400,000. The number of shares of Common Stock which may be purchased by a Participant upon exercise of each Option shall be determined by the Committee and set forth in each Option Agreement. Upon the expiration or termination, in whole or in part, for any reason of an outstanding Option or any portion thereof which shall not have vested or shall not have been exercised in full or in the event that any shares of Common Stock acquired pursuant to the Plan are reacquired by the Company, (a) any shares of Common Stock which have not been purchased or (b) the shares of Common Stock reacquired, as the case may be, shall again become available for the granting of additional Options under the Plan. Notwithstanding the preceding sentence, shares subject to a terminated option shall continue to be considered to be outstanding for purposes of determining the maximum number of shares that may be issued to a single Participant. Similarly, the repricing of an Option will be considered the grant of a new Option for this purpose. Section 6. Option Price. Except as provided in Section 11 or Section ------------ 12 hereof, the purchase price per share (the "Option Price") of the shares of Common Stock underlying each Option shall be as determined by the Board in its sole discretion; provided, first that if the Participant is a 10-percent stockholder of the Company (as defined in Code Section 422(b)(6)) at the time such Participant is granted an Incentive Stock Option, the Option Price shall be not less than 110 percent of said fair market value. If used, fair market value shall be determined by the Committee (i) if the Company's securities are traded on a national securities exchange or on the National Association of Securities Dealers Automated Quotation System (or a similar successor system), on the basis of the reported closing sales price on such date or, in the absence of a reported sales price on such date, on the basis of the average of the reported closing bid and asked price on such date, or (ii) in the absence of both a reported sales price and a reported bid and asked price under clause (i), the Committee shall determine such fair market value on the basis of such evidence as it deems appropriate in its sole discretion. Section 7. Restrictions on Grants; Vesting of Options. ------------------------------------------ Notwithstanding any other provisions set forth herein or in any Option Agreement, no Options may be granted under the Plan subsequent to 2. 10 years from the date hereof. The vesting of all Options may be based on the passage of time. The Committee shall determine the vesting schedule applicable to each Option or group of Options in a schedule, a copy of which shall be filed with the records of the Committee and attached to each Option Agreement to which the same applies. The vesting schedule need not be identical for all Options granted hereunder. The Committee may periodically review the vesting criteria applicable to any Option or Options and, in its sole good faith judgment, may adjust the same to reflect unanticipated major events, including but not limited to catastrophic occurrences, mergers and acquisitions. Section 8. Exercise of Options. Once vested, and prior to its ------------------- termination date, an Option may be exercised by the Participant by giving written notice to the Company specifying the number of shares of Common Stock to be purchased and accompanied by payment of the full purchase price therefor in cash, by check or in such other form of lawful consideration as the Committee may approve from time to time, including without limitation and in the sole discretion of the Committee, the assignment and transfer by the Participant to the Company of outstanding shares of Common Stock theretofore held by the Participant in a manner intended to comply with the provisions of Rule l6b-3 under the Exchange Act, if applicable. After giving due considerations of the consequences under Section 16 of the Exchange Act and under the Code, the Committee may also authorize the exercise of Options by the delivery to the Company or its designated agent of an irrevocable written notice of exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the shares of Common Stock and to deliver the sale or margin loan proceeds directly to the Company to pay the exercise price of the Option. Once vested, and prior to its termination date, an Option may only be exercised by the Participant or in the event of death of the Participant, by the person or persons (including the deceased Participant's estate) to whom the deceased Participant's rights under such Option shall have passed by will or the laws of descent and distribution. Notwithstanding the foregoing, in the event of disability (within the meaning of Section 22(e)(3) of the Code) of a Participant, a designee of the Participant (or the legal representative of the Participant if the Participant has no designee) may exercise the Option on behalf of such Participant (provided such Option would have been exercisable by such Participant) until the right to exercise such Option expires, as set forth in such Participant's particular Option Agreement or this Plan. Section 9. Issuance of Common Stock. The Company's obligation to ------------------------ issue its shares of Common Stock upon exercise of an Option is expressly conditioned upon the compliance by the Company with any registration or other qualification obligations with respect to such shares of Common Stock under any state and/or federal law or rulings and regulations of any government regulatory body and/or the making of such investment representations or other representations and undertakings by the Participant (or the Participant's designee, legal representative, heir or legatee, as the case may be) in order to comply with the requirements of any exemption from any such registration or other qualification obligations with respect to such shares of Common Stock which the Company in its sole discretion shall deem necessary or advisable. Such required representations and undertakings may include representations and agreements that such Participant (or the Participant's designee, legal representative, heir or legatee): (a) is purchasing such shares of Common Stock for investment and not with any present intention of selling or otherwise disposing of such shares of Common Stock; and (b) agrees to have a legend placed upon the face and reverse of any certificates evidencing such shares of Common Stock (or, if applicable, an appropriate data entry made in the ownership records of the Company) setting forth (i) any representations and undertakings which such Participant has given to the Company or a reference thereto, and (ii) that, prior to effecting any sale or other disposition of any such shares of Common Stock, the Participant must furnish to the Company an opinion of counsel, satisfactory to the Company and its counsel, to the effect that such sale or disposition will not violate the applicable requirements of state and federal laws and regulatory agencies; provided, however, that any such legend or data entry shall be removed when no longer applicable without the necessity of an opinion of counsel. Inability of the Company to obtain, from any regulatory body having jurisdiction, authority reasonably deemed by the Company's counsel to be necessary for the lawful issuance and sale of any shares of Common Stock hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares of Common Stock as to which such requisite authority shall not have been obtained. Any shares of Common Stock issued by the Company upon exercise of an Option granted 3. hereunder may be subject to a right of first refusal of the Company with respect to all shares of Common Stock proposed to be transferred by Participant, as described in Section 13 hereof and certain other restrictions set forth in each particular Option Agreement. Section 10. Nontransferability. An Option may not be sold, pledged, ------------------ assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution. Any permitted transferee shall be required prior to any transfer of an Option or shares of Common Stock acquired pursuant to the exercise of an Option to execute a written undertaking to be bound by the provisions of the applicable Option Agreement. Section 11. Recapitalization, Reorganization; Merger or Consolidation. --------------------------------------------------------- (a) Subject to Section 11(b) hereof, if the outstanding shares of Common Stock of the Company are exchanged for different securities of the Company through a reorganization, recapitalization or reclassification or if the number of outstanding shares is changed through a stock split or stock dividend, an appropriate adjustment shall be made (i) in the number or kind of shares which may be purchased pursuant to the exercise of Options, as provided in Section 5 hereof, and (ii) in the number, exercise price, or kind of securities subject to any outstanding Option granted under the Plan. Any such adjustment in an outstanding Option, however, shall be made without change in the total price applicable to the unexercised portion of the Option but with a corresponding adjustment in the price for each share covered by the Option. In making such adjustments, or in determining that no such adjustments are necessary, the Committee may rely upon the advice of counsel and accountants to the Company, and the good faith determination of the Committee shall be final, conclusive and binding. No fractional shares of stock shall be issued or issuable under the Plan on account of any such adjustment. (b) Subject to Section 16 hereof (i) upon the dissolution, liquidation or sale of all or substantially all of the business, properties and assets of the Company, (ii) upon any reorganization, merger, consolidation or exchange of securities in which the Company does not survive, (iii) upon any reorganization, merger, consolidation or exchange of securities in which the Company does survive and any of the Company's stockholders have the opportunity to receive cash, securities and/or other property in exchange for their shares of Common Stock of the Company or (iv) upon any acquisition by any person or group (as defined in Section 13d of the Securities Act of 1934) of beneficial ownership of more than 50% of the Company's then outstanding shares of Common Stock (each of the events described in clauses (i), (ii), (iii) or (iv) is referred to herein as an "Extraordinary Event"), the Plan and each outstanding Option shall terminate. In such event, each Participant who is not tendered an option by the surviving entity in accordance with all of the terms of the immediately succeeding sentence, or who does not accept any such substituted option which is so tendered, shall have the right until 10 days before the effective date of such Extraordinary Event to exercise, in whole or in part, any unexpired Option or Options issued to the Participant, to the extent that said Option is then vested and exercisable pursuant to the provisions of said Option or Options and of Section 7 of the Plan. The Company shall use its reasonable best efforts to cause the surviving entity in any Extraordinary Event to tender to any Participant an option or options to purchase other securities of the surviving entity on the same basis as any Participant may purchase shares of Common Stock hereunder and under the applicable Option Agreement (including satisfaction of similar vesting provisions). The Company shall use its reasonable best efforts to cause such new option or options to contain such terms and provisions as shall substantially preserve the rights and benefits of any Option then outstanding under the Plan with any reasonable changes to take into account the circumstances of the surviving entity. (c) The grant of an Option under the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications or changes in its capital or business structures or to merge, consolidate, dissolve, or liquidate or to sell or transfer all or any part of its business or assets. 4. Section 12. Substitute Options. If the Company at any time should ------------------ succeed to the business of another entity through a merger, consolidation, corporate reorganization or exchange, or through the acquisition of stock or assets of such entity or its subsidiaries or otherwise, Options may be granted under the Plan to option holders of such entity or its subsidiaries, in substitution for options to purchase interests in such entity held by them at the time of succession. The Committee, in its sole and absolute discretion, shall determine the extent to which such substitute Options shall be granted (if at all), the person or persons to receive such substitute Options (who need not be all option holders of such entity), the number of Options to be received by each such person, the Option Price of such Option (which may be determined without regard to Section 6 hereof) and the terms and conditions of such substitute Options; provided, however, that the Option Price of each such substituted Option which is an Incentive Stock Option shall be an amount such that, in the sole and absolute judgment of the Committee (and in compliance with Section 424(a) of the Code), the economic benefit provided by such Option is not greater than the economic benefit represented by the option in the acquired entity as of the date of the Company's acquisition of such entity. Section 13. Option Agreement. Each Option granted under the Plan ---------------- shall be evidenced by a written option agreement (an "Option Agreement") executed by the Company and the Participant which (a) shall contain each of the provisions and agreements herein specifically required to be contained therein; (b) shall indicate whether such Option is to be an Incentive Stock Option or a Nonqualified Stock Option, and if an Incentive Stock Option shall contain terms and conditions permitting such Option to qualify for treatment as an incentive stock option under Section 422 of the Code; (c) may contain provisions which give the Company a right of first refusal to purchase any shares of Common Stock issued pursuant to the exercise of Options granted under the Plan which a Participant proposes to sell and (d) may contain such other terms and conditions as the Committee deems desirable and which are not inconsistent with the Plan. Section 14. Rights as a Stockholder. No Participant (or any legal ----------------------- representative, heir or legatee) shall have any rights as a stockholder with respect to any shares covered by any Option until the date of the issuance of a stock certificate to such person upon the due exercise of such Option. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 11 hereof. Section 15. Termination of Options. Each Option granted under the ---------------------- Plan shall set forth a termination date thereof, in addition to any other termination events set forth in the Plan and in each particular Option Agreement, which, with respect to Nonqualified Stock Options, shall be no later than ten years from the date such Option is granted and with respect to Incentive Stock Options, if the Participant is a 10-percent stockholder of the Company (as described in Section 422(b)(6) of the Code) at the time such Option is granted, the Option shall terminate no later than five years from the date of the grant thereof. An Incentive Stock Option shall contain any termination events required by Section 422 of the Code. Section 16. Acceleration of Options. Notwithstanding the provisions ----------------------- of Section 7 or Section 15 hereof, or any provision to the contrary contained in a particular Option Agreement, the Committee, in its sole discretion, at any time, or from time to time, may elect to accelerate the vesting of all or any portion of any Option then outstanding. The decision by the Committee to accelerate an Option or to decline to accelerate an Option shall be final, conclusive and binding. In the event of the acceleration of the exercisability of Options as the result of a decision by the Committee pursuant to this Section 16, each outstanding Option so accelerated shall be exercisable for a period of at least five days from and after the date of such acceleration and upon such other terms and conditions as the Committee may determine in its sole discretion; provided that such terms and conditions (other than terms and -------- conditions relating solely to the acceleration of exercisability and the related termination of an Option) may not adversely affect the rights of any Participant without the consent of the Participant so adversely affected. Any outstanding Option which has not been exercised by the holder at the end of such period shall terminate automatically and become null and void. 5. Section 17. Withholding of Taxes. The Company, or a Subsidiary, as -------------------- the case may be, may deduct and withhold from the wages, salary, bonus and other income paid by the Company (or such Subsidiary) to the Participant the requisite tax upon the amount of taxable income, if any, recognized by the Participant in connection with the exercise in whole or in part of any Option, or the sale of shares of Common Stock issued to the Participant upon the exercise of an Option, as may be required from time to time under any federal or state tax laws and regulations. This withholding of tax shall be made from the Company's (or such Subsidiary's) concurrent or next payment of wages, salary, bonus or other income to the Participant or by payment to the Company (or such Subsidiary) by the Participant of the required withholding tax, as the Committee may determine; provided, however, that, in the sole discretion of the Committee, the Participant may pay such tax by reducing the number of shares of Common Stock issued upon exercise of an Option (for which purpose such shares of Common Stock shall be valued at fair market value as determined in good faith by the Committee, which determination shall be final, conclusive and binding). Section 18. Effectiveness and Termination of the Plan. The Plan shall ----------------------------------------- be effective on the date on which it is adopted by the Board. The Plan shall terminate, in addition to the other termination events set forth in the Plan, at the earliest of the time when all shares of Common Stock which may be issued hereunder have been so issued; provided, however, that the Board may in its sole discretion terminate the Plan at any other time. Subject to Section 11 hereof, no such termination shall in any way affect any Option then outstanding. Section 19. Time of Granting Options. The date of grant of an Option ------------------------ shall, for all purposes, be the date on which the Committee makes the determination granting such Option. Notice of the determination shall be given to each Participant to whom an Option is so granted within a reasonable time after the date of such grant. Section 20. Amendment of Plan. The Board of Directors may make such ----------------- amendments to the Plan and, with the consent of each Participant adversely affected, the Committee may make such changes in the terms and conditions of granted Options as it shall deem advisable. Such amendments and changes shall include, but not be limited to, acceleration of the time at which an Option may be exercised, but may not, without the approval of the stockholders (a) increase the maximum number of shares subject to Options, except pursuant to Section 11 hereof, or (b) change the designation of the class of employees eligible to receive Incentive Stock Options. Section 21. Transfers and Leaves of Absence. For purposes of the ------------------------------- Plan, (a) a transfer of a Participant's employment or consulting relationship, without an intervening period, between the Company and a Subsidiary shall not be deemed a termination of employment or a termination of a consulting relationship and (b) a Participant who is granted in writing a leave of absence shall be deemed to have remained in the employ of, or in a consulting relationship with, the Company (or a Subsidiary, whichever is applicable) during such leave of absence except that for purposes of exercising an Incentive Stock Option, the Participant will be considered to have terminated employment on the 91st day of the leave, unless his or her right to re-employment is guaranteed by statute or contract. Section 22. No Obligation to Exercise Option. The granting of an -------------------------------- Option shall impose no obligation on the Participant to exercise such Option. Section 23. Indemnification. In addition to such other rights of --------------- indemnification as they may have as members of the Board, the members of the Committee shall be indemnified by the Company to the fullest extent permitted by law against the reasonable expenses, including reasonable attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in satisfaction of a judgment in any such action, suit or proceeding except in relation to matters as to which it shall 6. be adjudged in such action, suit or proceeding that such Committee member is not entitled to indemnification under applicable law; provided that within 60 days after institution of any such action, suit or proceeding such Committee member shall in writing offer the Company the opportunity, at the Company's expense, to handle and defend the same. Section 24. Governing Law. The Plan and any Option granted pursuant ------------- to the Plan shall be construed under and governed by the laws of the State of Delaware without regard to conflict of law provisions thereof. Section 25. Not an Employment or Other Agreement. Nothing contained ------------------------------------ in the Plan or in any Option Agreement shall confer, intend to confer or imply any rights of employment or any rights to a consulting or other relationship or rights to continued employment by, or rights to a continued consulting or other relationship with, the Company or any Subsidiary in favor of any Participant or limit the ability of the Company, any Subsidiary or any other entity to terminate, with or without cause, in its sole and absolute discretion, the employment of, or consulting or other relationship with, any Participant, subject to the terms of any written employment or consulting agreement to which a Participant is a party. 7. EX-10.56 6 FORM OF AMENDMENT TO STOCK OPTION AGREEMENTS EXHIBIT 10.56 April __, 1998 NAME TITLE Brylane Inc. 463 Seventh Avenue - 21st Floor New York, NY 10018 Re: Amendment to Brylane Inc. Nonqualified Stock Option Agreement ----------------------------------- Dear _________: This letter modifies and amends those certain Brylane Inc. Nonqualified Stock Option Agreements (the "Option Agreements") dated as of February 26, 1997 and July 24, 1997 by and between Brylane Inc., a Delaware corporation (the "Company") and ___________ (the "Optionee") as follows: Section 4 of the Option Agreements is amended and restated to read --------- in its entirety as follows: "Termination of Employment or Other Relationship. The ----------------------------------------------- termination of Optionee's employment or other relationship with the Company and the Subsidiaries by B.L. Management Services, Inc., a Delaware corporation ("Employer"), for any reason other than "cause" (as defined in Section 3(b) of that certain Employment Agreement dated as of April 1, 1998 between Employer and Optionee, or in the provisions of any successor employment agreement (such Agreement, or successor thereto, the "Employment Agreement")), or by Optionee for "good reason" (as defined in Section 3(e) of the Employment Agreement), shall accelerate the vesting and exercisability of any unvested portion of the Option as of the date of such termination so that, on and after the date of such termination, the Option shall be exercisable for the full number of shares specified in Section 1 (less any shares previously exercised). The termination of Optionee's employment or other relationship with the Company and the Subsidiaries by Employer for "cause" or by Optionee for any reason other than "good reason" shall not accelerate the vesting of the Option or affect the number of Shares with respect to which the Option may be exercised so that in the circumstances contemplated by this sentence the Option may only be exercised with respect to that number of Shares which could have been purchased under the Option had the Option been exercised by Optionee on the date of such termination." NAME April __, 1998 Page 2 This letter may be executed in counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute but one and the same instrument. BRYLANE INC. By: ________________________________ NAME TITLE AGREED AND ACCEPTED: OPTIONEE ________________________________ Name EX-10.57 7 FORM OF AMENDMENT TO STOCK OPTION AGREEMENTS EXHIBIT 10.57 April __, 1998 NAME TITLE Chadwick's of Boston, Ltd. A Division of Brylane L.P. 35 United Drive West Bridgewater, MA 02379 Re: Amendment to Brylane Inc. Nonqualified Stock Option Agreement ----------------------------------- Dear __________: This letter modifies and amends those certain Brylane Inc. Nonqualified Stock Option Agreements (the "Option Agreements") dated as of February 26, 1997 and July 24, 1997 by and between Brylane Inc., a Delaware corporation (the "Company") and __________ (the "Optionee") as follows: Section 4 of the Option Agreements is amended and restated to --------- read in its entirety as follows: "Termination of Employment or Other Relationship. The ----------------------------------------------- termination of Optionee's employment or other relationship with the Company and the Subsidiaries by the Partnership for any reason other than "cause" (as defined in Section 3(b) of that certain Employment Agreement dated as of April 1, 1998 between Partnership and Optionee, or in the provisions of any successor employment agreement (such Agreement, or successor thereto, the "Employment Agreement")), or by Optionee for "good reason" (as defined in Section 3(e) of the Employment Agreement), shall accelerate the vesting and exercisability of any unvested portion of the Option as of the date of such termination so that, on and after the date of such termination, the Option shall be exercisable for the full number of shares specified in Section 1 (less any shares previously exercised). The termination of Optionee's employment or other relationship with the Company and the Subsidiaries by Employer for "cause" or by Optionee for any reason other than "good reason" shall not accelerate the vesting of the Option or affect the number of Shares with respect to which the Option may be exercised so that in the circumstances contemplated by this sentence the Option may only be exercised with respect to that number of Shares which could have been purchased under the Option had the Option been exercised by Optionee on the date of such termination." NAME April __,1998 Page 2 This letter may be executed in counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute but one and the same instrument. BRYLANE INC. By: ________________________________ Name Title AGREED AND ACCEPTED: OPTIONEE ________________________________ Name EX-10.62 8 SECOND AMENDMENT TO LICENSE AGREEMENT EXHIBIT 10.62 SECOND AMENDMENT TO LICENSE AGREEMENT ------------------------------------- This SECOND AMENDMENT TO LICENSE AGREEMENT (hereinafter, the "Amendment") is made and entered into effective March 1, 1998 by and between SEARS SHOP AT HOME SERVICES, INC., a Delaware corporation (hereinafter "Licensor"), and BRYLANE, INC., a Delaware corporation (hereinafter "Licensee"). WHEREAS, Licensor and Licensee entered into that certain License Agreement dated March 1, 1994 as amended by the License Amendment dated July 23, 1996 (hereinafter, the "Agreement"); WHEREAS, Licensor and Licensee want to further amend the Agreement as set forth herein; NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, the parties agree as follows: 1. Subsection b. of Section 24 of the Agreement (CUSTOMER LISTS AND ------------------ INFORMATION) is hereby amended by deleting the last sentence thereof, ----------- which reads as follows: Upon termination of this Agreement, including the performance of any services pursuant to Section 29 hereof, the names of Program Customers shall be jointly owned by Licensor and Licensee and may be used by them in their respective marketing efforts. 2. The following shall be added as subparagraph f. of Section 24 of the Agreement: Upon any termination of this Agreement or any Schedule appended hereto (whether pursuant to Section 3, 27, 28 or otherwise), Licensee shall have no right to use in any way the names or identities of, or any other information pertaining to, the Program Customers of such terminated Program(s), and Licensee shall immediately return to Licensor upon any such termination all copies of the applicable Customer List and all materials containing information derived from such Customer List or pertaining to such Program Customers. 3. The text of Section 31 of the Agreement (NON-COMPETE) is hereby deleted ----------- and replaced with the following: Notwithstanding anything to the contrary contained herein (including but not limited to Section 4 above), upon termination (including non- renewal) of any Program pursuant to the terms of this Agreement, Program Customer names shall not be used by Licensor for any marketing purposes (including but not limited to any promotional mailings) with respect to the applicable Products/Categories designated as exclusive to Licensee in the applicable Schedule for a period of ninety (90) days from the drop date/mailing of the last Catalog for such terminated Program. 4. The text of Section 3 of the Agreement (TERM AND TERMINATION) is hereby -------------------- deleted and replaced with the following: The term (hereinafter "Initial Term") of this Agreement shall begin on the Effective Date hereof and shall end at the close of business on July 31, 2001. This Agreement shall thereafter continue in force for additional one-year periods (each an "Extended Term"), unless either party notifies the other in writing that this Agreement or any Schedule appended hereto will not be renewed for an additional Extended Term (a "Notice of Termination") by (i) Licensee delivering a Notice of Termination to Licensor at least twelve (12) months notice prior to the end of the Initial Term or the final Extended Term or (ii) Licensor delivering a Notice of Termination to Licensee at least eighteen (18) months notice prior to the end of the Initial Term or the final Extended Term. The provisions of this Section shall be subject to the terms of Sections 27 and 28 below. 5. Exhibit E to the Agreement is amended by adding a new Paragraph 3 under (COMPUTATION OF ROYALTY PAYMENT) reading as follows: ------------------------------ 3. In the event of any termination of the Agreement or any Schedule by Licensor pursuant to Section 3 of the Agreement, Licensee shall have no obligation to pay Licensor any royalty on sales of Products from any Catalog issued pursuant to any terminated Schedule (or pursuant to all Schedules, in the case where the Agreement is terminated by Licensor) during the eighteen (18) months preceding the date when such Schedule terminates. 6. The Agreement, as herein amended, shall continue in full force and effect according to its terms and is hereby ratified by the parties. All capitalized terms used in this Amendment shall have the meanings ascribed to them in the Agreement. BRYLANE, INC. By: /s/ Peter J. Canzone -------------------- Peter Canzone President & CEO SEARS SHOP AT HOME SERVICES, INC. By: /s/ E. Vachel Pennebaker ------------------------ E. Vachel Pennebaker President & CEO 2 EX-10.70 9 FORM OF EMPLOYMENT AGREEMENT DATED AS OF 4/1/1998 EXHIBIT 10.70 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1, 1998 and is entered into between B.L. Management Services, Inc., a Delaware corporation (the "Corporation") and _______________ (the "Executive"). R E C I T A L S --------------- WHEREAS, the Corporation desires to employ the Executive, and the Executive desires to be so employed by the Corporation, on the terms and subject to the conditions hereinafter set forth. A G R E E M E N T ----------------- NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually agree, as follows: 1. Employment. Subject to the other terms and conditions set forth ---------- herein, the Corporation hereby employs the Executive, and the Executive agrees to be employed by the Corporation, as _______________________________ for a term commencing on April 1, 1998 and continuing until the earlier of March 31, 2001 or the date such employment shall have been terminated as provided in Section 3 hereof. Beginning April 1, 2001, this Agreement shall renew automatically for an additional one year term until the Corporation gives Executive written notice at least 14 calendar days prior to the end of a term, of its intention to terminate this Agreement; provided, however, that this Agreement may terminate earlier than the end of a term as provided in Section 3 hereof. In his capacity as _________________________________, the Executive shall faithfully perform to the best of his ability and in a satisfactory manner all services and acts necessary or advisable as may be assigned to him by the Board of Representatives (the "Partnership Board") of Brylane, L.P., a Delaware limited partnership and the parent entity of the Corporation (the "Partnership"). Throughout the term hereof the Executive shall, except as may from time to time be otherwise agreed in writing by the Corporation, devote his full-time working hours to his duties hereunder. 2. Compensation. ------------ (a) For all services to be rendered by Executive hereunder, and for all rights granted the Corporation hereunder, the Executive shall be paid by the Corporation a base salary at the annual rate of $________ for each 12-month period of the term hereof, prorated for any portion thereof, payable in substantially equal bimonthly installments, less required withholdings. This base salary shall be reviewed for any adjustments annually by the Board of Directors of the Corporation (the "Corporation Board") or, at the Corporation Board's option, a compensation committee thereof (the "Committee"), provided that any adjustments shall be in the sole discretion of the Corporation Board or the Committee. (b) The Executive shall be entitled to paid vacations, personal and sick days consistent with the policies of the Corporation for management employees. The Executive shall receive such other compensation as shall be approved by the Corporation Board and shall participate in all fringe benefits (including, without limitation, group medical, life, disability and accidental death and dismemberment insurance), bonus and benefit plans which shall be generally available from time to time to management employees of the Corporation. (c) The Executive shall be reimbursed in accordance with the policies of the Corporation as adopted by the Corporation Board from time to time for his reasonable travel, entertainment, business, meeting and similar expenditures, incurred for the benefit of the Corporation and subject to approval of the Chief Executive Officer of the Corporation or the Corporation Board. As an additional condition to the reimbursement of such expenses by the Corporation to the Executive, the Executive shall provide the Corporation with copies of all available invoices and receipts, and otherwise account to the Corporation in sufficient detail and with adequate documentation to allow the Corporation to confirm the business nature of the expenses and claim an income tax deduction for such paid items, if such items are deductible. (d) The Partnership agrees that the Partnership shall provide the Executive with a benefits package substantially similar (which is not materially less favorable to the Executive in the aggregate) to those coverages and benefits provided or made available to the Executive (and his dependents) immediately prior to the consummation of the transactions contemplated by those certain Stock Purchase Agreements each dated as of February 19, 1998, among FS Equity Partners II, L.P., a California limited partnership, FS Equity Partners III, L.P., a Delaware limited partnership, FS Equity Partners International, L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a company organized under the laws of France ("PPR") and between M&P Distributing Company, a Nevada corporation and PPR. In addition, the Partnership shall provide a bonus or incentive compensation plan which provides the Executive with the opportunity to earn the right to be paid additional compensation as set forth on Exhibit A hereto. This subsection (d) shall not be implemented so as to --------- limit any rights or benefits to which the Executive or his dependents may be entitled under any employee benefit plan maintained by or contributed to by the Corporation. 3. Termination. ----------- (a) The employment of the Executive hereunder may be terminated by the Corporation on at least 30 days' prior written notice if the Corporation Board determines that the Executive has become permanently disabled (as hereinafter defined). Such written notice shall provide reasonable detail regarding the basis for such determination. The Executive shall be deemed to be "permanently disabled," as used in this subsection, if the Executive has been substantially unable to discharge his duties and obligations hereunder by reason of illness, accident or disability for a period of 180 days in any twelve-month period. (b) The employment of the Executive hereunder may be terminated forthwith by the Corporation for cause (as hereinafter defined) upon written notice from the Corporation Board to the Executive. Such written notice shall provide reasonable detail regarding the basis for such determination. The Corporation shall have "cause" to terminate the Executive, as used in this subsection, only if the Corporation Board shall determine that the Executive has, (i) refused or failed within a reasonable period of time to carry out any reasonable and material direction from the Chief Executive Officer of the Corporation, the Corporation Board or the Partnership Board (other than a failure resulting from the Executive's incapacity due to physical or mental illness), (ii) been guilty of a material and willful breach of the terms of this Agreement, (iii) demonstrated gross negligence or willful misconduct in the execution of his assigned duties, (iv) been convicted of a felony or other serious crime involving moral turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the detriment of the Corporation, (vi) intentionally imparted confidential information relating to the Corporation to a third party, other than in the course of carrying out the Executive's duties, or (vii) materially and willfully breached any of his obligations pursuant to the Management Stock Subscription Agreement dated as of February 26, 1997 between Brylane Inc., a Delaware corporation and the parent entity of the Partnership, and the Executive if such breach has not been cured 5 days after receipt of written notice to the Executive. (c) The employment of the Executive hereunder shall be automatically terminated on the date of the Executive's death. 2. (d) In addition to the circumstances set forth in subsections (a), (b) and (c) of this Section 3, the Corporation may terminate the Executive's employment for any reason or no reason and with or without cause upon 30 days' prior written notice to the Executive. (e) The Executive may terminate his employment hereunder forthwith at any time for good reason (as hereinafter defined) upon written notice to the Corporation. For purposes of this subsection, "good reason" shall mean the occurrence of any of the following: (i) a reduction by the Corporation in the Executive's base salary herein provided or as the same may be increased from time to time; (ii) any relocation by the Corporation of Executive's principal place of employment of more than 50 miles from the place where Executive's principal residence was located on the date Executive gives notice of such termination; or (iii) a material and willful breach by the Corporation of any of its obligations to the Executive hereunder, including, without limitation, the Corporation's failure to obtain the written assumption agreement described in Section 10(a) if such agreement is not obtained within 5 days after written notice that a written assumption agreement required under Section 10(a) has not been obtained. (f) In addition to the circumstances described in subsection (e) of this Section 3, the Executive may terminate his employment hereunder for any reason or no reason upon 30 days' prior written notice to the Corporation. (g) If the Executive's employment is terminated pursuant to this Section 3, the Executive shall be entitled to, and the Corporation's obligation hereunder shall be limited to, (i) the payment of the compensation accrued under Section 2 hereof to the effective date of such termination and (for any termination other than pursuant to Section 3(b)) a pro rata portion of any bonuses or incentive compensation payable with respect to any period commencing prior to the termination date, and (ii) in the case of termination under subsections (a), (c), (d) or (e) of this Section 3, the additional compensation provided in subsection (h) of this Section 3. (h) (i) if the Executive's employment is terminated by the Corporation pursuant to subsection (a) of this Section 3 the Executive will get the benefit of any Corporation disability plans; provided, however, that for a period of 12 consecutive months after the effective date of the termination the Corporation will pay the Executive the difference (if any) between the level of annualized salary provided for in Section 2 hereof, less required withholdings, and the amounts provided under such disability plans; or (ii) if the Executive's employment is automatically terminated pursuant to subsection (c) of this Section 3, the Corporation shall continue to pay to the Executive (or, if applicable, to his executor, administrator or heirs) the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for a period of 12 consecutive months after the effective date of the termination; and (iii) if the Executive's employment is terminated by the Corporation pursuant to subsection (d) of this Section 3 or if the Executive terminates his employment pursuant to subsection (e) of this Section 3, the Corporation shall continue to pay to the Executive the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for the greater of (A) one year after the effective date of the termination, and (B) the period after the effective date of the termination, through and including the last day of the then effective term of this Agreement. (i) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking other employment or otherwise; but the amount of any payment provided for in this Section 3, other than amounts set forth in subsection (g)(i) of this Section 3, shall be reduced by any 3. compensation earned by the Executive as the result of employment by another employer after the effective date of termination of the Executive's employment by the Corporation. (j) Nothing in this Agreement shall be deemed a release or waiver of right to any medical or other employee benefits available to the Executive on or after the effective date of termination of the executive's employment by the Corporation under federal, state or local law which provides for the continuation of any medical or other employee benefits after such termination date. 4. Noncompetition. If the Executive is terminated by the Corporation -------------- for cause in accordance with Subsection 3(b) hereof, or if the Executive terminates his employment other than for "good reason" in accordance with Subsection 3(e) hereof, then except as provided in the next sentence, for a period of 12 months after such termination, the Executive will not carry on (as an employee, agent, consultant, independent contractor, stockholder, partner, owner or otherwise) any trade or business competing with the then trade or business of the Corporation (or its affiliates) in any state in which the Corporation (or its affiliates) is carrying on such trade or business as of the effective date of such termination. The foregoing provisions of this Section 4 notwithstanding, the Executive may own not more than 5% of the issued and outstanding shares of any class of securities of an issuer whose securities are listed on a national securities exchange or registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. 5. Trade Secrets. During the term of this Agreement and at all ------------- times thereafter, the Executive shall hold in secrecy all trade secrets and confidential information relating to the Corporation's (and its affiliates') business and affairs that may come to his knowledge or have come to his knowledge while employed by the Corporation or its predecessors (excluding information that is or becomes publicly known or available for use through no fault of the Executive), including but not limited to (i) matters of a business nature, such as information about costs, profits, markets, sales, lists of customers and other information of a similar nature, (ii) plans or strategies for development of the business of the Corporation and (iii) matters of a technical nature. Except as required in the performance of his duties to the Corporation under this Agreement, the Executive shall not use for his own benefit or disclose to any person, directly or indirectly, such matters unless such use or disclosure has been specifically authorized in writing by the Corporation in advance. 6. Executive's Representation. The Executive shall be, and he -------------------------- represents that he is, free to enter into this Agreement and not under any contractual restraint which would prohibit his satisfactorily performing his duties to the Corporation hereunder. 7. Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the internal substantive laws (and not the laws of conflicts of laws) of the State of New York. 8. Costs. If either party brings any legal action against the other ----- to enforce its rights under this Agreement, the prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, costs and expenses actually incurred in enforcing its rights under this Agreement including, without limitation, the reasonable fees and expenses of attorneys, accountants and expert witnesses, which shall include, without limitation, all fees, costs and expenses of appeals and of enforcement. 9. Entire Agreement. This Agreement constitutes the whole agreement ---------------- of the parties hereto in reference to any employment of the Executive by the Corporation and in reference to the subject matter hereof, and all prior agreements, promises, representations and understandings relative thereto are merged herein. 4. 10. Assignability. ------------- (a) In the event that the Corporation shall merge or consolidate with any other corporation, partnership or business entity or all or substantially all the Corporation's business or assets shall be transferred in any manner to any other corporation, partnership or business entity, including (without limitation) any entity that succeeds to the business of the Corporation pursuant to Article X of that certain Partnership Agreement dated August 30, 1993, as amended, such successor shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be, the Corporation hereunder and the Corporation shall obtain a written assumption agreement from such successor prior to completion of any such merger, consolidation or sale of assets. (b) This Agreement is personal in nature and neither of the parties hereto shall, without the written consent of the other party hereto, assign or transfer this Agreement or any rights or obligations hereunder, except by operation of law or pursuant to the terms of Section 10(a). (c) Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof. 11. Remedies. Any material breach, violation or evasion by the -------- Executive of the terms of this Agreement, including specifically, but not limited to, Sections 4 and 5, will result in immediate and irreparable injury and harm to the Corporation, and will cause damage to the Corporation in amounts difficult to ascertain. Accordingly, the Corporation shall be entitled to, and Executive hereby consents to the entry of, the remedies or injunction and specific performance, or either of such remedies, as well as all other remedies to which the Corporation may be entitled, at law, in equity or otherwise. 12. Amendments; Waivers. This Agreement may be amended, modified, ------------------- superseded, canceled, renewed or extended and the terms or covenants hereof may be waived only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by any party of the breach of any term or provision contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13. Notice. All notices, requests and other communications hereunder ------ shall be in writing and, if given by facsimile, telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if given by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed or delivered by overnight courier, shall be deemed to have been validly served, given or delivered when deposited in the United States mail, as registered or certified mail, with proper postage prepaid, or when deposited with the courier service, and addressed to the party or parties to be notified, at the following addresses (or such other address(es) as a party may designate for itself by like notice): If to the Corporation: B.L. Management Services, Inc. 463 Seventh Avenue, 21st Floor New York, New York 10018 Attention: Senior Vice President - Human Resources 5. If to the Executive: _____________________________ _____________________________ _____________________________ 14. Severability. Any provision of this Agreement that is prohibited ------------ or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent that a restrictive covenant contained herein may, at any time, be more restrictive than permitted under the laws of any jurisdiction where this Agreement may be subject to review and interpretation, the terms of such restrictive covenant shall be those allowed by law and the covenant shall be deemed to have been revised accordingly. Each and every term of this Agreement shall be enforced to the fullest extent permitted by law. 6. 15. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original and both of which together shall be deemed one Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. The "Corporation": B.L. MANAGEMENT SERVICES, INC. By: _____________________________________ Name : Title: The "Executive": ___________________________________________ Signature The undersigned hereby guarantees the performance of this Agreement by B.L. Management Services, Inc., a Delaware corporation BRYLANE, L.P. _____________________________________ Name: Its: 7. EXHIBIT A Brylane has a semi-annual performance bonus program based upon goals relating to Brylane's operating profit. Such goals will be established at the beginning of each six-month season based upon a review by the Partnership Board of management's operating budget for that season. Each participant in such program may receive a bonus for each semi-annual bonus period equal to a certain percentage of his or her annual salary. The actual bonus amount will be based upon the extent to which the operating profit goals for that season are met or exceeded. Operating profit shall exclude any charge resulting from the formation of the Partnership, such as the write-up of inventory to fair market value on August 30, 1993 and the amortization of the cost of intangibles resulting from the purchase accounting relating to the acquisition. Except as otherwise determined by the Partnership Board, or the Committee, in its sole discretion, operating profit for any given six-month season will also exclude any and all operating profit that is attributable to transactions entered into by Brylane or its affiliates during that six-month season. The Executive's individual participant percentage under such plan will be ___%, subject to any adjustments by the Partnership Board, or the Committee, as it may see fit in its sole discretion. 8. EX-10.71 10 FORM OF EMPLOYMENT AGREEMENT DATED AS OF 4/1/1998 EXHIBIT 10.71 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1, 1998 and is entered into between B.L. Management Services, Inc., a Delaware corporation (the "Corporation") and __________________ (the "Executive"). R E C I T A L S --------------- WHEREAS, the Corporation desires to employ the Executive, and the Executive desires to be so employed by the Corporation, on the terms and subject to the conditions hereinafter set forth. A G R E E M E N T ----------------- NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually agree, as follows: 1. Employment. Subject to the other terms and conditions set forth ---------- herein, the Corporation hereby employs the Executive, and the Executive agrees to be employed by the Corporation, as _______________, for a term commencing on April 1, 1998 and continuing until the earlier of March 31, 2001 or the date such employment shall have been terminated as provided in Section 3 hereof. Beginning April 1, 2001, this Agreement shall renew automatically for an additional one year term until the Corporation gives Executive written notice at least 14 calendar days prior to the end of a term, of its intention to terminate this Agreement; provided, however, that this Agreement may terminate earlier than the end of a term as provided in Section 3 hereof. In her capacity as __________________, the Executive shall faithfully perform to the best of her ability and in a satisfactory manner all services and acts necessary or advisable as may be assigned to her by the Chief Executive Officer. Throughout the term hereof the Executive shall, except as may from time to time be otherwise agreed in writing by the Corporation, devote her full-time working hours to her duties hereunder. 2. Compensation. ------------ (a) For all services to be rendered by Executive hereunder, and for all rights granted the Corporation hereunder, the Executive shall be paid by the Corporation a base salary at the annual rate of $______ for each 12-month period of the term hereof, prorated for any portion thereof, payable in substantially equal bimonthly installments, less required withholdings. This base salary shall be reviewed for any adjustments annually by the Board of Directors of the Corporation (the "Corporation Board") or, at the Corporation Board's option, a compensation committee thereof (the "Committee"), provided that any adjustments shall be in the sole discretion of the Corporation Board or the Committee. (b) The Executive shall be entitled to paid vacations, personal and sick days consistent with the policies of the Corporation for management employees. The Executive shall receive such other compensation as shall be approved by the Corporation Board and shall participate in all fringe benefits (including, without limitation, group medical, life, disability and accidental death and dismemberment insurance), bonus and benefit plans which shall be generally available from time to time to management employees of the Corporation. (c) The Executive shall be reimbursed in accordance with the policies of the Corporation as adopted by the Corporation Board from time to time for her reasonable travel, entertainment, business, meeting and similar expenditures, incurred for the benefit of the Corporation and subject to approval of the Chief Executive Officer of the Corporation or the Corporation Board. As an additional condition to the reimbursement of such expenses by the Corporation to the Executive, the Executive shall provide the Corporation with copies of all available invoices and receipts, and otherwise account to the Corporation in sufficient detail and with adequate documentation to allow the Corporation to confirm the business nature of the expenses and claim an income tax deduction for such paid items, if such items are deductible. (d) Brylane, L.P., a Delaware limited partnership and the parent entity of the Corporation (the "Partnership"), agrees that the Partnership shall provide the Executive with a benefits package substantially similar (which is not materially less favorable to the Executive in the aggregate) to those coverages and benefits provided or made available to the Executive (and her dependents) immediately prior to the consummation of the transactions contemplated by those certain Stock Purchase Agreements each dated as of February 19, 1998, among FS Equity Partners II, L.P., a California limited partnership, FS Equity Partners III, L.P., a Delaware limited partnership, FS Equity Partners International, L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a company organized under the laws of France ("PPR") and between M&P Distributing Company, a Nevada corporation and PPR. In addition, the Partnership shall provide a bonus or incentive compensation plan which provides the Executive with the opportunity to earn the right to be paid additional compensation as set forth on Exhibit A hereto. This subsection (d) --------- shall not be implemented so as to limit any rights or benefits to which the Executive or her dependents may be entitled under any employee benefit plan maintained by or contributed to by the Corporation. 3. Termination. ----------- (a) The employment of the Executive hereunder may be terminated by the Corporation on at least 30 days' prior written notice if the Corporation Board determines that the Executive has become permanently disabled (as hereinafter defined). Such written notice shall provide reasonable detail regarding the basis for such determination. The Executive shall be deemed to be "permanently disabled," as used in this subsection, if the Executive has been substantially unable to discharge her duties and obligations hereunder by reason of illness, accident or disability for a period of 180 days in any twelve-month period. (b) The employment of the Executive hereunder may be terminated forthwith by the Corporation for cause (as hereinafter defined) upon written notice from the Corporation Board to the Executive. Such written notice shall provide reasonable detail regarding the basis for such determination. The Corporation shall have "cause" to terminate the Executive, as used in this subsection, only if the Corporation Board shall determine that the Executive has, (i) refused or failed within a reasonable period of time to carry out any reasonable and material direction from the Chief Executive Officer of the Corporation, the Corporation Board or the Board of Representatives of the Partnership (the "Partnership Board") (other than a failure resulting from the Executive's incapacity due to physical or mental illness), (ii) been guilty of a material and willful breach of the terms of this Agreement, (iii) demonstrated gross negligence or willful misconduct in the execution of her assigned duties, (iv) been convicted of a felony or other serious crime involving moral turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the detriment of the Corporation, (vi) intentionally imparted confidential information relating to the Corporation to a third party, other than in the course of carrying out the Executive's duties, or (vii) materially and willfully breached any of her obligations pursuant to the Management Stock Subscription Agreement dated as of February 26, 1997 between Brylane Inc., a Delaware corporation and the parent entity of the Partnership, and the Executive if such breach has not been cured 5 days after receipt of written notice to the Executive. (c) The employment of the Executive hereunder shall be automatically terminated on the date of the Executive's death. 2 (d) In addition to the circumstances set forth in subsections (a), (b) and (c) of this Section 3, the Corporation may terminate the Executive's employment for any reason or no reason and with or without cause upon 30 days' prior written notice to the Executive. (e) The Executive may terminate her employment hereunder forthwith at any time for good reason (as hereinafter defined) upon written notice to the Corporation. For purposes of this subsection, "good reason" shall mean the occurrence of any of the following: (i) a reduction by the Corporation in the Executive's base salary herein provided or as the same may be increased from time to time; (ii) any relocation by the Corporation of Executive's principal place of employment of more than 50 miles from the place where Executive's principal residence was located on the date Executive gives notice of such termination; (iii) a material and willful breach by the Corporation of any of its obligations to the Executive hereunder, including, without limitation, the Corporation's failure to obtain the written assumption agreement described in Section 10(a) if such agreement is not obtained within 5 days after written notice that a written assumption agreement required under Section 10(a) has not been obtained; or (iv) the involuntary termination (other than "for cause") of Mr. Peter J. Canzone as an executive officer of the Partnership at any time. (f) In addition to the circumstances described in subsection (e) of this Section 3, the Executive may terminate her employment hereunder for any reason or no reason upon 30 days' prior written notice to the Corporation. (g) If the Executive's employment is terminated pursuant to this Section 3, the Executive shall be entitled to, and the Corporation's obligation hereunder shall be limited to, (i) the payment of the compensation accrued under Section 2 hereof to the effective date of such termination and (for any termination other than pursuant to Section 3(b)) a pro rata portion of any bonuses or incentive compensation payable with respect to any period commencing prior to the termination date, and (ii) in the case of termination under subsections (a), (c), (d) or (e) of this Section 3, the additional compensation provided in subsection (h) of this Section 3. (h) (i) if the Executive's employment is terminated by the Corporation pursuant to subsection (a) of this Section 3 the Executive will get the benefit of any Corporation disability plans; provided, however, that for a period of 12 consecutive months after the effective date of the termination the Corporation will pay the Executive the difference (if any) between the level of annualized salary provided for in Section 2 hereof, less required withholdings, and the amounts provided under such disability plans; or (ii) if the Executive's employment is automatically terminated pursuant to subsection (c) of this Section 3, the Corporation shall continue to pay to the Executive (or, if applicable, to her executor, administrator or heirs) the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for a period of 12 consecutive months after the effective date of the termination; and (iii) if the Executive's employment is terminated by the Corporation pursuant to subsection (d) of this Section 3 or if the Executive terminates her employment pursuant to subsection (e) of this Section 3, the Corporation shall continue to pay to the Executive the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for the greater of (A) one year after the effective date of the termination, and (B) the period after the effective date of the termination, through and including the last day of the then effective term of this Agreement. (i) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking other employment or otherwise; but the amount of any payment provided for in this Section 3, other than amounts set forth in subsection (g)(i) of this Section 3, shall be reduced by any 3 compensation earned by the Executive as the result of employment by another employer after the effective date of termination of the Executive's employment by the Corporation. (j) Nothing in this Agreement shall be deemed a release or waiver of right to any medical or other employee benefits available to the Executive on or after the effective date of termination of the executive's employment by the Corporation under federal, state or local law which provides for the continuation of any medical or other employee benefits after such termination date. 4. Noncompetition. If the Executive is terminated by the Corporation for -------------- cause in accordance with Subsection 3(b) hereof, or if the Executive terminates her employment other than for "good reason" in accordance with Subsection 3(e) hereof, then except as provided in the next sentence, for a period of 12 months after such termination, the Executive will not carry on (as an employee, agent, consultant, independent contractor, stockholder, partner, owner or otherwise) any trade or business competing with the then trade or business of the Corporation (or its affiliates) in any state in which the Corporation (or its affiliates) is carrying on such trade or business as of the effective date of such termination. The foregoing provisions of this Section 4 notwithstanding, the Executive may own not more than 5% of the issued and outstanding shares of any class of securities of an issuer whose securities are listed on a national securities exchange or registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. 5. Trade Secrets. During the term of this Agreement and at all times ------------- thereafter, the Executive shall hold in secrecy all trade secrets and confidential information relating to the Corporation's (and its affiliates') business and affairs that may come to her knowledge or have come to her knowledge while employed by the Corporation or its predecessors (excluding information that is or becomes publicly known or available for use through no fault of the Executive), including but not limited to (i) matters of a business nature, such as information about costs, profits, markets, sales, lists of customers and other information of a similar nature, (ii) plans or strategies for development of the business of the Corporation and (iii) matters of a technical nature. Except as required in the performance of her duties to the Corporation under this Agreement, the Executive shall not use for her own benefit or disclose to any person, directly or indirectly, such matters unless such use or disclosure has been specifically authorized in writing by the Corporation in advance. 6. Executive's Representation. The Executive shall be, and she -------------------------- represents that she is, free to enter into this Agreement and not under any contractual restraint which would prohibit her satisfactorily performing her duties to the Corporation hereunder. 7. Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the internal substantive laws (and not the laws of conflicts of laws) of the State of New York. 8. Costs. If either party brings any legal action against the other to ----- enforce its rights under this Agreement, the prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, costs and expenses actually incurred in enforcing its rights under this Agreement including, without limitation, the reasonable fees and expenses of attorneys, accountants and expert witnesses, which shall include, without limitation, all fees, costs and expenses of appeals and of enforcement. 9. Entire Agreement. This Agreement constitutes the whole agreement of ---------------- the parties hereto in reference to any employment of the Executive by the Corporation and in reference to the subject matter hereof, and all prior agreements, promises, representations and understandings relative thereto are merged herein. 10. Assignability. ------------- (a) In the event that the Corporation shall merge or consolidate with any other corporation, partnership or business entity or all or substantially all the Corporation's business or assets shall be 4 transferred in any manner to any other corporation, partnership or business entity, including (without limitation) any entity that succeeds to the business of the Corporation pursuant to Article X of that certain Partnership Agreement dated August 30, 1993, as amended, such successor shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be, the Corporation hereunder and the Corporation shall obtain a written assumption agreement from such successor prior to completion of any such merger, consolidation or sale of assets. (b) This Agreement is personal in nature and neither of the parties hereto shall, without the written consent of the other party hereto, assign or transfer this Agreement or any rights or obligations hereunder, except by operation of law or pursuant to the terms of Section 10(a). (c) Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof. 11. Remedies. Any material breach, violation or evasion by the Executive -------- of the terms of this Agreement, including specifically, but not limited to, Sections 4 and 5, will result in immediate and irreparable injury and harm to the Corporation, and will cause damage to the Corporation in amounts difficult to ascertain. Accordingly, the Corporation shall be entitled to, and Executive hereby consents to the entry of, the remedies or injunction and specific performance, or either of such remedies, as well as all other remedies to which the Corporation may be entitled, at law, in equity or otherwise. 12. Amendments; Waivers. This Agreement may be amended, modified, ------------------- superseded, canceled, renewed or extended and the terms or covenants hereof may be waived only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by any party of the breach of any term or provision contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13. Notice. All notices, requests and other communications hereunder ------ shall be in writing and, if given by facsimile, telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if given by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed or delivered by overnight courier, shall be deemed to have been validly served, given or delivered when deposited in the United States mail, as registered or certified mail, with proper postage prepaid, or when deposited with the courier service, and addressed to the party or parties to be notified, at the following addresses (or such other address(es) as a party may designate for itself by like notice): If to the Corporation: B.L. Management Services, Inc. 463 Seventh Avenue, 21st Floor New York, New York 10018 Attention: Senior Vice President - Human Resources 5 If to the Executive: _____________________________ _____________________________ _____________________________ 14. Severability. Any provision of this Agreement that is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent that a restrictive covenant contained herein may, at any time, be more restrictive than permitted under the laws of any jurisdiction where this Agreement may be subject to review and interpretation, the terms of such restrictive covenant shall be those allowed by law and the covenant shall be deemed to have been revised accordingly. Each and every term of this Agreement shall be enforced to the fullest extent permitted by law. 6 15. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original and both of which together shall be deemed one Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. The "Corporation": B.L. MANAGEMENT SERVICES, INC. By: _____________________________________ Name: Title: The "Executive": ___________________________________________ Signature The undersigned hereby guarantees the performance of this Agreement by B.L. Management Services, Inc., a Delaware corporation BRYLANE, L.P. _____________________________________ Name: Its: 7 EXHIBIT A Brylane has a semi-annual performance bonus program based upon goals relating to Brylane's operating profit. Such goals will be established at the beginning of each six-month season based upon a review by the Partnership Board of management's operating budget for that season. Each participant in such program may receive a bonus for each semi-annual bonus period equal to a certain percentage of his or her annual salary. The actual bonus amount will be based upon the extent to which the operating profit goals for that season are met or exceeded. Operating profit shall exclude any charge resulting from the formation of the Partnership, such as the write-up of inventory to fair market value on August 30, 1993 and the amortization of the cost of intangibles resulting from the purchase accounting relating to the acquisition. Except as otherwise determined by the Partnership Board, or the Committee, in its sole discretion, operating profit for any given six-month season will also exclude any and all operating profit that is attributable to transactions entered into by Brylane or its affiliates during that six-month season. The Executive's individual participant percentage under such plan will be ___%, subject to any adjustments by the Partnership Board, or the Committee, as it may see fit in its sole discretion. 8 EX-10.72 11 FORM OF EMPLOYMENT AGREEMENT DATED AS OF 4/1/1998 EXHIBIT 10.72 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of April 1, 1998 and is entered into between Brylane, L.P., a Delaware limited partnership (the "Partnership") and ____________________ (the "Executive"). R E C I T A L S --------------- WHEREAS, the Partnership desires to employ the Executive, and the Executive desires to be so employed by the Partnership, on the terms and subject to the conditions hereinafter set forth. A G R E E M E N T ----------------- NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually agree, as follows: 1. Employment. Subject to the other terms and conditions set forth ---------- herein, the Partnership hereby employs the Executive, and the Executive agrees to be employed by the Partnership, as ___________________________________, for a term commencing on April 1, 1998 and continuing until the earlier of March 31, 2001 or the date such employment shall have been terminated as provided in Section 3 hereof. Beginning April 1, 2001, this Agreement shall renew automatically for an additional one year term until the Partnership gives Executive written notice at least 14 calendar days prior to the end of a term, of its intention to terminate this Agreement; provided, however, that this Agreement may terminate earlier than the end of a term as provided in Section 3 hereof. In his capacity as _________________________________, the Executive shall faithfully perform to the best of his ability and in a satisfactory manner all services and acts necessary or advisable as may be assigned to him by the Chief Executive Officer. Throughout the term hereof the Executive shall, except as may from time to time be otherwise agreed in writing by the Partnership, devote his full-time working hours to his duties hereunder. 2. Compensation. ------------ (a) For all services to be rendered by Executive hereunder, and for all rights granted the Partnership hereunder, the Executive shall be paid by the Partnership a base salary at the annual rate of $_______ for each 12-month period of the term hereof, prorated for any portion thereof, payable in substantially equal bimonthly installments, less required withholdings. This base salary shall be reviewed for any adjustments annually by the Board of Representatives of the Partnership (the "Board") or, at the Board's option, a compensation committee thereof (the "Committee"), provided that any adjustments shall be in the sole discretion of the Board or the Committee. (b) The Executive shall be entitled to paid vacations, personal and sick days consistent with the policies of the Partnership for management employees. The Executive shall receive such other compensation as shall be approved by the Board and shall participate in all fringe benefits (including, without limitation, group medical, life, disability and accidental death and dismemberment insurance), bonus and benefit plans which shall be generally available from time to time to management employees of the Partnership. (c) The Executive shall be reimbursed in accordance with the policies of the Partnership as adopted by the Board from time to time for his reasonable travel, entertainment, business, meeting and similar expenditures, incurred for the benefit of the Partnership and subject to approval of the Chief Executive Officer of the Partnership or the Board. As an additional condition to the reimbursement of such expenses by the Partnership to the Executive, the Executive shall provide the Partnership with copies of all available invoices and receipts, and otherwise account to the Partnership in sufficient detail and with adequate documentation to allow the Partnership to confirm the business nature of the expenses and claim an income tax deduction for such paid items, if such items are deductible. (d) The Partnership agrees that the Partnership shall provide the Executive with a benefits package substantially similar (which is not materially less favorable to the Executive in the aggregate) to those coverages and benefits provided or made available to the Executive (and his dependents) immediately prior to the consummation of the transactions contemplated by those certain Stock Purchase Agreements each dated as of February 19, 1998, among FS Equity Partners II, L.P., a California limited partnership, FS Equity Partners III, L.P., a Delaware limited partnership, FS Equity Partners International, L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a company organized under the laws of France ("PPR") and between M&P Distributing Company, a Nevada corporation and PPR. In addition, the Partnership shall provide a bonus or incentive compensation plan which provides the Executive with the opportunity to earn the right to be paid additional compensation as set forth on Exhibit A hereto. This subsection (d) shall not be implemented so as --------- to limit any rights or benefits to which the Executive or his dependents may be entitled under any employee benefit plan maintained by or contributed to by the Partnership. 3. Termination. ----------- (a) The employment of the Executive hereunder may be terminated by the Partnership on at least 30 days' prior written notice if the Board determines that the Executive has become permanently disabled (as hereinafter defined). Such written notice shall provide reasonable detail regarding the basis for such determination. The Executive shall be deemed to be "permanently disabled," as used in this subsection, if the Executive has been substantially unable to discharge his duties and obligations hereunder by reason of illness, accident or disability for a period of 180 days in any twelve-month period. (b) The employment of the Executive hereunder may be terminated forthwith by the Partnership for cause (as hereinafter defined) upon written notice from the Board to the Executive. Such written notice shall provide reasonable detail regarding the basis for such determination. The Partnership shall have "cause" to terminate the Executive, as used in this subsection, only if the Board shall determine that the Executive has, (i) refused or failed within a reasonable period of time to carry out any reasonable and material direction from the Chief Executive Officer of the Partnership or the Board (other than a failure resulting from the Executive's incapacity due to physical or mental illness), (ii) been guilty of a material and willful breach of the terms of this Agreement, (iii) demonstrated gross negligence or willful misconduct in the execution of his assigned duties, (iv) been convicted of a felony or other serious crime involving moral turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the detriment of the Partnership, (vi) intentionally imparted confidential information relating to the Partnership to a third party, other than in the course of carrying out the Executive's duties, or (vii) materially and willfully breached any of his obligations pursuant to the Management Stock Subscription Agreement dated as of February 26, 1997 between Brylane Inc., a Delaware corporation and the parent entity of the Partnership, and the Executive if such breach has not been cured 5 days after receipt of written notice to the Executive. (c) The employment of the Executive hereunder shall be automatically terminated on the date of the Executive's death. 2 (d) In addition to the circumstances set forth in subsections (a), (b) and (c) of this Section 3, the Partnership may terminate the Executive's employment for any reason or no reason and with or without cause upon 30 days' prior written notice to the Executive. (e) The Executive may terminate his employment hereunder forthwith at any time for good reason (as hereinafter defined) upon written notice to the Partnership. For purposes of this subsection, "good reason" shall mean the occurrence of any of the following: (i) a reduction by the Partnership in the Executive's base salary herein provided or as the same may be increased from time to time; (ii) any relocation by the Partnership of Executive's principal place of employment of more than 50 miles from the place where Executive's principal residence was located on the date Executive gives notice of such termination; or (iii) a material and willful breach by the Partnership of any of its obligations to the Executive hereunder, including, without limitation, the Partnership's failure to obtain the written assumption agreement described in Section 10(a) if such agreement is not obtained within 5 days after written notice that a written assumption agreement required under Section 10(a) has not been obtained. (f) In addition to the circumstances described in subsection (e) of this Section 3, the Executive may terminate his employment hereunder for any reason or no reason upon 30 days' prior written notice to the Partnership. (g) If the Executive's employment is terminated pursuant to this Section 3, the Executive shall be entitled to, and the Partnership's obligation hereunder shall be limited to, (i) the payment of the compensation accrued under Section 2 hereof to the effective date of such termination and (for any termination other than pursuant to Section 3(b)) a pro rata portion of any bonuses or incentive compensation payable with respect to any period commencing prior to the termination date, and (ii) in the case of termination under subsections (a), (c), (d) or (e) of this Section 3, the additional compensation provided in subsection (h) of this Section 3. (h) (i) if the Executive's employment is terminated by the Partnership pursuant to subsection (a) of this Section 3 the Executive will get the benefit of any Partnership disability plans; provided, however, that for a period of 12 consecutive months after the effective date of the termination the Partnership will pay the Executive the difference (if any) between the level of annualized salary provided for in Section 2 hereof, less required withholdings, and the amounts provided under such disability plans; or (ii) if the Executive's employment is automatically terminated pursuant to subsection (c) of this Section 3, the Partnership shall continue to pay to the Executive (or, if applicable, to his executor, administrator or heirs) the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for a period of 12 consecutive months after the effective date of the termination; and (iii) if the Executive's employment is terminated by the Partnership pursuant to subsection (d) of this Section 3 or if the Executive terminates his employment pursuant to subsection (e) of this Section 3, the Partnership shall continue to pay to the Executive the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for the greater of (A) one year after the effective date of the termination, and (B) the period after the effective date of the termination, through and including the last day of the then effective term of this Agreement. (i) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking other employment or otherwise; but the amount of any payment provided for in this Section 3, other than amounts set forth in subsection (g)(i) of this Section 3, shall be reduced by any 3 compensation earned by the Executive as the result of employment by another employer after the effective date of termination of the Executive's employment by the Partnership. (j) Nothing in this Agreement shall be deemed a release or waiver of right to any medical or other employee benefits available to the Executive on or after the effective date of termination of the executive's employment by the Partnership under federal, state or local law which provides for the continuation of any medical or other employee benefits after such termination date. 4. Noncompetition. If the Executive is terminated by the -------------- Partnership for cause in accordance with Subsection 3(b) hereof, or if the Executive terminates his employment other than for "good reason" in accordance with Subsection 3(e) hereof, then except as provided in the next sentence, for a period of 12 months after such termination, the Executive will not carry on (as an employee, agent, consultant, independent contractor, stockholder, partner, owner or otherwise) any trade or business competing with the then trade or business of the Partnership (or its affiliates) in any state in which the Partnership (or its affiliates) is carrying on such trade or business as of the effective date of such termination. The foregoing provisions of this Section 4 notwithstanding, the Executive may own not more than 5% of the issued and outstanding shares of any class of securities of an issuer whose securities are listed on a national securities exchange or registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. 5. Trade Secrets. During the term of this Agreement and at all ------------- times thereafter, the Executive shall hold in secrecy all trade secrets and confidential information relating to the Partnership's (and its affiliates') business and affairs that may come to his knowledge or have come to his knowledge while employed by the Partnership or its predecessors (excluding information that is or becomes publicly known or available for use through no fault of the Executive), including but not limited to (i) matters of a business nature, such as information about costs, profits, markets, sales, lists of customers and other information of a similar nature, (ii) plans or strategies for development of the business of the Partnership and (iii) matters of a technical nature. Except as required in the performance of his duties to the Partnership under this Agreement, the Executive shall not use for his own benefit or disclose to any person, directly or indirectly, such matters unless such use or disclosure has been specifically authorized in writing by the Partnership in advance. 6. Executive's Representation. The Executive shall be, and he -------------------------- represents that he is, free to enter into this Agreement and not under any contractual restraint which would prohibit his satisfactorily performing his duties to the Partnership hereunder. 7. Governing Law. This Agreement shall be governed by and construed ------------- and enforced in accordance with the internal substantive laws (and not the laws of conflicts of laws) of the State of Indiana. 8. Costs. If either party brings any legal action against the other ----- to enforce its rights under this Agreement, the prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, costs and expenses actually incurred in enforcing its rights under this Agreement including, without limitation, the reasonable fees and expenses of attorneys, accountants and expert witnesses, which shall include, without limitation, all fees, costs and expenses of appeals and of enforcement. 9. Entire Agreement. This Agreement constitutes the whole agreement ---------------- of the parties hereto in reference to any employment of the Executive by the Partnership and in reference to the subject matter hereof, and all prior agreements, promises, representations and understandings relative thereto are merged herein. 4 10. Assignability. ------------- (a) In the event that the Partnership shall merge or consolidate with any other corporation, partnership or business entity or all or substantially all the Partnership's business or assets shall be transferred in any manner to any other corporation, partnership or business entity, including (without limitation) any entity that succeeds to the business of the Partnership pursuant to Article X of that certain Partnership Agreement dated August 30, 1993, as amended, such successor shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be, the Partnership hereunder and the Partnership shall obtain a written assumption agreement from such successor prior to completion of any such merger, consolidation or sale of assets. (b) This Agreement is personal in nature and neither of the parties hereto shall, without the written consent of the other party hereto, assign or transfer this Agreement or any rights or obligations hereunder, except by operation of law or pursuant to the terms of Section 10(a). (c) Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof. 11. Remedies. Any material breach, violation or evasion by the -------- Executive of the terms of this Agreement, including specifically, but not limited to, Sections 4 and 5, will result in immediate and irreparable injury and harm to the Partnership, and will cause damage to the Partnership in amounts difficult to ascertain. Accordingly, the Partnership shall be entitled to, and Executive hereby consents to the entry of, the remedies or injunction and specific performance, or either of such remedies, as well as all other remedies to which the Partnership may be entitled, at law, in equity or otherwise. 12. Amendments; Waivers. This Agreement may be amended, modified, ------------------- superseded, canceled, renewed or extended and the terms or covenants hereof may be waived only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by any party of the breach of any term or provision contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13. Notice. All notices, requests and other communications hereunder ------ shall be in writing and, if given by facsimile, telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if given by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed or delivered by overnight courier, shall be deemed to have been validly served, given or delivered when deposited in the United States mail, as registered or certified mail, with proper postage prepaid, or when deposited with the courier service, and addressed to the party or parties to be notified, at the following addresses (or such other address(es) as a party may designate for itself by like notice): If to the Partnership: Brylane, L.P. 463 Seventh Avenue, 21st Floor New York, New York 10018 Attention: Senior Vice President-Human Resources 5 If to the Executive: _____________________________ _____________________________ _____________________________ 14. Severability. Any provision of this Agreement that is prohibited ------------ or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent that a restrictive covenant contained herein may, at any time, be more restrictive than permitted under the laws of any jurisdiction where this Agreement may be subject to review and interpretation, the terms of such restrictive covenant shall be those allowed by law and the covenant shall be deemed to have been revised accordingly. Each and every term of this Agreement shall be enforced to the fullest extent permitted by law. 15. Counterparts. This Agreement may be executed in two ------------ counterparts, each of which shall be deemed an original and both of which together shall be deemed one Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. The "Partnership": BRYLANE, L.P. By: VGP Corporation Its: General Partner By: ______________________________________ Name: Title: The "Executive": ___________________________________________ Signature 6 EXHIBIT A Brylane has a semi-annual performance bonus program based upon goals relating to Brylane's operating profit. Such goals will be established at the beginning of each six-month season based upon a review by the Board of management's operating budget for that season. Each participant in such program may receive a bonus for each semi-annual bonus period equal to a certain percentage of his or her annual salary. The actual bonus amount will be based upon the extent to which the operating profit goals for that season are met or exceeded. Operating profit shall exclude any charge resulting from the formation of the Partnership, such as the write-up of inventory to fair market value on August 30, 1993 and the amortization of the cost of intangibles resulting from the purchase accounting relating to the acquisition. Except as otherwise determined by the Board, or the Committee, in its sole discretion, operating profit for any given six-month season will also exclude any and all operating profit that is attributable to transactions entered into by Brylane or its affiliates during that six-month season. The Executive's individual participant percentage under such plan will be ___%, subject to any adjustments by the Board, or the Committee, as it may see fit in its sole discretion. 1. EX-10.79 12 FORM OF EMPLOYMENT AGREEMENT DATED AS OF 4/1/1998 EXHIBIT 10.79 EMPLOYMENT AGREEMENT THIS AGREEMENT between Brylane, L.P., a Delaware limited partnership ("Brylane" or the "Company"), and _________________ ("Executive"), is dated as of April 1, 1998. Executive is a key executive of the Company or a Subsidiary and an integral part of its management. The Company desires to employ Executive, and Executive desires to be so employed by the Company, on the terms and subject to the conditions hereinafter set forth. The Company recognizes that the possibility of a change of control of the Company or Chadwick's (as hereinafter defined) may result in the departure or distraction of management to the detriment of the Company. The Company wishes to assure Executive of fair severance should his employment terminate in specified circumstances following a change of control of the Company or Chadwick's and to assure Executive of certain other benefits upon a change of control. The Company also wishes to assure Executive of fair severance should his employment terminate in certain other circumstances. In consideration of Executive's continued employment with the Company or a Subsidiary and other good and valuable consideration, the parties agree as follows: 1. Definitions. The following terms as used in this Agreement shall have the ----------- following meanings: a. "Base Salary" shall mean Executive's annual base salary, exclusive of any bonus or other benefits he may receive. b. "Cause" shall mean dishonesty, conviction of a felony or gross neglect by Executive of his duties (other than as a result of Disability, Incapacity or death), or conflict of interest, which gross neglect or conflict shall continue for 30 days after the Company gives written notice to Executive requesting the cessation of such gross neglect or conflict. In respect of any termination during any Standstill Period, Executive shall not be deemed to have been terminated for Cause until the later to occur of (i) the 30th day after notice of termination is given and (ii) the delivery to Executive of a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board of Representatives of the Company at a meeting called and held for that purpose (after reasonable notice to Executive), and at which Executive together with his counsel was given an opportunity to be heard, finding that Executive was guilty of conduct described in the definition of "Cause" above, and specifying the particulars thereof in detail; provided, -------- however, that the Company may suspend Executive and withhold payment of his Base - ------- Salary from the date that notice of termination is given until the earliest to occur of (a) termination of Executive for Cause effected in accordance with the foregoing procedures (in which case Executive shall not be entitled to his Base Salary for such period), (b) a determination by a majority of the Board of Representatives of the Company that Executive was not guilty of the conduct described in the definition of "Cause" above (in which case Executive shall be reinstated and paid any of his previously unpaid Base Salary for such period), or (c) one year after notice of termination is given (in which case Executive shall be reinstated and paid any of his previously unpaid Base Salary for such period). c. "Chadwick's" shall mean The Chadwick's of Boston, Ltd. business previously owned and operated by The TJX Companies, Inc. ("TJX"). d. "Change of Control" shall have the meaning set forth in Exhibit A. --------- e. "Current Title" shall mean Executive's most senior title during the period 180 days prior to the commencement of a Standstill Period. f. "Date of Termination" shall mean the date on which Executive's employment is terminated. g. "Disability" shall have the meaning given it in the long-term disability plan previously operated by Chadwick's (or any successor plan operated by Brylane or any of its affiliates, so long as the definition of "Disability" in any such successor plan is not more restrictive). Executive's employment shall be deemed to be terminated for Disability on the date on which Executive is entitled to receive long-term disability compensation pursuant to such long-term disability plan. h. "Employment Period" shall mean the period commencing as of the date of this Agreement and ending on March 31, 2001. i. "Executive" shall have the meaning set forth in the first paragraph of this Agreement. j. "Good Reason" shall mean, with respect to any voluntary termination of employment by Executive other than during a Standstill Period, the following: i. the assignment to Executive of any duties materially inconsistent with his positions, duties, responsibilities, reporting requirements, and status with the Company (or a Subsidiary) on the later of the date of this Agreement and 120 days prior to the date of such termination, or a substantive change in Executive's titles, reporting requirements or offices as in effect on the later of the date of this Agreement and 120 days prior to the date of such termination, or any removal of Executive from or any failure to reelect him to such positions, except in connection with the termination of Executive's employment by the Company (or a Subsidiary) for Cause or by Executive other than for Good Reason; or any other action by the Company (or a Subsidiary) which results in a diminishment in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Company or the Subsidiary promptly after receipt of notice thereof given by Executive; or ii. if Executive's rate of Base Salary for any fiscal year is less than 100 percent of the Base Salary paid to Executive in the completed fiscal year immediately preceding the fiscal year in which Executive voluntarily terminates his employment, or if Executive's total cash compensation opportunities, including salary and incentives, for any fiscal year are less than 100 percent of the total cash compensation opportunities made available to Executive in the completed fiscal year immediately preceding the fiscal year in which Executive voluntarily terminates his employment; or iii. any relocation by Company of Executive's principal place of employment of more than 50 miles from the place where Executive's principal residence was located on the date that Executive gives notice of such termination. iv. any breach by the Company of any term or provision of this Agreement. Notwithstanding the foregoing, a voluntary termination by Executive of his Employment shall not be deemed to be for "Good Reason" unless such termination occurs within 120 days after the occurrence of any event described in clauses (i), (ii), (iii) or (iv) above without Executive's express written consent, Executive 2 gives notice to the Company at least 30 days in advance requesting that the situation described in such clauses be remedied, and the situation remains unremedied upon expiration of such 30-day period. In addition, in no event shall a termination by Executive for "Good Reason" during the Employment Period be seemed to be a breach by Executive of this Agreement. k. "Incapacity" shall mean a disability (other than a disability within the meaning of "Disability" in paragraph g. above) or other impairment of health that renders Executive unable to perform his duties to the satisfaction of the Compensation Committee of the Board of Representatives of the Company. If by reason of Incapacity Executive is unable to perform his duties for at least six months in any consecutive 12-month period, upon written notice by the Company the employment of Executive shall be deemed to have terminated by reason of Incapacity. l. "Prohibited Period" means a period commencing on the Date of Termination and ending on the later of the last day of the Employment Period and the date one year from the Date of Termination. m. "Qualified Termination" shall mean the termination of Executive's employment during any Standstill Period (1) by the Company other than for Cause, (2) by reason of death, Incapacity or Disability, or (3) by Executive voluntarily in connection with the following events: i. the assignment to him of any duties materially inconsistent with his positions, duties, responsibilities, reporting requirements, and status with the Company (or a Subsidiary) immediately prior to a Change of Control, or a substantive change in Executive's titles, reporting requirements or offices as in effect immediately prior to a Change of Control, or any removal of Executive from or any failure to reelect him to such positions, except in connection with the termination of Executive's employment by the Company (or a Subsidiary) for Cause or by Executive other than in connection with an event described in this clause (3); or any other action by the Company (or a Subsidiary) which results in a diminishment in such position, authority, duties or responsibilities, other than an insubstantial and inadvertent action which is remedied by the Company or the Subsidiary promptly after receipt of notice thereof given by Executive; or ii. if Executive's rate of Base Salary for any fiscal year is less than 100 percent of the Base Salary paid to Executive in the completed fiscal year immediately preceding the Change of Control, or if Executive's total cash compensation opportunities, including salary and incentives, for any fiscal year are less than 100 percent of the total cash compensation opportunities made available to Executive in the completed fiscal year immediately preceding the Change of Control; or iii. the failure of the Company (or a Subsidiary) to continue in effect any benefits or perquisites, or any pension, life insurance, medical insurance or disability plan in which Executive was participating immediately prior to a Change of Control unless the Company (or a Subsidiary) provides Executive with a plan or plans that provide substantially similar benefits in the aggregate, or the taking of any action by the Company (or a Subsidiary) that would adversely affect Executive's participation in or materially reduce Executive's benefits in the aggregate under such plans or deprive Executive of any material fringe benefit enjoyed by Executive immediately prior to a Change of Control, unless the elimination or reduction of any such benefit, perquisite or plan affects all other executives in the same organizational level (it being the Company's burden to establish this fact); or iv. any purported termination of Executive's employment by the Company (or a Subsidiary) for Cause during a Standstill Period which is not effected in compliance with paragraph b. above; or v. any relocation by Company of Executive's principal place of employment of more than 50 miles from the place where Executive's principal residence was located at the time of the Change of Control; or 3 vi. any other breach by the Company of any term or provision of this Agreement; or vii. termination by Executive of his employment for Retirement. Notwithstanding the foregoing, a voluntary termination by Executive of his Employment shall not be deemed to fall within this clause (m) unless: (A) with respect to any of the events described in clauses (i), (ii), (iii), (iv), (v) or (vi) above, such termination occurs within 120 days after the occurrence of any of such event without Executive's express written consent, Executive gives notice to the Company at least 30 days in advance requesting that the situation described in such clauses be remedied, and the situation remains unremedied upon expiration of such 30-day period; (B) with respect to the event described in clause (vii) above, such termination occurs within 120 days after the occurrence of such event without Executive's express written consent and Executive gives notice to the Company at least 30 days in advance; or (C) with respect to the event described in clause (vii), Executive gives notice to the Company at least 30 days in advance. In addition, in no event shall a termination by Executive during the Employment Period that qualifies as a "Qualified Termination" be deemed to be a breach by Executive of this Agreement. n. "Retirement" shall mean voluntary termination by Executive of his employment in accordance with the Company's retirement plan or program generally applicable to its salaried employees or in accordance with any retirement arrangement established with Executive's consent with respect to him. Nothing in this Agreement shall affect any agreement between Executive and the Company with respect to his retirement. o. "Standstill Period" shall be the period commencing on the date of a Change of Control and continuing until the close of business on the last business day of the 24th calendar month following such Change of Control. p. "Subsidiary" shall mean any corporation in which the Company owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock. 2. Employment. Subject to the other terms and conditions set forth herein, ---------- the Company hereby employs Executive, and Executive agrees to be employed by the Company, as ______________________________, for a term commencing as of April 1, 1998 and continuing until the earlier of March 31, 2001 or the date such employment shall have been terminated in accordance with the terms of this Agreement. Beginning April 1, 2001, this Agreement shall renew automatically for an additional one year term until the Corporation gives Executive written notice at least 14 calendar days prior to the end of a term, of its intention to terminate this Agreement; provided, however, that this Agreement may terminate earlier than the end of a term as provided in this Agreement. In his capacity as _________________________, Executive shall faithfully perform to the best of his ability all services and acts necessary or advisable as may be assigned to him by the Board of Representatives of Brylane and consistent with his position as ___________________________. Throughout the term hereof, Executive shall, except as may from time to time be otherwise agreed in writing by the Company, devote his full-time working hours to his duties hereunder. 3. Compensation. ------------ a. For all services to be rendered by Executive hereunder, and for all rights granted the Company hereunder, Executive shall be paid by the Company a base salary at the annual rate of $_______ for each 12-month period of the term hereof, prorated for any portion thereof, payable in substantially equal bimonthly installments, less required withholdings. This base salary shall be reviewed for any upward adjustments by the Board of Representatives of Brylane or, at the Board's option, the Compensation Committee, in March 1999 and every March thereafter; provided, that any adjustments to Executive's salary shall be -------- in the sole discretion of the Board or the Compensation Committee. 4 b. Executive shall be entitled to paid vacations, personal and sick days consistent with the policies of the Company for management employees. Executive shall receive such other compensation as shall be approved by the Board and shall participate in all fringe benefits (including, without limitation, group medical, life, disability and accidental death and dismemberment insurance), bonus and benefit plans which shall be generally available from time to time to management employees of the Company. Notwithstanding the foregoing provisions of this subsection (b), the Company agrees that it shall provide Executive with a benefits package which is not materially less favorable to Executive in the aggregate when compared with those coverages and benefits provided or made available by Chadwick's or its affiliates to Executive (and his dependents) immediately prior to the consummation of the transactions contemplated by that certain Asset Purchase Agreement dated as of October 18, 1996, by and among TJX, Chadwick's and Brylane (including, but not limited to, LRMIP, SERP, car, life and other insurance programs, financial planning and medical, in all cases with appropriate vesting for service). To the extent that a benefit or program can not be transferred, it will be matched with a replacement program or benefit or, if it can not be matched with a similar program or benefit, a program or benefit with equivalent value will be created. In addition, Brylane shall provide a bonus or incentive compensation plan which provides Executive with the opportunity to earn the right to be paid additional compensation as set forth on Exhibit C hereto. - --------- c. Executive shall be reimbursed in accordance with the policies of the Company as adopted by the Board from time to time for his reasonable travel, entertainment, business, meeting and similar expenditures, incurred for the benefit of the Company and subject to approval of the Chief Executive Officer of Brylane or the Board. As an additional condition to the reimbursement of such expenses by the Company to Executive, Executive shall provide the Company with copies of all available invoices and receipts, and otherwise account to the Company in sufficient detail and with adequate documentation to allow the Company to confirm the business nature of the expenses and claim an income tax deduction for such paid items, if such items are deductible. 4. Benefits Upon a Change of Control. --------------------------------- a. Benefits Following Termination of Employment. Executive shall be -------------------------------------------- entitled to the following benefits upon a Qualified Termination: i. Within 30 days following the Date of Termination, the Company shall pay to Executive the following in a lump sum: (1) an amount equal to two times Executive's Base Salary for one year at the rate in effect immediately prior to the Date of Termination or the Change of Control (or if Executive's title was changed to a level below that of Executive's Current Title, the rate in effect immediately prior to such change), whichever is highest, plus the accrued and unpaid portion of Executive's Base Salary through the Date of Termination. Any payments made to Executive under any long term disability plan of the Company with respect to the two years following termination of employment shall be offset against such two times Base Salary payment. Executive shall promptly make reimbursement payments to the Company to the extent any such disability payments are received after the Base Salary payment. (2) if Executive was a participant in the Supplemental Executive Retirement Plan of TJX or any successor plan operated by Brylane or any of its affiliates (in either event, "SERP"), immediately prior to the Change of Control and the number of years Executive has been employed by the Company (or a Subsidiary) is five or more, including service for TJX and its subsidiaries, an amount equal to the present value of the payments that Executive would have been entitled to receive under the TJX SERP as a Category B participant (regardless of whether he was participating in any SERP on the Date of Termination). The present value of such payments shall be calculated using the following rules and assumptions: 5 (a) a credit equal to the number of Years of Service (as that term is defined in the TJX SERP, but which term shall in any event count years of service with the Company) that Executive has been employed by the Company and subsidiaries at the Date of Termination, including service for TJX and its subsidiaries, shall be added to his Years of Service in determining Executive's total Years of Service. However, the total Years of Service determined hereunder shall not exceed the lesser of (x) 20 or (y) the Years of Service that Executive would have had if he had retired at the age of 65; (b) Executive's Average Compensation (as that term is defined in the TJX SERP) shall be determined as of the Date of Termination; (c) Executive's Primary Social Security Benefit (as that term is defined in the TJX SERP) shall mean the annual primary insurance amount to which Executive is entitled or would, upon application therefor, become entitled at age 65 under the provisions of the Federal Social Security Act as in effect on the Date of Termination assuming that Executive received annual income at the rate of his Base Salary from the Date of Termination until his 65th birth date which would be treated as wages for purposes of the Social Security Act; (d) the monthly benefit under the TJX SERP determined using the criteria set forth in (A), (B), and (C) above shall be multiplied by 12 to determine an annual benefit; and (e) the present value of such annual benefit shall be determined by multiplying the result in (D) by the appropriate actuarial factor from the most recently published table 4A (or its equivalent) as published by the Pension Benefit Guaranty Corporation and which is effective for plan terminations occurring on the Date of Termination, using Executive's age to the nearest year determined as of that date. If, as of the Date of Termination, Executive has previously satisfied the eligibility requirements for Early Retirement under the TJX Retirement Plan (or any successor plan operated by Brylane or any of its affiliates), then the appropriate factor shall be that based on the most recently published "PBGC Actuarial Value of $1.00 Per Year Deferred to Age 60 And Payable For Life Thereafter -- Healthy Lives," except that if Executive's age to the nearest year is more than 60, then such higher age shall be substituted for 60. If, as of the Date of Termination, Executive has not satisfied the eligibility requirements for Early Retirement under the TJX Retirement Plan (or any successor plan operated by Brylane or any of its affiliates), then the appropriate factor shall be based on the most recently published "PBGC Actuarial Value of $1.00 Per Year Deferred To Age 65 And Payable For Life Thereafter -- Healthy Lives." If Executive receives a payment under this subparagraph (2), he shall not be entitled to any other payments under SERP. ii. Until the second anniversary of the Date of Termination, the Company shall maintain in full force and effect for the continued benefit of Executive and his family all life insurance, medical insurance and disability plans and programs in which Executive was entitled to participate immediately prior to the Change of Control (or if Executive's title was changed to a level below that of Executive's Current Title, all such plans and programs in which Executive was entitled to participate immediately prior to such change, if the benefits thereunder are greater), provided that Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that Executive is ineligible to participate in such plans or programs, the Company shall arrange upon comparable terms to provide Executive with benefits substantially similar to those which he is entitled to receive under such plans and programs. Notwithstanding the foregoing, the Company's obligations hereunder with respect to life, medical or disability coverage or benefits shall be deemed satisfied to the extent (but only to the extent) of any such coverage or benefits provided by another employer. iii. Until the second anniversary of the Date of Termination, the Company shall make available to Executive the use of any automobile that was made available to Executive prior to the Date of Termination, including ordinary replacement thereof in accordance with the Company's automobile policy in 6 effect immediately prior to the Change of Control, or if Executive's title was changed to a level below that of Executive's Current Title, the Company shall make available to Executive the use of an automobile of a type comparable to the automobile that was made available to him immediately prior to such change (or, in lieu of making such automobile available, the Company may at its option pay to Executive the present value of its cost of providing such automobile). Within 30 days after the close of each calendar year ending within such two-year period, the Company shall also pay to Executive an amount to gross up Executive for the federal and state tax liability of Executive, if any, for the use of such automobile during the calendar year. If immediately prior to the Date of Termination, the Company provided Executive with an automobile allowance rather than with the use of an automobile, the Company shall pay to Executive in a lump sum within 30 days following the Date of Termination an amount equal to (i) two times Executive's automobile allowance for one year at the rate in effect immediately prior to the Date of Termination or the Change of Control (or if Executive's title was changed to a level below that of Executive's Current Title, the rate in effect immediately prior to such change), whichever is highest, including any increase in such rate which would have become effective during the two-year period following the Date of Termination (had a Qualified Termination not occurred), in accordance with the Company's automobile policy in effect immediately prior to the Change of Control, plus (ii) the accrued and unpaid portion of Executive's automobile allowance through the Date of Termination, plus (iii) an amount to gross up Executive for the federal and state tax liability of Executive on such lump sum payment. In addition to either providing the use of an automobile or paying the amount described in the preceding sentence, the Company shall also reimburse Executive for reasonable amounts of cellular telephone expenses incurred by Executive during the two-year period following the Date of Termination. Payments under this Section 4(a) and Section 4(b) below, shall be made without regard to whether the deductibility of such payments (or any other payments to or for the benefit of Executive) would be limited or precluded by Internal Revenue Code Section 280G and without regard to whether such payments (or any other payments) would subject Executive to the federal excise tax levied on certain "excess parachute payments" under Internal Revenue Code Section 4999; provided, that if the total of all payments to or for the benefit of Executive, - -------- after reduction for all federal taxes (including the tax described in Internal Revenue Code Section 4999, if applicable) with respect to such payments ("Executive's total after-tax payments"), would be increased by the limitation or elimination of any payment under this Section 4(a) or Section 4(b), amounts payable under this Section 4(a) and Section 4(b) shall be reduced to the extent, and only to the extent, necessary to maximize Executive's total after-tax payments. The determination as to whether and to what extent payments under this Section 4(a) or Section 4(b) are required to be reduced in accordance with the preceding sentence shall be made at the Company's expense by Coopers & Lybrand or by such other certified public accounting firm as the Compensation Committee of the Company's Board of Representatives may designate prior to a Change of Control. In the event of any underpayment or overpayment under this Section 4(a) or Section 4(b), as determined by Coopers & Lybrand (or such other firm as may have been designated in accordance with the preceding sentence), the amount of such underpayment or overpayment shall forthwith be paid to Executive or refunded to the Company, as the case may be, with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Internal Revenue Code. b. Other Benefits. Within 30 days following a Change of Control, whether -------------- or not Executive's employment has been terminated, the Company shall pay to Executive the following in a lump sum: i. an amount equal to the "Target Bonus" under the plan referred to in Exhibit C attached hereto or any successor plan operated by Brylane or any of --------- its affiliates and which is applicable to Executive for the fiscal year in which the Change of Control occurs (in either event, "MIP") (or if Executive's title was changed to a level below that of Executive's Current Title within 180 days before the commencement of a Standstill Period, the "Target Bonus" applicable to Executive for the fiscal year in which such change occurred as if he continued to hold Executive's Current Title, if higher); and 7 ii. if Executive is a participant in the Long Range Management Incentive Plan of TJX or any successor plan operated by Brylane of any of its affiliates and in effect at the Change of Control (in either event, "LRMIP") (but specifically excluding any long-range incentive plan which states that its sole or primary purpose is retention), an amount with respect to each Award Period (as that term is defined in LRMIP) for which Executive has been designated as a participant equal to the product of (A) the maximum award payable to Executive for such Award Period, as designated by the Company's Compensation Committee under LRMIP (or, if Executive's title was changed to a level below that of Executive's Current Title, in the case of an Award Period which commences after such change, the maximum award payable to Executive for such Award Period shall be deemed to be the maximum award payable to Executive for the Award Period which commenced immediately prior to such change, if higher), and (B) a fraction, the denominator of which is the total number of fiscal years in the Award Period and the numerator of which is the number of fiscal years which have elapsed in such Award Period prior to the Change of Control (for purposes of this fraction, if the Change of Control occurs during the first quarter of a fiscal year, then one-quarter of the fiscal year shall be deemed to have elapsed prior to the Change of Control, and if the Change of Control occurs after the first quarter of the fiscal year, then the full fiscal year shall be deemed to have elapsed prior to the Change of Control). 5. Nonsolicitation and Noncompetition; Other Severance Payments; No Mitigation --------------------------------------------------------------------------- of Damages; Notice of New Employment; Withholding. -------------------------------------------------- a. Nonsolicitation and Noncompetition; Trade Secrets. -------------------------------------------------- i. Upon the termination of Executive's employment for any reason, Executive shall not during the Prohibited Period under any circumstances (1) employ, solicit the employment of, or accept unsolicited the services of, any "protected person" or (2) recommend the employment of any "protected person" to any other business organization in which Executive has any direct or indirect interest (other than a less-than-one percent equity interest in an entity), with which Executive is affiliated or for which Executive renders services. A "protected person" shall be a person known by Executive to be employed by the Company or its subsidiaries at or within six months prior to the commencement of conversations with such person with respect to employment. As to (1) each "protected person" to whom the foregoing applies, (2) each subcategory of "protected person" as defined above, (3) each limitation on (A) employment of, (B) solicitation of, or (C) unsolicited acceptance of services from, each "protected person" and (4) each month of the period during which the provisions of this paragraph (i) apply to each of the foregoing, the provisions set forth in this paragraph (i) are deemed to be separate and independent agreements and in the event of unenforceability of any such agreement, such unenforceable agreement shall be deemed automatically deleted from the provisions hereof and such deletion shall not affect the enforceability of any other provision of this paragraph (i) or any other term of this agreement. ii. During the course of his employment, Executive will have learned many trade secrets of the Company and its subsidiaries and will have access to confidential information and business plans of the Company. Therefore, subject to paragraph (iii) of this Section 5(a), if Executive should terminate his employment voluntarily at any time other than for Good Reason, but including by reason of Retirement or Disability, or if the Company should terminate Executive's employment at any time for Cause, then, during the Prohibited Period, Executive will not carry on (as an employee, agent, consultant, independent contractor, stockholder, partner, owner or otherwise, other than as an investor in a less-than-one percent equity interest in an entity) any trade or business competing with the then trade or business of Brylane (or its affiliates) in any state in which Brylane (or its affiliates) is carrying on such trade or business as of the effective date of such termination. For purposes of this paragraph, TJX and its subsidiaries shall also be deemed competitors. Executive agrees that if, at any time, pursuant to action of any court, administrative or governmental body or other arbitral tribunal, the operation of any part of this paragraph shall be determined to be unlawful or otherwise unenforceable, then 8 the coverage of this paragraph shall be deemed restricted as to duration, geographical scope or otherwise, to the extent, and only to the extent, necessary to make this paragraph lawful and enforceable in the particular jurisdiction in which such determination is made. iii. Paragraph (ii) of this Section 5(a) shall not apply if Executive's employment is terminated either by the Company or by Executive during a Standstill Period. b. Other Severance Payments. ------------------------ i. If Executive's employment is terminated prior to the last day of the Employment Period, and such termination is either by Executive for Good Reason or by the Company for any reason other than for Cause, and such termination is not a Qualified Termination, no compensation or other benefits shall be payable to or accrue to Executive hereunder, except as follows: (1) For the longer of (A) one year after the Date of Termination or (B) the remainder of the Employment Period, the Company will continue to pay to Executive his Base Salary at the rate in effect on the Date of Termination. Base Salary shall be paid for the first twelve months of the period without reduction for compensation earned from other employment or self-employment, and shall thereafter be reduced by such compensation. (2) Until the expiration of Base Salary payments described in (1) immediately above or until Executive shall commence other employment or self- employment, whichever shall first occur, the Company will provide medical and hospital insurance and term life insurance (but not long-term disability insurance) for Executive and his family, comparable to the insurance provided for executives generally, as the Company shall determine, and upon the same terms and conditions as shall be provided for Company executives generally, provided that Executive's continued participation is possible under the general terms and provisions of such plans and programs. In the event that Executive is ineligible to participate in such plans or programs, the Company shall arrange upon comparable terms to provide Executive with benefits substantially similar to those which he is entitled to receive under such plans and programs. (3) For purposes of the MIP, Executive shall be entitled to payment, if any, pursuant to the terms of the MIP, or, if greater, such amount as Executive would have earned under MIP if his employment had continued until the end of the fiscal year (pro-rated for the period of active employment during the year). Executive shall also be entitled to payments or benefits under other plans of the Company to the extent provided therein in the circumstances. ii. If Executive's employment terminates by reason of death, Disability or Incapacity, and such termination is not a Qualified Termination, no compensation or benefits shall be payable to or accrue to Executive hereunder, except that Executive shall be entitled to payment, if any, pursuant to the terms of the MIP or, if greater, such amount as Executive would have earned under the MIP until the end of the fiscal year (pro-rated for the period of active employment during such year). Executive shall also be entitled to payments or benefits under other Employer plans, including any long-term disability plan, to the extent therein provided in the circumstances. iii. In the event that Executive has any other agreement with the Company (or a Subsidiary) which entitles Executive to severance payments upon the termination of his employment with the Company, the amount of any such severance payments shall be deducted from the payments to be made under this Agreement. If Executive should violate any of the provisions of Section 5(a) hereof, all compensation and benefits payable under Section 5(b) shall cease. 9 c. No Duty to Mitigate Damages; Remedies Not Exclusive. Executive's --------------------------------------------------- benefits under this Agreement shall be considered severance pay in consideration of his past service (including service with TJX and its subsidiaries) and his continued service from the date of this Agreement, and his entitlement thereto shall not be governed by any duty to mitigate his damages by seeking further employment, nor shall such benefits be offset by any compensation which he may receive from future employment, except as provided in Section 5(b)(i). In addition, notwithstanding anything contained in this Agreement to the contrary, in the event that Executive's termination of employment with the Company, either for "Good Reason" or in circumstances that constitute a "Qualified Termination", are based on circumstances involving a breach of the terms and conditions of this Agreement by a party other than the Executive, then the benefits to be provided to Executive in connection with such a termination shall be in addition to, and not in limitation of, any other legal or equitable remedies to which Executive may otherwise be entitled. d. Notice of New Employment. If Executive's employment terminates other ------------------------ than in a Qualified Termination, Executive agrees (i) to notify the Company immediately upon his securing employment or becoming self-employed during any period when Executive's compensation from the Company shall be subject to reduction or his benefits provided by the Company shall be subject to termination under Section 5(b) and (ii) to furnish to the Company written evidence of his compensation earned from any such employment or self-employment as the Company shall from time to time request. In addition, upon Executive's termination of employment for any reason other than the death of Executive, Executive shall immediately return all written trade secrets, confidential information and business plans of the Company and its affiliates and shall execute a certificate certifying that he has returned all such items in his possession or under his control. c. Withholding. Anything to the contrary notwithstanding, all payments ----------- required to be made by the Company hereunder to Executive shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. 6. Anticipatory Termination. Anything in this Agreement to the contrary ------------------------ notwithstanding, if Executive's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated by Executive that such termination (a) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (b) otherwise arose in connection with or in anticipation of a specifically threatened Change of Control, then for all purposes of this Agreement, a Change of Control shall be deemed to have occurred on the date immediately prior to the date of such termination. 7. Miscellaneous. In the event the definition of Change of Control in this ------------- Agreement differs from the definition of "change of control" contained in any other executive compensation or employee benefit plan (other than a tax- qualified plan) maintained by the Company in which Executive is a Participant, the definition of Change of Control contained herein shall control for the purposes of determining whether a "change of control" has occurred under such other plan with respect to Executive. 8. Arbitration. Any controversy or claim arising out of or relating to this ----------- Agreement, or the breach thereof, shall be settled exclusively by arbitration in Boston, Massachusetts in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Arbitration shall be by a panel of three arbitrators, one each chosen by Executive and the Company, and the third chosen by mutual agreement of the arbitrators chosen by Executive and the Company. 9. Legal Fees and Expenses. The Company shall pay all legal fees and ----------------------- expenses, including but not limited to counsel fees, stenographer fees, printing costs, etc. reasonably incurred by Executive in obtaining any right or benefit to which Executive is entitled under this Agreement in the event of a Change of Control. Any amount 10 payable under this Agreement that is not paid when due shall accrue interest at the prime rate as from time to time in effect at the First National Bank of Boston, until paid in full. 10. Notice of Termination. During a Standstill Period, Executive's employment --------------------- may be terminated by the Company (or a Subsidiary) only upon 30 days' written notice to Executive. 11. Notices. All notices shall be in writing and shall be deemed given five ------- days after mailing in the continental United States by registered or certified mail, or upon personal receipt after delivery, telex, telecopy or telegram, to the party entitled thereto at the address stated below or to such changed address as the addressee may have given by a similar notice: To the Company: Brylane, L.P. 463 7th Avenue, 21st Floor New York, New York 10018 Attention: Robert A. Pulciani To Executive: At home address, as last shown on the records of the Company The failure by Executive to set forth in any notice of termination of employment any fact or circumstance which contributes to a showing of Good Reason or that such termination is described in clause (3) of Section 1(m) shall not waive any of Executive's rights hereunder or preclude him from asserting such fact or circumstance in enforcing his rights hereunder. 12. Severability. In the event that any provision of this Agreement shall be ------------ determined to be invalid or unenforceable, such provision shall be enforceable in any other jurisdiction in which valid and enforceable and in any event the remaining provisions shall remain in full force and effect to the fullest extent permitted by law. 13. General Provisions. ------------------ a. Binding Agreement. This Agreement shall be binding upon and inure to ----------------- the benefit of the parties and be enforceable by Executive's personal or legal representatives or successors. If Executive dies while any amounts would still be payable to him hereunder, benefits would still be provided to his family hereunder or rights would still be exercisable by him hereunder as if he had continued to live, such amounts shall be paid to Executive's estate, such benefits shall be provided to Executive's family and such rights shall remain exercisable by Executive's estate in accordance with the terms of this Agreement. This Agreement shall not otherwise be assignable by Executive. b. Successors. This Agreement shall inure to and be binding upon the ---------- Company's successors. The Company will require any successor to all or substantially all of the business and/or assets of the Company by sale, merger (where the Company is not the surviving corporation), lease or otherwise, by agreement in form and substance satisfactory to Executive, to assume expressly this Agreement. If the Company shall not obtain such agreement prior to the effective date of any such succession, Executive shall have all rights resulting under this Agreement from a termination by Executive described in clause (3) of Section 1(m). This Agreement shall not otherwise be assignable by the Company, and, in any event, the Company shall remain obligated to Executive for all obligations and shall not rely on any suretyship defenses. c. Amendment or Modification; Waiver. This Agreement may not be amended --------------------------------- unless agreed to in writing by Executive and the Company. No waiver by either party of any breach of this Agreement shall be deemed a waiver of a subsequent breach. 11 d. Titles. No provision of this Agreement is to be construed by ------ reference to the title of any section. e. Continued Employment. This Agreement shall not give Executive any -------------------- right of continued employment or any right to compensation or benefits from the Company or any Subsidiary except the rights specifically stated herein. f. Prior Agreement. This Agreement shall supersede and replace any prior --------------- employment, change of control or severance agreement between the Company or any of its subsidiaries, or any predecessor, and Executive. g. Remedies. Any material breach or violation by Executive of the terms -------- of Section 5 of this Agreement, will result in immediate and irreparable injury and harm to the Company, and will cause damage to the Company in amounts difficult to ascertain. Accordingly, the Company shall be entitled to, and Executive hereby consents to the entry of, the remedies or injunction and specific performance, or either of such remedies, as well as all other remedies to which the Company may be entitled, at law, in equity or otherwise, with respect to any such breach or violation. h. Governing Law. The validity, interpretation, performance and ------------- enforcement of this Agreement shall be governed by the laws of The Commonwealth of Massachusetts. 14. Counterparts. This Agreement may be executed in two counterparts, each of ------------ which shall be deemed an original and both of which together shall be deemed one Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: BRYLANE, L.P. By:______________________________ Name: Its: EXECUTIVE: _____________________________ 12 EXHIBIT A Definition of "Change of Control" --------------------------------- "Change of Control" shall mean the occurrence of any one of the following events: (a) any "person" or "group" (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Permitted Holders (as defined below), is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to have beneficial ownership of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of all classes of Voting Equity Interests (as defined below) of VP Holding Corporation, a Delaware corporation (the "Corporation"), Brylane Inc., a Delaware corporation (the "Company"), Brylane (the "Partnership") or the Partnership's general partner; provided, that no Change of -------- Control shall be deemed to occur so long as the Permitted Holders have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the Board of Representatives or Directors; provided, -------- further, that unless the Compensation Committee of the Partnership shall - ------- otherwise determine prior to the acquisition of such majority ownership, such acquisition of ownership shall not constitute a Change of Control if Executive or an Executive Related Party is the person or a member of a group constituting the person acquiring such ownership; or (b) (i) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Representatives or Directors (together with any new members of the Board of Representatives or Directors whose election to such Board or whose nomination for election by the holders of Equity Interests (as defined below) of the Partnership, the Corporation or the Company was approved by (a) a Permitted Holder or (b) a vote of at least 66 2/3% of the members of the Board of Representatives or Directors then still in office who were either members of the Board of Representatives or Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Representatives or Directors then in office; (c) (i) the Partnership or its general partner, the Corporation or the Company consolidates with or merges with or into any person or entity or conveys, transfers or leases all or substantially all of its assets to any person or entity, or any corporation or partnership consolidates with or merges into or with the Partnership or its general partner, the Corporation or the Company, in any such event pursuant to a transaction in which the outstanding Voting Equity Interests of the Partnership or its general partner, the Corporation or the Company are changed into or exchanged for cash, securities or other property, other than any such transaction where the outstanding Voting Equity Interests of the Partnership or its general partner, the Corporation or the Company are not changed or exchanged at all (except to the extent necessary to reflect a change in the jurisdiction of incorporation of the Partnership or its general partner, the Corporation or the Company or where (A) the outstanding Voting Equity Interests of the Partnership or its general partner or the Corporation or the Company are changed into or exchanged for (x) Voting Equity Interests of the surviving corporation or entity, or (y) cash, securities and other property (other than Equity Interests of the surviving corporation or entity) and (B) no "person" or "group" other than Permitted Holders owns immediately after such transaction, directly or indirectly, more than the greater of (i) 50% of the total outstanding Voting Equity Interests of the surviving corporation or entity and (2) the percentage of the outstanding Voting Equity Interests of the surviving corporation or partnership or entity owned, directly or indirectly, by Permitted Holders immediately after such transaction); or (ii) the sale or other disposition by the Partnership, in one transaction or a series of related transactions (but not including a disposition that is part of any sale-and-leaseback or similar financing transactions), of assets aggregating more than thirty percent (30%) of the assets of the Partnership's Chadwick's of Boston business (taken at the values as stated on the books of the Partnership determined in accordance with generally accepted accounting principles consistently applied), or responsible for generating more than thirty percent (30%) of the net sales of the Partnership's Chadwick's of Boston business; provided, that unless otherwise determined by the Compensation -------- Committee of the Partnership, no transaction shall constitute a Change of Control if, immediately after such transaction, Executive or any Executive Related Party shall own Equity Interests of any surviving corporation ("Surviving Entity") having a fair value as a percentage of the fair value of the Equity Interests of such Surviving Entity greater than 125% of the fair value of the Equity Interests of the Partnership, the Corporation and/or the Company owned by Executive and any Executive Related Party immediately prior to such transaction, expressed as a percentage of the fair value of all Equity Interests of the Partnership, the Corporation and/or the Company immediately prior to such transaction; provided, further, that for purposes of this -------- ------- paragraph (c), if such agreement requires as a condition precedent approval by the equityholders of the Partnership, the Corporation and/or the Company of the agreement or transaction, a Change of Control shall not be deemed to have taken place unless such approval is secured and the transaction is consummated. Notwithstanding anything in this definition to the contrary, a "Change of Control" shall not be deemed to have occurred as a result of any sale of Equity Interests in a public offering. In addition, for purposes of this Exhibit A, the following terms have the --------- meanings set forth below: "Equity Interest" in any person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents or interest in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, in such person. An "Executive Related Party" shall mean any affiliate or associate of Executive other than the Partnership, the Company or the Corporation, as the case may be, or an affiliate of the Partnership, the Company or the Corporation, as the case may be. The terms "affiliate" and "associate" shall have the meanings ascribed thereto in Rule 12b-2 under the Exchange Act (the term "registrant" in the definition of "associate" meaning, in this case, the Partnership, the Company or the Corporation, as the case may be). "Permitted Holders" means (i) Pinault Printemps-Redoute S.A., a company organized under the laws of France and any of its affiliates and permitted assignees, (ii) The TJX Companies, Inc., (iii) VP Holding Corporation (with respect to the general partner of the partnership); provided, that Brylane, L.P. -------- and its subsidiaries shall not be deemed affiliates of Pinault Printemps-Redoute S.A. and Chadwick's Inc. for purposes of this definition. "Person" shall have the meaning used in Section 13(d) of the Exchange Act, as in effect on July 1, 1996. "Voting Equity Interests" means Equity Interests of the class or classes pursuant to which the holders thereof have (i) in respect of a corporation, the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of a corporation (irrespective of whether or not at the time Equity Interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency) or (ii) in respect of a limited liability company or other entity, the general voting power under ordinary circumstances to elect the board of directors or other governing board of such entity. 2 EXHIBIT B EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is dated as of __________ __, 1998 and is entered into between Brylane, L.P., a Delaware limited partnership (the "Partnership") and _____________________ (the "Executive"). R E C I T A L S --------------- WHEREAS, the Partnership desires to employ the Executive, and the Executive desires to be so employed by the Partnership, on the terms and subject to the conditions hereinafter set forth. A G R E E M E N T ----------------- NOW, THEREFORE, the parties hereto have agreed, and do hereby mutually agree, as follows: 1. Employment. Subject to the other terms and conditions set forth ---------- herein, the Partnership hereby employs the Executive, and the Executive agrees to be employed by the Partnership, as Senior Vice President - Human Resources, for a term commencing on ___________ __, 1998 and continuing until the earlier of _______________ __, 2001 or the date such employment shall have been terminated as provided in Section 3 hereof. Beginning _____________ __, 2001, this Agreement shall renew automatically for an additional one year term until the Partnership gives Executive written notice at least 14 calendar days prior to the end of a term, of its intention to terminate this Agreement; provided, however, that this Agreement may terminate earlier than the end of a term as provided in Section 3 hereof. In his capacity as Senior Vice President - Human Resources, the Executive shall faithfully perform to the best of his ability and in a satisfactory manner all services and acts necessary or advisable as may be assigned to him by the Chief Executive Officer. Throughout the term hereof the Executive shall, except as may from time to time be otherwise agreed in writing by the Partnership, devote his full-time working hours to his duties hereunder. 2. Compensation. ------------ (a) For all services to be rendered by Executive hereunder, and for all rights granted the Partnership hereunder, the Executive shall be paid by the Partnership a base salary at the annual rate of $______________________ for each 12-month period of the term hereof, prorated for any portion thereof, payable in substantially equal bimonthly installments, less required withholdings. This base salary shall be reviewed for any adjustments annually by the Board of Representatives of the Partnership (the "Board") or, at the Board's option, a compensation committee thereof (the "Committee"), provided that any adjustments shall be in the sole discretion of the Board or the Committee. (b) The Executive shall be entitled to paid vacations, personal and sick days consistent with the policies of the Partnership for management employees. The Executive shall receive such other compensation as shall be approved by the Board and shall participate in all fringe benefits (including, without limitation, group medical, life, disability and accidental death and dismemberment insurance), bonus and benefit plans which shall be generally available from time to time to management employees of the Partnership. (c) The Executive shall be reimbursed in accordance with the policies of the Partnership as adopted by the Board from time to time for his reasonable travel, entertainment, business, meeting and similar expenditures, incurred for the benefit of the Partnership and subject to approval of the Chief Executive Officer of the Partnership or the Board. As an additional condition to the reimbursement of such expenses by the Partnership to the Executive, the Executive shall provide the Partnership with copies of all available invoices and receipts, and otherwise account to the Partnership in sufficient detail and with adequate documentation to allow the Partnership to confirm the business nature of the expenses and claim an income tax deduction for such paid items, if such items are deductible. (d) The Partnership agrees that the Partnership shall provide the Executive with a benefits package substantially similar (which is not materially less favorable to the Executive in the aggregate) to those coverages and benefits provided or made available to the Executive (and his dependents) immediately prior to the consummation of the transactions contemplated by those certain Stock Purchase Agreements each dated as of February 19, 1998, among FS Equity Partners II, L.P., a California limited partnership, FS Equity Partners III, L.P., a Delaware limited partnership, FS Equity Partners International, L.P., a Delaware limited partnership and Pinault Printemps-Redoute, S.A., a company organized under the laws of France ("PPR") and between M&P Distributing Company, a Nevada corporation and PPR. In addition, the Partnership shall provide a bonus or incentive compensation plan which provides the Executive with the opportunity to earn the right to be paid additional compensation as set forth on Exhibit A hereto. This subsection (d) shall not be implemented so as --------- to limit any rights or benefits to which the Executive or his dependents may be entitled under any employee benefit plan maintained by or contributed to by the Partnership. 3. Termination. ----------- (a) The employment of the Executive hereunder may be terminated by the Partnership on at least 30 days' prior written notice if the Board determines that the Executive has become permanently disabled (as hereinafter defined). Such written notice shall provide reasonable detail regarding the basis for such determination. The Executive shall be deemed to be "permanently disabled," as used in this subsection, if the Executive has been substantially unable to discharge his duties and obligations hereunder by reason of illness, accident or disability for a period of 180 days in any twelve-month period. (b) The employment of the Executive hereunder may be terminated forthwith by the Partnership for cause (as hereinafter defined) upon written notice from the Board to the Executive. Such written notice shall provide reasonable detail regarding the basis for such determination. The Partnership shall have "cause" to terminate the Executive, as used in this subsection, only if the Board shall determine that the Executive has, (i) refused or failed within a reasonable period of time to carry out any reasonable and material direction from the Chief Executive Officer of the Partnership or the Board (other than a failure resulting from the Executive's incapacity due to physical or mental illness), (ii) been guilty of a material and willful breach of the terms of this Agreement, (iii) demonstrated gross negligence or willful misconduct in the execution of his assigned duties, (iv) been convicted of a felony or other serious crime involving moral turpitude, (v) engaged in fraud, embezzlement or other illegal conduct to the detriment of the Partnership, (vi) intentionally imparted confidential information relating to the Partnership to a third party, other than in the course of carrying out the Executive's duties, or (vii) materially and willfully breached any of his obligations pursuant to the Management Stock Subscription Agreement dated as of February 26, 1997 between Brylane Inc., a Delaware corporation and the parent entity of the Partnership, and the Executive if such breach has not been cured 5 days after receipt of written notice to the Executive. (c) The employment of the Executive hereunder shall be automatically terminated on the date of the Executive's death. (d) In addition to the circumstances set forth in subsections (a), (b) and (c) of this Section 3, the Partnership may terminate the Executive's employment for any reason or no reason and with or without cause upon 30 days' prior written notice to the Executive. 2 (e) The Executive may terminate his employment hereunder forthwith at any time for good reason (as hereinafter defined) upon written notice to the Partnership. For purposes of this subsection, "good reason" shall mean the occurrence of any of the following: (i) a reduction by the Partnership in the Executive's base salary herein provided or as the same may be increased from time to time; (ii) any relocation by the Partnership of Executive's principal place of employment of more than 50 miles from the place where Executive's principal residence was located on the date Executive gives notice of such termination; or (iii) a material and willful breach by the Partnership of any of its obligations to the Executive hereunder, including, without limitation, the Partnership's failure to obtain the written assumption agreement described in Section 10(a) if such agreement is not obtained within 5 days after written notice that a written assumption agreement required under Section 10(a) has not been obtained. (f) In addition to the circumstances described in subsection (e) of this Section 3, the Executive may terminate his employment hereunder for any reason or no reason upon 30 days' prior written notice to the Partnership. (g) If the Executive's employment is terminated pursuant to this Section 3, the Executive shall be entitled to, and the Partnership's obligation hereunder shall be limited to, (i) the payment of the compensation accrued under Section 2 hereof to the effective date of such termination and (for any termination other than pursuant to Section 3(b)) a pro rata portion of any bonuses or incentive compensation payable with respect to any period commencing prior to the termination date, and (ii) in the case of termination under subsections (a), (c), (d) or (e) of this Section 3, the additional compensation provided in subsection (h) of this Section 3. (h) (i) if the Executive's employment is terminated by the Partnership pursuant to subsection (a) of this Section 3 the Executive will get the benefit of any Partnership disability plans; provided, however, that for a period of 12 consecutive months after the effective date of the termination the Partnership will pay the Executive the difference (if any) between the level of annualized salary provided for in Section 2 hereof, less required withholdings, and the amounts provided under such disability plans; or (ii) if the Executive's employment is automatically terminated pursuant to subsection (c) of this Section 3, the Partnership shall continue to pay to the Executive (or, if applicable, to his executor, administrator or heirs) the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for a period of 12 consecutive months after the effective date of the termination; and (iii) if the Executive's employment is terminated by the Partnership pursuant to subsection (d) of this Section 3 or if the Executive terminates his employment pursuant to subsection (e) of this Section 3, the Partnership shall continue to pay to the Executive the Executive's salary in equal monthly installments at the level of annualized salary provided for in Section 2 hereof being paid to the Executive at the time of such termination, less required withholdings, for the greater of (A) one year after the effective date of the termination, and (B) the period after the effective date of the termination, through and including the April 30th immediately following the effective date of the termination. (i) The Executive shall not be required to mitigate the amount of any payment provided for in this Section 3 by seeking other employment or otherwise; but the amount of any payment provided for in this Section 3, other than amounts set forth in subsection (g)(i) of this Section 3, shall be reduced by any compensation earned by the Executive as the result of employment by another employer after the effective date of termination of the Executive's employment by the Partnership. (j) Nothing in this Agreement shall be deemed a release or waiver of right to any medical or other employee benefits available to the Executive on or after the effective date of termination of the 3 executive's employment by the Partnership under federal, state or local law which provides for the continuation of any medical or other employee benefits after such termination date. 4. Noncompetition. If the Executive is terminated by the Partnership for -------------- cause in accordance with Subsection 3(b) hereof, or if the Executive terminates his employment other than for "good reason" in accordance with Subsection 3(e) hereof, then except as provided in the next sentence, for a period of 12 months after such termination, the Executive will not carry on (as an employee, agent, consultant, independent contractor, stockholder, partner, owner or otherwise) any trade or business competing with the then trade or business of the Partnership (or its affiliates) in any state in which the Partnership (or its affiliates) is carrying on such trade or business as of the effective date of such termination. The foregoing provisions of this Section 4 notwithstanding, the Executive may own not more than 5% of the issued and outstanding shares of any class of securities of an issuer whose securities are listed on a national securities exchange or registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended. 5. Trade Secrets. During the term of this Agreement and at all times ------------- thereafter, the Executive shall hold in secrecy all trade secrets and confidential information relating to the Partnership's (and its affiliates') business and affairs that may come to his knowledge or have come to his knowledge while employed by the Partnership or its predecessors (excluding information that is or becomes publicly known or available for use through no fault of the Executive), including but not limited to (i) matters of a business nature, such as information about costs, profits, markets, sales, lists of customers and other information of a similar nature, (ii) plans or strategies for development of the business of the Partnership and (iii) matters of a technical nature. Except as required in the performance of his duties to the Partnership under this Agreement, the Executive shall not use for his own benefit or disclose to any person, directly or indirectly, such matters unless such use or disclosure has been specifically authorized in writing by the Partnership in advance. 6. Executive's Representation. The Executive shall be, and he represents -------------------------- that he is, free to enter into this Agreement and not under any contractual restraint which would prohibit his satisfactorily performing his duties to the Partnership hereunder. 7. Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the internal substantive laws (and not the laws of conflicts of laws) of the State of Indiana. 8. Costs. If either party brings any legal action against the other to ----- enforce its rights under this Agreement, the prevailing party in such dispute shall be entitled to recover from the other party all reasonable fees, costs and expenses actually incurred in enforcing its rights under this Agreement including, without limitation, the reasonable fees and expenses of attorneys, accountants and expert witnesses, which shall include, without limitation, all fees, costs and expenses of appeals and of enforcement. 9. Entire Agreement. This Agreement constitutes the whole agreement of ---------------- the parties hereto in reference to any employment of the Executive by the Partnership and in reference to the subject matter hereof, and all prior agreements, promises, representations and understandings relative thereto are merged herein. 10. Assignability. ------------- (a) In the event that the Partnership shall merge or consolidate with any other corporation, partnership or business entity or all or substantially all the Partnership's business or assets shall be transferred in any manner to any other corporation, partnership or business entity, including (without limitation) any entity that succeeds to the business of the Partnership pursuant to Article X of that certain Partnership Agreement dated August 30, 1993, as amended, such successor shall thereupon succeed to, and be subject to, all rights, interests, duties and obligations of, and shall thereafter be deemed for all purposes hereof to be, the Partnership hereunder 4 and the Partnership shall obtain a written assumption agreement from such successor prior to completion of any such merger, consolidation or sale of assets. (b) This Agreement is personal in nature and neither of the parties hereto shall, without the written consent of the other party hereto, assign or transfer this Agreement or any rights or obligations hereunder, except by operation of law or pursuant to the terms of Section 10(a). (c) Nothing expressed or implied herein is intended or shall be construed to confer upon or give to any person, other than the parties hereto, any right, remedy or claim under or by reason of this Agreement or of any term, covenant or condition hereof. 11. Remedies. Any material breach, violation or evasion by the Executive -------- of the terms of this Agreement, including specifically, but not limited to, Sections 4 and 5, will result in immediate and irreparable injury and harm to the Partnership, and will cause damage to the Partnership in amounts difficult to ascertain. Accordingly, the Partnership shall be entitled to, and Executive hereby consents to the entry of, the remedies or injunction and specific performance, or either of such remedies, as well as all other remedies to which the Partnership may be entitled, at law, in equity or otherwise. 12. Amendments; Waivers. This Agreement may be amended, modified, ------------------- superseded, canceled, renewed or extended and the terms or covenants hereof may be waived only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by any party of the breach of any term or provision contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement. 13. Notice. All notices, requests and other communications hereunder ------ shall be in writing and, if given by facsimile, telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if given by personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed or delivered by overnight courier, shall be deemed to have been validly served, given or delivered when deposited in the United States mail, as registered or certified mail, with proper postage prepaid, or when deposited with the courier service, and addressed to the party or parties to be notified, at the following addresses (or such other address(es) as a party may designate for itself by like notice): If to the Partnership: Brylane, L.P. 463 Seventh Avenue, 21st Floor New York, New York 10018 Attention: Senior Vice President-Human Resources If to the Executive: _____________________________ _____________________________ _____________________________ 5 14. Severability. Any provision of this Agreement that is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent that a restrictive covenant contained herein may, at any time, be more restrictive than permitted under the laws of any jurisdiction where this Agreement may be subject to review and interpretation, the terms of such restrictive covenant shall be those allowed by law and the covenant shall be deemed to have been revised accordingly. Each and every term of this Agreement shall be enforced to the fullest extent permitted by law. 15. Counterparts. This Agreement may be executed in two counterparts, ------------ each of which shall be deemed an original and both of which together shall be deemed one Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. The "Partnership": BRYLANE, L.P. By: VGP Corporation Its: General Partner By: _____________________________________ Name: Peter J. Canzone Title: President The "Executive": ___________________________________________ Signature 6 EXHIBIT A Brylane has a semi-annual performance bonus program based upon goals relating to Brylane's operating profit. Such goals will be established at the beginning of each six-month season based upon a review by the Board of management's operating budget for that season. Each participant in such program may receive a bonus for each semi-annual bonus period equal to a certain percentage of his or her annual salary. The actual bonus amount will be based upon the extent to which the operating profit goals for that season are met or exceeded. Operating profit shall exclude any charge resulting from the formation of the Partnership, such as the write-up of inventory to fair market value on August 30, 1993 and the amortization of the cost of intangibles resulting from the purchase accounting relating to the acquisition. Except as otherwise determined by the Board, or the Committee, in its sole discretion, operating profit for any given six-month season will also exclude any and all operating profit that is attributable to transactions entered into by Brylane or its affiliates during that six-month season. The Executive's individual participant percentage under such plan will be _____%, subject to any adjustments by the Board, or the Committee, as it may see fit in its sole discretion. EXHIBIT C Brylane shall provide Executive with management incentive compensation ("MIP") with a ___% target and using a methodology consistent with Chadwick's past practices. The current year's (12-months ending January 30, 1999) incentive compensation will be calculated as if Executive's new salary and incentive compensation were in place for the full year. EX-21.1 13 SUBSIDIARIES OF BRYLANE INC./BRYLANE, L.P. EXHIBIT 21.1 SUBSIDIARIES OF BRYLANE INC./BRYLANE, L.P. VP Holding Corporation, a Delaware corporation/1/ VGP Corporation, a Delaware corporation/2/ VLP Corporation, a Delaware corporation/2/ Brylane, L.P., a Delaware limited partnership/3/ Brylane Capital Corp., a Delaware corporation/4/ B.L. Management Services, Inc., a Delaware corporation/4/ B.L. Catalog Distribution, Inc., a Delaware corporation/4/ B.N.Y. Service Corp., a Delaware corporation/4/ K.S. Management Services, Inc./4/ B.L. Management Services Partnership, a New York general partnership/5/ B.L. Catalog Distribution Partnership, an Indiana general partnership/6/ C.O.B. Management Services, Inc., a Delaware corporation/4/ Chadwick's Tradename Sub, Inc., a Delaware corporation/4/ - ----------------------- /1/ 100% of the issued and outstanding shares of common stock of VP Holding Corporation are owned by Brylane Inc. /2/ 100% of the issued and outstanding shares of common stock of each of these entities is owned by VP Holding Corporation. /3/ VGP Corporation owns the sole general partnership interest in Brylane, L.P., with a 16.6% profit and loss interest therein; VLP Corporation owns the sole limited partnership interest in Brylane, L.P., with a 83.4% profit and loss interest therein. /4/ 100% of the issued and outstanding shares of common stock of each of these entities is owned by Brylane, L.P. /5/ B.N.Y. Service Corp. owns a 99% general partnership interest in this partnership; B.L. Management Services, Inc. owns the remaining 1% general partnership interest. /6/ Brylane, L.P. owns a 99% general partnership interest in this partnership; B.L. Catalog Distribution, Inc. owns the remaining 1% general partnership interest. EX-23.1 14 CONSENT OF COOPERS & LYBRAND L.L.P. Exhibit 23.1 Consent of Independent Accountants We consent to the incorporation by reference in the registration statement of Brylane Inc. on Form S-8 (File No. 333-33899) of our report dated March 27, 1998 except for Note 16, as to which the date is April 3, 1998, on our audits of the consolidated financial statements of Brylane Inc. as of February 1, 1997 and January 31, 1998, and for the years ended February 3, 1996, February 1, 1997, and January 31, 1998, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. Indianapolis, Indiana April 28, 1998 EX-27.1 15 FINANCIAL DATA SCHEDULE FOR YEAR ENDED 1/31/98
5 1,000 YEAR JAN-31-1998 FEB-02-1997 JAN-31-1998 5,083 0 17,519 1,474 219,553 299,089 98,315 21,220 720,200 225,029 329,753 0 1,370 199 154,839 720,200 1,314,839 1,314,839 677,639 677,639 515,864 0 27,707 82,657 31,545 51,112 0 4,077 0 47,035 2.53 2.46
EX-27.2 16 RESTATED FDS FOR QUARTER ENDED 5/3/97
5 1,000 3-MOS JAN-31-1998 FEB-02-1997 MAY-03-1997 34,978 0 52,276 3,168 159,264 284,071 89,242 13,384 722,372 198,737 0 0 1,500 195 214,020 722,372 328,801 328,801 169,047 169,047 133,419 0 7,528 16,075 6,489 9,586 0 4,110 0 5,476 0.52 0.50
EX-27.3 17 RESTATED FDS FOR QUARTER ENDED 8/2/97
5 1,000 3-MOS JAN-31-1998 MAY-05-1997 AUG-02-1997 0 0 18,835 1,931 188,543 253,434 92,338 16,000 689,127 199,945 255,251 0 1,500 195 224,846 689,127 274,656 274,656 144,239 144,239 104,625 0 6,157 16,901 6,253 10,648 0 0 0 10,648 0.55 0.53
EX-27.4 18 RESTATED FDS FOR QUARTER ENDED 11/1/97
5 1,000 3-MOS JAN-31-1998 AUG-03-1997 NOV-01-1997 21,852 0 42,871 3,071 208,301 337,090 94,940 18,462 767,486 277,338 342,229 0 1,500 199 137,884 767,486 365,454 365,454 185,536 185,536 144,064 0 6,427 26,743 9,895 16,848 0 0 0 16,848 0.88 0.85
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