-----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, QpZrmIRAyfhUygUNBqhU5FxzxZ5BfNe+cwSviHLlrOh1U7B7SJDiatPvSN4Tib4M f5CXl4Rw7ynDsrgKaCdirQ== 0000874214-96-000005.txt : 19961218 0000874214-96-000005.hdr.sgml : 19961218 ACCESSION NUMBER: 0000874214-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19961217 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAYLOR ANN STORES CORP CENTRAL INDEX KEY: 0000874214 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [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: 96682138 BUSINESS ADDRESS: STREET 1: 142 WEST 57TH ST CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2125413300 10-Q 1 ANNTAYLOR STORES CORP UNITED STATES 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 November 2, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-10738 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 November 29, 1996 ------- ----------------- Common Stock, $.0068 par value 25,482,930 ============================================================================= 2 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 November 2, 1996 and October 28, 1995..................... 3 Condensed Consolidated Balance Sheets at November 2, 1996 and February 3, 1996..................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 2, 1996 and October 28, 1995.......................................... 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Operations....... 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...... 18 Item 6. Exhibits and Reports on Form 8-K......................... 18 ============================================================================= 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ANN TAYLOR STORES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Quarters and Nine Months Ended November 2, 1996 and October 28, 1995 (unaudited) Quarters Ended Nine Months Ended Nov. 2, Oct. 28, Nov. 2, Oct. 28, 1996 1995 1996 1995 -------- -------- --------- ------- (in thousands except per share amounts) Net sales........................... $212,670 $178,500 $584,999 $530,501 Cost of sales....................... 115,580 98,362 324,008 304,586 ------- ------- ------- ------- Gross profit........................ 97,090 80,138 260,991 225,915 Selling, general and administrative expenses.......................... 75,838 69,074 216,121 198,758 Employment contract separation expense........................... 3,500 --- 3,500 --- Amortization of goodwill............ 2,578 2,377 7,331 7,130 ------- ------- ------- ------- Operating income.................... 15,174 8,687 34,039 20,027 Interest expense.................... 6,345 5,402 18,676 14,368 Other expense, net.................. 898 374 474 200 ------- ------- ------- ------- Income before income taxes.......... 7,931 2,911 14,889 5,459 Income tax provision................ 4,669 2,225 9,188 5,091 ------- ------- ------- ------- Net income....................... $ 3,262 $ 686 $ 5,701 $ 368 ======= ======= ======= ======= Net income per share.......... $ .13 $ .03 $ .24 $ .02 ======= ======= ======= ======= Weighted average number of shares and share equivalents outstanding........ 24,334 23,195 23,597 23,244 ======= ======= ======= ======= See accompanying notes to condensed consolidated financial statements. ======================================================================== 4 ANNTAYLOR STORES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS November 2, 1996 and February 3, 1996 November 2, February 3, 1996 1996 ---------- ---------- (unaudited) (in thousands) ASSETS Current assets Cash............................................. $ 2,421 $ 1,283 Accounts receivable, net......................... 70,521 70,395 Merchandise inventories.......................... 127,952 102,685 Prepaid expenses and other current assets........ 9,687 12,808 Prepaid tenancy.................................. 7,748 8,099 Deferred income taxes............................ 4,400 3,400 ------- ------- Total current assets........................... 222,729 198,670 Property and equipment Land and building................................ 8,983 8,923 Leasehold improvements........................... 78,426 73,677 Furniture and fixtures........................... 114,722 99,548 Construction in progress......................... 4,383 14,190 ------- ------- 206,514 196,338 Less accumulated depreciation and amortization... 59,850 42,443 ------- ------- Net property and equipment..................... 146,664 153,895 Goodwill, net of accumulated amortization of $74,056 and $66,725, respectively........................ 340,927 313,525 Deferred financing costs, net of accumulated amortization of $3,158 and $1,960, respectively.. 3,117 3,933 Other assets........................................ 3,785 8,686 ------- ------- Total assets................................... $717,222 $678,709 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................. $ 39,394 $ 42,909 Accrued expenses................................. 38,333 29,018 Current portion of long-term debt................ 281 40,266 ------- ------- Total current liabilities...................... 78,008 112,193 Long-term debt...................................... 163,979 232,192 Deferred income taxes............................... 3,500 1,300 Other liabilities................................... 8,120 7,336 Commitments and contingencies Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of Subsidiary, AnnTaylor Finance Trust, Holding Solely Convertible Debentures of the Company........................ 96,100 --- Stockholders' equity Common stock, $.0068 par value; 40,000,000 shares authorized; 25,494,122 and 23,127,743 shares issued, respectively.................... 173 157 Additional paid-in capital 347,798 311,284 Warrants to acquire 2,814 and 36,605 shares of common stock, respectively...................... 46 596 Retained earnings................................ 19,706 14,120 Deferred compensation on restricted stock........ (8) (33) ------- ------- 367,715 326,124 Less treasury stock, 11,192 and 44,983 shares, respectively, at cost.......................... (200) (436) ------- ------- Total stockholders' equity.................. 367,515 325,688 ------- ------- Total liabilities and stockholders' equity.. $717,222 $678,709 ======= ======= See accompanying notes to condensed consolidated financial statements. ============================================================================== 5 ANNTAYLOR STORES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended November 2, 1996 and October 28, 1995 (unaudited) Nine Months Ended ------------------ Nov. 2, Oct. 28, 1996 1995 ------- -------- (in thousands) Operating activities: Net income.............................................. $ 5,701 $ 368 Adjustments to reconcile net income to net cash provided by operating activities: Employment contract separation expense................ 3,500 --- Equity earnings in CAT................................ (1,043) (1,064) Provision for loss on accounts receivable............. 1,315 866 Depreciation and amortization......................... 19,232 14,008 Amortization of goodwill.............................. 7,331 7,130 Amortization of deferred financing costs.............. 1,198 624 Amortization of deferred compensation................. 25 78 Deferred income taxes................................. 3,200 1,200 Loss on disposal of property and equipment............ 641 947 Change in assets and liabilities net of effects from purchase of ATGS: (Increase) decrease in: Receivables....................................... (1,441) (13,444) Merchandise inventories........................... (19,731) (27,261) Prepaid expenses and other current assets......... 1,472 (6,621) Increase (decrease) in: Accounts payable.................................. (3,515) 25,372 Accrued expenses.................................. 5,576 (2,071) Other non-current assets and liabilities, net..... 208 1,331 ------- ------- Net cash provided by operating activities............... 23,669 1,463 ------- ------- Investing activities: Purchases of property and equipment..................... (9,795) (68,994) Purchase of ATGS........................................ (356) --- ------- ------- Net cash used by investing activities................... (10,151) (68,994) ------- ------- Financing activities: Net borrowings (repayments) under revolving credit agreement...................................... (94,000) 39,000 Payments on mortgage.................................... (198) --- Net proceeds from issuance of Preferred Securities...... 95,985 --- Exercise of stock options............................... 215 388 Net (repayments) borrowings under receivables facility.. (14,000) 4,000 Payments of financing costs............................. (382) (1,643) Increase in bank overdrafts............................. --- 486 Proceeds from term loan................................. --- 25,000 ------- ------- Net cash (used by) provided by financing activities..... (12,380) 67,231 ------- ------- Net increase (decrease) in cash.......................... 1,138 (300) Cash, beginning of period................................ 1,283 1,551 ------- ------- Cash, end of period...................................... $ 2,421 $ 1,251 ======= ======= Supplemental Disclosures of Cash Flow Information: Cash paid during the period for interest................ $ 14,998 $ 10,398 ======= ======= Cash paid during the period for income taxes............ $ 4,803 $ 7,549 ======= ======= See accompanying notes to condensed consolidated financial statements. ============================================================================= 6 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 1996 interim period shown in this report are not necessarily indicative of results to be expected for the fiscal year. The February 3, 1996 condensed consolidated balance sheet amounts have been derived from the previously audited consolidated balance sheet of AnnTaylor Stores Corporation (the "Company"). Certain fiscal 1995 amounts have been reclassified to conform to the 1996 presentation. 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 1995 Annual Report to Stockholders. 2. Income Per Share ---------------- Net income per share is calculated by dividing net income 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 calculation was as follows: Quarters Ended Nine Months Ended ---------------- ------------------ Nov. 2, Oct. 28, Nov. 2, Oct. 28, 1996 1995 1996 1995 ------- ------- ------- ------- (in thousands) Common shares........... 24,229 23,079 23,470 23,062 Warrants................ 17 37 28 47 Stock options........... 88 79 99 135 ------ ------ ------ ------ 24,334 23,195 23,597 23,244 ============================================================================= 7 Fully diluted income per share, assuming the conversion into common stock of the 8-1/2% Convertible Trust Originated Preferred Securities described below, is not presented for the quarter and nine months ended November 2, 1996 due to the anti-dilutive effect of the assumed conversion. 3. Long-Term Debt -------------- The following summarizes long-term debt outstanding at November 2, 1996. (in thousands) Revolving Credit Facility............ $ 7,000 Term Loan............................ 24,500 8-3/4% Notes......................... 100,000 Receivables Facility................. 26,000 Mortgage............................. 6,760 ------- Total debt......................... 164,260 Less current portion................. 281 ------- Total long-term debt............... $163,979 ======= In November 1996, the maturity date of the AnnTaylor Funding, Inc. receivables financing facility was extended from January 27, 1997 to May 4, 1998. All other aspects of this financing agreement remain the same. In connection with the CAT/Cygne Transaction discussed in Note 4, the HongKong and Shanghai Banking Corporation allowed AnnTaylor Global Sourcing, Inc. ("ATGS", formerly known as CAT US Inc. ("CAT") and now a wholly owned subsidiary of AnnTaylor, Inc. ("Ann Taylor")), to continue CAT's $40,000,000 credit facility. The maximum amount that may be borrowed under this credit facility is $8,000,000; the balance of $32,000,000 can only be used for letters of credit. Such credit facility matures on July 29, 1997 and contains financial and other covenants. As of November 2, 1996, there was no balance outstanding under ATGS's credit agreement. On April 25, 1996, the Company completed the sale (the "Initial Sale"), in a private placement, of $87,500,000 8-1/2% Convertible Trust Originated Preferred Securities ("Preferred Securities") issued by its financing vehicle, AnnTaylor Finance Trust, a Delaware business trust (the "Trust"). On May 17, 1996, the Trust, a wholly-owned subsidiary of the Company, issued an additional $13,125,000 of Preferred Securities pursuant to the exercise of an over-allotment option (the "Over-allotment Sale") granted to the placement agents in connection with the Initial Sale. The Preferred Securities have a liquidation preference of $50 per security ($100,625,000 in the aggregate) and are convertible at the option of the holders thereof into the Company's common stock at a conversion rate of 2.545 shares of common stock for each Preferred Security (equivalent to $19.65 per share of common stock, which represented a 20% premium to the $16.375 closing price of the common stock on the New York Stock Exchange at the date of the execution of the purchase agreement relating to the sale of the Preferred Securities). The sole ====================================================================== 8 assets of the Trust are $103,700,000 of 8-1/2% Convertible Subordinated Debentures of the Company maturing on April 15, 2016. A total of 2,012,500 Preferred Securities were issued, and are convertible into an aggregate of 5,121,812 shares of common stock. The sale of the Preferred Securities enabled the Company to pay down $94,000,000 of outstanding borrowings under its revolving credit facility, without reduction of the commitment thereunder. 4. CAT/Cygne Transaction --------------------- In Fiscal 1995, the Company purchased approximately 16% of its merchandise directly from Cygne Designs, Inc. ("Cygne") and an additional 38% of its merchandise through the Company's direct sourcing joint venture with Cygne known as CAT. On September 20, 1996 (the "Effective Date"), pursuant to the Stock and Asset Purchase Agreement dated as of June 7, 1996, by and among the Company, Ann Taylor, Cygne and Cygne Group F.E. Limited (as amended, the "Purchase Agreement"), Ann Taylor acquired the entire interest of Cygne in CAT and certain of the assets (the "Assets") of the Ann Taylor Woven Division of Cygne (the "Division") that were used for sourcing merchandise for Ann Taylor (the "CAT/Cygne Transaction"). As a result of the CAT/Cygne Transaction, CAT became an indirect wholly owned subsidiary of the Company and will perform all of Ann Taylor's direct sourcing functions, including those previously provided by the Division, under the name Ann Taylor Global Sourcing. For financial reporting purposes, the transaction has been accounted for as of the Effective Date under the purchase method of accounting in accordance with Accounting Principles Board Opinion No. 16, Accounting for Business Combinations. Pursuant to the Purchase Agreement, at the closing the Company and Ann Taylor delivered to Cygne, as the purchase price for Cygne's interest in CAT and the Assets (i) 2,348,145 shares of common stock of the Company having an aggregate value, as of the Effective Date, of $36,000,000, (ii) $3,200,000 in cash as payment for inventory and fixed assets and (iii) approximately $6,500,000 in cash in settlement of open accounts payable by Ann Taylor to Cygne for merchandise delivered by Cygne prior to the closing. The Company also assumed certain liabilities related to the operations of the Division. The purchase price is subject to post-closing adjustments based upon final determination of the value of certain of the assets purchased and liabilities assumed. As of November 2, 1996, certain post-closing adjustments are expected to reduce the net cash paid to approximately $400,000. The total purchase price to the Company of the CAT/Cygne Transaction has been allocated to the tangible and intangible assets and liabilities of CAT and the Division that were acquired, based on preliminary estimates of their respective fair values. Accordingly, the allocation of the purchase price reflected in the accompanying Condensed Consolidated Balance ====================================================================== 9 Sheets may be adjusted upon final determination of the purchase price adjustments. Management does not believe the subsequent changes, if any, will be significant. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and is being amortized on a straight-line basis over 25 years. In connection with the CAT/Cygne Transaction, Ann Taylor entered into two three-year consulting agreements with Cygne for the services of Mr. Bernard Manuel, Chairman and Chief Executive Officer of Cygne, and Mr. Irving Benson, President of Cygne. In November 1996, Mr. Benson resigned from his employment with Cygne and, in accordance with the terms of the consulting agreement relating to Mr. Benson's services, Cygne's obligations and rights under the consulting agreement were automatically assigned to Mr. Benson. In addition, Mr. Dwight Meyer, formerly president of CAT, has entered into a three-year employment agreement with Ann Taylor pursuant to which he will serve as Executive Vice President - Sourcing of Ann Taylor and Ann Taylor Global Sourcing. 5. Supplementary Data ------------------ The following unaudited pro forma condensed consolidated data for the nine months ended November 2, 1996 and October 28, 1995 have been presented to reflect the CAT/Cygne Transaction as if it had occurred at the beginning of each such period: Nine Months Ended Nine Months Ended November 2, 1996 October 28, 1995 -------------------- ------------------ Actual Pro Forma Actual Pro Forma -------- --------- -------- -------- (in thousands except per share amounts) Net sales................. $584,999 $584,999 $530,501 $530,501 Net income................ $ 5,701 $ 8,629 $ 368 $ 3,178 Net income per share...... $ .24 $ .34 $ .02 $ .12 Weighted average shares... 23,597 25,567 23,244 25,592 The pro forma data set forth above does not purport to be indicative of the results that actually would have occurred if the CAT/Cygne Transaction had occurred at the beginning of the periods presented or of results which may occur in the future. ====================================================================== 10 6. Supplemental Schedule of Noncash Investing and Financing Activities: -------------------------------------------------------------------- A summary of the noncash activity which occurred in conjunction with the CAT/Cygne Transaction is as follows: (in thousands) Fair value of assets acquired................ $ 8,333 Excess of purchase price over the fair value of net assets acquired.................................. 34,734 Ann Taylor's previous investment in CAT..... (6,711) Issuance of ATSC common stock............... (36,000) -------- Cash paid................................... $ 356 ======== ====================================================================== 11 Item 2. Management's Discussion and Analysis of Operations -------------------------------------------------- Results of Operations - --------------------- Quarters Ended Nine Months Ended ----------------- ------------------ Nov. 2, Oct. 28, Nov. 2, Oct.28, 1996 1995 1996 1995 ------- ------- ------- ------- Number of Stores: Open at beginning of period....... 306 289 306 262 Opened during period............... 4 14 9 43 Expanded during period*............ 6 12 7 29 Closed during period............... 1 --- 6 2 Open at end of period.............. 309 303 309 303 Type of Stores Open at End of Period: AnnTaylor Stores................... 260 256 AnnTaylor Factory Stores........ 23 23 AnnTaylor Loft stores.............. 17 15 AnnTaylor Studio stores............ 9 9 ------------- * Expanded stores are excluded from comparable store sales for the first year following expansion. Quarter Ended November 2, 1996 Compared to Quarter Ended October 28, 1995 - ------------------------------------------------------------------------- The Company's net sales in the third quarter of 1996 increased to $212,670,000 from $178,500,000 in the third quarter of 1995, an increase of $34,170,000 or 19.1%. The increase in net sales was primarily attributable to sales by the fourteen new stores opened and the eight existing stores expanded since the end of the third quarter of 1995, and to a 12.6% increase in comparable store sales in the third quarter of 1996, partially offset by the closing of eight stores since the end of the third quarter of 1995. Management believes that the increase in comparable store sales was due primarily to favorable customer reaction to the Company's Fall merchandise assortment and inventory levels sufficient to support sales momentum during the period. Gross profit as a percentage of net sales increased to 45.7% in the third quarter of 1996 from 44.9% in the third quarter of 1995. This increase was attributable to decreased cost of goods sold as a percentage of net sales, primarily resulting from lower markdowns as a percentage of sales and a higher initial markup. Selling, general and administrative expenses were $75,838,000, or 35.7% of net sales in the third quarter of 1996, compared to $69,074,000, or 38.7% of net sales in the third quarter of 1995. The increase in expense was primarily attributable to increased retail square footage, which at quarter end was 5.8% higher than at the end of the third quarter of 1995. The operating expense rate as a percentage of sales decreased primarily as a result of increased leverage on fixed expenses as a result of positive comparable store sales. ======================================================================== 12 In connection with the resignation in August of Sally Frame Kasaks as Chairman and Chief Executive Officer of the Company, a one-time pre-tax charge of $3,500,000 ($1,958,000 net of related tax benefit, or $0.08 per share) was recorded relating to the estimated costs of the Company's obligations under Ms. Kasaks' employment contract with the Company. As a result of the foregoing, the Company had operating income of $15,174,000, or 7.1% of net sales, in the third quarter of 1996, compared to operating income of $8,687,000, or 4.9% of net sales, in the third quarter of 1995. As described above, operating income was reduced by $3,500,000, or 1.6% of net sales, related to the estimated costs of the Company's obligations under Ms. Kasaks' employment contract. Amortization of goodwill was $2,578,000 in the third quarter of 1996 compared to $2,377,000 in the third quarter of 1995. Operating income, without giving effect to such goodwill amortization in either year, was $17,752,000, or 8.3% of net sales, in the 1996 period and $11,064,000, or 6.2% of net sales, in the 1995 period. Interest expense was $6,345,000 in the third quarter of 1996 and $5,402,000 in the third quarter of 1995. The increase in interest expense is attributable to higher interest rates applicable to the Company's debt obligations and higher outstanding indebtedness in 1996. The income tax provision was $4,669,000, or 58.9% of income before income taxes, in the third quarter of 1996 compared to $2,225,000, or 76.4% of income before income taxes, in the third quarter of 1995. The effective income tax rate for both periods differed from the statutory rate primarily as a result of non- deductible goodwill amortization. As a result of the foregoing factors, the Company had net income of $3,262,000, or 1.5% of net sales, for the third quarter of 1996 compared to $686,000, or 0.4% of net sales, for the third quarter of 1995. AnnTaylor Stores Corporation conducts no business other than the management of Ann Taylor. Nine Months Ended November 2, 1996 Compared to Nine Months Ended - ---------------------------------------------------------------- October 28, 1995 - ----------------- The Company's net sales in the first nine months of 1996 increased to $584,999,000 from $530,501,000 in the first nine months of 1995, an increase of $54,498,000 or 10.3%. The increase in net sales was primarily attributable to the fourteen new stores opened and the eight existing stores expanded since the end of the third quarter of 1995, partially offset by the ==================================================================== 13 closing of eight stores since the end of the third quarter of 1995 and by a 0.5% decrease in comparable store sales in the first nine months of 1996. Management believes that the decrease in comparable store sales was due primarily to the Company's lower inventory position during the period; during the first nine months of 1996, inventories were on average approximately 15% lower on a per square foot basis compared to the same period of the prior fiscal year. This inventory comparison excludes raw materials, work-in- progress and finished goods acquired September 1996 in connection with the Company's acquisition of CAT and the Assets of the Division. Gross profit as a percentage of net sales increased to 44.6% in the first nine months of 1996 from 42.6% in the first nine months of 1995. This increase was attributable to decreased cost of goods sold as a percentage of net sales, primarily resulting from lower markdowns. Selling, general and administrative expenses were $216,121,000, or 36.9% of net sales in the first nine months of 1996, compared to $198,758,000, or 37.5% of net sales in the first nine months of 1995. The increase in expense was primarily attributable to increased retail square footage, which at the end of the nine-month period was 5.8% higher than at the end of the same nine-month period in 1995. The operating expense rate as a percentage of sales decreased primarily as a result of increased leverage on fixed expenses and the suspension of the Company's mail order catalog, partially offset by higher expense rates in new retail square footage. In connection with the resignation in August of Sally Frame Kasaks as Chairman and Chief Executive Officer of the Company, a one-time pre-tax charge of $3,500,000 ($1,958,000 net of related tax benefit, or $0.08 per share) was recorded relating to the estimated costs of the Company's obligations under Ms. Kasaks' employment contract with the Company. As a result of the foregoing, operating income increased to $34,039,000, or 5.8% of net sales, in the first nine months of 1996, from $20,027,000, or 3.8% of net sales, in the first nine months of 1995. As described above, operating income was reduced by $3,500,000, or 0.6% of net sales, related to the estimated costs of the Company's obligations under Ms. Kasaks' employment contract. Amortization of goodwill was $7,331,000 in the first nine months of 1996 compared to $7,130,000 in the first nine months of 1995. Operating income, without giving effect to such goodwill amortization in either year, was $41,370,000, or 7.1% of net sales, in the 1996 period and $27,157,000, or 5.1% of net sales, in the 1995 period. =================================================================== 14 Interest expense was $18,676,000 in the first nine months of 1996 and $14,368,000 in the first nine months of 1995. The increase in interest expense is primarily attributable to higher interest rates applicable to the Company's debt obligations and higher outstanding indebtedness in 1996. The income tax provision was $9,188,000, or 61.7% of income before income taxes in the 1996 period, compared to $5,091,000, or 93.3% of income before income taxes in the 1995 period. The effective income tax rate for both periods was higher than the statutory rate primarily as a result of non-deductible goodwill amortization. As a result of the foregoing factors, the Company had net income of $5,701,000, or 1.0% of net sales, for the first nine months of 1996 compared to net income of $368,000, or 0.1% of net sales, for the first nine months of 1995. Financial Condition - -------------------- For the first nine months of 1996, net cash provided by operating activities totaled $23,669,000, primarily as a result of net income and non-cash operating expenses, partially offset by an increase in merchandise inventories. Cash used for investing activities during the first nine months of 1996 amounted to $9,795,000 for the purchase of property and equipment and $356,000 for the CAT/Cygne Transaction. Cash used by financing activities during the first nine months of 1996 amounted to $12,380,000, primarily as a result of repayments of amounts outstanding under the revolving credit agreement and the receivables facility, partially offset by net proceeds from the issuance of the Preferred Securities. Accounts receivable increased to $70,521,000 at November 2, 1996 from $70,395,000 at February 3, 1996, an increase of $126,000 or 0.2%. This increase was primarily attributable to Ann Taylor credit card receivables which increased approximately $3,487,000 and third-party credit card receivables which increased approximately $2,484,000, partially offset by lower construction allowance receivables outstanding, which decreased $4,324,000. Merchandise inventories were $127,952,000 at November 2, 1996, compared to inventories of $102,685,000 at February 3, 1996. Merchandise inventories at November 2, 1996 included approximately $7,500,000 of raw materials, work-in-progress and finished goods of ATGS. Total square footage increased to 1,698,000 square feet at November 2, 1996 from 1,651,000 square feet at February 3, 1996. =================================================================== 15 At November 2, 1996, borrowings of $7,000,000 were outstanding under the revolving credit agreement and $26,000,000 were outstanding under AnnTaylor Funding, Inc.'s receivables facility. Ann Taylor can borrow up to $122,000,000 under the revolving credit agreement and AnnTaylor Funding, Inc. can borrow up to $40,000,000 under the receivables facility, depending upon its accounts receivable balance. In November 1996, the maturity date of the receivables facility was extended to May 4, 1998; all other aspects of the receivables agreement remain the same. Additionally, there is $12,000,000 available under ATGS's credit agreement of which $8,000,000 can be borrowed and the remainder used only for letters of credit. On April 25, 1996, the Company completed the sale of $87,500,000 of Preferred Securities issued by its financing vehicle, AnnTaylor Finance Trust. On May 17, 1996, the Trust issued an additional $13,125,000 of Preferred Securities pursuant to the exercise of an over-allotment option granted to the placement agents in connection with the Initial Sale. The Preferred Securities have a liquidation preference of $50 per security and are convertible at the option of the holders thereof into shares of common stock of the Company at a conversion rate of 2.545 shares of common stock for each Preferred Security. A total of 2,012,500 Preferred Securities were issued, and are convertible into an aggregate of 5,121,812 shares of common stock, representing approximately 22% of the Company's outstanding common stock as of May 31, 1996. The sale of the Preferred Securities enabled the Company to pay down $94,000,000 of outstanding borrowings under its revolving credit facility, without reduction of the commitment thereunder. The Company's capital expenditures, which are primarily attributable to the Company's store expansion, renovation and refurbishment programs, totaled $9,795,000 in the first nine months of 1996. The Company currently expects to open a total of nine new Ann Taylor Stores, one Ann Taylor Loft Store and one Ann Taylor Factory Store, and to expand seven existing Ann Taylor Stores, in fiscal 1996. Total capital expenditures for 1996, including capital expenditures for this store expansion program, are expected to be approximately $16,000,000. Dividends and distributions from Ann Taylor to the Company are restricted by the Bank Credit Agreement, the Receivables Facility and the Indenture for the 8-1/2% Notes (the "Indenture"). The payment of cash dividends by the Company on its capital stock is also subject to certain restrictions contained in the Company's guarantee of Ann Taylor's obligations under the Bank Credit Agreement. Any determination to pay cash dividends in the future will be at the discretion of the Company's Board of Directors and will be dependent upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant at that time by the Company's Board of Directors. ==================================================================== 16 Distributions on the Preferred Securities accrue from the date of the original issuance of the Preferred Securities and are payable at the annual rate of 8-1/2% of the liquidation amount of $50 per Preferred Security. Subject to certain distribution deferral provisions, distributions on the Preferred Securities are payable quarterly in arrears on each January 15, April 15, July 15 and October 15, commencing July 15, 1996. Payment of distributions on the Preferred Securities by the Trust is dependent upon receipt of payment of interest by the Company on its 8-1/2% Convertible Subordinated Debentures held by the Trust. The Company's ability to make such interest payments is dependent upon its receipt of dividends or other distributions from Ann Taylor. As indicated above, the payment of dividends and distributions from Ann Taylor to the Company is subject to certain restrictions contained in the Bank Credit Agreement and the Indenture. The Company currently believes that Ann Taylor will be able to make such distributions to the Company in the foreseeable future within the limitations set forth in the Indenture relating to the 8-3/4% Notes. Provided that Ann Taylor is not then in default under the Bank Credit Agreement at the time of any such distribution, the lenders under the Bank Credit Agreement have consented to quarterly distributions by Ann Taylor to the Company equal to the amount of interest due on the Convertible Subordinated Debentures. In order to finance its operations and capital requirements, the Company expects to use internally generated funds, trade credit, and funds available under the revolving credit facility and the receivables facility. The Company believes that cash flow from operations and funds available under the revolving credit facility and the receivables facility are sufficient to enable it to meet its ongoing cash needs for the foreseeable future. Statement Regarding Forward Looking Disclosures - ------------------------------------------------ Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations", contain various forward looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations and business of the Company. These forward looking statements involve certain risks and uncertainties, and no assurance can be given that any of such matters will be realized. Factors that may cause actual results to differ materially from those contemplated by such forward looking statements include, among others, the following ====================================================================== 17 possibilities: competitive pressure in the retail apparel industry increases significantly; demand for merchandise offered by the Company declines; costs or difficulties related to the assimilation of the sourcing functions and employees acquired in connection with the CAT/Cygne Transaction are greater than expected; the Company's substantial degree of leverage hinders its ability to obtain additional financing, reduces funds available for operations or hinders its ability to adjust rapidly to changing market conditions; general economic conditions are less favorable than expected; the regulatory environment changes significantly, or the rate of import duties or export quotas increases significantly with respect to the Company's merchandise; the Company's financial condition is materially and adversely affected by the outcome of certain litigation described in the Company's Current Report on Form 8-K dated May 2, 1996. ========================================================================== 18 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders ---------------------------------------------------- As reported in the Company's Quarterly Report on Form 10-Q for the quarterly period ended August 3, 1996, a Special Meeting of the Company's stockholders was held on August 15, 1996 to approve and ratify the financing transaction pursuant to which the $100,625,000 8-1/2% Convertible Trust Originated Preferred Securities were issued (the "Financing Transaction"). At the Special Meeting, 15,200,945 shares were voted in favor of approval and ratification of the Financing Transaction, 95,914 shares were voted against and 66,747 shares abstained from voting on the transaction. Accordingly, the Financing Transaction was approved and ratified by the stockholders of the Company. Item 6. Exhibits and Reports on Form 8-K --------------------------------- (a) Exhibits: 10.3 Employment Agreement dated November 25, 1996 between the Company and Patricia DeRosa. 10.4 Employment Agreement dated September 20, 1996 between Ann Taylor and Dwight F. Meyer. 10.5 First Amendment to the Amended and Restated Receivables Financing Agreement, dated as of October 31, 1995, among AnnTaylor Funding, Inc., Ann Taylor, Market Street Capital Corp. and PNC Bank, National Association. 10.6 Amended and Restated Credit Agreement, dated as of September 20, 1996, between AnnTaylor Global Sourcing, Inc. and the HongKong and Shanghai Banking Corporation Limited. 10.7 Promissory Note dated September 20, 1996 from AnnTaylor Global Sourcing, Inc. to the HongKong and Shanghai Banking Corporation Limited, New York Branch. ======================================================================== 19 10.8 Amended and Restated Security Agreement, dated as of September 20, 1996, between AnnTaylor Global Sourcing, Inc. and the HongKong and Shanghai Banking Corporation Limited. 10.9 Letter of Negative Pledge, dated as of September 20, 1996, from AnnTaylor Global Sourcing, Inc. to the HongKong and Shanghai Banking Corporation Limited. (b) Reports on Form 8-K: The Company filed a report dated August 23, 1996 with the Commission on Form 8-K on August 30, 1996 with respect to (i) the resignation of Sally Frame Kasaks as the Company's Chairman and Chief Executive Officer and the promotion of J. Patrick Spainhour from President and Chief Operating Officer to Chairman and Chief Executive Officer, (ii) the amendment of the Stock and Asset Purchase Agreement among the Company, Ann Taylor, Cygne and Cygne Group (F.E.) Limited providing for the acquisition by Ann Taylor of Cygne's interest in CAT and the assets of the Division, and (iii) preliminary unaudited pro forma financial information for the Company, CAT U.S., Inc., C.A.T. (Far East) Limited and the Division on a combined basis for the six months ended August 3, 1996. The Company filed a report dated September 20, 1996 with the Commission on Form 8-K on September 26, 1996 with respect to the consummation of the acquisition by the Company, through its wholly owned subsidiary Ann Taylor, of Cygne's interest in CAT and the Assets of the Division. ======================================================================= 20 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 17, 1996 By: /s/ Paul E. Francis ------------------ ------------------------- Paul E. Francis Executive Vice President- Finance and Administration (Chief Financial Officer) Date: December 17, 1996 By: /s/ Walter J. Parks ----------------- -------------------------- Walter J. Parks Senior Vice President - Finance (Principal Accounting Officer) EX-27 2 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 ANN TAYLOR STORES CORPORATION 1,000 9-MOS FEB-01-1997 NOV-02-1996 2,421 0 71,286 765 127,952 222,729 206,514 59,850 717,222 78,008 100,000 0 0 173 367,342 717,222 584,999 584,999 324,008 324,008 227,426 0 18,676 14,889 9,188 0 0 0 0 5,701 .24 .24
EX-10 3 EXHIBIT 10.3 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), executed November 25, 1996 (the "Execution Date"), and effective as of December 9, 1996 (the "Effective Date"), between ANNTAYLOR STORES CORPORATION, a Delaware corporation (the "Company"), and Patricia DeRosa (the "Executive"). WHEREAS, the Company desires to provide for the service and employment of the Executive with the Company and the Executive wishes to perform services for 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 ---------- employ the Executive, and the Executive hereby agrees to serve the Company, on the terms and conditions set forth herein. 2. Term. The term of employment of the Executive ---- by the Company hereunder (the "Term") will commence as of the Execution Date and will end on the third anniversary of the Effective Date. Notwithstanding expiration of the Term or other provisions that survive by their in tent, the provisions of Sections 4, 7 and 8 hereof shall continue in effect. 3. Position and Duties. The Executive shall ------------------- serve as President and Chief Operating Officer of the Company and shall have such responsibilities, duties and authority consistent with such positions as may from time to time be determined by the Board of Directors of the Company (the "Board"). The Executive shall report directly to the Chairman and Chief Executive Officer (the "CEO"). The Executive shall devote substantially all of her working time and efforts to the business and affairs of the Company. Page 1 ============================================================================= 4. 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. 5. Compensation and Related Matters. -------------------------------- (a) Annual Compensation. -------------------- (i) Base Salary. Commencing on the ----------- Effective Date and continuing 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 $600,000, 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. (ii) Annual Bonus. Commencing on ------------ the Effective Date and continuing 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. The Company currently maintains a Management Performance Compensation Plan (the "Performance Plan") pursuant to which it pays performance bonus compensation to certain of its executives and employees. It is agreed that the Executive shall participate in the Performance Plan effective as of the Effective Date. The Executive's Performance Percentage (as that term is defined in the Performance Plan) shall be established at 25% per season (50% per annum) during the Term. Notwithstanding the foregoing, the minimum Bonus to be paid to the Executive under the Performance Plan or otherwise for the Spring 1997 season shall be $150,000. Page 2 ============================================================================= (b) Stock Options. As of the Execution ------------- Date, the Executive shall be granted ten-year options to acquire 100,000 shares of common stock of the Company ("Shares") pursuant to the Company's Amended and Restated 1992 Stock Option and Restricted Stock Plan (the "1992 Plan"). The option price per Share shall be equal to the Fair Market Value (as defined in the 1992 Plan) of a Share as of the Execution Date. One-half of the Shares subject to such option shall be time-based options ("Time-Based Options"). One-third of the Time-Based Options shall become exercisable on each of the first three anniversaries of the Effective Date, provided Executive has remained continuously employed by the Company until the applicable date (except as provided in Section 6(e)(vi) hereof). The other one-half of the Shares subject to such option shall be performance stock options ("Performance Options"). Performance Options shall become exercisable on the earliest of: (i) the date of achievement by the Company of total earnings per Share of at least $1.50 over four consecutive quarters ending after the Effective Date; (ii) the date on which the Fair Market Value of a Share on each of the ten consecutive trading days immediately preceding such date is equal to at least $35.00; provided that, in the case of each of clauses (i) and (ii) -------- ---- above, (1) such date occurs no later than the fifth anniversary of the Effective Date and (2) a portion of the Performance Option may become exercisable, based upon satisfaction of terms and conditions consistent with those set forth in the Company's standard stock option agreement applicable to performance options, if exercisability has not otherwise occurred by the fifth anniversary of the Effective Date; or (iii) the ninth anniversary of the Effective Date; provided that, in the case of each of -------- ---- clauses (i) - (iii), the Executive has remained continuously employed by the Company until the applicable date. The Time-Based Option and Performance Option granted hereunder shall contain such other terms and conditions as are set forth in the Company's standard stock option agreements applicable to such type of option, including, but not limited to, accelerated exercisability upon the occurrence of a Change in Control, which shall have the same meaning as the term "Acceleration Event," as defined in the 1992 Plan (a "Change in Control"). Page 3 =========================================================================== (c) Restricted Stock and Units. As of the Effective Date, -------------------------- Executive shall be granted 30,000 re stricted shares of common stock of the Company (the "Re stricted Shares") and 20,000 restricted units (the "Restricted Units"). A Restricted Unit represents the right to receive, on the date the restrictions on the unit lapse, a cash payment equal to the closing price of one share of Company common stock on the New York Stock Exchange on the trading date immediately preceding the date the restrictions lapse. One-third of the Restricted Shares and one-third of the Restricted Units shall vest on, and be delivered to the Executive promptly following, each of the first three anniversaries of the Effective Date, provided the Executive has remained -------- continuously employed by the Company until the applicable date. Notwithstanding the foregoing, any outstanding Restricted Shares and Restricted Units shall become fully vested on a Change in Control. (d) Other Benefits. Commencing on the Effective Date -------------- and continuing during the period of Executive's employment hereunder, the Executive shall 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 Executive shall be entitled to participate in and receive any fringe benefits or perquisites which may become available to the Company's executive employees. (e) Vacations and Other Leaves. The Executive shall be -------------------------- entitled to four (4) weeks vacation per year and to paid holidays and personal leave days determined in accordance with applicable Company plans and policies. (f) Expenses. During the period of the Executive's -------- employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable 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. Page 4 =============================================================================== (g) Relocation Expenses. The Executive shall be entitled ------------------- to receive reimbursement of relocation expenses consistent with the Company's relocation expense reimbursement policy for senior executives of the Company. In addition, the Executive shall be entitled to receive reimbursement of losses incurred upon the sale of the Executive's principal residence; provided, however, that the total amount of such sale-related reimbursement (including all tax gross-up payments) shall not exceed $300,000. In addition, if in connection with Executive's relocation during the Term Executive purchases a principal residence in the New York area prior to selling her current principal residence in Pennsylvania, at Executive's request the Company shall make a loan to Executive, at the closing of the purchase of the new residence, in a principal amount designated by Executive but not to exceed the lesser of (i) Executive's purchase price of the new residence and (ii) the appraised value of Executive's Pennsylvania residence. Such loan shall bear interest at the per annum rate equal to the rate designated from time to time by Bank of America, N.A. as its prime rate of interest and shall be secured by a perfected first mortgage on Executive's Pennsylvania residence and perfected security interest in any vested Restricted Shares. Interest on and principal of the loan shall be payable in full by Executive upon the earliest to occur of (i) sale by Executive of her Pennsylvania residence, (ii) the one-year anniversary of the making of the loan, and (iii) Executive's separation of employment with the Company for any reason other than termination by the Company without Cause or by Executive with Good Reason. Earlier partial prepayment on the loan shall be required to the extent of the proceeds of the sale of any vested Restricted Shares (net of stock broker commissions). 6. Termination. (a) The Executive's employment hereunder may ----------- be terminated without breach of this Agreement only under the following circumstances: Page 5 =============================================================================== (i) Death. The Executive's employment hereunder shall ----- terminate upon her death. (ii) 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 (1) 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, (2) action by the Executive toward the Company involving dishonesty, (3) the Executive's refusal to abide by or follow reasonable written directions of the Board or the CEO, which does not cease within ten (10) business days after such written notice regarding such refusal has been given to the Executive by the Company, (4) the Executive's gross nonfeasance which does not cease within ten (10) business days after notice regarding such nonfeasance has been given to the Executive by the Company or (5) failure of the Executive to comply with the provisions of Section 7 or 8 of this Agreement, or other will ful conduct by the Executive which is intended to have and does have a material adverse impact on the Company. (iii) 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 Section 6(b) 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". (iv) Termination by the Executive. 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 (1) upon a failure by the Company to comply with Page 6 =============================================================================== and 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, (2) upon action by the Company resulting in a diminution of the Executive's title or authority or (3) one year after a Change in Control. (b) Notice of Termination. Any termination of the Executive's --------------------- employment by the Company or by the Executive (other than termination under Section 6(a)(i) hereof) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 10 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. (c) Date of Termination. "Date of Termination" shall mean ------------------- (i) if the Executive's employment is terminated by her death, the date of her death and (ii) in each other case, 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. (d) Termination Upon Death; Disability; for Cause; Voluntary -------------------------------------------------------- Termination other than for Good Reason. If the Executive's employment is - -------------------------------------- terminated by reason of Executive's death or Disability, by the Company for Cause or voluntarily by the Executive other than for Good Reason, the Company shall, as soon as practicable after the Date of Termination, pay the Executive all unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination under Section 5(a) 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 Page 7 =============================================================================== plan or program of the Company (collectively, "Accrued Obligations"); upon such payment, the Company shall have no further obligations to the Executive under this Agreement. (e) Termination Without Cause; Termination for Good Reason. ------------------------------------------------------ If the Company shall terminate the Executive's employment other than for Cause or the Executive shall terminate her employment for Good Reason, then, subject to compliance with the provisions of Sections 7 and 8 hereof: (i) the Company shall pay to the Executive, as soon as practicable after the Date of Termination, the Accrued Obligations; (ii) following the Date of Termination and for the longer of twelve (12) months thereafter or the balance of the Term (the "Severance Period"), the Company shall pay to the Executive monthly an amount ("Severance Payments") equal to the quotient of (1) the Executive's annual base salary at the rate in effect as of the Date of Termination, divided by (2) the number twelve (12); (iii) the Company shall pay to the Executive, at the same time as bonuses are paid to other Company executives, a Bonus with respect to the season in which occurs the Date of Termination, such Bonus to be based upon actual performance for such season and pro rated to reflect the number of days in such season through and including the Date of Termination; and (iv) the Executive shall continue to be provided for the duration of the Severance Period with the same medical and life insurance coverage as existed immediately prior to the Notice of Termination; provided, however, that benefits otherwise receivable -------- ------- by the Executive pursuant to this Section 6(e)(iv) shall be reduced to the extent that benefits of the same type are received by or made available to the Executive during the Severance Period (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); Page 8 ============================================================================= (v) any outstanding Restricted Shares and Restricted Units shall become fully vested; (vi) each outstanding Time-Based Option shall vest and become exercisable in accordance with the Schedule set forth in Section 5(b) hereof as if no termination of employment occurred and such Time-Based Option shall terminate 90 days after the expiration of the Severance Period; (vii) each outstanding Performance Option which had not previously become exercisable shall be cancelled and any such Performance Option which had previously become exercisable shall terminate 90 days after the expiration of the Severance Period. (f) Gross-Up Payment. In the event that any payment or ---------------- benefit received or to be received by the Executive in connection with a Change in Control 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 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 Page 9 =========================================================================== 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. 7. Nonsolicitation; Noncompete. --------------------------- (a) Subject to (c) below, during the period of Executive's employment, during the period she is receiving Severance Payments hereunder and, in the case where the Executive's employment is terminated for Page 10 =========================================================================== Cause or executive voluntarily terminates her employment without Good Reason, for a period of twelve (12) months following such termination, the Executive shall not initiate discussions 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 to ward 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, Bonus Payments and continuing life insurance and medical coverage and all rights with respect to restricted stock and exercisability of stock options shall be forfeited; provided that, the -------- ---- foregoing shall not apply if such failure of compliance commences following a Change in Control. (b) Subject to (c) below, for as long as Executive receives Severance Payments, or in the case where the Executive's employment is terminated for Cause or executive voluntarily terminates her employment with out Good Reason, for a period of twelve (12) months following such termination, 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"). Not withstanding 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, Bonus Payments and continuing life insurance and medical coverage and all rights with respect to restricted stock and exercisability of stock options shall be forfeited; provided that, the foregoing shall not apply if -------- ---- such failure of compliance commences following a Change in Control. (c) In the event of a violation of paragraphs 7(a) or 7(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 there from, (ii) regardless of when such violation occurs, forfeiture by the Executive of the payments, benefits and other rights 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 14 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 Page 11 ============================================================================= business. For purposes hereof, "women's apparel" shall consist of dresses, jackets, pants, skirts, blouses, sweaters, T-shirts, outerwear, footwear and accessories. (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; (vi) affiliation with an advertising agency and (vii) after cessation of employment, engaging or participating in the "wholesale" side of the women's apparel business, which for purposes hereof shall mean the design, manufacture and sale of piece goods and women's apparel to unrelated third parties, provided that if the entity for which the Executive so engages or participates (including its affiliates) also conducts a retail women's apparel business, then effective upon the Executive's engaging or participating in such business, all continuing life insurance and medical coverage provided by the Company shall cease and all Severance Payments shall cease except for amounts representing the excess (if any) of the Executive's annual base salary hereunder (at the rate in effect as of the Date of Termination) over the executive's base salary received from such entity and its affiliates, which amounts shall continue to be paid by the Company for the remainder of the Severance Period. The exceptions contained in subparagraph (vii) above and subparagraph (iii) above to the extent covered by subparagraph (vii) shall not be applicable if the Executive's cessation of employment is voluntary by the Executive without Good Reason and her new engagement or participation involves "wholesale" operations which include or also conduct retail sales of women's apparel other than factory Page 12 ============================================================================ outlet or discount stores to liquidate unsold women's apparel of such wholesale operations. 8. 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 in connection 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 14 of this Agreement, if the Executive commits a breach of the provisions of Section 8(a)(i) or 8(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. Page 13 =============================================================================== 9. 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. 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 9 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. 10. 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 Page 14 ============================================================================= With a copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attn: Stuart N. Alperin, Esq. If to the Executive: Patricia DeRosa 1222 Meadow Bank Road Villanova, PA 19805 With a copy to: Farella Braun & Martell LLP 235 Montgomery Street, Suite 300 San Francisco, CA 94104 Attn: Jeffrey P. Newman, Esq. 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. 11. 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. All payments hereunder shall be subject to applicable Federal, State and local tax withholding requirements. 12. 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. Page 15 ============================================================================= 13. 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. 14. 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 7 or 8 of the Agreement and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond. Each party shall bear its own costs and expenses (including, with out limitation, legal fees) in connection with any arbitration proceeding instituted hereunder. 15. Entire Agreement. This Agreement, to gether with the ---------------- compensation and benefits plans and practices referred to in Section 5 hereof, sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein 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 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: /s/ J. Patrick Spainhour ------------------------------ Name: J. Patrick Spainhour Title: President & Chief Operating Officer /s/ Patricia DeRosa ------------------------------------ Patricia DeRosa EX-10 4 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into between AnnTaylor, Inc., a Delaware corporation (the "Company"), and DWIGHT F. MEYER ("Executive"), as of September 20, 1996. R E C I T A L S: ---------------- WHEREAS, Executive presently serves as President of CAT US Inc. ("CAT"), a corporation 40% owned by the Company; and WHEREAS, pursuant to a Stock and Asset Purchase Agreement dated as of June 7, 1996 (as amended, the "Purchase Agreement"), among Cygne Designs, Inc., Cygne Group (F.E.) Limited, the Company and AnnTaylor Stores Corporation, a Delaware corporation and the parent corporation of the Company ("ATSC"), the Company intends to acquire, among other things, the remaining outstanding stock of CAT and, upon consummation of such acquisition, CAT will become a wholly owned subsidiary of the Company and will be known as AnnTaylor Global Sourcing, Inc. (hereinafter referred to as "ATGS"); and WHEREAS, the services of Executive, his experience and knowledge of the affairs of ATGS and the Company and his reputation and contacts in the industry are considered valuable to the Company, and the Company desires to employ Executive and Executive desires to be employed by the Company upon the terms and conditions hereinafter set forth; NOW, THEREFORE, the parties hereto, for the consideration herein set forth and the mutual covenants herein contained and intending to be legally bound hereby, agree as follows: Section 1. Employment. Subject to Section 16 hereof, ---------- the Company hereby agrees to employ Executive as Executive Vice President of Sourcing of the Company and ATGS during the term set forth in Section 2 below and Executive hereby accepts employment with the Company and ATGS and agrees to perform his duties and responsibilities hereunder in accordance with the terms and conditions hereinafter set forth. Section 2. Term. The term of employment of Executive ---- under this Agreement (the "Term of Employment") shall be for a period commencing on the date of the closing of the transactions contemplated by the Purchase Agreement (the "Starting Date"), and shall continue, unless earlier terminated pursuant to Section 8 hereof, for a period of three years from the Starting Date. Section 3. Duties and Responsibilities. During the --------------------------- Term of Employment, Executive shall perform and discharge such executive duties and responsibilities as may be prescribed from time to time by the Board of Directors (the "Company Board"), the Chairman or the President of the Company. The principal location at which Executive will perform his services will be at ATGS's offices in New York City (except for required travel on the Company's business). Section 4. Extent of Service. During the Term of ----------------- Employment, Executive shall devote substantially all of his business time and attention, reasonable vacation time and absences for sickness excepted, to the business of the Company and ATGS. Executive shall perform the duties as signed to him with fidelity and to the best of his ability. Section 5. Compensation. For all services to be ------------ rendered by Executive in any capacity hereunder during the Term of Employment, the Company shall pay, or shall cause ATGS to pay, Executive the following types and amounts of compensation: 5.1. Base Salary. The Company shall pay, or ------------ shall cause ATGS to pay, Executive a base salary of $350,000 per annum, such salary to be paid in conformity with the Company's policies relating to salaried employees. The Company agrees to review annually Executive's base salary, and may increase Executive's base salary at its sole discretion. 5.2. Benefits. Executive shall, as long as he is -------- a full-time employee of the Company or ATGS, have the right to receive vacation, sick pay, life, medical and disability insurance benefits and other fringe benefits provided to executive employees of the Company generally. The Company shall waive or cause to be waived the one-year waiting period after commencement of employment applicable to its life insurance and group accident insurance programs and any other program where such waiver will not be a violation of any Federal or state law or regulation. The Company will reimburse Executive for travel, entertainment and other business expenses reasonably incurred by him in connection with the business of the Company consistent with Company policy. 5.3. Annual Bonus. During the Term of Employment, ------------ 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. ATSC currently maintains a Management Performance Compensation Plan (the "Performance Plan"), a copy of which is attached to this Agreement, pursuant to which certain executives and employees of the Company are paid performance bonus compensation. It is agreed that Executive shall participate in the Performance Plan effective as of the Starting Date. Executive's Performance Percentage (as that term is defined in the Performance Plan) shall be established at 40% during the first year of participation under the Performance Plan (20% per season) and thereafter the Performance Percentage shall be determined as provided in the Performance Plan. Notwithstanding the foregoing, the minimum bonus to be paid to Executive under the Performance Plan or otherwise for each of the fall season of 1996 and the spring season of 1997 shall be $35,000, provided Executive's employment hereunder during such period has not been terminated by the Company for Cause or by the Executive without Good Reason. 5.4. Stock Options. The Executive will be grant ------------- ed a time-vested Non-Qualified Stock Option to acquire 35,000 shares (the "Option Shares") of common stock of ATSC (the "Common Stock") under ATSC's Amended and Restated 1992 Stock Option and Restricted Stock and Unit Award Plan (the "Option Plan") with an exercise price equal to the fair market value (as defined and determined as of the Starting Date under the Option Plan) of the Common Stock. The Option shall vest in accordance with the vesting schedule applicable to the options granted to the Company's associates in 1996 under the Option Plan. The Executive shall be eligible to receive additional options under the Option Plan or other and additional option plans as may be adopted by ATSC during the Term of Employment, taking into account, among other things, Executive's performance and position with the Company. 5.5 Anniversary Bonus. Subject to the provisions ----------------- of Section 8 hereof, the Company shall, or shall cause ATGS to, pay to Executive a one-time anniversary bonus of $400,000 on September 21, 1997. Section 6. Covenant Not to Compete. ----------------------- 6.1. During the period in which Executive is employed by the Company or ATGS and for a period of one year thereafter, Executive shall not: 6.1.1. Engage or participate in any activity or business (other than as an investor owning not more than 1% of the voting securities of any publicly-held corporation) which is the same or similar to the business engaged in by the Company or ATGS, or, with regard to the one-year period referred to above, engaged in by the Company or ATGS at the time of termination of Executive's employment with the Company or ATGS. 6.1.2. Serve as, act as or be an employee, agent, consultant, representative, officer, director or investor (other than as an investor owning not more than 1% of the voting securities of any publicly-held corporation) with or of, or receive any payment in the way of remuneration from, any entity, or an Affiliate (as defined in Section 6.3) thereof, which engages or becomes engaged in any activity or business which is the same or similar to the business engaged in by the Company or ATGS, or, with regard to the one-year period referred to above, engaged in by the Company or ATGS at the time of termination. 6.2. Directly or indirectly, for himself, or on behalf of or in conjunction with any entity, (a) solicit, raid, entice or induce any person who is an employee of the Company or any of its Affiliates, or, with regard to the one-year period referred to above, was an employee of the Company or any of its Affiliates at the time Executive's employment was terminated, to (i) refrain from rendering services to, or (ii) become employed by or enter into contractual relations with any person or entity other than the Company or any of its Affiliates or (b) interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between the Company or any of its Affiliates, and any franchisor, customer, supplier, lessor, lessee or employee of the Company or any of its Affiliates. 6.3. For the purposes of this Agreement, an "Affiliate" of any entity is any person, firm, partnership or corporation which, directly or indirectly, through one or more intermediaries, owns or controls, or is controlled by, or is under common control with, any such entity. For the purposes of this Agreement, "control" when used with respect to any specified entity means the power to direct the management and policies of such entity, directly or indirect ly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings relative to the foregoing. 6.4. Executive declares that the foregoing time limitations are reasonable and properly required for the adequate protection of the business of the Company. In the event that the provisions of this Section 6 should ever be deemed to exceed the time limitations permitted by applicable law, then such provisions shall be deemed reformed to the maximum time limitations permitted by applicable law. 6.5. Executive specifically acknowledges and agrees that the remedy at law for any breach of the provisions of this Section 6 will be inadequate (for reasons which include, but are not limited to, the fact that Executive's talents, and the services to be provided by Executive, are unique) and that the Company, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. The existence of any claim or cause of action by Executive against the Company shall not constitute a defense to the enforcement by the Company of the foregoing restrictive covenant, but such claim or cause of action shall be litigated separately. 6.6. Executive (a) acknowledges and agrees that a substantial and legally sufficient portion of the consideration payable by the Company pursuant to this Agreement is attributable to the non-competition and non-interference covenants of this Section 6 and (b) hereby expressly waives any right to assert inadequacy of consideration as defense to enforcement of the non-competition and non-interference covenants in this Section 6 should such enforcement ever become necessary. 6.7. Notwithstanding any provision of this Section 6 to the contrary, if the Company's business operations are terminated and such business operations are not carried on by any successor succeeding to the Company's obligations under this Agreement, then Executive shall have no further obligation of any nature on and after the date of such termination under the provisions of this Section 6. Section 7. Protection of Confidential Information. -------------------------------------- 7.1 Executive acknowledges that his employment by the Company will, throughout the Term of Employment, involve his obtaining knowledge of confidential information regarding the business and affairs of the Company and its Affiliates. In recognition of the foregoing, the Executive covenants and agrees that: 7.1.1 Except in compliance with legal process, he will keep secret all confidential matters of the Company and its Affiliates 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 in connection with the performance by Executive of his duties as an executive officer of the Company), either during or after the Term of Employment, except with the prior written consent of the Company Board or a person authorized thereby; and 7.1.2 He will deliver promptly to the Company on termination of his 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 or its Affiliates which he created, generated or obtained while employed by, or otherwise serving or acting on behalf of, the Company or ATGS and which he may then possess or have under his control. 7.2. Executive specifically acknowledges and agrees that the remedy at law for any breach of the provisions of this Section 7 will be inadequate and that the Company, in addition to any other relief available to it, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damage. The existence of any claim or cause of action by Executive against the Company shall not constitute a defense to the enforcement by the Company of the foregoing restrictive covenant, but such claim or cause of action shall be litigated separately. Section 8. Termination of Employment. This Agreement ------------------------- shall terminate (except for Sections 6, 7 and 8) and the Company and ATGS shall have no further liability or obligation hereunder, on the earlier of (a) the expiration of the Term of Employment, or (b) the occurrence of any one of the following events: 8.1. Disability. In the event that Executive has ---------- a Total Disability (as hereinafter defined), this Agreement may be terminated by the Company, and in such event the Company and ATGS shall have no further liability or obligation to Executive for compensation hereunder, other than for (i) amounts accrued as of the date of the Total Disability pursuant to Section 5 of this Agreement, (ii) if such event occurs on or before September 21, 1997, the full amount of the anniversary bonus referred to in Section 5.5, and (iii) an amount equal to Executive's then current annual base salary, payable in installments for a period of 12 months. "Total Disability" shall mean a physical or mental condition which renders Executive unable to perform the normal duties of his employment with the Company or ATGS and is expected to be of extended duration of at least three months or result in death. A Total Disability shall be deemed to have occurred as of the date of any medical opinion satisfactory to the Company to that effect and reasonably satisfactory to Executive or his legal representative. 8.2. Death. In the event that Executive dies ----- during the Term of Employment, the Company shall, or shall cause ATGS to, pay to his executors or administrators an amount equal to (i) amounts accrued as of the date of death pursuant to Section 5 of this Agreement, (ii) if such event occurs on or before September 21, 1997, the full amount of the anniversary bonus referred to in Section 5.5, and (iii) amounts payable as a result of Executive's death as provided for under and in accordance with the Company's insurance, survivors' income and other employee welfare and benefit plans, if any, covering Executive. Thereafter, the Company and ATGS shall have no further liability or obligation to Executive's executors or administrators, his heirs and assigns or any other person claiming under or through him. 8.3. With Cause. This Agreement (except for ----------- Sections 6, 7 and 8) may be terminated by the Company, at any time, for Cause. In the event this Agreement is terminated by the Company pursuant to this Section 8.3, the Company shall, or shall cause ATGS to, pay to Executive amounts accrued as of the date of the termination pursuant to Section 5 of this Agreement but shall have no further liability to Executive pursuant to this Agreement or any person claiming under or through him. Termination by the Company for Cause shall mean Termination because of (i) the Executive's conviction for the commission of any 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 or ATGS involving dishonesty, (iii) the Executive's refusal to abide by or follow written directions of the Company's Board, Chairman or President, (iv) the Executive's gross nonfeasance which does not cease within ten business days after notice regarding nonfeasance has been given to the Executive by the Company, (v) failure of the Executive to comply with the provisions of Section 6 or Section 7 of this Agreement, or (vi) other willful conduct by the Executive which is intended to have and does have a material adverse impact on the Company or ATGS. 8.4. By Executive. This Agreement (except for ------------ Sections 6, 7 and 8) may be terminated by Executive, in his sole discretion, at any time upon thirty days' prior written notice. In the event this Agreement is terminated by the Executive pursuant to this Section 8.4, the Company shall, or shall cause ATGS to, pay to Executive all amounts accrued as of the date of the termination pursuant to Section 5 of this Agreement. Thereafter, the Company and ATGS shall have no further liability or obligation to the Executive, the Executive's executors or administrators, his heirs and assigns, or any other person claiming under or through him. 8.5. Without Cause. This Agreement (except for ------------- Sections 6, 7 and 8) may be terminated without Cause by the Company at any time. In the event this Agreement is terminated by the Company pursuant to this Section 8.5, the Company shall, or shall cause ATGS to, pay to Executive (a) all amounts accrued as of the date of the termination pursuant to Section 5 of this Agreement, (b) if such termination occurs on or before September 21, 1997, the full amount of the anniversary bonus referred to in Section 5.5, and (c) for a period of 12 months or, if less, the remainder of the original Term of Employment, an amount equal to the Executive's then current monthly base salary; provided, -------- however, that such payments shall cease as of the date when - ------- Executive becomes employed on a full-time basis by a person, firm, partnership or corporation other than the Company or ATGS. 8.6. By Executive for Good Reason. This -------------------------------- Agreement (except for Sections 6, 7 and 8) may be terminated by the Executive for Good Reason at any time. In the event this Agreement is terminated by Executive pursuant to this Section 8.6, the Company shall, or shall cause ATGS to, pay to Executive (a) all amounts accrued as of the date of the termination pursuant to Section 5 of this Agreement, (b) if such termination occurs on or before September 21, 1997, the full amount of the anniversary bonus referred to in Section 5.5, and (c) for a period of 12 months or, if less, the remainder of the original Term of Employment, an amount equal to the Executive's then current monthly base salary; provided, however, that such payments shall cease as of the - -------- ------- date when Executive becomes employed on a full-time basis by a person, firm, partnership or corporation other than the Company or ATGS. As used herein, "Good Reason" shall mean (i) failure to re-elect Executive as an Executive Vice President (provided that such failure is not in connection with a termination of Executive's employment hereunder for Cause), or (ii) a material change in Executive's authority, functions, duties or responsibilities as an Executive Vice President which would cause his position to become of significantly less dignity, responsibility, importance or scope, or (iii) a failure of the Company to comply with the provisions of Section 5, after the Company shall have been given written notice and thirty days to cure. Section 9. Arbitration. Any controversy, dispute or ----------- claim arising out of or in connection with this Agreement, or the breach, termination or validity hereof, shall be settled by final and binding arbitration to be conducted by an arbitrator in New York, New York pursuant to the rules of the American Arbitration Association. The Office of the American Arbitration Association in New York, New York shall make the necessary appointment of such arbitrator pursuant to the rules thereof. The decision or award of the arbitrator shall be final, and judgment upon such decision or award may be entered in any competent court or application may be made to any competent court for judicial acceptance of such decision or award and an order of enforcement. In the event of any procedural matter not covered by the aforesaid rules, the procedural law of The State of New York shall govern. Section 10. Contents of Agreement, Parties in Interest, ------------------------------------------- Assignment, etc. This Agreement sets forth the entire - ---------------- understanding and supersedes all prior agreements, both written and oral, between the parties hereto. No representation, promise, inducement or statement of intent has been made by any party to this Agreement to any other party to this Agreement which is not embodied in this Agreement, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not embodied herein with respect to the subject matter hereof. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto; provided, however, that the duties and responsibilities of Executive hereunder and any right to receive payments hereunder shall neither be assigned nor transferred in whole or in part by Executive. The Company agrees that it will require any successor (including, without limitation, by merger, operation of law, consolidation, assignment or purchase of all or substantially all of the assets of the Company) to assume expressly and agree to perform this Agreement. This Agreement shall not be amended except by written instrument duly executed by the Company and Executive. Section 11. Severability. The invalidity or ------------ unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. Section 12. Governing Law. This Agreement shall be ------------- construed and interpreted in accordance with the laws of the State of New York relating to contracts to be performed in the State of New York. Section 13. Notices. All notices, consents, waivers ------- or communications which are required or permitted hereunder shall be sufficient if given in writing and delivered personally or by registered or certified mail, return receipt requested, postage prepaid, as follows (or to such other addressee or address as shall be set forth in a notice given in the same manner): If to the Company: AnnTaylor, Inc. 142 West 57th Street New York, New York 10019 Attn: General Counsel If to Executive: Mr. Dwight F. Meyer 12 Woodside Avenue Westport, Connecticut 06880 All such notices shall be deemed to have been given on the date delivered or mailed in the manner provided above. Section 14. Waiver. No purported waiver of either ------ party of any default by the other party of any term or provision contained herein shall be deemed to be a waiver of such term or provision unless the waiver is in writing and signed by the waiving party. No such waiver shall in any event be deemed a waiver of any subsequent default under the same or any other term or provision contained herein. Section 15. Counterparts. This Agreement may be ------------ executed in any number of counterparts, each of which shall be deemed an original but all of which shall together constitute but one instrument. Section 16. Effectiveness. This Agreement is ------------- conditioned upon and shall be of no force or effect unless and until the transactions contemplated by the Purchase Agreement have been consummated. Section 17. Termination of Prior Agreement. ---------------------------------- Executive hereby acknowledges that, upon the Starting Date, the Employment Agreement, dated as of May 1, 1992 (the "CAT Agreement"), between Executive and CAT US, Inc. shall be terminated and of no further force and effect. In consideration of the sum of $1,600,000 to be paid to the Executive on the Starting Date (less required withholding taxes, if any) Executive hereby releases the Company, ATSC, CAT US, Inc., C.A.T. (Far East) Ltd. and Cygne Designs, Inc., as of the Starting Date, from any and all liabilities and obligations under the CAT Agreement, including, without limitation, the obligations of Cygne Designs, Inc. under the Guaranty attached to the CAT Agreement. The parties have set their hands on the day and year first above mentioned. ANNTAYLOR, INC. By:_____________________________ Chairman and Chief Executive Officer EXECUTIVE ____________________________ Dwight F. Meyer EX-10 5 EXHIBIT 10.5 FIRST AMENDMENT TO AMENDED AND RESTATED RECEIVABLES FINANCING AGREEMENT --------------------------------------- THIS FIRST AMENDMENT TO AMENDED AND RESTATED RECEIVABLES FINANCING AGREEMENT, dated as of November 1, 1996 (this "Amendment"), is among AnnTaylor Funding, Inc. (the "Company"), ------- AnnTaylor, Inc. (the "Servicer"), Market Street Capital Corp. -------- (the "Lender") and PNC Bank, National Association, as ------ administrator for the Lender (the "Administrator"). ------------- BACKGROUND 1. The Company, the Servicer, the Lender and the Administrator are parties to that certain Amended and Restated Receivables Financing Agreement, dated as of October 31, 1995 (the "Receivables Financing Agreement"). ------------------------------- 2. The parties hereto desire to amend the Receivables Financing Agreement in order to extend the scheduled termination date as set forth herein. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used in this ----------- Amendment and not otherwise defined herein shall have the meanings assigned thereto in the Receivables Financing Agreement. Section 2. Termination Date. The definition of ---------------- "Termination Date" set forth in Appendix A to the Receivables ---------- Financing Agreement is hereby amended by deleting the date "January 27, 1997" where it appears in paragraph (c) thereof and ------------- substituting therefor the date "May 4, 1998". ================================================================== Section 3. Representations and Warranties. The Company and ------------------------------ the Servicer hereby represent and warrant that (i) the representations and warranties contained in Article VI of the ---------- Receivables Financing Agreement are true and correct on and as of the date hereof, and after giving effect hereto, as though made on and as of such date, and shall be deemed to have been made on and as of such date, and (ii) no event has occurred and is continuing or would result from this Amendment, that constitutes an Event of Default or Unmatured Event of Default. Section 4. Miscellaneous. The Receivables Financing ------------- Agreement, as amended hereby, remains in full force and effect. Any reference to the Receivables Financing Agreement from and after the date hereof shall be deemed or referred to the Receivables Financing Agreement as amended hereby, unless otherwise expressly stated. The Company hereby agrees to execute and deliver a replacement Note, substantially in the form set forth in Exhibit A hereto, on or before the date hereof. This --------- Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -2- ===================================================================== IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers there unto duly authorized, as of the date first above written. ANNTAYLOR FUNDING, INC. By: /s/ Walter J. Parks _______________________________ Name Printed: Walter J. Parks ______________________ Title: VP - Finance _____________________________ ANNTAYLOR, INC. By: /s/ Walter J. Parks ------------------------------- Name Printed: Walter J. Parks --------------------- Title: SVP - Finance ---------------------------- MARKET STREET CAPITAL CORP. By: /s/ Juliana Johnson ------------------------------- Name Printed: Juliana Johnson ---------------------- Title: Vice President ---------------------------- PNC BANK, NATIONAL ASSOCIATION By: /s/ Richard J. Hendrix _______________________________ Name Printed: Richard J. Hendrix _____________________ Title: Managing Director - PNC Securities Corp., as Agent for PNC Bank, National Association _________________________________________ S-1 EX-10 6 EXHIBIT 10.6 CREDIT AGREEMENT CREDIT AGREEMENT ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.) --------- AMENDED AND RESTATED CREDIT AGREEMENT Dated as of September 20, 1996 --------- THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, NEW YORK BRANCH ===================================================================== TABLE OF CONTENTS ----------------- SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS. 1 ---------------------------------- 1.01 Certain Defined Terms 1 --------------------- 1.02 Accounting Terms and Determinations 11 ----------------------------------- SECTION 2. THE CREDIT FACILITIES 11 --------------------- 2.01 Facilities 11 ---------- 2.02 Letters of Credit 12 ----------------- 2.03 Loans 13 ------ 2.04 Certain Fees 13 ------------ 2.05 Credit Offices 14 -------------- 2.06 Extension of Termination Date 14 ----------------------------- SECTION 3. PAYMENTS OF PRINCIPAL AND INTEREST. 14 ---------------------------------- 3.01 Repayments of Reimbursement Obligations --------------------------------------- and Loans 14 --------- 3.02 Interest 14 -------- 3.03 Optional Prepayments of Loans 15 ----------------------------- 3.04 Mandatory Prepayments of Loans 15 ------------------------------ SECTION 4. PAYMENTS; COMPUTATIONS; ETC. 15 ---------------------------- 4.01 Payments 15 -------- 4.02 Computations 16 ------------ 4.03 Setoff 16 ------ 4.04 Minimum Amounts 16 --------------- 4.05 Certain Notices 16 --------------- SECTION 5. YIELD PROTECTION 17 ----------------- SECTION 6. CONDITIONS PRECEDENT 18 -------------------- 6.01 Initial Credits 18 --------------- 6.02 Subsequent Credits 20 ------------------ SECTION 7. REPRESENTATIONS AND WARRANTIES 20 ------------------------------ 7.01 Corporate Existence 20 ------------------- 7.02 Financial Condition 20 ------------------- 7.03 Litigation 21 ---------- 7.04 No Breach 21 --------- 7.05 Corporate Action 21 ---------------- 7.06 Approvals 21 ---------- 7.07 Use of Credits 22 -------------- 7.08 ERISA 22 ----- 7.09 Taxes 22 ----- 7.10 Investment Company Act 22 ---------------------- 7.11 Public Utility Holding Company Act 22 ---------------------------------- 7.12 Credit Agreements 22 ----------------- 7.13 Hazardous Materials 22 ------------------- 7.14 Subsidiaries 23 ------------ SECTION 8. COVENANTS OF THE COMPANY 23 ------------------------ 8.01 Financial Statements 23 -------------------- 8.02 Litigation 25 ---------- 8.03 Corporate Existence, Etc. 25 ------------------------ 8.04 Insurance 26 ---------- 8.05 Prohibition of Fundamental Changes 26 ---------------------------------- 8.06 Limitation on Liens 26 ------------------- 8.07 Indebtedness 27 ------------- 8.08 Investments 28 ----------- 8.09 Dividend Payments 28 ----------------- 8.10 Leverage Ratio 28 -------------- 8.11 Net Worth 28 --------- 8.12 Current Ratio 29 ------------- 8.13 Subordinated Indebtedness 29 ------------------------- 8.14 Lines of Business 29 ------------------ 8.15 Transactions with Affiliates 29 ---------------------------- 8.16 Use of Proceeds 30 --------------- 8.17 AT Credit 30 --------- 8.18 Amendments to Other Documents 30 ----------------------------- 8.19 Audit of Inventory and Accounts Receivable 30 ------------------------------------------ 8.20 Sales to AT 30 ------------ 8.21 Operating Account 30 ----------------- 8.22 Additional Subsidiaries 30 ------------------------ SECTION 9. EVENTS OF DEFAULT AND REMEDIES 31 ------------------------------- SECTION 10. MISCELLANEOUS 33 ------------- 10.01 Waiver 33 ------ 10.02 Notices 34 ------- 10.03 Expenses, Etc. 35 ------------- 10.04 Amendments, Etc. 35 ---------------- 10.05 Successors and Assigns; Assignment 35 ---------------------------------- 10.06 Assignments and Participations 35 ------------------------------ 10.07 Survival 36 -------- 10.08 Captions 36 -------- 10.09 Counterparts 36 ------------ 10.10 Governing Law; Submission to Jurisdiction 36 ----------------------------------------- 10.11 Waiver of Jury Trial 37 -------------------- 10.12 Severability 37 ------------- Signature Page Schedule 7.12 - Credit Agreements Schedule 8.07 - Indebtedness Schedule 8.08 - Investments Exhibit A - Form of Note Exhibit B - Security Agreement Exhibit C - Letter of Negative Pledge Exhibit D - Form of AT Credit Exhibit E - Sales Agreement Exhibit F - Borrowing Base Certificate Exhibit G - Commitment Letter Exhibit H - Form of Opinion of Company Counsel ==================================================================== AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 20, 1996 between ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.), a Delaware corporation (the "Company"), and THE HONGKONG AND SHANGHAI BANKING CORPORATION ------- LIMITED, a foreign banking corporation acting through its New York Branch (the "Bank"). Unless otherwise defined in this ---- heading or in the recitals to this Agreement, all terms used in this heading and in such recitals have the respective meanings set forth in Section 1.01 of this Agreement. W I T N E S S E T H : WHEREAS, the Company is presently the subject of an acquisition in accordance with the terms and conditions of the Stock and Asset Purchase Agreement, pursuant to which the Company shall become a wholly-owned subsidiary of AT; WHEREAS, on the date hereof, there exists a credit facility up to an aggregate face or principal amount of $40,000,000 between the Bank and the Company, which facility is evidenced by a related credit agreement (the "Existing Credit ---------------- Agreement"); - --------- WHEREAS, the Company has requested the amendment and modification of certain provisions of the Existing Credit Agreement; and WHEREAS, the Company has requested that the Existing Credit Agreement, as amended prior to the date hereof and as amended and modified hereby, be restated in its entirety to reflect such amendment and modification; NOW THEREFORE, the parties hereto agree that the Existing Credit Agreement is hereby amended and restated in its entirety as follows: SECTION 1. DEFINITIONS AND ACCOUNTING MATTERS. ---------------------------------- 1.01 Certain Defined Terms. As used herein, the ----------------------- following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): ---------- "Affiliate" shall mean, as to any Person, any other --------- Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person and, if such Person is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with its correlative meanings, ------- "controlled by" and "under common control with") shall mean -------------- -------------------------- possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any -------- event, (i) any Person which owns directly or indirectly five percent (5%) or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or five percent (5%) or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person, and (ii) no financial institution, mutual fund or investment banking firm shall be an Affiliate of the Company unless it owns, directly or indirectly, at least twenty percent (20%) of the securities of the Company. Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate of a corporation solely by reason of his or her being an officer or director of such corporation and a Person and its subsidiaries shall not be deemed to be Affiliates of each other. "Alternative Credit Office" shall mean any office of ------------------------- the Bank other than the Bank's New York Office. "AT" shall mean AnnTaylor, Inc., a Delaware -- corporation. "ATSC" shall mean AnnTaylor Stores Corporation, a ---- Delaware corporation. "AT Credit" shall mean the standby letter of credit in --------- the face amount of $8,000,000 issued on behalf of AT in favor of the Bank by a bank acceptable to the Bank substantially in the form of Exhibit D hereto. "AT Facility Agreement" shall mean that certain Amended --------------------- and Restated Credit Agreement dated as of September 29, 1995 among AT, Bank of America National Trust and Savings Association and the other financial institutions party thereto, as amended, supplemented or otherwise modified and in effect from time to time. "Applicable Credit Office" shall mean, with respect to ------------------------ each type of Credit, the Bank's New York Office or such other office of the Bank as the Bank may from time to time designate as the office at which its Credits of such type are to be extended and maintained. "Available Facility" shall mean, as at any date of ------------------- determination thereof, the amount equal to the excess of the Total Facility over the aggregate sum of (i) the outstanding amount of all Reimbursement Obligations, (ii) the undrawn face amount of all issued Letters of Credit, and (iii) the outstanding principal amount of all Loans. "Bank's New York Office" shall mean the New York City ---------------------- office of the Bank, presently located at 140 Broadway, New York, New York 10005. "Basle Accord" shall mean the proposals for a risked- ------------- based capital framework described by the Basle Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as modified and supplemented and in effect from time to time. "Borrowing Base" shall mean, as at any day of --------------- determination thereof, the sum of (i) 80% of the aggregate amount of Eligible Receivables at said date plus (ii) 60% of the ---- aggregate amount of Eligible Inventory at said date, which Eligible Inventory shall in no event exceed $4,000,000 in the aggregate prior to such fractional reduction, plus (iii) 60% of ---- the aggregate face amount of all undrawn Letters of Credit at said date plus (iv) the undrawn face amount of the AT Credit at ---- said date minus (v) an amount equal to two times the average ----- monthly commissions or processing fees (to the extent such are included in the value of Inventory) paid to bailees, warehousemen, terminal operators, Processors (as defined in the definition of "Eligible Inventory" set forth in this Section 1.01) or other third parties with whom the Company has lodged Inventory during the period of two fiscal quarters most recently ended on or before such date. "Borrowing Base Certificate" shall mean a certificate -------------------------- of the executive vice president or the senior vice president - finance of the Company, in substantially the form of Exhibit F hereto and appropriately completed. "Business Day" shall mean any day on which commercial ------------- banks are not authorized or required to close in New York City. "CAT" shall mean, collectively, the Company and C.A.T. --- (Far East) Limited, a Hong Kong corporation. "CDI" shall mean Cygne Designs, Inc., a Delaware --- corporation. "Capital Lease Obligations" shall mean, as to any --------------------------- Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property which obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP (including Statement of Financial Accounting Standards No. 13 of the Financial Accounting Standards Board) and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP (including such Statement No. 13). "Cash Against Documents" shall mean, with respect to ----------------------- any applicable trade transaction between the Company and AT or its Affiliates, the requirement that title to the underlying goods and all related documents be delivered only upon prior receipt of full payment therefor evidenced by a wire transfer of Federal or other immediately available funds. "Code" shall mean the Internal Revenue Code of 1986, as ---- amended from time to time, and any successor thereto. "Commitment Letter" shall mean that certain letter from ----------------- the Bank to the Company dated April 10, 1996 and accepted by the Company on April 19, 1996, a copy of which is attached hereto as Exhibit G. The terms of the Commitment Letter are incorporated herein by reference and such terms and conditions as set forth therein shall survive until the Note has been repaid in full and this Agreement has been terminated. In the event of a conflict between the terms of the Commitment Letter and the terms of this Agreement, the terms of this Agreement shall prevail. "Commitments" shall mean, collectively, the Letter of ------------ Credit Commitment and the Loan Commitment. "Credit" shall mean a Loan or a Letter of Credit. ------ "Credit Documents" shall mean, collectively, this ----------------- Agreement, the Note and the Security Documents. "Default" shall mean an Event of Default or an event ------- which with notice or lapse of time or both would become an Event of Default. "Dividend Payment" shall mean dividends (in cash, ----------------- property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company, but excluding dividends payable solely in shares of common stock of the Company. "Dollars" and "$" shall mean lawful money of the United ------- - States of America. "Eligible Inventory" shall mean, as at any date of ------------------- determination thereof, the sum of the following (determined without duplication): (a) the value (determined at the lower of cost or market in accordance with GAAP, except that cost shall be determined on a first-in-first-out basis) of all Inventory owned by (and in the possession or under the control of) the Company and located in a jurisdiction in the United States of America as to which appropriate Uniform Commercial Code financing statements have been filed naming the Company, as "debtor" and the Bank as "secured party" (excluding however, except to the extent that the Bank otherwise agrees with respect to any specific customer or Processor, any such Inventory which has been shipped to a customer of the Company, including Processors referred to below, even if on a consignment or "sale or return" basis) and which is in good condition, meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such Inventory, its use or sale and which is either currently useable or currently saleable in the normal course of the Company's business without any notice to, or consent of, any governmental agency or department or division thereof, plus ---- (b) the value (determined as described in clause (a) above) of all Inventory being processed by third parties on behalf of the Company (any such third party being herein called a "Processor"), but only to the extent that the Company shall have --------- filed an appropriate uniform commercial code financing statement in the respective jurisdiction in which such Inventory is located naming the respective Processor as "debtor", the Company as "secured party" and the Bank as the "assignee" and delivered to the Bank an opinion of counsel satisfactory to the Bank to the effect that to the extent such arrangement constitutes a consignment or security interest under applicable law, the Company has a valid perfected first priority security interest in such Inventory and that, by virtue of the Security Agreement, such security interest has been validly assigned to the Bank and accordingly the Bank has a valid and perfected security interest in such Inventory under the Security Agreement. "Eligible Letter of Credit Transaction" shall mean --------------------------------------- Reimbursement Obligations arising in connection with trade transactions relating to the purchase of apparel, shoes and accessories. "Eligible Receivables" shall mean, as at any date of -------------------- determination thereof, the aggregate of all Receivables at said date due to the Company other than the following (determined without duplication): (a) any Receivable due from an account debtor other than AT or its Affiliates, (b) any Receivable not payable in Dollars, (c) any Receivable which, at the date of issuance of the respective invoice therefor, were payable more than ninety days after shipment of the related Inventory, (d) any Receivable due from an account debtor whose principal place of business is located outside of the United States of America unless the Bank has agreed in writing that such Receivable shall be treated as "Eligible" or backed by U.S. Government insurance or a letter of credit issued or confirmed by a bank organized under the laws of the United States of America or a State thereof and having capital and surplus in excess of $500,000,000 (so long as such letter of credit has been delivered to the Bank as additional collateral under the Security Agreement), (e) any Receivable due from an account debtor which the Bank has notified the Company does not have a satisfactory credit standing (as determined in the sole discretion of the Bank), (f) any Receivable which remains unpaid for more than sixty days (measured from the date of the original issuance of the invoice thereof), (g) all Receivables of any account debtor if more than 20% of the aggregate amount of the Receivables of such account debtor have at the time remained unpaid for more than sixty days (measured from the date of the original issuance of the invoice thereof), (h) any Receivable as to which there is any unresolved dispute with the respective account debtor (but only to the extent of the amount thereof in dispute), (i) any Receivable evidenced by an Instrument (as defined in the Security Agreement) not in the possession of the Bank, (j) any Receivable representing an obligation for goods sold on consignment, or approval or on a sale-or- return basis or subject to any other repurchase or return arrangement, except to the extent the Bank shall have otherwise agreed in writing, and (k) any Receivable due from an account debtor if such account debtor is operating under the protection of any law relating to bankruptcy, insolvency, reorganization, winding- up, or composition or adjustment of debts. "Environmental Laws" shall mean any and all federal, ------------------ state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" shall mean the Employee Retirement Income ----- Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean (a) any corporation or ---------------- trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Company, (b) any entity which is under common control (within the meaning of Section 414(c) of the Code) with the Company, (c) any member of an affiliated service group (within the meaning of Section 414(m) of the Code) in which the Company is also a member, and (d) any other entity affiliated with the Company under Section 414(o) of the Code. "Event of Default" shall have the meaning assigned to ---------------- such term in Section 9 hereof. "Foreign Subsidiary" shall mean, with respect to any ------------------ Person, any Subsidiary of such Person incorporated or organized under laws other than that of any State of the United States or the District of Columbia. "GAAP" shall mean generally accepted accounting ---- principles as in effect at the time of application to the provisions hereof. "Guarantee" shall mean a guarantee, an endorsement, a --------- contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guarantee of the payment of dividends or other distributions upon the stock of any corporation, or an agreement to purchase, sell or lease (as lessee or lessor) property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of his, her or its obligations or an agreement to assure a creditor against loss, and including without limitation, causing a bank to open a letter of credit for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb --------- ---------- shall have a correlative meaning. "Indebtedness" shall mean, as to any Person: (a) ------------ indebtedness created, issued or incurred by such Person for borrowed money (whether by loan or the issuance and sale of debt securities); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 180 days of the date the respective goods are delivered or respective services rendered; (c) Indebtedness of others secured by a Lien on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; and (f) Indebtedness of others guaranteed by such Person. "Interest Rate" shall mean the Prime Rate plus 0.50%. ------------- "Inventory" shall mean apparel, shoes and accessories, --------- and other readily marketable materials of a type purchased, produced, manufactured or consumed by the Company in the ordinary course of business as presently conducted. "Investment" in any Person shall mean: (a) the ---------- acquisition (whether for cash, property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such Person; and (b) any deposit with, or advance, loan or other extension of credit to, such Person (other than any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies purchased in the ordinary course of business) or guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of such Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. "Letter of Credit" shall have the meaning assigned to ---------------- such term in Section 2.01(a) hereof. "Letter of Credit Commitment" shall mean the obligation --------------------------- of the Bank to issue Letters of Credit up to an aggregate face amount for all Letters of Credit at any one time outstanding up to $40,000,000. "Letter of Credit Documents" shall mean, with respect -------------------------- to any Letter of Credit, collectively, such Letter of Credit, any amendments thereto, any documents delivered thereunder, any application therefor, and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (i) the rights and obligations of the parties concerned or at risk or (ii) any collateral security for such obligations. "Letter of Negative Pledge" shall mean the agreement -------------------------- substantially in the form of Exhibit C hereto, pursuant to which each of the parties thereto shall agree to the effect set forth therein, as amended, supplemented or otherwise modified and in effect from time to time. "Leverage Ratio" shall mean, at any time, the ratio of -------------- Total Liabilities to the aggregate amount at such time of (i) Tangible Net Worth and (ii) the undrawn face amount of the AT Credit. "Lien" shall mean, with respect to any asset, any ---- mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of this Agreement, the Company shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Loan" shall have the meaning assigned to such term in ---- Section 2.01(b) hereof. "Loan Commitment" shall mean the obligation of the Bank --------------- to make Loans up to an aggregate principal amount for all Loans at any one time outstanding up to $8,000,000. "Margin Stock" shall mean margin stock within the ------------- meaning of Regulations U and X. "Material Adverse Effect" shall mean a material adverse ----------------------- effect upon (a) the financial conditions, operations, business or prospects of the Company or ATSC and its Subsidiaries taken as a whole, as the case may be, (b) the ability of the Company to repay any Loan, Reimbursement Obligation or any other amount payable by the Company hereunder, or (c) the rights and remedies of the Bank under this Agreement and the other Credit Documents. "Maturity Date" shall have the meaning assigned to that ------------- term in Section 2.01(c) hereof. "Multiemployer Plan" shall mean a multiemployer plan ------------------- defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Note" shall mean the promissory note provided for by ---- Section 2.03(b) hereof. "Obligor" shall mean either the Company, AT or ATSC. ------- "PBGC" shall mean the Pension Benefit Guaranty ---- Corporation or any entity succeeding to any or all of its functions under ERISA. "Penalty Rate" shall mean, in respect of any principal ------------ of any Loan, any Reimbursement Obligation or any other amount payable by the Company under this Agreement or the Note that is not paid when due (whether at stated maturity, by acceleration or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 2% above the interest rate otherwise in effect. "Permitted Investments" of any Person shall mean: (a) --------------------- direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or of any agency thereof, in any case maturing not more than 90 days from the date of acquisition thereof by such Person; (b) certificates of deposit issued by any bank or trust company organized under the laws of the United States of America (or any state thereof) and having capital, surplus and undivided profits of at least $500,000,000, maturing not more than 90 days from the date of acquisition thereof by such Person; and (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's Corporation or Moody's Investors Services, Inc., respectively, maturing not more than 90 days from the date of acquisition thereof by such Person. "Person" shall mean any individual, corporation, ------ company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan ---- established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "Prime Rate" shall mean the rate of interest from time ---------- to time announced by Marine Midland Bank in New York City as its prime commercial lending rate. Each change in any interest rate provided for herein based upon the Prime Rate resulting from a change in the Prime Rate shall take effect at the time of such change in the Prime Rate. "Receivables" shall mean, as at any date of ----------- determination thereof, the unpaid portion of the obligation owed to the Company, as stated on the respective invoice, of a customer of the Company in respect of Inventory purchased and shipped, net of any credits, rebates or offsets owed to the respective customer (and for purposes hereof, a credit or rebate paid by check or draft of the Company shall be deemed to be outstanding until such check or draft shall have been debited to the respective account of the Company on which such check or draft was drawn). "Regulations D, G, T, U and X" shall mean, ------------------------------------ respectively, Regulations D, G, T, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean any change after the ------------------ date of this Agreement in United States Federal, state or foreign law or regulations or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including the Bank of or under any United States Federal, state or foreign law or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reimbursement Obligation" shall mean at any time, the ------------------------ obligation of the Company to reimburse the Bank on demand for amounts theretofore paid by the Bank pursuant to a drawing under a Letter of Credit. "Sales Agreement" shall mean the sales and purchase ---------------- agreement substantially in the form of Exhibit E hereto, pursuant to which the Company shall sell garments and accessories to AT on the terms and conditions referred to therein, as amended, supplemented or otherwise modified and in effect from time to time. "Security Documents" shall mean, collectively, each ------------------- Guarantee required by this Agreement, the Security Agreement and all Uniform Commercial Code financing statements required by this Agreement and the Security Agreement to be filed with respect to the security interests in personal property created pursuant to the Security Agreement. "Security Agreement" shall mean the security agreement ------------------ substantially in the form of Exhibit B hereto, pursuant to which the Company shall provide collateral security for the Secured Obligations referred to therein, as amended, supplemented or otherwise modified and in effect from time to time. "Special CAD Event" shall mean either (i) an event of ----------------- default under the Sales Agreement, (ii) any failure by the Company in the performance of any of its obligations under Sections 8.10, 8.11 and 8.12 hereof or (iii) any event under Section 9(b) hereof. "Stock and Asset Purchase Agreement" shall mean that ----------------------------------- certain Stock and Asset Purchase Agreement dated as of June 7, 1996, and amended as of August 27, 1996, by and between CDI, Cygne Group (F.E.) Limited, ATSC and AT, pursuant to which AT shall acquire the business relating to the Company. "Subordinated Indebtedness" shall mean, collectively, ------------------------- Indebtedness for which the Company is directly and primarily liable and which is subordinated to the obligation of the Company to pay principal of and interest on the Loans and the Note, any Reimbursement Obligation and any other amount payable hereunder on terms, and which contains other terms (including interest, amortization and financial and other covenants), in form and substance satisfactory to the Bank. "Subsidiary" shall mean, with respect to any Person, ---------- any other Person of which at least a majority of the outstanding securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similiar functions for such other Person (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such other Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such first Person or one or more of its Subsidiaries or by such first Person and one or more of its Subsidiaries. "Tangible Net Worth" shall mean, as at any date of ------------------- determination thereof, the sum of the following for the Company determined (without duplication) in accordance with GAAP: (a) the amount of the capital stock account, plus ---- (b) the amount of paid-in surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit), minus ----- ----- (c) the sum of the following: cost of treasury shares and the book value of all assets of the Company which should be classified as intangibles (other than good-will) (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including research and development costs, trade-marks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, and all reserves. "Termination Date" shall mean July 29, 1997, unless ----------------- otherwise extended to a later date by the Bank pursuant to Section 2.06 hereof. "Total Facility" shall mean, as to all Credits --------------- hereunder, the aggregate face or principal amount of $40,000,000. "Total Liabilities" shall mean, as at any date of ------------------ determination thereof, the sum, for the Company determined (without duplication) in accordance with GAAP, of all Indebtedness of the Company and all other liabilities of the Company which should be classified as liabilities on a balance sheet of the Company prepared in accordance with GAAP and in any event including all reserves (other than general contingency reserves) and all deferred taxes and other deferred items. 1.02 Accounting Terms and Determinations. Unless -------------------------------------- otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Bank hereunder shall be prepared, in accordance with GAAP. To enable the ready and consistent determination of compliance with the covenants set forth in Section 8 hereof, the Company will not change the last day of its fiscal year from the Saturday nearest January 31. SECTION 2. THE CREDIT FACILITIES. ---------------------- 2.01 Facilities. Subject to the terms and conditions ---------- of this Agreement: (a) The Bank agrees to issue from time to time for the account of the Company sight letters of credit (each, a "Letter of Credit") in support of Eligible Letter of Credit ---------------- Transactions during the period from and including the date hereof to the day falling 30 days before the Termination Date in an aggregate undrawn face amount (as to all Letters of Credit issued for account of the Company) not exceeding at any one time outstanding an amount equal to the excess of the amount of the Letter of Credit Commitment over the aggregate outstanding amount of the Reimbursement Obligations; provided that (i) the Letter of Credit -------- Commitment shall not at any time exceed the Available Facility, and (ii) the stated expiry date of each Letter of Credit shall be a Business Day falling no more than 60 days after the related issuance date and on or before the Termination Date. (b) The Bank agrees to make a loan or loans (each, a "Loan") to the Company, during the period from and including ---- the date hereof to the day falling 30 days before the Termination Date to finance Reimbursement Obligations owed hereunder, in an aggregate principal amount (as to all Loans) not exceeding at any one time outstanding the Loan Commitment as in effect from time to time; provided that the Loan Commitment shall not at any time exceed the Available Facility. (c) Each Loan shall mature on the date (the "Maturity -------- Date") falling 60 days after the funds in connection with ---- such Loan are made available as provided in Section 2.03 hereof. Each Loan with a Maturity Date later than the Termination Date shall not in any case be renewed or otherwise extended. Subject to the terms of this Agreement, the Company may borrow, prepay and reborrow the amount of the Letter of Credit Commitment and the Loan Commitment. (d) So long as a Special CAD Event shall have occurred and be continuing, the Bank shall only issue Letters of Credit and make Loans hereunder after the Company has first provided to the Bank a deposit equal to the related face or principal amount of each such Letter of Credit or Loan, which deposit shall be made to an account maintained with, and pledged as collateral security to, the Bank. 2.02 Letters of Credit. ----------------- (a) The Company shall give the Bank notice of each Letter of Credit to be issued for account of the Company as provided in Section 4.05 hereof (unless such Letter of Credit is opened through the Bank's Hexagon System). (b) The issuance by the Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Sections 6.01 and 6.02 hereof, be subject to the conditions that such Letter of Credit be in such form, contain such terms and support such transactions or obligations (which shall be Eligible Letter of Credit Transactions with respect to which the Company shall be the primary obligor) as shall be reasonably satisfactory to the Bank consistent with its then current practices and procedures with respect to similar letters of credit and that the Company shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Bank shall have reasonably requested consistent with such practices and procedures. (c) Without duplication of Section 10.03 hereof, the Company hereby indemnifies and holds harmless the Bank from and against any and all claims, damages, losses, liabilities, costs or expenses which the Bank may incur (or which may be claimed against the Bank) by any Person by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Company shall not be required to indemnify the Bank for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the willful misconduct or gross negligence of the Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit, or (ii) caused by the Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree. (d) If the Termination Date is at any time or from time to time extended pursuant to Section 2.06 hereof, the Bank shall, at the request of the Company, subject to Section 6.02 hereof, extend the expiry date of any outstanding Letter of Credit issued for account of the Company to a date specified by the Company not later than the Termination Date so extended. (e) With respect to each Letter of Credit issued by the Bank hereunder, the Company shall (i) arrange for the related goods and merchandise being shipped in connection with such Letter of Credit to be consigned to the Bank, and (ii) in the case of air shipments, provide to the Bank the complete set of original documents described in the related Letter of Credit, including the airway bill setting forth the Bank as consignee. The Bank shall provide to the Company an air release with respect to each such air shipment upon receipt by the Company of full payment therefor from AT or its Affiliates, which payment shall be evidenced by a wire transfer of Federal or other immediately available funds to an account of the Company maintained with, and pledged as collateral security to, the Bank. 2.03 Loans. ----- (a) The Company shall give the Bank notice of each Loan to be made to the Company as provided in Section 4.05 hereof. On the date specified for the making of each Loan, the Bank shall make available the amount of such Loan to the Company by depositing the same, in immediately available funds, in an account of the Company maintained with the Bank's New York Office. (b) The Loans shall be evidenced by a single promissory note of the Company in substantially the form of Exhibit A hereto (the "Note"), payable to the Bank in a principal amount equal to the amount of the Loan Commitment as originally in effect or such lesser amount as may then be applicable. The Note shall be dated the date of the delivery of such to the Bank. The date, amount and interest rate of the Loans made by the Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books; provided that the failure by the Bank so to record such Loans shall not affect the obligations of the Company hereunder or under the Note. 2.04 Certain Fees. ------------ (a) (i) The Company shall pay to the Bank an initial commitment fee on the aggregate amount of the Commitments (without duplication) as follows: (x) 0.25% upon execution of the Commitment Letter and (y) 0.25% upon execution of this Agreement. (ii) The Company shall pay to the Bank a commitment fee at a rate per annum equal to 0.25% of the daily average Available Facility for the period from and including the date hereof to and including the date the Commitments expire or are terminated. (iii) Accrued commitment fees shall be payable in arrears on the first Business Day of each month and on the earlier of the date the Commitments expire or are terminated. (b) The Company shall pay to the Bank from time to time at then prevailing rates unless otherwise indicated, in respect of each Letter of Credit issued for account of the Company, all charges, costs and expenses customarily charged by the Bank in like circumstances with respect to similar letters of credit. (c) In the event the Company requests the cancellation of any Commitment prior to the Termination Date, the Company shall pay to the Bank in connection therewith a cancellation fee equal to 0.25% of the aggregate amount of such Commitment. 2.05 Credit Offices. The Credits shall be extended and -------------- maintained at the Bank's New York Office or an Alternative Credit Office in the United States of America. 2.06 Extension of Termination Date. Subject to the ------------------------------ terms and conditions hereof, the Bank may, at its option and upon the request of the Company, extend the Termination Date to the next subsequent anniversary thereof, each such extension being limited to a single anniversary period. SECTION 3. PAYMENTS OF PRINCIPAL AND INTEREST. ----------------------------------- 3.01 Repayments of Reimbursement Obligations and Loans. -------------------------------------------------- (a) The Company shall pay to the Bank the amount paid by the Bank in respect of any drawing under any Letter of Credit issued for account of the Company, such payment to be made by the Company on demand by the Bank (or, in the absence of demand, on the same Business Day of such payment by the Bank). (b) The Company shall pay to the Bank the outstanding principal amount of each Loan on the respective Maturity Date. 3.02 Interest. -------- (a) The Company will pay to the Bank interest on the unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full at the Interest Rate (as in effect from time to time). (b) Notwithstanding the provisions of clause (a) above, the Company will pay to the Bank interest at the Penalty Rate on any principal of any Loan, on any Reimbursement Obligation owing to the Bank by the Company and (to the fullest extent permitted by law) on any other amount payable by the Company hereunder or under the Note, which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. (c) Accrued interest on each Loan shall, subject to the following sentence, be payable on the first Business Day of each month such Loan remains outstanding, on the Maturity Date and upon the prepayment thereof, except that interest payable at the Penalty Rate shall be payable in arrears on the first Business Day of each month and from time to time on demand of the Bank. Promptly after the determination of any interest rate provided for herein or any change therein, the Bank shall give notice thereof to the Company. 3.03 Optional Prepayments of Loans. Subject to Section ----------------------------- 4.04 hereof, the Company shall have the right to prepay the Loans, at any time from time to time, provided that the Company shall give the Bank notice of each such prepayment, as provided in Section 4.05 hereof. 3.04 Mandatory Prepayments of Loans. ------------------------------ (a) If the outstanding principal amount of the Loans exceeds on any date the applicable Commitment on such date, the Company shall cause the applicable Loans to be repaid on such date in an aggregate principal amount at least equal to such excess. (b) If the outstanding principal amount of the Loans exceeds on any date the amount equal to (i) the Borrowing Base at said date minus (ii) the amount equal to the sum of (x) the aggregate undrawn face amount of all issued Letters of Credit at said date and (y) the outstanding principal amount of Reimbursement Obligations at said date, the Company shall cause the Loans to be prepaid on such date in an aggregate principal amount at least equal to such excess. SECTION 4. PAYMENTS; COMPUTATIONS; ETC. ---------------------------- 4.01 Payments. --------- (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Company under this Agreement and the Note shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Bank's New York Office, not later than 11:00 a.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) The Bank may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Company with the Bank. (c) The Company shall, at the time of making each payment under this Agreement or the Note, specify to the Bank the Loan, Reimbursement Obligation or other amounts payable hereunder to which such payment is to be applied (and in the event that it fails to so specify, or if an Event of Default has occurred and is continuing, the Bank may apply such payment in such manner as it may determine to be appropriate). (d) If the due date of any payment under this Agreement or the Note would otherwise fall on a day which is not a Business Day and such date is extended to the next succeeding Business Day in accordance with the terms and conditions hereof, interest shall be payable on any payment amount so extended for the period of such extension. 4.02 Computations. Interest shall be computed on the ------------ basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.03 Setoff. The Company agrees that, in addition to ------ (and without limitation of) any right of set-off, bankers' lien or counterclaim the Bank may otherwise have, the Bank shall be entitled, at its option, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of the Loans, any Reimbursement Obligation or any other amount payable to the Bank hereunder, which is not paid when due, in which case it shall promptly notify the Company thereof, provided that the Bank's failure to give such notice shall not affect the validity thereof. 4.04 Minimum Amounts. Each borrowing and prepayment of --------------- principal of Loans shall be in an amount at least equal to $20,000. 4.05 Certain Notices. Notices to the Bank of ---------------- borrowings and prepayments of Loans and of issuances and extensions of Letters of Credit shall be irrevocable and shall be effective only if received by the Bank not later than 11:00 a.m. New York time on the number of Business Days prior to the date of the relevant borrowing, prepayment, issuance or extension specified below: Number of Business Notice Days Prior ------- ---------- Borrowing or prepayment of Loan 1 Issuance or extension of Letters of Credit 3 Each such notice of borrowing or prepayment shall specify the amount (subject to Section 4.04 hereof) and date (which shall be a Business Day, and in the case of a borrowing, no later than the day 30 days preceding the Termination Date) such Loan is to be borrowed or prepaid. Each such notice of issuance or extension shall specify the date (which shall be a Business Day no later than the day 30 days preceding the Termination Date) such Letter of Credit is to be issued, the amount thereof, the beneficiary thereof, the expiry date thereof (which shall be a Business Day falling no more than 60 days after the related issuance date and no later than the Termination Date) and, in reasonable detail, the other terms of such Letter of Credit and the nature of the transaction (which shall be an Eligible Letter of Credit Transaction) to be supported thereby. Each such request for an extension of a Letter of Credit shall specify the new expiry date thereof (which shall be a Business Day no later than the Termination Date). SECTION 5. YIELD PROTECTION. ---------------- (a) The Company shall pay directly to the Bank from time to time such amounts as the Bank may reasonably determine to be necessary to compensate it for any costs which the Bank determines are attributable to its making or maintaining any Credit or its obligation to make any Credit hereunder, or any reduction in any amount receivable by the Bank hereunder in respect of any such Credit or obligation, resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to the Bank under this Agreement or the Note in respect of any such Credit (other than taxes imposed on or measured by the overall net income of the Bank or its Applicable Credit Office for any of such Credits by the jurisdiction in which such Applicable Credit Office is located); or (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, the Bank, or any Commitment of the Bank available for the Company; or (iii) imposes any other condition affecting this Agreement or the Note of the Bank (or any of such extensions of credit or liabilities) or any Commitment of the Bank available for the Company. (b) Without limiting the effect of the foregoing provisions of this Section 5 (but without duplication), the Company shall pay to the Bank from time to time on request such amounts as the Bank may reasonably determine to be necessary to compensate the Bank for any costs which it determines are attributable to the maintenance by the Bank (or any Applicable Credit Office), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority following any Regulatory Change, or pursuant to any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority, including any implementation at the Federal level of the Basle Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A), of capital in respect of any Commitment of the Bank available for the Company, any Credit issued for account of the Company or any participation in any Credit issued for account of the Company (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of the Bank (or any Applicable Credit Office) to a level below that which the Bank (or any Applicable Credit Office) could have achieved but for such law, regulation, interpretation, directive or request). (c) The Bank will notify the Company of any event occurring after the date of this Agreement that will entitle the Bank to compensation under paragraph (a) or (b) of this Section 5 as promptly as practicable, but in any event within 45 days, after the Bank obtains actual knowledge thereof; provided, however, that if the Bank fails to give such notice within 45 days after it obtains actual knowledge of such an event, the Bank shall, with respect to compensation payable pursuant to this Section 5 in respect of any costs resulting from such event, only be entitled to payment under this Section 5 for costs incurred from and after the date 45 days prior to the date that the Bank does give such notice. The Bank will furnish to the Company a certificate setting forth the basis and amount of each request by the Bank for compensation under paragraph (a) or (b) of this Section 5. Determinations and allocations by the Bank for purposes of this Section 5 of the effect of any Regulatory Change pursuant to this Section 5, or of the effect of capital maintained pursuant to the preceding paragraph, on its costs or rate of return of maintaining Credits or its obligation to make Credits, or on amounts receivable by it in respect of Credits, and of the amounts required to compensate the Bank under this Section 5, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. SECTION 6. CONDITIONS PRECEDENT. -------------------- 6.01 Initial Credits. The extension of Credits by the --------------- Bank is subject to the conditions precedent that all matters relating to this Agreement and the transactions contemplated hereby should be reasonably satisfactory to the Bank and the receipt by the Bank of the following documents, each of which shall be satisfactory to the Bank and its counsel in form and substance: (a) The Note, duly executed and delivered by the Company; (b) The Security Agreement, duly executed and delivered by the Company; (c) The Letter of Negative Pledge, duly executed and delivered by the Company; (d) The Sales Agreement, duly executed and delivered by the Company and AT; (e) Evidence of the AT Credit; (f) Evidence of the consummation of the transactions contemplated by the Stock and Asset Purchase Agreement; (g) Evidence of the release by Mitsubishi Corporation and Mitsubishi International Corporation, respectively, of Liens relating to the assets subject to the transactions contemplated by the Stock and Asset Purchase Agreement; (h) Certified copies of the charter or certificate of incorporation (as the case may be) and by-laws (or equivalent documents) of the Company and of the resolutions of its Board of Directors authorizing its entering into and performance of its obligations under the Credit Documents to which it is party and the transactions contemplated hereby and thereby; (i) Certificate of the secretary or an assistant secretary of the Company in respect of each of the officers (i) who is authorized to sign on its behalf the Credit Documents to which it is party and (ii) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby (and the Bank may conclusively rely on such certificate until it receives notice in writing from the Company to the contrary); (j) Certificate of the president or a vice president of the Company to the effect that (i) the Company has complied and is then in compliance with all of the terms, conditions and covenants of the Credit Documents to which it is party, (ii) no Default or Event of Default has occurred hereunder or thereunder, either before or after giving effect to the extension of any Credit, (iii) the representations and warranties of the Company contained in the Credit Documents to which it is party are true in all respects as if such representations and warranties had been made on such date, and (iv) except as disclosed to the Bank prior to the date of the initial extension of Credits hereunder, there shall have been no material adverse change in the financial condition, business or property of the Company since February 3, 1996; (k) Copies of duly completed and executed Uniform Commercial Code Financing Statements covering the collateral security described in the Security Agreement, together with evidence satisfactory to the Bank that such financing statements have been duly filed in all jurisdictions in which such filing is necessary or appropriate; (l) The results of Uniform Commercial Code, tax and judgment searches as may be requested by the Bank; (m) A Borrowing Base Certificate, certified by the executive vice president or the senior vice president - finance of the Company; (n) A detailed aged accounts receivable schedule, certified by the executive vice president or the senior vice president - finance of the Company; (o) A detailed inventory schedule, certified by the executive vice president or the senior vice president - finance of the Company; (p) Projections of sales revenue and income for each of the Company and AT for the fiscal year ending in 1998, certified, in the case of the Company, by the executive vice president or the senior vice president - finance and, in the case of AT, by the executive vice president - finance or the senior vice president - finance; (q) Evidence of a marine cargo insurance policy in form and substance satisfactory to the Bank, which policy shall name the Bank as loss payee; (r) Evidence that the Company shall have changed its name to "AnnTaylor Global Sourcing, Inc."; (s) An opinion of counsel to the Company, substantially in the form of Exhibit H hereto; and (t) Such other documents, approvals and opinions relating to the transactions contemplated hereby as the Bank or its counsel may reasonably request. 6.02 Subsequent Credits. The extension of Credits by ------------------ the Bank to the Company subsequent to the date hereof is subject to the further conditions precedent that both immediately prior to the extension of such Credit and also after giving effect thereto (i) no Default shall have occurred and be continuing and (ii) the representations and warranties made by the Company in Section 7 hereof shall be true and complete on and as of the date of the extension of such Credit with the same force and effect as if made on and as of such date (except as disclosed to the Bank in writing prior to the date thereof). Each notice by the Company hereunder with respect to the extension of any Credit shall constitute a certification by the Company to the effect set forth in this Section 6.02 (both as of the date of such notice and, unless the Company otherwise notifies the Bank prior thereto, as of the date of the extension of such Credit). SECTION 7. REPRESENTATIONS AND WARRANTIES. The Company -------------------------------- represents and warrants to the Bank that: 7.01 Corporate Existence. It is a corporation duly -------------------- organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; has all requisite corporate power and all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. 7.02 Financial Condition. The combined balance sheets ------------------- of CAT as at February 3, 1996 and the related combined statements of income, retained earnings and changes in financial position (or of cash flow, as the case may be) of CAT for the fiscal year ended on said date, with the opinion thereon (in the case of said balance sheet and statements) of Ernst & Young LLP, heretofore furnished to the Bank, are complete and correct and fairly present the financial condition of CAT as at said date and the results of its operations for the fiscal year ended on said date, all in accordance with generally accepted accounting principles and practices applied on a consistent basis. CAT had on said date no material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheet as at said date. Since February 3, 1996, there has been no material adverse change in the financial condition, operations, business or prospects of CAT from that set forth in said financial statements as at said date. 7.03 Litigation. (a) There are no actions, suits or ---------- proceedings (whether or not purportedly on behalf of the Company) pending or, to the knowledge of the Company, threatened against or affecting the Company at law or in equity or before or by any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which involve any of the transactions contemplated herein or which, if adversely determined against the Company, would result in a Material Adverse Effect; and (b) to the knowledge of the Company, the Company is not in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court or Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which would have a Material Adverse Effect. 7.04 No Breach. The execution and delivery of the ---------- Credit Documents to which it is party, the consummation of the transactions herein and therein contemplated and compliance with the terms and provisions hereof and thereof, will not conflict with or result in a breach of, or require any consent under, the charter or by-laws of the Company, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Company is a party or by which it is bound or to which it is subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or assets of the Company pursuant to the terms of any such agreement or instrument. 7.05 Corporate Action. The Company has all necessary ---------------- corporate power and authority to execute, deliver and perform its obligations under the Credit Documents to which it is party; the execution, delivery and performance by the Company of the Credit Documents to which it is party have been duly authorized by all necessary corporate action on its part; and this Agreement and the Security Agreement have been duly and validly executed and delivered by the Company and constitute, and the Note when executed and delivered for value will constitute, its legal, valid and binding obligation, enforceable in accordance with their respective terms, except to the extent that enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 7.06 Approvals. No authorizations, approvals or --------- consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by the Company of the Credit Documents to which it is party or for the validity or enforceability thereof. 7.07 Use of Credits. The Company is not engaged ----------------- principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of any Credit hereunder will be used to buy or carry any Margin Stock. 7.08 ERISA. The Company and its ERISA Affiliates have ----- fulfilled their respective obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan (other than to make contributions in the ordinary course of business, each of which has been made on a timely basis). The total benefit liabilities under each Plan do not exceed the fair market value of the assets of such Plan by an amount in excess of $250,000, based on actuarial assumptions which are reasonable, both individually and in the aggregate. 7.09 Taxes. The Company has filed all United States ----- Federal income tax returns and all other material tax returns which are required to be filed by it and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, except such taxes as are being contested in good faith by appropriate proceedings. The charges, accruals and reserves on the books of the Company in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. 7.10 Investment Company Act. The Company is not an ---------------------- "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.11 Public Utility Holding Company Act. The Company ----------------------------------- is not a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.12 Credit Agreements. Schedule 7.12 hereto is a ------------------ complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, purchase agreement, guarantee or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any Indebtedness or any extension of credit) to, or guarantee by, the Company the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $250,000 and the aggregate principal or face amount outstanding or which may become outstanding under each such arrangement is correctly described in said Schedule 7.12. 7.13 Hazardous Materials. The Company has obtained all ------------------- permits, licenses and other authorizations which are required under all applicable Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect. The Company is in material compliance with the terms and conditions of all such permits, licenses and authorizations, and is also in material compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder. 7.14 Subsidiaries. As of the date of this Agreement, ------------ the Company has no Subsidiaries. SECTION 8. COVENANTS OF THE COMPANY. The Company agrees -------------------------- that, so long as either of the Commitments is in effect and until payment in full of the principal of and interest on the Loans, the Reimbursement Obligations and all other amounts payable by the Company hereunder: 8.01 Financial Statements. The Company shall deliver -------------------- to the Bank: (a) as soon as available and in any event within 45 days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Company, statements of income, retained earnings and changes in financial position (or of cash flow, as the case may be) of the Company for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related balance sheets as at the end of such period setting forth in each case in comparative form the corresponding figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of the executive vice president or the senior vice president - finance of the Company, which certificate shall state that said financial statements fairly present the financial condition and results of operations, as the case may be, of the Company in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments, none of which shall be material); (b) as soon as available and in any event within 120 days after the end of each fiscal year of the Company, (i) statements of income, retained earnings and changes in financial position (or of cash flow, as the case may be) of the Company for such year and the related balance sheets as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and (ii) projections of sales revenue and income of the Company for the succeeding fiscal year, and accompanied in the case of said statements and balance sheet described in clause (i) above by a certificate of the executive vice president or the senior vice president - finance of the Company, which certificate shall state that said financial statements fairly present the financial condition and results of operations of the Company in accordance with generally accepted accounting principles, consistently applied, as at the end of, and for, such fiscal year; (c) as soon as available and in any event within ten (10) days after the end of each month of each fiscal year of the Company, an updated aged accounts receivable schedule and inventory schedule, which schedules shall be in form and substance satisfactory to the Bank and certified by the executive vice president or the senior vice president - finance of the Company. (d) as soon as available and in any event within ten (10) days after the end of each month of each fiscal year of the Company, an updated Borrowing Base Certificate, which certificate shall be in form and substance satisfactory to the Bank and certified by the executive vice president or the senior vice president - finance of the Company. (e) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (f) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (g) as soon as possible, and in any event within ten (10) days after the Company knows or has reason to know that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan have occurred or exist, a statement signed by the executive vice president or the senior vice president - finance of the Company setting forth details respecting such event or condition and the action, if any, which the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (h) promptly after the Company knows or has reason to know that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken and proposes to take with respect thereto; (i) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which ATSC shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (j) as soon as available and in any event within ten (10) days after the end of each month of each fiscal year of ATSC, a report setting forth the status of the credit lines under the AT Facility Agreement, which report shall be in form and substance satisfactory to the Bank and certified by the executive vice president or the senior vice president - finance of ATSC; and (k) from time to time such other information regarding the business, affairs or financial condition of the Company as the Bank may reasonably request. The Company will furnish to the Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of the executive vice president or the senior vice president - finance of the Company to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken and proposes to take with respect thereto). 8.02 Litigation. The Company will promptly give to the ---------- Bank notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceeding affecting the Company, except proceedings which, if adversely determined, would not have a Material Adverse Effect. 8.03 Corporate Existence, Etc. The Company will -------------------------- preserve and maintain its corporate existence and all of its material rights, privileges and franchises (provided that nothing in this Section 8.03 shall prohibit any transaction expressly permitted under Section 8.05 hereof); comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would have a Material Adverse Effect; pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; maintain all of its properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; and permit representatives of the Bank, during normal business hours, to examine, copy and make extracts from its books and records, to inspect its properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by the Bank. 8.04 Insurance. The Company will keep insured by ---------- financially sound and reputable insurers all property of a character usually insured by corporations engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations. 8.05 Prohibition of Fundamental Changes. The Company ---------------------------------- will not enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). The Company will not acquire any business or assets from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of inventory and other assets to be sold or used in the ordinary course of business. The Company will not convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or assets, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests, but excluding (i) any inventory or other assets sold or disposed of in the ordinary course of business and (ii) obsolete or worn-out property, tools or equipment no longer used or useful in its business). The Company will not amend its certificate of incorporation or by-laws in any manner adverse to the interests of the Bank hereunder. Notwithstanding the foregoing, the Company shall be permitted to acquire one (1) share of the outstanding capital stock of C.A.T. (Far East) Limited, a Hong Kong corporation. 8.06 Limitation on Liens. The Company will not create, ------------------- incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except: (a) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company in accordance with GAAP; (b) carriers', warehousemen's, mechanics', material- men's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings; (c) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company; (f) Liens on assets of corporations which become Subsidiaries of the Company after the date of this Agreement, provided that such Liens are in existence at the time the respective corporations become Subsidiaries of the Company and were not created in anticipation thereof; (g) Liens upon real and/or tangible personal property acquired after the date hereof (by purchase, construction or otherwise) by the Company, each of which Liens either (A) existed on such property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of the respective property; provided that no such Lien shall extend to or cover any property of the Company other than the respective property so acquired and improvements thereon; and provided further that the principal amount of Indebtedness secured by any such Lien shall at no time exceed 80% of the fair market value (as determined in good faith by the executive vice president or the senior vice president - finance or controller of the Company) of the respective property at the time it was acquired (by purchase, construction or otherwise); and (h) any extension, renewal or replacement of the foregoing, provided, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or property (other than a substitution of like property). 8.07 Indebtedness. The Company will not create, incur ------------- or suffer to exist any Indebtedness except: (a) Indebtedness to the Bank hereunder or heretofore outstanding; (b) Indebtedness outstanding on the date hereof and listed in Schedule 8.07 hereto; (c) Indebtedness of the Company secured by Liens permitted under Section 8.06(g) hereof up to such amount as is permitted by the Bank in its sole discretion; (d) Subordinated Indebtedness (but in no event greater than $150,000 in the aggregate); and (e) additional Indebtedness of the Company up to such amount as is permitted by the Bank in its sole discretion. 8.08 Investments. The Company will not make or permit ----------- to remain outstanding any Investments except: (a) operating deposit accounts with banks; (b) Permitted Investments; (c) Investments outstanding on the date hereof and identified in Schedule 8.08 hereto; and (d) such other Investments as is permitted by the Bank in its sole discretion. 8.09 Dividend Payments. The Company will not declare ----------------- or make any Dividend Payment at any time; provided, however, that -------- ------- the Company may declare and make Dividend Payments in cash, subject to the satisfaction of each of the following conditions on the date of such Dividend Payment and after giving effect thereto: (a) no Default shall have occurred and be continuing; and (b) the Company shall have delivered to the Bank, at least 3 Business Days (but not more than 7 Business Days) prior to the date of the proposed Dividend Payment, a certificate of the executive vice president or the senior vice president - finance of the Company setting forth computations in reasonable detail demonstrating satisfaction of the covenants set forth in Section 8.10, 8.11 and 8.12 hereof as at the date of such certificate. 8.10 Leverage Ratio. The Company will not permit the -------------- Leverage Ratio to exceed the following respective amounts at any time during the following respective periods: Period Ratio ------ ----- From the date hereof and at all times thereafter 3.20 to 1 8.11 Net Worth. The Company will not permit the ---------- aggregate sum of (i) Tangible Net Worth and (ii) the undrawn face amount of the AT Credit to be less than the following respective amounts at any time during the following respective periods: Period Amount ------ ------ From the date hereof and at all times thereafter $13,000,000 8.12 Current Ratio. The Company will not permit the -------------- ratio of current assets of the Company to current liabilities of the Company to be less than the following respective amounts at any time during the following respective periods: Period Ratio ------ ------ From the date hereof through February 1, 1997 1.25 to 1 From February 2, 1997 and at all times thereafter 1.50 to 1 For purposes hereof, the terms "current assets" and "current -------------- ------- liabilities" shall have the respective meanings assigned to them - ----------- by GAAP. 8.13 Subordinated Indebtedness. The Company shall not ------------------------- purchase, redeem, retire or otherwise acquire for value, set apart any money for a sinking, defeasance or other analogous fund for, the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness, except for regularly scheduled payments of principal and interest in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness. 8.14 Lines of Business. Without the prior written ------------------- consent of the Bank, the Company shall not engage to any substantial extent in any line or lines of business activity other than the business of purchase and wholesale distribution of apparel, shoes and accessories. 8.15 Transactions with Affiliates. The Company will ---------------------------- not directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any assets to an Affiliate; (c) merge into or consolidate with or purchase or acquire assets from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, guarantees and assumptions of obligations of an Affiliate); provided that (w) the Company may enter into transactions with AT - -------- or ATSC contemplated by the Sales Agreement, (x) any Affiliate who is an individual may serve as a director, officer or employee of the Company and receive reasonable compensation for his or her services in such capacity, (y) the Company may enter into transactions (other than extensions of credit by the Company to an Affiliate) providing for the leasing of property, the rendering or receipt of services or the purchase or sale of inventory and other assets in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate, and (z) the Company may enter into transactions (other than extensions of credit by the Company) with AT or ATSC providing for the leasing of property or the rendering or receipt of support services; provided, further, the Company may in the ordinary course of - -------- ------- business enter into such transactions (other than extensions of credit by the Company) not otherwise permitted by this Section 8.15 to the extent the related Affiliate is either AT or ATSC. 8.16 Use of Proceeds. The Company will use the ----------------- proceeds of the Credits hereunder solely in connection with the purchase and wholesale distribution of apparel, shoes and accessories (in compliance with all applicable legal and regulatory requirements, including, without limitation, Regulations G, T, U and X and the Securities Act of 1933 and the Securities Exchange Act of 1934 and the regulations thereunder); provided, that the Bank shall not have any responsibility as to - -------- the use of any of such proceeds. 8.17 AT Credit. In the event any Credit hereunder ---------- remains outstanding beyond the expiry date of the AT Credit, the Company shall at the request of the Bank cause AT to extend the expiry date of the AT Credit to such later date. 8.18 Amendments to Other Documents. The Company shall ----------------------------- not (a) amend, supplement or otherwise modify the Sales Agreement or any of the documents or instruments evidencing, constituting, governing, Guaranteeing or securing the payment of any Subordinated Indebtedness, or (b) waive any of the obligations of AT under the Sales Agreement. 8.19 Audit of Inventory and Accounts Receivable. At ------------------------------------------- the request of the Bank, the Company shall permit the Bank to conduct from time to time an audit (in scope reasonably satisfactory to the Bank) of the inventory and the accounts receivable of the Company, at the expense of the Company (provided that the costs of such audit are in accordance with normal industry practice for similar audits). 8.20 Sales to AT. So long as a Special CAD Event shall ----------- have occurred and be continuing, the Company shall conduct all transactions with AT (under the Sales Agreement or otherwise) exclusively on a Cash Against Documents basis. 8.21 Operating Account. Other than in connection with ----------------- its payroll operations, the Company shall maintain all of its principal bank accounts with the Bank. 8.22 Additional Subsidiaries. Promptly upon any Person ----------------------- becoming a Subsidiary of the Company on or after the date hereof, the Company shall so notify the Bank (specifying such Subsidiary) and, if requested by the Bank, (a) cause the shares of capital stock of such Person to be pledged to the Bank by the owner thereof pursuant to a pledge agreement (which may be an existing Security Document) in form and substance satisfactory to the Bank (unless such Person is a Foreign Subsidiary of the Company, in which case (i) if such Person is a Subsidiary of a Foreign Subsidiary of the Company, no shares of stock of such Person shall be required to be pledged pursuant to this clause (a) and (ii) in all other cases, not more than 65% of the issued and outstanding stock of such Person shall be required to be pledged hereunder); (b) cause such Person (unless such Person is a Foreign Subsidiary of the Company) to execute and deliver to the Bank a Guarantee in form and substance reasonably satisfactory to the Bank (which shall, to the fullest extent practicable, be in the form of one of the existing Security Documents) guaranteeing the obligations of the Company hereunder and under the other Credit Documents to which it is party; (c) cause such Person (unless such Person is a Foreign Subsidiary of the Company) to execute and deliver a security agreement, pledge agreement and/or mortgage in form and substance reasonably satisfactory to the Bank (each of which shall, to the fullest extent practicable, be in the form of one of the existing Security Documents) granting Liens on substantially all of the properties, assets, revenues, rights or business of such Subsidiary as collateral security for the payment of the obligations of the Company hereunder and under the other Credit Documents to which it is party; and (d) cause to be executed and delivered to the Bank such other documentation as the Bank may reasonably request in connection with the foregoing, including, without limitation, certificates evidencing pledged shares of stock, executed, undated stock powers therefor, certified corporate resolutions and other corporate documents of such Person and favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to above, subject to customary exceptions satisfactory to the Bank) all in form, content and scope, mutatis mutandis, comparable to the ------- -------- corresponding documentation furnished pursuant to Sections 6.01 and 6.02 hereof. SECTION 9. EVENTS OF DEFAULT AND REMEDIES. If one or more of ------------------------------ the following events (herein called "Events of Default") shall ----------------- occur and be continuing: (a) The Company shall default in the payment when due of any principal of or interest on any Loan, any Reimbursement Obligation or any other amount payable by it hereunder; or (b) Any Obligor shall default in the payment when due of any principal of or interest on any of its or their other Indebtedness in the aggregate outstanding principal amount of $5,000,000 (in the case of the Company, $500,000) or more for such Obligor or Obligors; or any event specified in any note, agreement, indenture or other document evidencing or relating to any other Indebtedness of any Obligor or Obligors in the aggregate outstanding principal amount of $5,000,000 (in the case of the Company, $500,000) or more for such Obligor or Obligors shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase or otherwise), prior to its stated maturity; or (c) Any representation, warranty or certification made or deemed made herein (or in any modification or supplement hereto) by the Company, or any certificate furnished to the Bank pursuant to the provisions hereof (or thereof), shall prove to have been false or misleading as of the time made or furnished in any material respect and, unless the Bank reasonably determines that circumstances rendering such representation, warranty certification or certificate false or misleading are not reasonably susceptible of remedy within 15 days after notice thereof, such circumstances shall continue unremedied for a period of 15 days after notice thereof to the Company by the Bank; or (d) The Company shall default in the performance of any of its obligations under Section 8.01(h) hereof; or the Company shall default in the performance of any of its other obligations in this Agreement or the other Credit Documents and such default shall continue unremedied for a period of 15 days after notice thereof to the Company by the Bank; or (e) Any Obligor shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) Any Obligor shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under any applicable bankruptcy law, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under any applicable bankruptcy law, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of any Obligor, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company of all or any substantial part of its assets, or (iii) similar relief in respect of the Company under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against such Obligor shall be entered in an involuntary case under any applicable bankruptcy law; or (h) A final judgment or a series of related final judgments for the payment of money in excess of $250,000 in the aggregate (net of related insurance proceeds) shall be rendered by a court or courts against the Company and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; (i) An event or condition specified in Section 8.01(g) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any of its ERISA Affiliates shall incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) in excess of $250,000 in the aggregate for the Company and all ERISA Affiliates; or (j) Any of the Security Documents shall cease to be in full force and effect, or shall cease in any material respect to grant to the Bank the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, all of the collateral subject thereto superior and prior to the rights of all third Persons and subject to no other Liens (except to the extent expressly permitted herein or therein)); or (k) The AT Credit shall cease to be in full force and effect, or shall cease in any material respect to grant to the Bank the rights, powers and privileges purported to be created thereby; or (l) AT shall default in the performance of any of its obligations under any of the covenants set forth in the AT Facility Agreement, including those obligations provided for in Sections 9.01, 9.02 and 9.03 thereof, irrespective of whether the holder or holders of the related Indebtedness (or a trustee or agent on behalf of such holder or holders) shall provide notice to AT or otherwise of any such event of default (for purposes of this Section 9, the provisions of the AT Facility Agreement shall be applied as originally set forth therein, notwithstanding as any such provision may be amended, supplemented or otherwise modified). THEREUPON: (i) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 9 with respect to any Obligor, the Bank may, by notice to the Company, cancel the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans, any Reimbursement Obligations and all other amounts payable by the Company hereunder and under the Note (including, without limitation, any amounts payable under Section 5 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company; and (ii) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 9 with respect to any Obligor, the Commitments shall automatically be canceled and the principal amount then outstanding of, and the accrued interest on, the Loans, any Reimbursement Obligations and all other amounts payable by the Company hereunder and under the Note (including, without limitation, any amounts payable under Section 5 hereof) shall become automatically immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company. SECTION 10. MISCELLANEOUS. ------------- 10.01 Waiver. No failure on the part of the Bank to ------ exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or the Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 10.02 Notices. All notices and other communications ------- provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made by telecopy, telegraph, cable or in writing and telecopied, telegraphed, cabled, mailed or delivered, addressed as follows: if to the Company: AnnTaylor Global Sourcing, Inc. 142 West 57th Street New York, NY 10019 Attention: General Counsel Telecopier No.: (212) 541-3299 Telephone No.: (212) 541-3300 with a copy to: AnnTaylor Global Sourcing, Inc. 142 West 57th Street New York, NY 10019 Attention: Senior Vice President - Finance with an additional copy to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 Attention: Charles M. Fox, Esq. if to the Bank: The Hongkong and Shanghai Banking Corporation Limited, New York Branch 140 Broadway New York, NY 10005 Attention: NYK CBU TRS Telecopier No.: (212) 658-2813 Telephone No.: (212) 658-2888 with a copy to: Moon & Ikeda 555 Madison Avenue New York, NY 10022 Attention: Alexander P. Moon, Esq. or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier, delivered to the telegraph or cable office or personally delivered or, in the case of a mailed notice, 5 Business Days after the date deposited in the mails, postage prepaid, in each case given or addressed as aforesaid. 10.03 Expenses, Etc. The Company agrees, upon demand, ------------- to pay or reimburse the Bank for paying: (a) all reasonable out-of-pocket expenses of the Bank (including, without limitation, the reasonable fees and expenses of Messrs. Moon & Ikeda, counsel to the Bank), in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Credit Documents and (ii) any amendment, modification or waiver of any of the terms of this Agreement or the other Credit Documents; (b) all reasonable costs and expenses of the Bank (including reasonable counsels' fees) in connection with any Default and any enforcement or collection proceedings resulting therefrom; and (c) all transfer, stamp, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement, the Note or any other document referred to herein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any document referred to herein. 10.04 Amendments, Etc. Any provision of this Agreement --------------- may be amended or modified only by any instrument in writing signed by the Company and the Bank. 10.05 Successors and Assigns; Assignment. This --------------------------------------- Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 10.06 Assignments and Participations. ------------------------------ (a) The Company may not assign its rights or obligations hereunder or under the Notes without the prior consent of the Bank. (b) The Bank may sell or agree to sell to one or more other Persons ("participants") a participation in all or any part of the Loans, the Note, the Commitments, the Letters of Credit, provided that no participant shall have any rights under any Credit Document (a participant's rights against the Bank in respect of such participation to be those set forth in the agreement (the "Participation Agreement") executed by the Bank in favor of the participant). Notwithstanding any such sale, this Agreement shall continue in full force and effect in all respects as if the Bank were maintaining and funding each Commitment and Credit in which participations have been sold in the same way that it is maintaining and funding the portion of such Commitment and Credit in which no participations have been sold. All amounts payable by the Company to the Bank under Section 5 hereof shall be determined as if the Bank had not sold or agreed to sell any participations in such Loan and as if the Bank were funding all of such Loan in the same way that it is funding the portion of such Loan in which no participations have been sold. In no event shall the Bank be obligated to the participant under the Participation Agreement to take or refrain from taking any action under the Credit Document (including without limitation granting approval of any amendment or waiver) except that the Bank may agree in the Participation Agreement that it will not, without the consent of the participant, agree to (i) the extension of any date fixed for the payment of principal of or interest on the related Credit, (ii) the reduction of any payment of principal thereof, (iii) the reduction of the rate at which either interest is payable thereon or (if the participant is entitled to any part thereof) fees are payable hereunder to a level below the rate at which the participant is entitled to receive interest or fees (as the case may be) in respect of such participation or (iv) the release of any guarantee or collateral security. (c) The Bank may furnish any information concerning the Company or any of its Subsidiaries in the possession of the Bank from time to time to assignees and participants (including prospective assignees and participants). 10.07 Survival. The obligations of the Company under -------- Sections 5 and 10.03 hereof shall survive the repayment of the Loans and the Reimbursement Obligations, and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of Credit, hereunder shall survive the extension of such Credit and the Bank shall not be deemed to have waived, by reason of extension of such Credit, any Default or Event of Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that the Bank may have had notice or knowledge or reason to know that such representation or warranty was false or misleading at the time of such extension of Credit. 10.08 Captions. The table of contents and captions and -------- section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 10.09 Counterparts. This Agreement may be executed in ------------- any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 10.10 Governing Law; Submission to Jurisdiction. THIS ----------------------------------------- ---- AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN - ----------------------------------------------------------------- ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. The Company - -------------------------------------------------- hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State Court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 10.11 Waiver of Jury Trial. Each of the Company and the -------------------- Bank hereby irrevocably waives, to the fullest extent permitted by law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 10.12 Severability. If any provision hereof is invalid ------------ and unenforceable in any applicable jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Bank in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. _ IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. ANNTAYLOR GLOBAL SOURCING, INC. By /s/ Dwight Meyer _______________________ Name: Dwight Meyer Title: Executive Vice President Address for Notices: 142 West 57th Street New York, NY 10019 Attention: Senior Vice President - Finance Telecopy: (212) 245-7724 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, NEW YORK BRANCH By: /s/Ian Wright _______________________ Name: Ian Wright Title: Vice President Address for Notices: 140 Broadway New York, NY 10005 Attention: NYK CBU TRS Telecopy: (212) 658-2813 ==================================================================== SCHEDULE 7.12 Credit Agreements ------------------ Amended and Restated Credit Agreement dated as of September 20, 1996 between AnnTaylor Global Sourcing, Inc. and The Hongkong and Shanghai Banking Corporation Limited ========================================================================== SCHEDULE 8.07 Indebtedness ------------ Lease Number Description Payment Amount - ------------ ------------- -------------- 00013347-001 5/F F & F 405,705.00 00010769-001 5F/PCs & Network 299,869.00 ----------- TOTAL 705,574.00 ========== ========================================================================= SCHEDULE 8.08 Investments ------------ None ===================================================================== EXHIBIT A PROMISSORY NOTE $8,000,000 September 20, 1996 New York, New York FOR VALUE RECEIVED, ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.), a Delaware corporation (the "Company"), hereby promises to pay to THE HONGKONG AND SHANGHAI ------- BANKING CORPORATION LIMITED, NEW YORK BRANCH (the "Bank"), at its ---- office located at 140 Broadway, New York, NY 10005, the principal sum of Eight Million Dollars ($8,000,000) or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Bank to the Company under the Amended and Restated Credit Agreement dated as of September 20, 1996 between the Company and the Bank (as modified and supplemented and in effect from time to time, the "Credit Agreement"), in lawful money of ---------------- the United States of America and in immediately available funds, on the dates provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. In no event shall interest hereunder exceed the maximum rate allowed under New York law. The date, amount and interest rate of each Loan made by the Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books; provided that the failure by the Bank so to record such Loans shall not affect the obligations of the Company hereunder. This Note is the Note referred to in the Credit Agreement and evidences Loans made by the Bank thereunder. This Note modifies that certain note dated as of August 4, 1995 (the "Existing Note") made by the Company in favor of the Bank in the ------------- principal amount of Eight Million Dollars ($8,000,000) and is hereby delivered in substitution for the Existing Note, but not in payment, satisfaction or cancellation of the outstanding obligations evidenced by the Existing Note. This Note is subject to the terms and conditions set forth in the Credit Agreement, which terms and conditions are incorporated herein by reference. Capitalized terms used but not defined herein have the respective meanings assigned to them in the Credit Agreement. The payment of this Note is supported by collateral security provided under the Security Documents referred to in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ------------------------------------------------------ ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK - ----------------------------------------------------------------- APPLICABLE TO NOTES MADE AND TO BE PERFORMED THEREIN. - ---------------------------------------------------- ANNTAYLOR GLOBAL SOURCING, INC. By /s/ _ --------------------------- Name: Title: ============================================================================ SCHEDULE This Note evidences Loans made under the Credit Agreement to the Company, on the dates, in the principal amounts and bearing interest at the rates set forth below, subject to the payments and prepayments of principal set forth below. Principal Amount Unpaid Date Amount Interest Paid or Principal Notation Made of Loan Rate Prepaid Amount Made By ---- --------- --------- ------- --------- -------- ======================================================================= EXHIBIT B AMENDED AND RESTATED SECURITY AGREEMENT AMENDED AND RESTATED SECURITY AGREEMENT dated as of September 20, 1996 between ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.), a Delaware corporation having an office at 142 West 57th Street, New York, NY 10019 (the "Company") and THE HONGKONG AND SHANGHAI BANKING CORPORATION ------- LIMITED, a foreign banking corporation acting through its New York Branch (the "Bank"). ---- W I T N E S S E T H : WHEREAS, the Company has provided a collateral security interest to the Bank under a General Security Agreement dated August 4, 1995 (the "Original Agreement"); ------------------ WHEREAS, the Company has requested that the Original Agreement be restated in its entirety to reflect the amendment of certain provisions thereof; and WHEREAS, the Company and the Bank are parties to an Amended and Restated Credit Agreement dated as of September 20, 1996 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), providing, subject to the terms ---------------- and conditions thereof, for extensions of credit (by issuing letters of credit and making loans) to be made by the Bank to the Company in an aggregate face or principal amount not exceeding $40,000,000. NOW, THEREFORE, to induce the Bank to enter into the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to continue to pledge and to grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly, the parties hereto agree that the Original Agreement is hereby amended and restated in its entirety as follows: Section 1. Definitions. Terms defined in the Credit Agreement ----------- are used herein as defined therein. In addition, as used herein: "Accounts" shall have the meaning ascribed thereto in -------- Section 3(d) hereof. "Collateral" shall have the meaning ascribed thereto in ---------- Section 3 hereof. "Documents" shall have the meaning ascribed thereto in --------- Section 3(i) hereof. "Equipment" shall have the meaning ascribed thereto in --------- Section 3(g) hereof. =========================================================================== "Instruments" shall have the meaning ascribed thereto in ----------- Section 3(e) hereof. "Inventory" shall have the meaning ascribed thereto in --------- Section 3(f) hereof. "Issuers" shall mean, collectively, the respective ------- corporations identified in Annex 1 hereto under the caption "Issuers". ------- "Pledged Stock" shall have the meaning ascribed thereto in ------------- Section 3(a) hereof. "Secured Obligations" shall mean, collectively, (a) the -------------------- principal of and interest on the Loans made by the Bank to, and the Note held by the Bank of, the Company, and all other amounts from time to time owing to the Bank by the Company under the Credit Agreement or the Note, (b) all obligations of the Company to the Bank hereunder, and (c) all obligations of the Company under any other Credit Document to which it is party. "Stock Collateral" shall mean, collectively, the ---------------- Collateral described in clauses (a) through (c) of Section 3 hereof and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, correspondence, credit files, records, invoices and other papers. "Uniform Commercial Code" shall mean the Uniform ----------------------- Commercial Code as in effect in the State of New York from time to time. Section 2. Representations and Warranties. The Company ------------------------------ represents and warrants to the Bank that: (a) the Company is the sole beneficial owner of the Collateral and no Lien exists or will exist upon any Collateral at any time (and, with respect to the Stock Collateral, no right or option to acquire the same exists in favor of any other Person), except for Liens permitted under Section 8.06 of the Credit Agreement and except for the pledge and security interest in favor of the Bank created or provided for herein which pledge and security interest constitutes a first priority perfected pledge and security interest in and to all of the Collateral; (b) the Pledged Stock evidenced by the certificates identified in Annex 1 hereto is, and all other Pledged Stock will be, duly authorized, validly issued, fully paid and nonassessable and none of such Pledged Stock is or will be subject to any contractual restriction, or any restriction under the charter or by-laws of the respective Issuers of such Pledged Stock, upon the transfer of such Pledged Stock (except for any such restriction contained herein or in the Credit Agreement); =========================================================================== (c) the Pledged Stock evidenced by the certificates identified in Annex 1 hereto constitutes the indicated percentage of the total issued and outstanding shares of capital stock of any class of the Issuers beneficially owned by the Company on the date hereof (whether or not registered in the name of the Company) and said Annex 1 correctly identifies, as at the date hereof, the respective Issuers of such Pledged Stock, the respective class and par value of the shares comprising such Pledged Stock and the respective number of shares (and registered owner thereof) evidenced by each such certificate; and (d) any goods now or hereafter produced by the Company or any of its Subsidiaries included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended. Section 3. Collateral. As collateral security for the prompt ---------- payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby continues to pledge and grant to the Bank a security interest in all of the Company's right, title and interest in the following property, whether now owned by the Company or hereafter acquired and whether now existing or hereafter coming into existence, and wherever located (all being collectively referred to herein as "Collateral"): ---------- (a) the respective shares of common/preferred stock of the Issuers evidenced by the certificates identified in Annex 1 hereto and all other shares of capital stock of whatever class of the Issuers, now or hereafter owned by the Company, together with in each case the certificates evidencing the same (collectively, the "Pledged Stock"); ------------- (b) all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, or representing a distribution or return of capital upon or in respect of the Pledged Stock, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock; (c) without affecting the obligations of the Company under any provision prohibiting such action hereunder or under the Credit Agreement, in the event of any consolidation or merger in which any Issuer is not the surviving corporation, all shares of each class of the capital stock of the successor corporation (unless such successor corporation is the Company itself) formed by or resulting from such consolidation or merger; (d) all accounts and general intangibles (each as defined in the Uniform Commercial Code) of the Company constituting any right to the payment of money, including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services ======================================================================== rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively "Accounts"); -------- (e) all instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) of the Company evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called "Instruments"); ----------- (f) all inventory (as defined in the Uniform Commercial Code) of the Company, all goods obtained by the Company in exchange for such inventory, and any products made or processed from such inventory including all substances, if any, commingled therewith or added thereto (herein collectively called "Inventory"); --------- (g) all equipment (as defined in the Uniform Commercial Code) of the Company (herein collectively called "Equipment"); --------- (h) each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment; (i) all documents of title (as defined in the Uniform Commercial Code) or other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called "Documents"); --------- (j) all rights, claims and benefits of the Company against any Person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment; and (k) all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in clauses (a) through (j) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company. =========================================================================== Section 4. Further Assurances; Remedies. In furtherance of the ---------------------------- grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Bank as follows: 4.01 Delivery and Other Perfection. The Company shall: ----------------------------- (a) if any of the above-described shares, securities, monies or property required to be pledged by the Company under clauses (a), (b) and (c) of Section 3 hereof are received by the Company, forthwith either (x) transfer and deliver to the Bank such shares or securities so received by the Company (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank) all of which thereafter shall be held by the Bank, pursuant to the terms of this Agreement, as part of the Collateral or (y) take such other action as the Bank shall deem necessary or appropriate to duly record the Lien created hereunder in such shares, securities, monies or property referred to in said clauses (a), (b) and (c); (b) deliver and pledge to the Bank any and all Instruments, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Bank may request; provided, that so long as no Default shall have occurred and be continuing, the Company may retain for collection in the ordinary course any Instruments received by it in the ordinary course of business and the Bank shall, promptly upon request of the Company, make appropriate arrangements for making any other Instrument pledged by the Company available to it for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate by the Bank, against trust receipt or like document); (c) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Bank) to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable the Bank to exercise and enforce its rights hereunder with respect to such security interest, including, without limitation, causing any or all of the Stock Collateral to be transferred of record into the name of the Bank or its nominee (and the Bank agrees that if any Stock Collateral is transferred into its name or the name of its nominee, the Bank will thereafter promptly give to the Company copies of any notices and communications received by it with respect to the Stock Collateral), provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of clause (g) below; (d) upon the acquisition after the date hereof by the Company of any Equipment covered by a certificate of title or ownership, cause the Bank to be listed as the lienholder on ======================================================================= such certificate of title and within 120 days of the acquisition thereof deliver evidence of the same to the Bank; (e) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Bank may reasonably require in order to reflect the security interests granted by this Agreement; (f) permit representatives of the Bank, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Bank to be present at the Company's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Bank may require; and (g) upon the occurrence and during the continuance of any Default, upon request of the Bank, promptly notify (and the Company hereby authorizes the Bank so to notify) each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Bank hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Bank. 4.02 Other Financing Statements and Liens. Without the ------------------------------------ prior written consent of the Bank, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Bank is not named as the sole secured party. 4.03 Preservation of Rights. The Bank shall not be ------------------------ required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 4.04 Special Provisions Relating to Stock Collateral. ----------------------------------------------- (a) The Company will cause the Stock Collateral to constitute at all times the percentage indicated on Annex 1 hereto of the total number of shares of each class of capital stock of each Issuer then outstanding. (b) So long as no Event of Default shall have occurred and be continuing, the Company shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Stock Collateral for all purposes not inconsistent with the terms of this Agreement, the Credit Agreement, the Notes or any other instrument or agreement referred to herein or therein, provided that the Company agrees that it will not vote the Stock Collateral in any manner that is inconsistent with the terms of this Agreement, =========================================================================== the Credit Agreement, the Notes or any such other instrument or agreement; and the Bank shall execute and deliver to the Company or cause to be executed and delivered to the Company all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as the Company may reasonably request for the purpose of enabling the Company to exercise the rights and powers which it is entitled to exercise pursuant to this Section 4.04(b). (c) Unless and until an Event of Default has occurred and is continuing, the Company shall be entitled to receive and retain any dividends on the Stock Collateral paid in cash out of earned surplus. (d) If any Event of Default shall have occurred, then so long as such Event of Default shall continue, and whether or not the Bank or any Bank exercises any available right to declare any Secured Obligation due and payable or seeks or pursues any other relief or remedy available to it under applicable law or under this Agreement, the Credit Agreement, the Notes or any other agreement relating to such Secured Obligation, all dividends and other distributions on the Stock Collateral shall be paid directly to the Bank and retained by it as part of the Stock Collateral, subject to the terms of this Agreement, and, if the Bank shall so request in writing, the Company agrees to execute and deliver to the Bank appropriate additional dividend, distribution and other orders and documents to that end, provided that if such Event of Default is cured, any such dividend or distribution theretofore paid to the Bank shall, upon request of the Company (except to the extent theretofore applied to the Secured Obligations) be returned by the Bank to the Company. 4.05 Events of Default, etc. During the period during ------------------------- which an Event of Default shall have occurred and be continuing: (i) the Company shall, at the request of the Bank, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Bank and the Company, designated in its request; (ii) the Bank may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral; (iii) the Bank shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled ========================================================================== under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Bank were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right); (iv) the Bank in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (v) the Bank may, upon 10 Business Days' prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Bank, or any of its agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Bank deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Bank or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released. The Bank may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. The proceeds of each collection, sale or other disposition under this Section 4.05 shall be applied in accordance with Section 4.09 hereof. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Bank may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Company acknowledges that any such private sales may be at prices and on terms less favorable to the Bank than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Bank shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective Issuer thereof to register it for public sale. 4.06 Deficiency. If the proceeds of sale, collection or ---------- other realization of or upon the Collateral pursuant to Section 4.05 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency. 4.07 Removals, etc. Without at least 30 days prior ------------- written notice to the Bank, the Company shall not (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at the address indicated beneath the signature of the Company to the Credit Agreement or at one of the locations identified in Annex 2 hereto or in transit from one of such locations to another (or, with respect to Inventory, in transit from one of such locations to a customer of the Company) or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature page hereto. 4.08 Private Sale. The Bank shall incur no liability as a ------------ result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 4.05 hereof conducted in a commercially reasonable manner. The Company hereby waives any claims against the Bank arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Bank accepts the first offer received and does not offer the Collateral to more than one offeree. 4.09 Application of Proceeds. Except as otherwise herein ----------------------- expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Bank under this Section 4, shall be applied by the Bank: First, to the payment of the costs and expenses of such ----- collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Bank and the fees and expenses of its agents and counsel, and all expenses, and advances made or incurred by the Bank in connection therewith; Next, to the payment in full of the Secured Obligations; and ---- ========================================================================== Finally, to the payment to the Company, or its successors ------- or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Section 5, "proceeds" of Collateral shall mean -------- cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral. 4.10 Attorney-in-Fact. Without limiting any rights or ---------------- powers granted by this Agreement to the Bank while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Bank is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 4 and taking any action and executing any instruments which the Bank may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Bank shall be entitled under this Section 4 to make collections in respect of the Collateral, the Bank shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. 4.11 Perfection. Prior to or concurrently with the ---------- execution and delivery of this Agreement, the Company shall (i) file such financing statements and other documents in such offices as the Bank may request to perfect the security interests granted by Section 3 of this Agreement, and (ii) deliver to the Bank all certificates identified in Annex 1 hereto, accompanied by undated stock powers duly executed in blank. 4.12 Termination. When all Secured Obligations shall have ----------- been paid in full and the Facilities of the Bank under the Credit Agreement shall have expired or been terminated, this Agreement shall terminate, and the Bank shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company. The Bank shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the Liens on the Collateral. 4.13 Expenses. The Company agrees to pay to the Bank all -------- out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 4, or performance by the Bank of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform, or any actual or attempted sale, or any exchange, enforcement, ============================================================================ collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Bank in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Bank secured under Section 3 hereof. 4.14 Further Assurances. The Company agrees that, from ------------------- time to time upon the written request of the Bank, the Company will execute and deliver such further documents and do such other acts and things as the Bank may reasonably request in order fully to effect the purposes of this Agreement. 4.15 Collateral Audit. The Company shall permit ------------------ representatives of the Bank to undertake an annual audit of the Collateral, and the Company agrees to pay all reasonable expenses of the Bank incurred in connection therewith. Section 5. Miscellaneous. ------------- 5.01 No Waiver. No failure on the part of the Bank or any --------- of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Bank or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 5.02 Governing Law. This Agreement shall be governed by, ------------- and construed in accordance with, the law of the State of New York. 5.03 Notices. All notices, requests, consents and demands ------- hereunder shall be in writing and telexed, telecopied, telegraphed, cabled or delivered to the intended recipient at its address or telex number specified pursuant to Section 10.02 of the Credit Agreement and shall be deemed to have been given at the times specified in said Section 10.02. 5.04 Waivers, etc. The terms of this Agreement may be -------------- waived, altered or amended only by an instrument in writing duly executed by the Company and the Bank. Any such amendment or waiver shall be binding upon the Bank, each holder of any Secured Obligation and the Company. 5.05 Successors and Assigns. This Agreement shall be ------------------------ binding upon and inure to the benefit of the respective successors and assigns of the Company, the Bank, and each holder of the Secured Obligations (provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Bank). =========================================================================== 5.06 Counterparts. This Agreement may be executed in any ------------ number of counterparts, all of which together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 5.07 Agents. The Bank may employ agents and ------ attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 5.08 Severability. If any provision hereof is invalid and ------------ unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Bank in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. -------------- ========================================================================= _ IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed as of the day and year first above written. ANNTAYLOR GLOBAL SOURCING, INC. By /s/ _________________________ Name: Title: Address for Notices: 142 West 57th Street New York, NY 10019 Telecopy: (212) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, NEW YORK BRANCH By /s/ _______________________ Name: Ian Wright Title: Vice President Address for Notices: 140 Broadway New York, NY 10005 Attention: NYK CBU TRS Telecopy: (212) 658-2813 ============================================================================ ANNEX 1 LIST OF PLEDGED STOCK NONE ============================================================================ ANNEX 2 LIST OF LOCATIONS AnnTaylor Global Sourcing, Inc. 414 Chapel Street New Haven, CT 06511 Louisville Distribution Center 7101 Distribution Drive Louisville, KY 40258 Flag Trucking Services Company 5 Dwight Place Fairfield, NJ 07006 SSCI 1072 West Side Avenue Jersey City, NJ 07306 Summit Transportation Building 40 Hackensack Avenue Kearny, NJ 07032 AnnTaylor Global Sourcing, Inc. 1372 Broadway New York, New York 10018 AnnTaylor Global Sourcing, Inc. 142 West 57th Street New York, NY 10019 Freight-A-Ranger 3275 Alum Creek Drive Columbus, OH 43207 =================================================================== EXHIBIT C LETTER OF NEGATIVE PLEDGE The Hongkong and Shanghai Banking Corporation Limited 140 Broadway New York, NY 10005-1196 Re: Amended and Restated Credit Agreement dated as of September 20, 1996 with ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.) (the "Company") up to ------- an aggregate amount of $40,000,000 --------------------- (the "Credit Agreement") ------------------------ Dear Sir/Madam: In consideration of your agreeing to grant, continue and/or further extend credit facilities and other financial accommodation to the Company, the Company hereby irrevocably and unconditionally covenants and undertakes with you as follows: 1. The Company shall not: a. Create or attempt to create, assume or permit to subsist any mortgage, security interest, charge, pledge, lien, or other encumbrance upon, or permit any lien, security interest or other encumbrance (except for statutory or constitutional liens arising in the ordinary course of business with respect to any obligation or indebtedness which is not yet due and payable) to arise on or affect, the whole or any part of its respective undertaking, property, assets and rights, other than pledges created over goods and/or services acquired pursuant to documentary credits opened in the ordinary course of business for the purpose of financing the acquisition or provision of such goods and services; or b. Transfer, sell or otherwise dispose of or attempt or agree to transfer, sell or dispose of the whole or any part of its respective undertaking, property, assets and rights, except (i) by way of sale at full value in the usual and ordinary course of business as now conducted and for the purpose of carrying on the relevant business, (ii) obsolete or worn-out property, tools or equipment no longer used or useful in its business or (iii) the sale, in a single transaction, of the CAD-CAM computer equipment described in Exhibit F to the Stock and Asset Purchase Agreement (as defined in the Credit Agreement), the value of which equipment shall not exceed $10,000.00 in the aggregate; or c. Grant, issue or extend any guarantee or indemnity or enter into any other form of contractual undertaking or arrangement of similar effect in respect of any =========================================================================== indebtedness or obligations, actual or contingent, of any other Person whatsoever except in the usual and ordinary course of business as now conducted by the Company and for the purpose of the carrying on by the Company of its business. 2. The undertakings set out herein shall not be deemed breached by reason only of the existence of any mortgage, security interest, charge, pledge, lien or other encumbrance or guarantee or indemnity which has been created, assumed or which subsists or has arisen prior to the date hereof, provided, that any further or additional encumbrance over or affecting the relevant asset, or increase in the amount secured by or other variation of the relevant encumbrance or guarantee or indemnity of similar effect, shall constitute such a breach. 3. The Company further authorizes you, in your absolute discretion, at any time and from time to time to notify any creditors of the Company of the terms of the undertakings set out herein in the event that you receive notice of proposals which, if implemented, would or might be in breach of such undertakings. Yours faithfully, ANNTAYLOR GLOBAL SOURCING, INC. By /s/ _________________________ Name: Title: Date: As of September 20, 1996 ================================================================ EXHIBIT F [Form of Borrowing Base Certificate] BORROWING BASE CERTIFICATE Monthly accounting period ended _____________, 19__ Reference is made to the Amended and Restated Credit Agreement dated as of September 20, 1996 (as modified and supplemented and in effect from time to time, the "Credit ------ Agreement") between ANNTAYLOR GLOBAL SOURCING, INC. (formerly - --------- known as CAT US, Inc.), a Delaware corporation, and THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, a foreign banking corporation acting through its New York Branch. Terms defined in the Credit Agreement are used herein as defined therein. Pursuant to Section [6.01(m)/8.01(d)] of the Credit Agreement, the undersigned, the [Executive Vice President] [Senior Vice President - Finance] of the Company, hereby certifies that, to the best of [his/her] knowledge, attached hereto as Annex 1 is a true and accurate calculation of the Borrowing Base as at the end of the monthly accounting period ended ___________, 19___ determined in accordance with the requirements of the Credit Agreement. IN WITNESS WHEREOF, the undersigned has caused this certificate to be duly executed as of the ___ day of ________, 19__. Name: ------------------------- Title: ------------------------ =================================================================== Annex 1 ANNTAYLOR GLOBAL SOURCING, INC. Borrowing Base Certificate Omitted (OOO's) Receivables (determined net of credits) -- beginning balance period ended ______________, 19 _____ ______ Plus: total sales for period ______ Less: total cash receipts for period ______ total other adjustments for period (+/-) (details attached) including rebates, offsets and commissions ______ Receivables (determined net of credits) -- ending balance period ending _____________, 19 _____ ______ Less: ineligible Receivables at period end (determined without duplication): Receivables due from an account debtor other than AT or its Affiliates ______ Receivables not payable in Dollars ______ Receivables over 90 days original terms ______ Export Receivables, letters of credit or U.S. Government Insurance ______ Receivables from creditors with unsatisfactory credit standing (as determined by the Bank) ______ Receivables over 60 days from invoice date ______ Receivables with excess of 20% of balances past 60 days from invoice date ______ Receivables subject to dispute ______ Receivables evidenced by Instruments not in the possession of the Bank ______ Receivables arising out of sale or return transactions ______ Receivables from DIP creditors ______ Total ineligible Receivables ______ Total Eligible Receivables ______ - -------------------------- Inventory at lower of cost or market covered by appropriate filings (from attached schedule): ______ Beginning period Inventory Balance ____________, 19 _____ ______ Ending period Inventory Balance ____________, 19 _____ ______ Plus: Inventory held by Processors covered by appropriate UCC filings ______ Less: Inventory held more than __ days ______ Total Eligible Inventory ______ - ------------------------ ===================================================================== Borrowing Base Certificate (continued) 80% of Eligible Receivables ______ Plus: 60% of Eligible Inventory ______ (no more than $4,000,000) Plus: 60% of the aggregate face amount of all undrawn Letters of Credit ______ Plus: 100% of the undrawn face amount of the AT Credit ______ Less: 2 times average monthly commissions to bailees, Processors, etc. ______ Borrowing Base: ______ * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Loan Balance: Period begin ______ ___________, 19 ___ advances for period ______ reductions for period ______ other adjustments (+/-) ______ Loan Balance: Period end __________, 19 ___ ______ Plus: [Describe other obligations] ______ Total outstanding ______ * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Availability (overadvance) ______ ======================================================================= ANNTAYLOR GLOBAL SOURCING, INC. Inventory Schedule Unit Cost Quantity Cents/ Value Eligible M Units Unit M$ M$ --------- ---- ------ --------- Finished Product Inventory - --------------------------- Location/product/unit Total fin. prod. inv. Raw Material Inventory - ---------------------- Location/product/unit Total raw material inv. Inventory Value - M$ - --------------------- Finished product inventory Raw materials inventory ================================================================= EXHIBIT H [Form of Opinion of Counsel to the Company] September 20, 1996 The Hongkong and Shanghai Banking Corporation Limited, New York Branch 140 Broadway New York, NY 10005 Gentlemen: We have acted as counsel to AnnTaylor Global Sourcing, Inc. (formerly known as CAT US, Inc.) (the "Company") in connection ------- with the Amended and Restated Credit Agreement (the "Credit ------ Agreement") dated as of September 20, 1996 between the Company - --------- and The Hongkong and Shanghai Banking Corporation Limited, New York Branch (the "Bank"), providing for letters of credit to be issued and loans to be made by the Bank in an aggregate face or principal amount not exceeding $40,000,000. Terms defined in the Credit Agreement are used herein as defined therein. In rendering the opinion expressed below, we have examined the originals or conformed copies of such corporate records, agreements and instruments of the Company, certificates of public officials and of officers of the Company, and such other documents and records, and such matters of law, as we have deemed appropriate as a basis for the opinions hereinafter expressed. Based upon the foregoing, we are of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization and has the necessary corporate power to execute, perform and deliver its obligations under the Credit Documents to which it is a party. Further, the Company has the necessary corporate power to open Letters of Credit for its account and borrow Loans. The Company is duly qualified to transact business in such jurisdictions where failure so to qualify would have a material adverse effect on the financial condition, operations, business or prospects of the Company. 2. The execution, delivery and performance by the Company of the Credit Documents to which it is a party, and the borrowings by the Company under the Credit Agreement, have been duly authorized by all necessary corporate action, and do not and will not violate and provision of law or regulation or any provision of the charter or by-laws of the Company or result in the breach of, or constitute a default or require any consent under, or (except for the Liens created pursuant to the Security Documents) result in the creation of any lien upon any of the properties, revenues or assets of the Company pursuant to, any indenture or other agreement or instrument to which the Company is a party or by which the Company or its assets may be bound. 3. The Credit Agreement and Security Documents constitute and the Note when executed and delivered for value will constitute, legal, valid and binding obligations of the Company enforceable in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law.) 4. There are no legal or arbitral proceedings, and no proceedings by or before any governmental or regulatory authority or agency, pending or (to our knowledge) threatened against or affecting the Company, or any properties or rights of the Company, which, if adversely determined, would have a Material Adverse Effect. 5. No authorizations, consents, approvals, licenses, filings or registrations with, any governmental or regulatory authority or agency are required in connection with the execution, delivery or performance by the Company of the Credit Documents to which it is a party, except the filings and recordings of Liens to be created pursuant to the Security Documents. 6. The Security Agreement creates, in favor of the Bank, valid security interests (to the extent the Uniform Commercial Code is applicable thereto) in all Collateral (as defined therein) in which the Company has rights, in each case as collateral security for the payment of the Secured Obligations described in the Security Agreement. All such security interests which can be perfected by a Uniform Commercial Code filing in the United States of America will have been, upon such filings being completed, so perfected. Very truly yours, EX-10 7 EXHIBIT 10.7 EXHIBIT A PROMISSORY NOTE $8,000,000 September 20, 1996 New York, New York FOR VALUE RECEIVED, ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.), a Delaware corporation (the "Company"), hereby promises to pay to THE HONGKONG AND SHANGHAI ------- BANKING CORPORATION LIMITED, NEW YORK BRANCH (the "Bank"), at its ---- office located at 140 Broadway, New York, NY 10005, the principal sum of Eight Million Dollars ($8,000,000) or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the Bank to the Company under the Amended and Restated Credit Agreement dated as of September 20, 1996 between the Company and the Bank (as modified and supplemented and in effect from time to time, the "Credit Agreement"), in lawful money of ---------------- the United States of America and in immediately available funds, on the dates provided in the Credit Agreement, and to pay interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the rates per annum and on the dates provided in the Credit Agreement. In no event shall interest hereunder exceed the maximum rate allowed under New York law. The date, amount and interest rate of each Loan made by the Bank to the Company, and each payment made on account of the principal thereof, shall be recorded by the Bank on its books; provided that the failure by the Bank so to record such Loans shall not affect the obligations of the Company hereunder. This Note is the Note referred to in the Credit Agreement and evidences Loans made by the Bank thereunder. This Note modifies that certain note dated as of August 4, 1995 (the "Existing Note") made by the Company in favor of the Bank in the ------------- principal amount of Eight Million Dollars ($8,000,000) and is hereby delivered in substitution for the Existing Note, but not in payment, satisfaction or cancellation of the outstanding obligations evidenced by the Existing Note. This Note is subject to the terms and conditions set forth in the Credit Agreement, which terms and conditions are incorporated herein by reference. Capitalized terms used but not defined herein have the respective meanings assigned to them in the Credit Agreement. The payment of this Note is supported by collateral security provided under the Security Documents referred to in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of this Note upon the occurrence of certain events and for prepayments of Loans upon the terms and conditions specified therein. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ------------------------------------------------------ ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK - ----------------------------------------------------------------- APPLICABLE TO NOTES MADE AND TO BE PERFORMED THEREIN. - ---------------------------------------------------- ANNTAYLOR GLOBAL SOURCING, INC. By /s/ _ --------------------------- Name: Title: ============================================================================ SCHEDULE This Note evidences Loans made under the Credit Agreement to the Company, on the dates, in the principal amounts and bearing interest at the rates set forth below, subject to the payments and prepayments of principal set forth below. Principal Amount Unpaid Date Amount Interest Paid or Principal Notation Made of Loan Rate Prepaid Amount Made By ---- --------- --------- ------- --------- ------- EX-10 8 EXHIBIT 10.8 EXHIBIT B AMENDED AND RESTATED SECURITY AGREEMENT AMENDED AND RESTATED SECURITY AGREEMENT dated as of September 20, 1996 between ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.), a Delaware corporation having an office at 142 West 57th Street, New York, NY 10019 (the "Company") and THE HONGKONG AND SHANGHAI BANKING CORPORATION ------- LIMITED, a foreign banking corporation acting through its New York Branch (the "Bank"). ---- W I T N E S S E T H : WHEREAS, the Company has provided a collateral security interest to the Bank under a General Security Agreement dated August 4, 1995 (the "Original Agreement"); ------------------ WHEREAS, the Company has requested that the Original Agreement be restated in its entirety to reflect the amendment of certain provisions thereof; and WHEREAS, the Company and the Bank are parties to an Amended and Restated Credit Agreement dated as of September 20, 1996 (as modified and supplemented and in effect from time to time, the "Credit Agreement"), providing, subject to the terms ---------------- and conditions thereof, for extensions of credit (by issuing letters of credit and making loans) to be made by the Bank to the Company in an aggregate face or principal amount not exceeding $40,000,000. NOW, THEREFORE, to induce the Bank to enter into the Credit Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to continue to pledge and to grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined). Accordingly, the parties hereto agree that the Original Agreement is hereby amended and restated in its entirety as follows: Section 1. Definitions. Terms defined in the Credit Agreement ----------- are used herein as defined therein. In addition, as used herein: "Accounts" shall have the meaning ascribed thereto in -------- Section 3(d) hereof. "Collateral" shall have the meaning ascribed thereto in ---------- Section 3 hereof. "Documents" shall have the meaning ascribed thereto in --------- Section 3(i) hereof. "Equipment" shall have the meaning ascribed thereto in --------- Section 3(g) hereof. =========================================================================== "Instruments" shall have the meaning ascribed thereto in ----------- Section 3(e) hereof. "Inventory" shall have the meaning ascribed thereto in --------- Section 3(f) hereof. "Issuers" shall mean, collectively, the respective ------- corporations identified in Annex 1 hereto under the caption "Issuers". ------- "Pledged Stock" shall have the meaning ascribed thereto in ------------- Section 3(a) hereof. "Secured Obligations" shall mean, collectively, (a) the -------------------- principal of and interest on the Loans made by the Bank to, and the Note held by the Bank of, the Company, and all other amounts from time to time owing to the Bank by the Company under the Credit Agreement or the Note, (b) all obligations of the Company to the Bank hereunder, and (c) all obligations of the Company under any other Credit Document to which it is party. "Stock Collateral" shall mean, collectively, the ---------------- Collateral described in clauses (a) through (c) of Section 3 hereof and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, correspondence, credit files, records, invoices and other papers. "Uniform Commercial Code" shall mean the Uniform ----------------------- Commercial Code as in effect in the State of New York from time to time. Section 2. Representations and Warranties. The Company ------------------------------ represents and warrants to the Bank that: (a) the Company is the sole beneficial owner of the Collateral and no Lien exists or will exist upon any Collateral at any time (and, with respect to the Stock Collateral, no right or option to acquire the same exists in favor of any other Person), except for Liens permitted under Section 8.06 of the Credit Agreement and except for the pledge and security interest in favor of the Bank created or provided for herein which pledge and security interest constitutes a first priority perfected pledge and security interest in and to all of the Collateral; (b) the Pledged Stock evidenced by the certificates identified in Annex 1 hereto is, and all other Pledged Stock will be, duly authorized, validly issued, fully paid and nonassessable and none of such Pledged Stock is or will be subject to any contractual restriction, or any restriction under the charter or by-laws of the respective Issuers of such Pledged Stock, upon the transfer of such Pledged Stock (except for any such restriction contained herein or in the Credit Agreement); =========================================================================== (c) the Pledged Stock evidenced by the certificates identified in Annex 1 hereto constitutes the indicated percentage of the total issued and outstanding shares of capital stock of any class of the Issuers beneficially owned by the Company on the date hereof (whether or not registered in the name of the Company) and said Annex 1 correctly identifies, as at the date hereof, the respective Issuers of such Pledged Stock, the respective class and par value of the shares comprising such Pledged Stock and the respective number of shares (and registered owner thereof) evidenced by each such certificate; and (d) any goods now or hereafter produced by the Company or any of its Subsidiaries included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended. Section 3. Collateral. As collateral security for the prompt ---------- payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby continues to pledge and grant to the Bank a security interest in all of the Company's right, title and interest in the following property, whether now owned by the Company or hereafter acquired and whether now existing or hereafter coming into existence, and wherever located (all being collectively referred to herein as "Collateral"): ---------- (a) the respective shares of common/preferred stock of the Issuers evidenced by the certificates identified in Annex 1 hereto and all other shares of capital stock of whatever class of the Issuers, now or hereafter owned by the Company, together with in each case the certificates evidencing the same (collectively, the "Pledged Stock"); ------------- (b) all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, or representing a distribution or return of capital upon or in respect of the Pledged Stock, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock; (c) without affecting the obligations of the Company under any provision prohibiting such action hereunder or under the Credit Agreement, in the event of any consolidation or merger in which any Issuer is not the surviving corporation, all shares of each class of the capital stock of the successor corporation (unless such successor corporation is the Company itself) formed by or resulting from such consolidation or merger; (d) all accounts and general intangibles (each as defined in the Uniform Commercial Code) of the Company constituting any right to the payment of money, including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services ======================================================================== rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively "Accounts"); -------- (e) all instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) of the Company evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called "Instruments"); ----------- (f) all inventory (as defined in the Uniform Commercial Code) of the Company, all goods obtained by the Company in exchange for such inventory, and any products made or processed from such inventory including all substances, if any, commingled therewith or added thereto (herein collectively called "Inventory"); --------- (g) all equipment (as defined in the Uniform Commercial Code) of the Company (herein collectively called "Equipment"); --------- (h) each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment; (i) all documents of title (as defined in the Uniform Commercial Code) or other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called "Documents"); --------- (j) all rights, claims and benefits of the Company against any Person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment; and (k) all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in clauses (a) through (j) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said clauses or such proceeds, products and accessions, all books, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company. =========================================================================== Section 4. Further Assurances; Remedies. In furtherance of the ---------------------------- grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Bank as follows: 4.01 Delivery and Other Perfection. The Company shall: ----------------------------- (a) if any of the above-described shares, securities, monies or property required to be pledged by the Company under clauses (a), (b) and (c) of Section 3 hereof are received by the Company, forthwith either (x) transfer and deliver to the Bank such shares or securities so received by the Company (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank) all of which thereafter shall be held by the Bank, pursuant to the terms of this Agreement, as part of the Collateral or (y) take such other action as the Bank shall deem necessary or appropriate to duly record the Lien created hereunder in such shares, securities, monies or property referred to in said clauses (a), (b) and (c); (b) deliver and pledge to the Bank any and all Instruments, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Bank may request; provided, that so long as no Default shall have occurred and be continuing, the Company may retain for collection in the ordinary course any Instruments received by it in the ordinary course of business and the Bank shall, promptly upon request of the Company, make appropriate arrangements for making any other Instrument pledged by the Company available to it for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent deemed appropriate by the Bank, against trust receipt or like document); (c) give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the judgment of the Bank) to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable the Bank to exercise and enforce its rights hereunder with respect to such security interest, including, without limitation, causing any or all of the Stock Collateral to be transferred of record into the name of the Bank or its nominee (and the Bank agrees that if any Stock Collateral is transferred into its name or the name of its nominee, the Bank will thereafter promptly give to the Company copies of any notices and communications received by it with respect to the Stock Collateral), provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of clause (g) below; (d) upon the acquisition after the date hereof by the Company of any Equipment covered by a certificate of title or ownership, cause the Bank to be listed as the lienholder on ======================================================================= such certificate of title and within 120 days of the acquisition thereof deliver evidence of the same to the Bank; (e) keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Bank may reasonably require in order to reflect the security interests granted by this Agreement; (f) permit representatives of the Bank, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Bank to be present at the Company's place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Bank may require; and (g) upon the occurrence and during the continuance of any Default, upon request of the Bank, promptly notify (and the Company hereby authorizes the Bank so to notify) each account debtor in respect of any Accounts or Instruments that such Collateral has been assigned to the Bank hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Bank. 4.02 Other Financing Statements and Liens. Without the ------------------------------------ prior written consent of the Bank, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Bank is not named as the sole secured party. 4.03 Preservation of Rights. The Bank shall not be ------------------------ required to take steps necessary to preserve any rights against prior parties to any of the Collateral. 4.04 Special Provisions Relating to Stock Collateral. ----------------------------------------------- (a) The Company will cause the Stock Collateral to constitute at all times the percentage indicated on Annex 1 hereto of the total number of shares of each class of capital stock of each Issuer then outstanding. (b) So long as no Event of Default shall have occurred and be continuing, the Company shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Stock Collateral for all purposes not inconsistent with the terms of this Agreement, the Credit Agreement, the Notes or any other instrument or agreement referred to herein or therein, provided that the Company agrees that it will not vote the Stock Collateral in any manner that is inconsistent with the terms of this Agreement, =========================================================================== the Credit Agreement, the Notes or any such other instrument or agreement; and the Bank shall execute and deliver to the Company or cause to be executed and delivered to the Company all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as the Company may reasonably request for the purpose of enabling the Company to exercise the rights and powers which it is entitled to exercise pursuant to this Section 4.04(b). (c) Unless and until an Event of Default has occurred and is continuing, the Company shall be entitled to receive and retain any dividends on the Stock Collateral paid in cash out of earned surplus. (d) If any Event of Default shall have occurred, then so long as such Event of Default shall continue, and whether or not the Bank or any Bank exercises any available right to declare any Secured Obligation due and payable or seeks or pursues any other relief or remedy available to it under applicable law or under this Agreement, the Credit Agreement, the Notes or any other agreement relating to such Secured Obligation, all dividends and other distributions on the Stock Collateral shall be paid directly to the Bank and retained by it as part of the Stock Collateral, subject to the terms of this Agreement, and, if the Bank shall so request in writing, the Company agrees to execute and deliver to the Bank appropriate additional dividend, distribution and other orders and documents to that end, provided that if such Event of Default is cured, any such dividend or distribution theretofore paid to the Bank shall, upon request of the Company (except to the extent theretofore applied to the Secured Obligations) be returned by the Bank to the Company. 4.05 Events of Default, etc. During the period during ------------------------- which an Event of Default shall have occurred and be continuing: (i) the Company shall, at the request of the Bank, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Bank and the Company, designated in its request; (ii) the Bank may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral; (iii) the Bank shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled ========================================================================== under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Bank were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right); (iv) the Bank in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and (v) the Bank may, upon 10 Business Days' prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Bank, or any of its agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Bank deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Bank or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released. The Bank may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned. The proceeds of each collection, sale or other disposition under this Section 4.05 shall be applied in accordance with Section 4.09 hereof. The Company recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Bank may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Company acknowledges that any such private sales may be at prices and on terms less favorable to the Bank than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Bank shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective Issuer thereof to register it for public sale. 4.06 Deficiency. If the proceeds of sale, collection or ---------- other realization of or upon the Collateral pursuant to Section 4.05 hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency. 4.07 Removals, etc. Without at least 30 days prior ------------- written notice to the Bank, the Company shall not (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at the address indicated beneath the signature of the Company to the Credit Agreement or at one of the locations identified in Annex 2 hereto or in transit from one of such locations to another (or, with respect to Inventory, in transit from one of such locations to a customer of the Company) or (ii) change its corporate name, or the name under which it does business, from the name shown on the signature page hereto. 4.08 Private Sale. The Bank shall incur no liability as a ------------ result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 4.05 hereof conducted in a commercially reasonable manner. The Company hereby waives any claims against the Bank arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Bank accepts the first offer received and does not offer the Collateral to more than one offeree. 4.09 Application of Proceeds. Except as otherwise herein ----------------------- expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Bank under this Section 4, shall be applied by the Bank: First, to the payment of the costs and expenses of such ----- collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Bank and the fees and expenses of its agents and counsel, and all expenses, and advances made or incurred by the Bank in connection therewith; Next, to the payment in full of the Secured Obligations; and ---- ========================================================================== Finally, to the payment to the Company, or its successors ------- or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining. As used in this Section 5, "proceeds" of Collateral shall mean -------- cash, securities and other property realized in respect of, and distributions in kind of, Collateral, including any thereof received under any reorganization, liquidation or adjustment of debt of the Company or any issuer of or obligor on any of the Collateral. 4.10 Attorney-in-Fact. Without limiting any rights or ---------------- powers granted by this Agreement to the Bank while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default the Bank is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 4 and taking any action and executing any instruments which the Bank may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest. Without limiting the generality of the foregoing, so long as the Bank shall be entitled under this Section 4 to make collections in respect of the Collateral, the Bank shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. 4.11 Perfection. Prior to or concurrently with the ---------- execution and delivery of this Agreement, the Company shall (i) file such financing statements and other documents in such offices as the Bank may request to perfect the security interests granted by Section 3 of this Agreement, and (ii) deliver to the Bank all certificates identified in Annex 1 hereto, accompanied by undated stock powers duly executed in blank. 4.12 Termination. When all Secured Obligations shall have ----------- been paid in full and the Facilities of the Bank under the Credit Agreement shall have expired or been terminated, this Agreement shall terminate, and the Bank shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the Company. The Bank shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the Liens on the Collateral. 4.13 Expenses. The Company agrees to pay to the Bank all -------- out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 4, or performance by the Bank of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform, or any actual or attempted sale, or any exchange, enforcement, ============================================================================ collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Bank in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Bank secured under Section 3 hereof. 4.14 Further Assurances. The Company agrees that, from ------------------- time to time upon the written request of the Bank, the Company will execute and deliver such further documents and do such other acts and things as the Bank may reasonably request in order fully to effect the purposes of this Agreement. 4.15 Collateral Audit. The Company shall permit ------------------ representatives of the Bank to undertake an annual audit of the Collateral, and the Company agrees to pay all reasonable expenses of the Bank incurred in connection therewith. Section 5. Miscellaneous. ------------- 5.01 No Waiver. No failure on the part of the Bank or any --------- of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Bank or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies herein are cumulative and are not exclusive of any remedies provided by law. 5.02 Governing Law. This Agreement shall be governed by, ------------- and construed in accordance with, the law of the State of New York. 5.03 Notices. All notices, requests, consents and demands ------- hereunder shall be in writing and telexed, telecopied, telegraphed, cabled or delivered to the intended recipient at its address or telex number specified pursuant to Section 10.02 of the Credit Agreement and shall be deemed to have been given at the times specified in said Section 10.02. 5.04 Waivers, etc. The terms of this Agreement may be -------------- waived, altered or amended only by an instrument in writing duly executed by the Company and the Bank. Any such amendment or waiver shall be binding upon the Bank, each holder of any Secured Obligation and the Company. 5.05 Successors and Assigns. This Agreement shall be ------------------------ binding upon and inure to the benefit of the respective successors and assigns of the Company, the Bank, and each holder of the Secured Obligations (provided, however, that the Company shall not assign or transfer its rights hereunder without the prior written consent of the Bank). =========================================================================== 5.06 Counterparts. This Agreement may be executed in any ------------ number of counterparts, all of which together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 5.07 Agents. The Bank may employ agents and ------ attorneys-in-fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. 5.08 Severability. If any provision hereof is invalid and ------------ unenforceable in any jurisdiction, then, to the fullest extent permitted by law, (i) the other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in favor of the Bank in order to carry out the intentions of the parties hereto as nearly as may be possible and (ii) the invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction. -------------- ========================================================================= _ IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed as of the day and year first above written. ANNTAYLOR GLOBAL SOURCING, INC. By /s/ _________________________ Name: Title: Address for Notices: 142 West 57th Street New York, NY 10019 Telecopy: (212) THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, NEW YORK BRANCH By /s/ _______________________ Name: Ian Wright Title: Vice President Address for Notices: 140 Broadway New York, NY 10005 Attention: NYK CBU TRS Telecopy: (212) 658-2813 ============================================================================ ANNEX 1 LIST OF PLEDGED STOCK NONE ============================================================================ ANNEX 2 LIST OF LOCATIONS AnnTaylor Global Sourcing, Inc. 414 Chapel Street New Haven, CT 06511 Louisville Distribution Center 7101 Distribution Drive Louisville, KY 40258 Flag Trucking Services Company 5 Dwight Place Fairfield, NJ 07006 SSCI 1072 West Side Avenue Jersey City, NJ 07306 Summit Transportation Building 40 Hackensack Avenue Kearny, NJ 07032 AnnTaylor Global Sourcing, Inc. 1372 Broadway New York, New York 10018 AnnTaylor Global Sourcing, Inc. 142 West 57th Street New York, NY 10019 Freight-A-Ranger 3275 Alum Creek Drive Columbus, OH 43207 EX-10 9 EXHIBIT 10.9 EXHIBIT C LETTER OF NEGATIVE PLEDGE The Hongkong and Shanghai Banking Corporation Limited 140 Broadway New York, NY 10005-1196 Re: Amended and Restated Credit Agreement dated as of September 20, 1996 with ANNTAYLOR GLOBAL SOURCING, INC. (formerly known as CAT US, Inc.) (the "Company") up to ------- an aggregate amount of $40,000,000 --------------------- (the "Credit Agreement") ------------------------ Dear Sir/Madam: In consideration of your agreeing to grant, continue and/or further extend credit facilities and other financial accommodation to the Company, the Company hereby irrevocably and unconditionally covenants and undertakes with you as follows: 1. The Company shall not: a. Create or attempt to create, assume or permit to subsist any mortgage, security interest, charge, pledge, lien, or other encumbrance upon, or permit any lien, security interest or other encumbrance (except for statutory or constitutional liens arising in the ordinary course of business with respect to any obligation or indebtedness which is not yet due and payable) to arise on or affect, the whole or any part of its respective undertaking, property, assets and rights, other than pledges created over goods and/or services acquired pursuant to documentary credits opened in the ordinary course of business for the purpose of financing the acquisition or provision of such goods and services; or b. Transfer, sell or otherwise dispose of or attempt or agree to transfer, sell or dispose of the whole or any part of its respective undertaking, property, assets and rights, except (i) by way of sale at full value in the usual and ordinary course of business as now conducted and for the purpose of carrying on the relevant business, (ii) obsolete or worn-out property, tools or equipment no longer used or useful in its business or (iii) the sale, in a single transaction, of the CAD-CAM computer equipment described in Exhibit F to the Stock and Asset Purchase Agreement (as defined in the Credit Agreement), the value of which equipment shall not exceed $10,000.00 in the aggregate; or c. Grant, issue or extend any guarantee or indemnity or enter into any other form of contractual undertaking or arrangement of similar effect in respect of any =========================================================================== indebtedness or obligations, actual or contingent, of any other Person whatsoever except in the usual and ordinary course of business as now conducted by the Company and for the purpose of the carrying on by the Company of its business. 2. The undertakings set out herein shall not be deemed breached by reason only of the existence of any mortgage, security interest, charge, pledge, lien or other encumbrance or guarantee or indemnity which has been created, assumed or which subsists or has arisen prior to the date hereof, provided, that any further or additional encumbrance over or affecting the relevant asset, or increase in the amount secured by or other variation of the relevant encumbrance or guarantee or indemnity of similar effect, shall constitute such a breach. 3. The Company further authorizes you, in your absolute discretion, at any time and from time to time to notify any creditors of the Company of the terms of the undertakings set out herein in the event that you receive notice of proposals which, if implemented, would or might be in breach of such undertakings. Yours faithfully, ANNTAYLOR GLOBAL SOURCING, INC. By /s/ _________________________ Name: Title: Date: As of September 20, 1996 -----END PRIVACY-ENHANCED MESSAGE-----