-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pjclzmIxwoJTEsKcJxOFjZFUfGNS8b/s50KlG80RJqiQ0Zsoo6hxE2bx3Pj9gRCh kY/D2n2uB++LgYmJzq52MA== 0000874214-94-000005.txt : 19950109 0000874214-94-000005.hdr.sgml : 19950109 ACCESSION NUMBER: 0000874214-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941029 FILED AS OF DATE: 19941212 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANNTAYLOR STORES CORP CENTRAL INDEX KEY: 0000874214 STANDARD INDUSTRIAL CLASSIFICATION: 5621 IRS NUMBER: 133499319 STATE OF INCORPORATION: DE FISCAL YEAR END: 0202 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10738 FILM NUMBER: 94564218 BUSINESS ADDRESS: STREET 1: 142 WEST 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125413300 10-Q 1 ANNTAYLOR STORES CORPORATION SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 29, 1994. OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File No. 33-28522 ANNTAYLOR STORES CORPORATION - - ---------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3499319 - - -------------------------------- ------------------------------------ (State of other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 142 West 57th Street, New York, NY 10019 - - ---------------------------------- ----------- (Address of principal executive offices) (Zip Code) (212) 541-3300 - - ---------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether 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 the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Outstanding as of Class October 29, 1994 ------ ---------------- Common Stock, $.0068 par value 23,143,248 ======================================================================= INDEX TO FORM 10-Q Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations for the Quarters and Nine Months Ended October 29, 1994 and October 30, 1993 3 Condensed Consolidated Balance Sheets at October 29, 1994 and January 29, 1994 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 1994 and October 30, 1993 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 ======================================================================== PART I. FINANCIAL INFORMATION Item 1. Financial Statements ANNTAYLOR STORES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Quarters and Nine Months Ended October 29, 1994 and October 30,1993 (unaudited) Quarters Ended Nine Months Ended ------------------ ----------------- Oct 29, Oct 30, Oct 29, Oct 30, 1994 1993 1994 1993 ---- ------ ------ ------ (in thousands, except per share amounts) Net sales $164,632 $122,025 $469,851 $367,037 Cost of sales 87,576 64,929 251,970 199,001 ------- ------- ------- ------- Gross profit 77,056 57,096 217,881 168,036 Selling, general and administrative expenses 54,826 41,870 152,635 122,717 Amortization of goodwill 2,377 2,376 7,130 7,130 ------- ------- ------- ------- Operating income 19,853 12,850 58,116 38,189 Interest expense 3,642 3,917 10,215 13,994 Other (income) expense, net (10) (2) 316 (111) ------- ------- ------- ------- Income before income taxes and extraordinary loss 16,221 8,935 47,585 24,306 Income tax provision 7,937 4,614 23,318 13,065 ------- ------- ------- ------- Income before extraordinary loss 8,284 4,321 24,267 11,241 Extraordinary loss (net of income tax benefit of $654,000 and $5,652,000, respectively) --- --- (868) (10,496) ------- ------- ------ ------- Net income $ 8,284 $4,321 $23,399 $ 745 ======= ====== ======= ======== Net income per share of common stock: Income per share before extraordinary loss $ .35 $ .20 $ 1.05 $ .51 Extraordinary loss per share --- --- (.04) (.48) ------- ------ ------ ------- Net income per share $ .35 $ .20 $ 1.01 $ .03 ======= ====== ====== ======= Weighted average number of shares and share equivalents outstanding 23,693 22,128 23,208 21,857 ======= ====== ====== ======= See accompanying notes to condensed consolidated financial statements. ========================================================================= ANNTAYLOR STORES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS October 29, 1994 and January 29, 1994 Oct 29, Jan 29, 1994 1994 ----- ------- (unaudited) (in thousands) ASSETS Current assets Cash $ 2,841 $ 292 Accounts receivable, net of allowances of $802,000 and $787,000, respectively 60,919 49,279 Merchandise inventories 104,324 60,890 Prepaid expenses and other current assets 6,186 7,184 Deferred income taxes 3,750 3,750 ------- ------- Total current assets 178,020 121,395 Property and equipment, net of accumulated depreciation of $33,231,000 and $28,703,000, respectively 71,610 48,053 Deferred financing costs, net of accumulated amortization of $771,000 and $643,000, respectively 2,969 4,990 Goodwill, net of accumulated amortization of $54,843,000 and $47,713,000, respectively 325,407 332,537 Deferred income taxes 1,500 1,500 Investment in CAT 3,353 2,245 Other assets 2,393 2,679 -------- ------- Total assets $585,252 $513,399 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 46,673 $ 37,564 Accrued expenses 17,055 16,252 Accrued interest 4,722 1,955 Accrued rent 4,905 3,584 Current portion of long-term debt --- 8,757 ------- -------- Total current liabilities 73,355 68,112 Long-term debt 189,049 180,243 Other liabilities 5,933 5,773 Commitments and contingencies Stockholders' equity Common stock, $.0068 par value; 40,000,000 shares authorized; 23,076,152 and 21,902,811 shares issued, respectively 157 149 Additional paid-in capital 309,864 271,810 Warrants to acquire 60,250 and 446,249 shares of common stock, respectively 981 7,378 Retained earnings (accumulated deficit) 6,643 (16,756) Deferred compensation on restricted stock (185) (119) ------ ------ 317,460 262,462 Less treasury stock, 67,096 and 450,817 shares, respectively, at cost (545) (3,191) ------- ------- Total stockholders' equity 316,915 259,271 ------- ------- Total liabilities and stockholders' equity $585,252 $513,399 ======== ======== See accompanying notes to condensed consolidated financial statements. =========================================================================== ANNTAYLOR STORES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended October 29, 1994 and October 30, 1993 (unaudited) Nine Months Ended ------------------------ Oct 29, 1994 Oct 30, 1993 ------------ ------------ (in thousands) Operating activities: Net income $23,399 $ 745 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss 1,522 16,148 Equity earnings in CAT (1,108) (409) Provision for loss on accounts receivable 1,193 984 Depreciation and amortization 8,591 6,323 Amortization of goodwill 7,130 7,130 Accretion of original issue discount --- 2,864 Amortization of deferred financing costs 793 1,005 Amortization of deferred compensation 280 209 Deferred income taxes --- (250) Loss on disposal of property and equipment 1,125 288 (Increase) decrease in: Receivables (12,833) (8,107) Merchandise inventories (43,434) (12,462) Prepaid expenses and other current assets 998 5,379 Increase (decrease) in: Accounts payable 9,109 7,110 Accrued expenses 4,891 (1,281) Other non-current assets and liabilities, net 446 527 ------ ------ Net cash provided by operating activities 2,102 26,203 Investing activities: Purchases of property and equipment (33,273) (13,897) Investment in CAT --- (1,640) ------ ------ Net cash used by investing activities (33,273) (15,537) ------ ------ Financing activities: Decrease in bank overdrafts --- (2,361) Borrowings under line of credit agreement --- 6,500 Payments of long-term debt --- (96,969) Exercise of stock options 3,551 9,233 Repurchase of Debt Securities --- (93,689) Net proceeds from 8-3/4% Subordinated Notes --- 107,387 Payments of financing costs (294) (3,505) Repayment of note due from stockholder --- 999 Repayment of 10% Junior Subordinated Notes --- (14,641) Proceeds from (payment of) Term Loan (56,000) 80,000 Borrowing under revolving credit facility 53,000 --- Net proceeds from common stock offering 30,414 --- Net borrowing on receivables facility 3,049 --- ------ ------ Net cash provided by (used by) financing activities 33,720 (7,046) ------ ------ Net increase in cash 2,549 3,620 Cash, beginning of period 292 226 ------ ------ Cash, end of period $ 2,841 $ 3,846 ======= ======= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest $ 6,655 $ 7,601 ======= ======= Cash paid during the period for income taxes $21,065 $ 3,744 ======= ======= See accompanying notes to condensed consolidated financial statements. ========================================================================= ANNTAYLOR STORES CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation --------------------- The condensed consolidated financial statements are unaudited but, in the opinion of management, contain all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All significant intercompany accounts and transactions have been eliminated. The results of operations for the 1994 interim period shown in this report are not necessarily indicative of results to be expected for the fiscal year. The January 29, 1994 condensed consolidated balance sheet amounts have been derived from the previously audited consolidated balance sheet of AnnTaylor Stores Corporation. Certain fiscal 1993 amounts have been reclassified to conform to the 1994 presentation. It is not considered necessary to include detailed footnote information as of October 29, 1994 and October 30, 1993. The financial information set forth herein should be read in conjunction with the Notes to the Company's Consolidated Financial Statements contained in the AnnTaylor Stores Corporation 1993 Annual Report to Stockholders. 2. Income Per Share ---------------- Net income (loss) per share is calculated by dividing net income (loss) by the total of the weighted average number of common shares and common share equivalents outstanding, assuming the exercise of outstanding warrants and the dilutive effect of outstanding stock options, computed in accordance with the treasury stock method. The number of shares used in the calculations were as follows: Quarters Ended Nine Months Ended ========================== ========================= Oct 29, 1994 Oct 30, 1993 Oct 29, 1994 Oct 30, 1993 ------------ ------------ ------------ ------------ Common shares 22,988,502 21,398,685 22,570,307 21,162,644 Warrants 60,250 453,434 100,126 482,296 Stock options 644,571 275,962 538,119 211,692 ---------- ---------- ---------- ---------- 23,693,323 22,128,081 23,208,552 21,856,632 ========== ========== ========== ========== 3. Long-term Debt -------------- In May 1994, the Company applied $30,000,000 of the net proceeds from its public stock Offering referred to in Note 4 below, to reduce the amount of the Term Loan outstanding under its then-existing bank credit agreement. In July 1994, the Company completed the refinancing of its outstanding bank debt by entering into a new credit agreement (the "Revolving Credit Agreement") providing for a revolving loan facility of $75,000,000. The Company borrowed funds under this revolving credit facility to prepay in full its outstanding Term Loan and other obligations under its then-existing bank credit agreement. The Revolving Credit Agreement has an initial term of three years. There are no amortization payments required to be made under the agreement during its term, although the Company is required to reduce the outstanding loan balance under the facility to $50,000,000 or less for thirty consecutive days during fiscal 1994, to $40,000,000 or less for thirty consecutive days during fiscal 1995, and to $30,000,000 or less for thirty consecutive days in each fiscal year thereafter. The revolving credit facility bears interest at a rate per annum equal to, at the Company's option, Bank of America's (1) Base Rate or (2) Eurodollar rate plus .75%. The Revolving Credit Agreement contains financial and other covenants, including limitations on indebtedness, liens and investments, restrictions on dividends or other distributions to stockholders and maintaining certain financial ratios and specified levels of net worth. The following summarizes long-term debt outstanding at October 29, 1994: (in thousands) Revolving Credit Facility $ 53,000 8-3/4% Notes 100,000 Receivables Facility 36,049 --------- Total Long-term Debt $ 189,049 ========= 4. Extraordinary Item ------------------- On May 18, 1994, the Company completed a public offering of its common stock (the "Offering") in which it issued and sold 1,000,000 shares of common stock at a price of $32.00 per share, resulting in aggregate net proceeds of $30,414,000 (after payment of underwriting discounts and expenses of the Offering payable by the Company). As required by the Company's then-existing bank credit agreement, $30,000,000 of the net proceeds of the Offering were used to reduce the amount of the Term Loan outstanding under that agreement. The non-cash charge associated with the payment on the Term Loan with the proceeds of the Offering and refinancing of long term debt (see Note 3) resulted in an extraordinary loss of $1,522,000 ($868,000 net of taxes). The Offering was consummated concurrently with the public offering and sale by certain affiliates of Merrill Lynch Capital Partners (the "Selling Stockholders") of 4,075,000 shares of the Company's Common Stock held by them. The Company did not receive any of the proceeds of the shares sold by the Selling Stockholders. After giving effect to this sale, the Selling Stockholders and other affiliates of Merrill Lynch Capital Partners held shares representing approximately 32.5% of the Company's Common Stock. On November 22, 1994, the Selling Stockholders filed with the Securities and Exchange Commission Notices on Form 144 of the proposed sale of an aggregate of 804,000 shares of Common Stock held by them. Upon sale of such shares, the interest of the Selling Stockholders and other affiliates of Merrill Lynch Capital Partners would be reduced to approximately 28.9% of the Company's Common Stock. 5. Supplementary Data ------------------ The unaudited pro forma income before extraordinary loss, income before extraordinary loss per share and weighted average shares outstanding, assuming the Offering had occurred at the beginning of the year, would have been $24,522,000, $1.04 and 23,508,000, respectively for the nine months ended October 29, 1994. Such computation reflects interest expense savings of $500,000 related to the reduction of the term loan with the net proceeds of the Offering. ============================================================================== Item 2. Management's Discussion and Analysis of Operations -------------------------------------------------- Results of Operations Quarters Ended Nine Months Ended ----------------- ------------------- Oct. 29, Oct. 30, Oct. 29, Oct. 30, 1994 1993 1994 1993 ---- ---- ---- ---- Number of Stores: Open at beginning of period 235 219 231 219 Opened during period 18 6 26 7 Expanded during period* 8 4 21 7 Closed during period --- --- 4 1 Open at end of period 253 225 253 225 Type of Stores Open at End of Period: AnnTaylor Stores 231 219 AnnTaylor Factory Stores 17 6 AnnTaylor Studio Stores** 5 --- ---------------------- * Expanded stores are excluded from comparable store sales for the first year following expansion. ** The Company's free-standing shoe and accessory store concept. Quarter Ended October 29, 1994 Compared to Quarter Ended October 30, 1993 - - -------------------------------------------------------------------------- The Company's net sales in the third quarter of 1994 increased to $164,632,000 from $122,025,000 in the third quarter of 1993, an increase of $42,607,000 or 34.9% over the third quarter of 1993. The increase in net sales was attributable to the opening of new stores, the expansion of existing stores and a 13.9% increase in comparable store sales, partially offset by the closing of 4 stores during the first half of 1994. The increase in comparable store sales was due primarily to positive customer response to the Company's merchandise assortments. Gross profit as a percentage of net sales was 46.8% in the third quarter of 1994 and in the third quarter of 1993. Selling, general and administrative expenses decreased to 33.3% of net sales in the third quarter of 1994 compared to 34.3% in the third quarter of 1993. The decrease as a percentage of net sales was primarily attributable to an increase in net sales at a rate greater than the rate of increase in selling, general and administrative expenses, principally as a result of improved leverage on fixed expenses resulting from strong comparable store sales growth, an increase in sales from the Company's factory stores, which have lower store operating expenses than full price Ann Taylor stores, and improved expense management. As a result of the foregoing, operating income increased to $19,853,000, or 12.1% of net sales, in the third quarter of 1994 from $12,850,000, or 10.5% of net sales, in the third quarter of 1993. Amortization of goodwill was $2,377,000 in the third quarter of 1994 and $2,376,000 in the third quarter of 1993. Operating income, without giving effect to such amortization in either year, was $22,230,000, or 13.5% of net sales, in the 1994 period and $15,226,000, or 12.5% of net sales, in the 1993 period. Interest expense was $3,642,000, including $180,000 of non-cash interest expense, in the third quarter of 1994, and $3,917,000, including $325,000 of non-cash interest expense, in the third quarter of 1993. The decrease in interest expense is primarily attributable to the reduction of the Company's term loan with the net proceeds from the Offering in May 1994. The income tax provision was $7,937,000, or 48.9% of income before income taxes and extraordinary loss, in the third quarter of 1994 compared to $4,614,000, or 51.6% of income before income taxes and extraordinary loss, in the third quarter of 1993. The effective income tax rate for both periods was higher than the statutory rate primarily because of non- deductible goodwill amortization. As a result of the foregoing factors, the Company had net income of $8,284,000, or 5.0% of net sales, for the third quarter of 1994 compared to net income of $4,321,000, or 3.5% of net sales, for the third quarter of 1993. AnnTaylor Stores Corporation conducts no business other than the management of AnnTaylor, Inc. Nine Months Ended October 29, 1994 Compared to Nine Months Ended October 30, 1993 - - ------------------------------------------------------------------ The Company's net sales increased to $469,851,000 in the first nine months of 1994, from $367,037,000 in the first nine months of 1993, an increase of $102,814,000, or 28.0%. The increase in net sales was attributable to the opening of new stores, the expansion of existing stores and an 11.5% increase in comparable store sales, partially offset by the closing of 4 stores during the first six months of 1994. The increase in comparable store sales was due primarily to positive customer response to the Company's merchandise assortments. Gross profit as a percentage of net sales increased to 46.4% in the first nine months of 1994, from 45.8% in the first nine months of 1993. The increase in gross margin reflected a higher level of full price selling and lower levels of promotional activity. Selling, general and administrative expenses represented 32.5% of net sales in the first nine months of 1994, compared to 33.4% of net sales in the first nine months of 1993. The decrease as a percentage of net sales was primarily attributable to an increase in net sales at a rate greater than the rate of increase in selling, general and administrative expenses, principally as a result of improved leverage on fixed expenses resulting from strong comparable store sales growth, an increase in sales from the Company's factory stores, which have lower store operating expenses than full price Ann Taylor stores, and improved expense management. As a result of the foregoing, operating income increased to $58,116,000, or 12.4% of net sales, in the first nine months of 1994, from $38,189,000, or 10.4% of net sales, in the first nine months of 1993. Amortization of goodwill was $7,130,000 in the first nine months of 1994 and in the first nine months of 1993. Operating income, without giving effect to such amortization in either year, was $65,246,000, or 13.9% of net sales, in the 1994 period and $45,319,000, or 12.3% of net sales, in the 1993 period. Interest expense was $10,215,000, including $793,000 of non-cash interest expense, in the first nine months of 1994 and $13,994,000, including $3,869,000 of non-cash interest expense, in the first nine months of 1993. The decrease in interest expense is attributable to lower interest rates applicable to the Company's debt obligations in the 1994 period, resulting principally from refinancing transactions entered into in the fall of 1993 and the reduction of the Company's term loan with the net proceeds from the Offering in May 1994. The income tax provision was $23,318,000, or 49.0% of income before income taxes and extraordinary loss, in the 1994 period, compared to $13,065,000, or 53.8% of income before income taxes and extraordinary loss, in the 1993 period. The effective income tax rate for both periods was higher than the statutory rate primarily because of non-deductible goodwill amortization. As a result of the foregoing factors, the Company had net income before extraordinary loss of $24,267,000, or 5.2% of net sales, for the first nine months of 1994, compared to net income before extraordinary loss of $11,241,000, or 3.1% of net sales, for the first nine months of 1993. In connection with the debt refinancing activities described above (see Financial Statements Notes 3 and 4), the Company incurred an extraordinary loss of $868,000 net of taxes, in the second quarter of 1994. The Company also incurred an extraordinary loss of $10,496,000, net of taxes, in the second quarter of 1993 as a result of debt refinancing activities undertaken in the second quarter of 1993. After giving effect to these extraordinary losses, the Company had net income of $23,399,000 in the first nine months of 1994 compared to a net income of $745,000 in the first nine months of 1993. Financial Condition - - -------------------- For the first nine months of 1994, net cash provided by operating activities totaled $2,102,000, primarily as a result of income from operations adjusted for non-cash items, partially offset by increases in working capital. Cash used for investing activities during the first nine months of 1994 amounted to $33,273,000, and was primarily used for acquiring leasehold improvements, furniture and fixtures for opening new and expanded stores and for renovating stores; and for acquisition of the property for and commencement of construction of a new distribution center in Louisville, Kentucky. Cash provided by financing activities during the first nine months of 1994 amounted to $33,720,000, primarily representing net proceeds of $30,414,000 from the Offering and the borrowing of $53,000,000 under the Revolving Credit Agreement, offset by the payment of $56,000,000 in retirement of the old bank credit agreement. Accounts receivable increased to $60,919,000 at October 29, 1994 from $49,279,000 at January 29, 1994, an increase of $11,640,000 or 23.6%. This increase was primarily attributable to Ann Taylor credit card receivables, which increased approximately $9,404,000, and to third-party credit card receivables (American Express, MasterCard and VISA), which increased $1,012,000 due to the timing of payments by third-party credit card issuers. Ann Taylor credit card sales were 21.1% higher in the third quarter of 1994 compared to the last quarter of 1993, which is partially attributable to the increase in total sales compared to the prior period. Merchandise inventories increased to $104,324,000 at October 29, 1994 from $60,890,000 at January 29, 1994, an increase of $43,434,000. The higher inventory level at October 29, 1994 was attributable to the purchase of inventory for new and expanded stores opened in the first nine months of 1994, anticipation of store square footage increases in the fourth quarter of 1994, timing of receipt of goods, a change in merchandise mix to include expanded shoe, accessory and fragrance lines (items which historically have slower inventory turns), and planned comparable store sales growth. On July 29, 1994 the Company entered into the Revolving Credit Agreement which provides the Company with a revolving credit facility of $75,000,000 (see Financial Statements Note 3). The Company borrowed funds under this facility to prepay in full its obligations outstanding under, and cancelled, its prior bank credit agreement. At October 29, 1994, $53,000,000 was outstanding under the Revolving Credit Agreement. At October 29, 1994, $36,049,000 was outstanding under AnnTaylor Funding, Inc.'s receivables facility. AnnTaylor Funding, Inc. can borrow up to $40,000,000 under the receivables facility, depending upon its accounts receivable balance. The Company's capital expenditures, which are primarily attributable to the Company's store expansion, renovation and refurbishment programs, totaled $25,062,000, $4,303,000, and $10,004,000 in 1993, 1992 and 1991, respectively. Capital expenditures totaled $33,273,000 in the first nine months of 1994. The Company now expects its capital expenditure requirements for the remainder of 1994 to be approximately $12,500,000, plus approximately $10,800,000 for the Company's new distribution center currently under construction in Louisville, Kentucky. Dividends and distributions from AnnTaylor, Inc. to the Company are restricted by both the Revolving Credit Agreement and the indenture relating to AnnTaylor, Inc.'s 8-3/4% Subordinated Notes due 2000. The payment by the Company of cash dividends on its Common Stock is restricted by the Company's guarantee of obligations under the Revolving Credit Agreement. In order to finance its operations and capital requirements, the Company expects to use internally generated funds and funds available to it under the Revolving Credit Agreement. The Company believes that cash flow from operations and funds available under the Revolving Credit Agreement will be sufficient to enable it to meet its ongoing cash needs for the forseeable future. The Company does however anticipate increasing the amount it may borrow under the existing credit agreement and is currently negotiating with the agent. ============================================================================= PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 10.8 Employment Agreement dated as of February 1, 1994 between the Company and Sally Frame Kasaks. 27 Financial Data Schedule for the nine months ended October 29, 1994. (b) Reports on Form 8-K: None ============================================================================= SIGNATURES Pursuant to the requirements 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. AnnTaylor Stores Corporation Date: December 9, 1994 By: /s/ Paul E. Francis --------------------- ------------------------------------ Paul E. Francis Executive Vice President -Finance and Administration (Chief Financial Officer) Date: December 9, 1994 By: /s/ Walter J. Parks --------------------- ------------------------------------ Walter J. Parks Vice President - Finance (Principal Accounting Officer) EX-10 2 EXHIBIT 10.8 EXHIBIT 10.8 ------------ EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), dated as of February 1, 1994, between ANNTAYLOR STORES CORPORATION, a Delaware corporation (the "Company"), and SALLY FRAME KASAKS (the "Executive"). WHEREAS, the Company and the Executive are currently parties to an agreement (the "Prior Agreement") relating to Executive's employment with the Company; and WHEREAS, the Company desires to provide for the continued service and employment of the Executive with the Company and the Executive wishes to continue in the service of the Company, all in accordance with the terms and conditions provided herein. NOW, THEREFORE, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Employment. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue to serve the Company, on the terms and conditions set forth herein. 2. Term. The initial term of employment of the Executive by the Company hereunder will commence effective as of February 1, 1994, and such initial term will end on January 31, 1997, unless further extended or sooner terminated as hereinafter provided. Commencing on February 1, 1997, and each February 1 thereafter (each such February 1st, an "Anniversary Date"), the term of the Executive's employment shall automatically be extended for one additional year unless, not later than the July 31 immediately preceding an Anniversary Date, either party shall have given notice (a "Nonrenewal Notice") to the other party that it does not wish to extend this Agreement. References hereinafter to the "Term" of this Agreement shall refer to both the initial term and any extended term of the Agreement hereunder. Notwithstanding expiration of the Term or other termination of this Agreement, without limiting other provisions that survive by their intent, the provisions of Sections 3(b), 5(c), 10 and 11 hereof shall continue in effect. 3. Nature of Performance. (a) Position and Duties. The Executive shall continue to serve as Chairman and Chief Executive Officer of the Company and shall have such responsibilities, duties and authority consistent with such positions (and not less than her current responsibilities, duties and authority) as may from time to time be determined by the Board of Directors of the Company (the "Board"). The Executive shall devote substantially all of her working time and efforts to the business and affairs of the Company; provided that, this Agreement shall not be interpreted to prohibit the Executive from making passive investments, engaging in charitable activities or, subject to prior approval of the Board (which approval shall not be unreasonably withheld), serving on the board of directors of any other corporation. (b) Indemnification. To the fullest extent permitted by law and the Company's certificate of incorporation and by-laws, the Company shall indemnify the Executive for all amounts (including, without limitation, judgments, fines, settlement payments, losses, damages, costs and expenses (including reasonable attorneys' fees)) incurred or paid by the Executive in connection with any action, proceeding, suit or investigation arising out of or relating to the performance by the Executive of services for, or acting as a fiduciary of any employee benefit plans, programs or arrangements of the Company or as a director, officer or employee of, the Company or any subsidiary thereof. Following the Term, the Company shall continue to indemnify the Executive with respect to such services performed during the Term, to the same extent as the Company indemnifies its officers, directors, employees and fiduciaries, as applicable. 4. Place of Performance. In connection with the Executive's employment by the Company, the Executive shall be based at the principal executive offices of the Company in the city of New York or at such other principal executive office in the New York City Metropolitan Area as the Company may hereafter maintain, except for required travel on the Company's business. 5. Compensation and Related Matters. (a) Annual Compensation. (i) Base Salary. During the period of the Executive's employment hereunder, the Company shall pay to the Executive an annual base salary at a rate not less than $750,000, such salary to be paid in conformity with the Company's policies relating to salaried employees. This salary may be (but is not required to be) increased from time to time, subject to and in accordance with the annual executive performance review procedures of the Company and, if so increased, shall not thereafter be decreased during the Term of this Agreement. Compensation of the Executive by salary payments shall not be deemed exclusive and shall not prevent the Executive from participating in any other compensation or benefit plan of the Company. The salary payments (including any increased salary payments) hereunder shall not in any way limit or reduce any other obligation of the Company hereunder, and no other compensation, benefit or payment hereunder shall in any way limit or reduce the obligation of the Company to pay the Executive's salary hereunder. (ii) Annual Bonus. During the period of Executive's employment hereunder, the Executive shall be eligible to participate in the Company's annual bonus plan as in effect from time to time, and shall be entitled to receive such amounts (a "Bonus") as may be authorized, declared and paid by the Company pursuant to the terms of such plan; provided that, notwithstanding any contrary provisions of such bonus plan, unless the Executive's employment is terminated by the Company for Cause (as defined in Section 6(c) hereof) or by the Executive (other than for Good Reason, as defined in Section 6(d)(1) hereof), the Executive shall be entitled to receive any Bonus paid with respect to any bonus period completed on or prior to the Date of Termination or, in the case a Nonrenewal Notice is given by the Company, through the scheduled expiration date of the Term (even if the Executive terminates her employment prior to such scheduled expiration date for Good Reason under Section 6(d)(1)(v) hereof). (b) Stock Options. During the period of Executive's employment hereunder, the Executive shall be eligible to be granted options to acquire shares of common stock of the Company ("Shares") pursuant to the Company's stock option plan. In determining the number of Shares to be covered by such stock option grants, the Committee administering the Company's stock option plan shall take into account, among other things, the position of the Executive and the number of Shares covered by options granted to other executives of the Company. (c) SERP. (i) Subject to the terms and conditions set forth herein, the Executive shall be entitled to payment by the Company of an annual supplemental retirement benefit (the "SERP"), expressed as a life annuity commencing on the Executive's sixty-fifth (65th) birthday, equal to (A) fifty percent (50%) of her "Final Average Compensation" (as defined in clause (ii) below) minus (B) the sum of (1) any amounts payable to the Executive under any "defined benefit plan" (as defined in Section 3(35) of the Employee Retirement Income Security Act of 1974), now or hereafter maintained by the Company, including excess benefit or supplemental retirement plans; and (2) any amounts payable to the Executive as annual primary social security retirement benefits. (ii) As used in this Agreement, "Final Average Compensation" shall mean the highest average of the Executive's annual salary and Bonus payable from the Company for any period of three consecutive fiscal years; provided that, the maximum amount of any Bonus to be taken into account for any year in determining Final Average Compensation shall be 100% of the Executive's salary for the year to which the Bonus relates. (iii) The Executive shall be fully vested in the SERP upon the completion of fifteen (15) years of service with the Company and attainment of age 55; provided that, the SERP shall be fully vested if the Executive's employment is terminated (1) by the Company without Cause (as hereinafter defined), (2) by the Executive for Good Reason (as hereinafter defined), (3) due to the Executive's death, (4) due to the Executive's Disability (as hereinafter defined), or (5) by reason of the expiration of the Term of this Agreement as a result of a Nonrenewal Notice having been provided by the Company. For purposes hereof, all service by the Executive with the Company or any predecessor, including her prior service from May 1979 through September 1985, shall be recognized. In the event the Executive's employment is terminated under any of the circumstances referred to in the foregoing proviso, the amount of the SERP referred to in sub-clause (A) of clause (i) above shall be determined by multiplying such amount by a fraction (not to exceed one (1)) the numerator of which is the number of years of service of the Executive as of the Date of Termination (taking into account, where and to the extent applicable, the additional period referred to in Section 7(a)(v) or Section 7(d)(4) hereof) and the denominator of which is fifteen (15). (iv) The SERP shall be payable on a monthly basis in the form of an annuity for the Executive's life with fifty percent (50%) of the SERP amount being payable after Executive's death to her surviving spouse for his life. The fifty percent (50%) survivor benefit referred to in the preceding sentence shall also be payable to Executive's surviving spouse in the event of her death during employment or her death after cessation of employment but prior to commencement of SERP payments. SERP payments shall commence on the first day of the month following the later of the Executive's fifty-fifth (55th) birthday or her Date of Termination; provided that, Executive (or, in the event of her death, her surviving spouse) may elect, at least one year prior to termination of employment, to commence receiving SERP payments at any later date (but in no event later than the later of her sixty-fifth (65th) birthday or her Date of Termination). In the event SERP payments commence prior to the Executive's sixty-fifth (65th) birthday, the amount of such payments shall be actuarially reduced (in accordance with the methods and assumptions used under the Company's qualified defined benefit pension plan) to reflect such early commencement. (v) Notwithstanding the foregoing provisions, if the Executive's employment is terminated by the Company for Cause, all rights of the Executive and her spouse to future SERP payments shall be forfeited. (d) Other Benefits. During the period of Executive's employment hereunder, the Executive shall continue to be entitled to participate in all other employee benefit plans, programs and arrangements of the Company, as now or hereinafter in effect, which are applicable to the Company's employees generally or to its executive officers, as the case may be, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, programs and arrangements. During the period of Executive's employment hereunder, the Company shall continue to provide to the Executive all of the fringe benefits and perquisites which she is receiving as of the date hereof, at not less than the levels currently provided, and the Executive shall be entitled to participate in and receive any other fringe benefits or perquisites which may become available to the Company's executive employees. Without limiting the generality of the foregoing, the Company shall provide the Executive with financial planning and tax preparation services on a tax-free basis. (e) Vacations and Other Leaves. The Executive shall continue to be entitled to the number of vacation days (and to compensation in respect of earned but unused vacation days), paid holidays and personal leave days that she is entitled to as of the date hereof. (f) Expenses. During the period of the Executive's employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reason able and customary expenses incurred by the Executive in performing services hereunder, including all expenses of travel and accommodations while away from home on business or at the request of and in the service of the Company; provided that, such expenses are incurred and accounted for in accordance with the policies and procedures established by the Company. (g) Services Furnished. The Company shall continue to furnish the Executive with office space, stenographic assistance and such other facilities and services as shall be suitable to the Executive's position and adequate for the performance of her duties hereunder. (h) Legal Fees. The Company shall pay directly or reimburse the Executive for any legal fees incurred by the Executive in connection with the negotiation and preparation of the Agreement; provided that, such payment or reimbursement shall not exceed $10,000. 6. Termination. The Executive's employment hereunder may be terminated without breach of this Agreement only under the following circumstances: (a) Death. The Executive's employment hereunder shall terminate upon her death. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness, the Executive shall have been absent from her duties hereunder on a full-time basis for the entire period of six (6) consecutive months, and within thirty (30) days after written Notice of Termination (as defined in paragraph (e) below) is given (which may occur before or after the end of such six (6) month period) shall not have returned to the performance of her duties hereunder on a full-time basis, the Executive's employment hereunder shall terminate for "Disability." (c) Cause. The Company may terminate the Executive's employment hereunder for "Cause". For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment hereunder upon (i) the Executive's conviction for the commission of an act or acts constituting a felony under the laws of the United States or any state thereof, (ii) action by the Executive toward the Company involving dishonesty (other than good faith expense account disputes), (iii) the Executive's refusal to abide by or follow written directions of the Board, (iv) the Executive's gross nonfeasance which does not cease with in ten (10) business days after notice regarding such nonfeasance has been given to the Executive by the Company or (v) failure of the Executive to comply with the provisions of Section 10 (prior to a Change in Control) or 11 of this Agreement, or other willful conduct by the Executive which is intended to have and does have a material adverse impact on the Company. (d) Termination by the Executive. (1) The Executive may terminate her employment hereunder for "Good Reason". For purposes of this Agreement, the Executive shall have "Good Reason" to terminate her employment hereunder (i) upon a failure by the Company to comply with any material provision of this Agreement which has not been cured within ten (10) business days after notice of such noncompliance has been given by the Executive to the Company, (ii) upon action by the Company resulting in a diminution of the Executive's title or authority, (iii) upon the Company's relocation of the Executive's principal place of employment outside of the New York City Metropolitan Area, (iv) one year after a "Change in Control of the Company" (as defined in paragraph (d)(2) below) or (v) at any time following the expiration of ninety (90) days following the Company's issuance of a Nonrenewal Notice. The Executive may terminate her employment voluntarily without Good Reason upon at least six months' prior notice to the Company. (2) For purposes of this Agreement, a "Change in Control of the Company" will be deemed to have occurred if: (A) any "person", as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than (1) the Company, (2) Merrill Lynch & Co. or any affiliate there of, which for purposes of this Agreement shall include First Capital Partners Inc. and its affiliates (collectively, "ML"), (3) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or (4) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of Shares) (a "Person"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding voting securities (not including in the securities beneficially owned by such Person securities acquired directly from ML representing in excess of 15% of the combined voting power of the Company's then outstanding voting securities but including any such securities acquired directly from ML representing up to 15% of such combined voting power); (B) during any period of not more than two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (A), (C), or (D) of this Section 6(d)(2)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (C) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (1) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior there to continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving or parent entity) 50% or more of the combined voting power of the voting securities of the Company or such surviving or parent entity outstanding immediately after such merger or consolidation or (2) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the beneficial owner (as defined in (A) above), directly or indirectly, of securities of the Company represent ing 30% or more of the combined voting power of the Company's then outstanding securities (not including in the securities beneficially owned by such Person securities acquired directly from ML representing in excess of 15% of the combined voting power of the Company's then outstanding voting securities but including any such securities acquired directly from ML representing up to 15% of such combined voting power); or (D) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets (or any transaction having a similar effect). (e) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive (other than termination under Section 6(a) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 13 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. (f) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by her death, the date of her death, (ii) if the Executive's employment is terminated pursuant to subsection (b) above, the date which is the later of thirty (30) days after Notice of Termination is given (provided that the Executive shall not have returned to the performance of her duties on a full-time basis during such thirty (30)-day period) or the end of the six (6) consecutive month period referred to in Subsection (b) above, and (iii) if the Executive's employment is terminated pursuant to subsection (c) or (d) above, the date specified in the Notice of Termination; provided that, if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties or by a binding and final arbitration award. 7. Compensation Upon Termination or During Disability. (a) Disability. During any period that the Executive fails to perform her duties hereunder as a result of incapacity due to physical or mental illness, the Executive shall continue to receive her full salary at the rate then in effect for such period and other applicable benefits provided to active employees until her employment is terminated pursuant to Section 6(b) hereof. Subject to the provisions of Section 10 hereof, in the event the Executive's employment is terminated pursuant to Section 6(b) hereof, then (i) as soon as practicable thereafter, the Company shall pay the Executive all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under Sections 5(a) and (b) hereof and shall pay to the Executive, in accordance with the terms of the applicable plan or program, all other unpaid amounts to which Executive is then entitled under any compensation or benefit plan or program of the Company (collectively, "Accrued Obligations"); (ii) following the Date of Termination and for the longer of eighteen (18) months thereafter or the balance of the Term as then in effect (the "Severance Period"), the Company shall pay the Executive monthly an amount equal to (x) the quotient of (A) the sum of (1) the Executive's annual base salary at the rate in effect as of the Date of Termination and (2) the average of the annual bonuses earned by the Executive in the three fiscal years of the Company ended immediately prior to the Date of Termination, divided by (B) the number twelve (12) (such quotient being referred to herein as the "Severance Payments"), minus (y) any amounts payable to the Executive during such month as a disability benefit under a Company-paid plan; (iii) as of the Date of Termination, an additional number of Shares underlying outstanding stock options granted to the Executive shall become exercisable, such that the total number of Shares underlying each such grant which are exercisable (including Shares covered by such grant which have already become exercisable, whether or not exercised) is equal to the product of (A) the total number of Shares covered by such grant (whether or not any portion of such grant has previously been exercised) and (B) a fraction the numerator of which is the number of full months from the date of grant to the end of the Severance Period and the denominator of which is the number of full months from the date of grant to the date the option would otherwise have become fully exercisable. The Executive shall have the right to exercise any stock option, to the extent then exercisable, for a period of one (1) year following the Date of Termination, but in no event beyond the expiration date of the option, and to the extent not exercisable, the option shall immediately terminate; (iv) as of the Termination Date, restrictions with respect to an additional number of restricted Shares then held by the Executive shall lapse, such that the aggregate number of Shares underlying each grant with respect to which such restrictions have lapsed (including restricted Shares underlying such grant with respect to which such restrictions have previously lapsed) shall equal the number of Shares with respect to which such restrictions would have lapsed had the Executive continued in the employment of the Company through the end of the Severance Period, and all additional restricted Shares shall be forfeited; (v) for purposes of computing the SERP payable to Executive, Executive shall be treated as if she had continued in employment through the end of the Severance Period; and (vi) all outstanding principal amounts (and accrued interest thereon) with respect to the loan described in Section 8 hereof shall be forgiven. (b) Death. If the Executive's employment is terminated by her death, (i) the Company shall pay to the person(s) or entity set forth in Section 12(b) hereof: (A) the Accrued Obligations, at the time(s) set forth in Section 7(a)(i) hereof; and (B) as soon as practicable following the end of the fiscal year of the Company in which the Executive's death occurs, the Bonus which would otherwise have been paid to the Executive with respect to such fiscal year; (ii) the additional vesting of stock options and restricted Shares, as described in Sections 7(a)(iii) and 7(a)(iv), respectively, shall apply; and (iii) all outstanding principal amounts (and accrued interest thereon) with respect to the loan described in Section 8 hereof shall be forgiven. (c) Termination for Cause; Voluntary Termination Without Good Reason. If the Executive's employment is terminated by the Company for Cause or voluntarily by the Executive for other than Good Reason (including by reason of the expiration of the Term of this Agreement as a result of a Nonrenewal Notice having been given by the Executive), the Company shall pay the Accrued Obligations to the Executive at the time(s) set forth in Section 7(a)(i) hereof and, except with respect to any obligations to pay the SERP hereunder, the Company shall have no further obligations to the Executive under this Agreement. (d) Termination Without Cause; Termination for Good Reason; Nonrenewal. If (i) the Company shall terminate the Executive's employment other than for Disability pursuant to Section 6(b) or for Cause, (ii) the Executive shall terminate her employment for Good Reason or (iii) the Term of this Agreement expires as a result of a Nonrenewal Notice having been provided by the Company, then, subject to the provisions of Section 10 hereof: (1) the Company shall pay the Accrued Obligations to the Executive at the time(s) set forth in Section 7(a)(i) hereof; (2) the Company shall pay to the Executive the Severance Payments, as defined and for the period set forth in Section 7(a)(ii) hereof (except that in the case of the expiration of the Term, as described in clause (iii) above, or if the Executive shall terminate her employment based upon the event of Good Reason set forth in Section 6(d)(1)(v) hereof, the Severance Period shall end on the first anniversary of the expiration of the Term or on the first anniversary of the scheduled expiration of the Term (after giving effect to the relevant Nonrenewal Notice), as the case may be); (3) the additional vesting of stock options and restricted Shares, as described in Sections 7(a)(iii) and 7(a)(iv), respectively, shall apply (except that in the case of the expiration of the Term, as described in clause (iii) above, or if the Executive shall terminate her employment based upon the event of Good Reason set forth in Section 6(d)(1)(v) here of, (1) the number of additional option Shares becoming exercisable shall be determined by reference to the number of full months from the date of grant to the first anniversary of the date of expiration of the Term or to the first anniversary of the scheduled expiration of the Term (after giving effect to the relevant Nonrenewal Notice), as the case may be, and (2) the number of additional Shares as to which restrictions shall lapse shall be determined as if Executive had remained employed through the first anniversary of the date of such expiration or scheduled expiration, as the case may be; (4) for purposes of computing the SERP payable to the Executive, the Executive shall be treated as if she had continued in employment through the end of the Severance Period (or, in the case of the expiration of the Term, as described in clause (iii) above, or if the Executive shall terminate her employment based upon the event of Good Reason set forth in Section 6(d)(1)(v) hereof, through the first anniversary of the date of such expiration or through the first anniversary of the scheduled expiration of the Term (after giving effect to the relevant Nonrenewal Notice), as the case may be); (5) the Executive shall continue to be provided with the same medical and life insurance coverage as existed immediately prior to the applicable Notice of Termination or Notice of Nonrenewal, as the case may be, such coverage to continue through the end of the Severance Period (or, in the case of expiration of the Term, as described in clause (iii) above, or if the Executive shall terminate her employment based upon the event of Good Reason set forth in Section 6(d)(1)(v) hereof, through the first anniversary of the date of such expiration or through the first anniversary of the scheduled expiration of the Term (after giving effect to the relevant Nonrenewal Notice), as the case may be); provided that, such coverage shall cease as of the date the Executive commences new employment; (6) the Executive shall be provided with outplacement services commensurate with her position; and (7) all outstanding principal amounts (and accrued interest thereon) with respect to the loan described in Section 8 hereof shall be forgiven. 8. Loan. (a) As soon practicable following the execution of this Agreement, the Company shall make a loan to the Executive in the principal amount of $500,000, which loan shall be evidenced by a promissory note (the "Note") substantially in the form of Exhibit A annexed hereto. (b) In connection with the loan, the Company agrees to pay to the Executive, on the date(s) on which interest is payable under the Note, such amounts as may be necessary to place the Executive in the same after-tax position as if the Note had been interest-free. 9. Change in Control. (a) Upon the occurrence of a Change in Control of the Company during the Term, (i) all then outstanding stock options granted to the Executive shall become fully exercisable, whether or not otherwise exercisable, (ii) the restrictions applicable to any restricted Shares granted to the Executive shall lapse, and such options and restricted Shares shall be fully vested. (b) In the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control of the Company or the termination of the Executive's employment, whether such payments or benefits are received pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person (all such payments and benefits being hereinafter called "Total Payments"), would be subject (in whole or part), to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to the Executive such additional amounts (the "Gross-Up Payment") as may be necessary to place the Executive in the same after-tax position as if no portion of the Total Payments had been subject to the Excise Tax. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder, the Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. 10. Nonsolicitation; Noncompete. (a) Subject to (c) below, during the period of Executive's employment and during the Severance Period, the Executive shall not initiate discussions (of a non-isolated nature) with any person who is then an executive employee of the Company (i.e., director level or above) with the intent of soliciting or inducing such person to leave his or her employment, with a view toward joining the Executive in the pursuit of any business activity (whether or not such activity involves engaging or participating in a Competitive Business, as defined below). Notwithstanding any other provision of this Agreement to the contrary, in the event Executive fails to comply with the preceding sentence, all rights of the Executive and her surviving spouse or other beneficiary hereunder to any future Severance Payments, SERP payments and continuing life insurance and medical converge shall be forfeited; provided that, the foregoing shall not apply if such failure of compliance commences following a Change in Control of the Company. (b) Subject to (c) below, for as long as Executive has the right to payment of any future SERP benefits, Executive shall not, without the prior written consent of the Company (which consent shall not be unreasonably withheld), engage or participate in any business which is "in competition" (as defined below) with the business of the Company or any of its 50% or more owned affiliates (such business being referred to herein as a "Competitive Business"). Notwithstanding any other provision of this Agreement to the contrary, in the event the Executive fails to comply with the preceding sentence, all rights of the Executive and her surviving spouse or other beneficiary hereunder to any future Severance Payments, SERP payments and continuing life insurance and medical coverage shall be forfeited; provided that, the foregoing shall not apply if such failure of compliance commences following a Change in Control of the Company. (c) In the event of a violation of paragraphs 10(a) or 10(b) hereof, the remedies of the Company shall be limited to (i) if such violation occurs during the period of Executive's employment hereunder, termination of the Executive for Cause and the associated rights of the Company specified herein resulting therefrom, (ii) regardless of when such violation occurs, forfeiture by the Executive of the payments and benefits set forth in paragraphs (a) and (b) above if and to the extent provided in such paragraphs, and (iii) the right to seek injunctive relief in accordance with and to the extent provided in Section 17 hereof. (d) For purposes hereof, a business will be "in competition" with the business of the Company or its 50% or more owned affiliates if (i) the Company's business with which the other business competes accounted for 20% or more of the Company's consolidated revenues as of the end of its most recently completed fiscal year prior to the Date of Termination, and (ii) the entity (including all 50% or more owned affiliates) through which the other business is or will be operated maintains a "women's apparel" business which generated at least $50 million in revenue during the entity's most recently completed fiscal year ended prior to the date the Executive commences (or proposes to commence) to engage or participate in the other business. For purposes hereof, "women's apparel" shall consist of dresses, jackets, pants, skirts, blouses, sweaters and T-shirts. (e) Notwithstanding the foregoing, the Executive's engaging in the following activities shall not be construed as engaging or participating in a Competitive Business: (i) investment banking; (ii) passive ownership of less than 2% of any class of securities of a public company; (iii) engaging or participating in noncompetitive businesses of an entity which also operates a business which is "in competition" with the business of the Company or its affiliates; (iv) serving as an outside director of an entity which operates a business which is "in competition" with the business of the Company or its affiliates, so long as such business did not account for 10% or more of the consolidated revenues of such entity as of the end of its most recently completed fiscal year prior to the date Executive commences (or proposes to commence) serving as an outside director; (v) engaging in a business involving licensing arrangements so long as such business is not an in-house arrangement for any entity "in competition" with the business of the Company or its affiliates; and (vi) affiliation with an advertising agency. 11. Protection of Confidential Information. (a) Executive acknowledges that her employment by the Company will, throughout the Term of this Agreement, involve her obtaining knowledge of confidential information regarding the business and affairs of the Company. In recognition of the foregoing, the Executive covenants and agrees: (i) that, except in compliance with legal process, she will keep secret all confidential matters of the Company which are not otherwise in the public domain and will not intentionally disclose them to anyone outside of the Company, wherever located (other than to a person to whom disclosure is reasonably necessary or appropriate inconnection with the performance by Executive of her duties as an executive officer of the Company), either during or after the Term, except with the prior written consent of the Board or a person authorized thereby; and (ii) that she will deliver promptly to the Company on termination of her employment, or at any other time the Company may so request, all memoranda, notes, records, customer lists, reports and other documents (and all copies thereof) relating to the business of the Company which she obtained while employed by, or otherwise serving or acting on behalf of, the Company and which she may then possess or have under her control. (b) Notwithstanding the provisions of Section 17 of this Agreement, if the Executive commits a breach of the provisions of paragraphs 11(a)(i) or 11(a)(ii), the Company shall have the right and remedy to have such provisions specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will not provide an adequate remedy to the Company. 12. Successors; Binding Agreement. (a) Neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive (except by will or by operation of the laws of intestate succession) or by the Company, except that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as she would be entitled to hereunder if she terminated her employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "Company" shall mean the Company as herein before defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 12 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amounts would still be payable to her hereunder if she had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 13. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: AnnTaylor Stores Corporation 142 West 57th Street New York, New York 10019 Attn: General Counsel With a copy to: Stuart N. Alperin, Esq. Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 If to the Executive: Sally Frame Kasaks 99 Anderson Avenue Demarest, New Jersey 07627 With a copy to: Michael S. Sirkin, Esq. Proskauer Rose Goetz & Mendelsohn 1585 Broadway New York, New York 10036 or to such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 14. Miscellaneous. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the state of New York without regard to its conflicts of law principles. 15. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 17. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in New York City in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided that, the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 10 of the Agreement during the period of Executive's employment prior to a Change in Control or of Section 11 of this Agreement at any time, and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond; and further provided that, the Executive shall be entitled to seek specific performance of her right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. The Company shall pay directly or reimburse the Executive for any legal fees incurred by the Executive in connection with any arbitration related to the last proviso of the preceding sentence and any other arbitration in which she prevails. 18. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes the Prior Agreement and all other prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein (including, but not limited to, the Prior Agreement) is hereby terminated and cancelled. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. ANNTAYLOR STORES CORPORATION By: Name: Title: Sally Frame Kasaks Exhibit A PROMISSORY NOTE ("NOTE") $500,000 November 4, 1994 Reference is made to that certain Employment Agreement by and between the Company and the Borrower (as hereinafter defined), dated as of February 1, 1994 (the "Employment Agreement"). Capitalized terms which are not defined in this Note shall have the meaning ascribed to such term in the Employment Agreement. The proceeds received by the Borrower to which this Note applies shall constitute the "Loan" described in Section 8 of the Employment Agreement and shall be subject to the terms hereof and to the applicable provisions of the Employment Agreement, which provisions are incorporated herein by reference. FOR VALUE RECEIVED, the undersigned, Sally Frame Kasaks (the "Borrower"), hereby promises to pay to AnnTaylor Stores Corporation, a Delaware corporation (the "Company"), or to the legal holder of this Note at the time of payment, on the Maturity Date (as hereinafter defined) the principal sum (the "Principal Sum") of Five Hundred Thousand Dollars ($500,000) in lawful money of the United States of America. The Borrower also agrees to pay interest (computed on the basis of a 365 or 366 day year, as the case may be) on any unpaid amount of the Principal Sum, from and after the effective date of this Note, at an annual rate equal to 7.32%, compounded semi-annually. This Note is subject to the following further terms and conditions: 1. Time, Form and Place of Payments. The Principal Sum will become due and payable on January 31, 1999 (the "Maturity Date"). If the Maturity Date falls on a Saturday, Sunday or legal holiday, then such payment shall be made on the next succeeding business day. Accrued interest shall be payable annually on January 31, 1995 and on each January 31 thereafter, with the final payment of all accrued interest to be paid on the Maturity Date. All payments and prepayments of the Principal Sum of and the accrued interest on this Note shall be made to the Company or its order, or to the legal holder of this Note or such holder's order, in lawful money of the United States of America at the principal offices of the Company (or at such other place as the holder hereof shall notify the Borrower in writing). 2. Prepayment. The Borrower may, at her option, prepay this Note in whole or in part at any time or from time to time without penalty or premium. Any prepayments of any portion of the Principal Sum of this Note shall be accompanied by payment of all interest accrued but unpaid hereunder. Upon full and final payment of the Principal Sum of and interest accrued on this Note, it shall be surrendered to the Borrower, and canceled by the Company or other holder. 3. Acceleration of Repayment. Upon the earliest to occur of (i) the Borrower's voluntary termination of employment with the Company without Good Reason or (ii) the Company's termination of the Borrower's employment for Cause, the holder of this Note may declare, by notice given to the Borrower, the entire outstanding Principal Sum to be immediately due and payable, whereupon such Principal Sum, and any accrued and unpaid interest thereon, shall become due and payable without presentment, demand, protest, notice of dishonor and all other demands and notices of any kind, all of which are hereby expressly waived. 4. Loan Forgiveness. The outstanding Principal Sum and all accrued interest thereon shall be forgiven and the Borrower shall be free of all liability and obligations under this Note if (i) the Borrower is employed by the Company on the Maturity Date, (ii) the Borrower dies or becomes Disabled (and there shall not have previously occurred the Borrower's voluntary termination of employment without Good Reason, or the termination of Borrower's employment for Cause), (iii) the Borrower's employment is involuntarily terminated by the Company without Cause or voluntarily terminated by the Borrower for Good Reason, or (iv) the Term of the Employment Agreement expires by reason of a Nonrenewal Notice having been provided by the Company. 5. Notice. For the purposes of this Note, notices, demands and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Sally Frame Kasaks 99 Anderson Avenue Demarest, New Jersey 07627 If to the Company: AnnTaylor Stores Corporation 142 West 57th Street New York, New York 10019 Attn: General Counsel or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6. Miscellaneous. (a) No delay or failure by the Company or the holder of this Note in the exercise of any right or remedy shall constitute a waiver thereof, and no single or partial exercise by the holder hereof of any right or remedy shall preclude other or future exercise thereof or the exercise of any other right or remedy. (b) The headings contained in this Note are for reference purposes only and shall not affect in any way the meaning or interpretation of the provisions hereof. (c) Nothing in this Note shall confer upon the Borrower the right to continue in the employment of the Company or any of its affiliates or affect any rights which the Company may have to terminate the employment of the Borrower. (d) The provisions of this Note shall be governed by and construed in accordance with laws of the State of New York, without giving effect to the choice of law principles thereof. IN WITNESS WHEREOF, this Note has been duly executed and delivered to the Company by the Borrower on the date first above written. Witness: Sally Frame Kasaks EX-27 3 EXHIBIT 27 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONDENSED CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000874214 ANNTAYLOR STORES CORPORATION 1,000 9-MOS JAN-28-1995 OCT-29-1994 2,841 0 61,721 802 104,324 178,020 104,841 33,231 585,252 73,355 0 157 0 0 316,758 585,252 469,851 469,851 251,970 251,970 160,081 0 10,215 47,585 23,318 0 0 (868) 0 23,399 0 1.01
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