UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
(Amendment No. 1)
(Rule 13E-100)
RULE 13E-3 TRANSACTION STATEMENT
Under Section 13(e) of the Securities Exchange Act of 1934
J.CREW GROUP, INC.
(Name of Issuer)
J.CREW GROUP, INC.
CHINOS HOLDINGS, INC.
CHINOS ACQUISITION CORPORATION
TPG PARTNERS VI, L.P.
GREEN EQUITY INVESTORS V, L.P.
GREEN EQUITY INVESTORS SIDE V, L.P.
MILLARD S. DREXLER
(Name of Persons Filing Statement)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
46612H402
(CUSIP Number of Class of Securities)
| J.Crew Group, Inc. c/o Corporate Secretary 770 Broadway New York, NY 10003 (212) 209-2500 |
Ronald Cami, Esq. General Counsel TPG Capital, L.P 345 California Street, Suite 3300 San Francisco (415) 743-1500 | |
| Michael Gennaro Chief Operating Officer Leonard Green & Partners, L.P. 11111 Santa Monica Blvd., #2000 Los Angeles, CA 90025 (310) 954-0444 |
Millard S. Drexler c/o J.Crew Group, Inc. 770 Broadway New York, NY 10003 (212) 209-2500 | |
(Name, address and telephone number of person authorized to receive
notices and communications on behalf of the persons filing statement)
With copies to:
| Scott A. Barshay, Esq. Thomas E. Dunn, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000 |
Daniel S. Sternberg, Esq. Matthew P. Salerno, Esq. Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, NY 10006 (212) 225-2000 |
Alfred O. Rose, Esq. Julie H. Jones, Esq. Ropes & Gray LLP Prudential Tower 800 Boylston Street Boston, MA 02119 (617) 951-7000 |
| Jack H. Nusbaum, Esq. Adam M. Turteltaub, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 (212) 728-8000 |
Howard A. Sobel, Esq. Jason H. Silvera, Esq. Latham & Watkins LLP 885 Third Avenue New York, NY 10022 (212) 906-1200 |
This statement is filed in connection with (check the appropriate box):
| x | The filing of solicitation materials on an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. |
| ¨ | The filing of a registration statement under the Securities Act of 1933. |
| ¨ | A tender offer. |
| ¨ | None of the above. |
Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: x
Check the following box if the filing is a final amendment reporting the results of the transaction: ¨
CALCULATION OF FILING FEE
| Transaction Valuation* | Amount of Filing Fee** | |
| $2,991,101,723 | $213,265.55 | |
| * | For purposes of calculating the filing fee only, the transaction value was determined based upon the sum of (A) (1) 63,934,844 shares of common stock (including restricted shares) issued and outstanding and owned by persons other than the Company, Parent and Merger Sub (each, as defined in this Schedule 13E-3) on November 19, 2010, multiplied (2) by $43.50 per share (the “Per Share Merger Consideration”) and (B) (1) 8,307,717 shares of common stock underlying outstanding options of the Company as of November 19, 2010, multiplied by (2) the excess of the Per Share Merger Consideration over the weighted average exercise price of $18.23. |
| ** | The filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, is calculated by multiplying the Transaction Valuation by .0000713. |
| x | Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
Amount Previously Paid: $213,265.55
Form or Registration No.: Schedule 14A—Preliminary Proxy Statement
Filing Party: J.Crew Group, Inc.
Date Filed: December 6, 2010
Introduction
This Amendment No. 1 to Rule 13E-3 transaction statement on Schedule 13E-3, together with the exhibits hereto (this “Schedule 13E-3” or “Transaction Statement”) is being filed with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) jointly by the following persons (each, a “Filing Person,” and collectively, the “Filing Persons”): J.Crew Group, Inc., a Delaware corporation (“J.Crew,” or the “Company”), the issuer of the common stock, par value $0.01 per share (the “Company Common Stock”) that is subject to the Rule 13e-3 transaction; TPG Partners VI, L.P., a Delaware limited partnership (“TPG VI”), Green Equity Investors V, L.P., a Delaware limited partnership (“GEI V”), Green Equity Investors Side V, L.P., a Delaware limited partnership (“GEI Side V”), Chinos Holdings, Inc., a Delaware corporation (“Parent”), Chinos Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of Parent (the “Merger Sub”) and Millard S. Drexler, Chairman and Chief Executive Officer of the Company.
On November 23, 2010, Parent, Merger Sub and the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Merger Sub are beneficially owned by TPG VI, GEI V and GEI Side V. Concurrently with the filing of this Schedule 13E-3, the Company is filing with the SEC a revised preliminary Proxy Statement (the “Proxy Statement”) under Regulation 14A of the Exchange Act, relating to a special meeting of the stockholders of the Company at which the stockholders of the Company will consider and vote upon a proposal to adopt the Merger Agreement. The adoption of the Merger Agreement will require the affirmative vote of stockholders holding a majority of the shares of common stock outstanding as of the close of business on the record date for the special meeting. A copy of the revised preliminary Proxy Statement is attached hereto as Exhibit (a)(1) and a copy of the Merger Agreement is attached as Annex A to the revised preliminary Proxy Statement.
Under the terms of the Merger Agreement, at the effective time of the Merger each outstanding share of the Company Common Stock will be converted automatically into the right to receive $43.50 in cash (the “Per Share Merger Consideration”), without interest and less any applicable withholding taxes, excluding shares owned by (i) Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent, including shares to be contributed to Parent by Mr. Drexler and affiliated trusts (collectively, the “Rollover Investors”) pursuant to an equity rollover agreement between Parent and the Rollover Investors (the “Rollover Agreement”) immediately prior to the effective time of the Merger and any shares contributed to Parent by any members of the Company’s management team who may have the opportunity to invest in Parent and who choose to make this investment prior to the effective time of the Merger, (ii) the Company or any direct or indirect wholly owned subsidiary of the Company or (iii) stockholders who have properly exercised, perfected and not withdrawn a demand for, or lost the right to, appraisal rights under Delaware law. The Merger remains subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, including obtaining approval of the existing stockholders of the Company.
The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Proxy Statement of the information required to be included in response to the items of Schedule 13E-3. Pursuant to General Instruction F to Schedule 13E-3, the information contained in the Proxy Statement, including all annexes thereto, is incorporated in its entirety herein by this reference, and the responses to each item in this Schedule 13E-3 are qualified in their entirety by the information contained in the Proxy Statement and the annexes thereto. As of the date hereof, the Proxy Statement is in preliminary form and is subject to completion or amendment. Capitalized terms used but not defined in this Schedule 13E-3 shall have the meanings given to them in the Proxy Statement.
All information contained in this Schedule 13E-3 concerning each Filing Person has been supplied by such Filing Person. No Filing Person, including the Company, is responsible for the accuracy of any information supplied by any other Filing Person.
| Item 1. | Summary Term Sheet. |
The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
| Item 2. | Subject Company Information. |
(a) Name and Address. The information contained in the section of the Proxy Statement entitled “SPECIAL FACTORS—The Parties” is incorporated herein by reference.
(b) Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“THE SPECIAL MEETING—Record Date; Stockholders Entitled to Vote; Quorum”
“COMMON STOCK TRANSACTION INFORMATION”
The exact title of each class of the subject equity securities is “J.Crew Group, Inc. common stock, par value $0.01 per share.”
(c) Trading Market and Price. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“MARKET PRICE AND DIVIDEND INFORMATION”
(d) Dividends. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“MARKET PRICE AND DIVIDEND INFORMATION”
(e) Prior Public Offerings. Not applicable.
(f) Prior Stock Purchases. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“COMMON STOCK TRANSACTION INFORMATION”
| Item 3. | Identity and Background of Filing Person. |
(a) Name and Address. J.Crew Group, Inc. is the subject company. The information set forth in the Proxy Statement contained in the section of the Proxy Statement entitled “SPECIAL FACTORS—The Parties” is incorporated herein by reference.
(b) Business and Background of Entities. The information set forth in the Proxy Statement contained in the section of the Proxy Statement entitled “SPECIAL FACTORS—The Parties” is incorporated herein by reference.
(c) Business and Background of Natural Persons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—The Parties”
“SPECIAL FACTORS—Business and Background of Natural Persons Related to the Company”
“SPECIAL FACTORS—Business and Background of Natural Persons Related to TPG VI, Parent, Merger Sub and the Leonard Green Entities”
| Items 4. | Terms of the Transaction. |
| (a) | (1) Not applicable. |
| (a) | (2) The information set forth in the Proxy Statement under the following captions is incorporated herein by reference: |
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Purposes and Reasons of TPG VI, the Leonard Green Entities, Parent, Merger Sub and the MD Parties for the Merger”
“THE SPECIAL MEETING—Record Date; Stockholders Entitled to Vote; Quorum”
“SPECIAL FACTORS—Certain Material United States Federal Income Tax Consequences”
(c) Different Terms. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Financing of the Merger—Rollover Financing”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
(d) Appraisal Rights. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“APPRAISAL RIGHTS”
Annex C—DELAWARE GENERAL CORPORATION LAW SECTION 262
(e) Provisions for Unaffiliated Security Holders. The information set forth in the Proxy Statement under “SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger,” is incorporated herein by reference. There have been no other provisions in connection with the merger to grant unaffiliated security holders access to the corporate files of the Filing Persons or to obtain counsel or appraisal services at the expense of the Filing Persons.
(f) Eligibility for Listing or Trading. Not applicable.
| Item 5. | Past Contacts, Transactions, Negotiations and Agreements. |
(a) Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
(b) Significant Corporate Events. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
(c) Negotiations or Contacts. The information set forth in the Proxy Statement under “SPECIAL FACTORS—Background of the Merger” is incorporated herein by reference.
(e) Agreements Involving the Subject Company’s Securities. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“SPECIAL FACTORS—Financing of the Merger—Rollover Financing”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
| Item 6. | Purposes of the Transaction and Plans or Proposals. |
(b) Use of Securities Acquired. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
(c)(1)-(8) Plans. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
“MARKET PRICE AND DIVIDEND INFORMATION”
“SPECIAL FACTORS—Delisting and Deregistration of the Company’s Common Shares”
“SPECIAL FACTORS—Financing of the Merger”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT”
Annex A—MERGER AGREEMENT
| Item 7. | Purposes, Alternatives, Reasons and Effects. |
(a) Purposes. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Purposes and Reasons of TPG VI, the Leonard Green Entities, Parent, Merger Sub and the MD Parties for the Merger”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
(b) Alternatives. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Alternatives to Merger”
(c) Reasons. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Purposes and Reasons of TPG VI, the Leonard Green Entities, Parent, Merger Sub and the MD Parties for the Merger”
(d) Effects. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Certain Effects of the Merger”
“SPECIAL FACTORS—Plans for the Company”
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“THE MERGER AGREEMENT—Treatment of Common Stock, Options, Restricted Shares and Other Equity Awards”
“THE MERGER AGREEMENT—Effects of the Merger; Directors and Officers; Certificate of Incorporation; Bylaws”
“SPECIAL FACTORS—Certain Material United States Federal Income Tax Consequences”
“APPRAISAL RIGHTS”
Annex C—DELAWARE GENERAL CORPORATION LAW SECTION 262
| Item 8. | Fairness of the Transaction. |
(a), (b) Fairness; Factors Considered in Determining Fairness. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Opinion of Perella Weinberg, Financial Advisor to the Special Committee”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Positions of TPG VI, the Leonard Green Entities, Parent and Merger Sub Regarding the Fairness of the Merger”
“SPECIAL FACTORS—Positions of the MD Parties Regarding the Fairness of the Merger”
Annex B—FINANCIAL ADVISOR OPINION
(c) Approval of Security Holders. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“THE SPECIAL MEETING—Record Date; Stockholders Entitled to Vote; Quorum”
“THE MERGER AGREEMENT—Conditions to the Merger”
(d) Unaffiliated Representative. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Opinion of Perella Weinberg, Financial Advisor to the Special Committee”
Annex B—FINANCIAL ADVISOR OPINION
(e) Approval of Directors. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
(f) Other Offers. The information set forth in the Proxy Statement under “SPECIAL FACTORS—Background of the Merger” is incorporated herein by reference.
| Item 9. | Reports, Opinions, Appraisals and Negotiations. |
(a)-(c) Report, opinion or appraisal; Preparer and summary of the report, opinion or appraisal; Availability of documents. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference.
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Opinion of Perella Weinberg, Financial Advisor to the Special Committee”
“SPECIAL FACTORS—Analysis of Goldman Sachs, Financial Advisor to Parent”
“WHERE YOU CAN FIND MORE INFORMATION”
Annex B—FINANCIAL ADVISOR OPINION
| Item 10. | Source and Amounts of Funds or Other Consideration. |
(a), (b) Source of Funds; Conditions. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Financing of the Merger”
“THE MERGER AGREEMENT—Financing Covenant; Company Cooperation”
(c) Expenses. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Effects on the Company if Merger is not Completed”
“SPECIAL FACTORS—Fees and Expenses”
“THE MERGER AGREEMENT—Termination”
“THE MERGER AGREEMENT—Termination Fees and Reimbursement of Expenses”
(d) Borrowed Funds. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SPECIAL FACTORS—Financing of the Merger”
| Item 11. | Interest in Securities of the Subject Company. |
(a) Securities Ownership. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“COMMON STOCK OWNERSHIP OF MANAGEMENT AND BENEFICIAL OWNERS”
(b) Securities Transactions. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
“SPECIAL FACTORS—Background of the Merger”
“THE MERGER AGREEMENT”
“COMMON STOCK TRANSACTION INFORMATION”
Annex A—MERGER AGREEMENT
| Item 12. | The Solicitation or Recommendation. |
(d) Intent to Tender or Vote in a Going-Private Transaction. The information set forth in the Proxy Statement under the following caption is incorporated herein by reference:
“SPECIAL FACTORS—Interests of the Company’s Directors and Executive Officers in the Merger”
(e) Recommendation of Others. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Positions of TPG VI, the Leonard Green Entities, Parent and Merger Sub Regarding the Fairness of the Merger”
“SPECIAL FACTORS—Positions of the MD Parties Regarding the Fairness of the Merger”
| Item 13. | Financial Statements. |
(a) Financial Information. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“SELECTED FINANCIAL INFORMATION”
“WHERE YOU CAN FIND MORE INFORMATION”
(b) Pro forma information. Not applicable.
| Item 14. | Persons/Assets, Retained, Employed, Compensated Or Used. |
(a) Solicitations or Recommendations. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“SPECIAL FACTORS—Fees and Expenses”
“THE SPECIAL MEETING—Solicitation of Proxies”
(b) Employees and corporate assets. The information set forth in the Proxy Statement under the following captions is incorporated herein by reference:
“SUMMARY TERM SHEET”
“QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER”
“SPECIAL FACTORS—Background of the Merger”
“SPECIAL FACTORS—Recommendation of Our Board of Directors and Special Committee; Reasons for Recommending the Adoption of the Merger Agreement; Fairness of the Merger”
“THE SPECIAL MEETING—Solicitation of Proxies”
| Item 15. | Additional Information. |
(b) Other material information. The entirety of the Proxy Statement, including all Annexes thereto, is incorporated herein by reference.
| Item 16. | Exhibits. |
| (a)(1) |
Preliminary Proxy Statement of J.Crew Group, Inc., incorporated by reference to the Schedule 14A filed with the Securities and Exchange Commission on December 29, 2010 (the “Preliminary Proxy Statement”). | |
| (a)(2)(i) |
Form of Proxy Card, incorporated herein by reference to the Preliminary Proxy Statement. | |
| (a)(2)(ii) |
Joint press release issued by J.Crew Group, Inc., dated November 23, 2010, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iii) |
M. Drexler All-Associate E-mail, dated November 23, 2010, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iv) |
M. Drexler Associate Voicemail Transcript, dated November 23, 2010, incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(v) |
M. Drexler Prepared Remarks for Town Hall Meeting, dated November 23, 2010, incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vi) |
Associate FAQ, dated November 23, 2010, incorporated by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vii) |
Investor Conference Call Script, dated November 23, 2010, incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(viii) |
Master Q&A, dated November 23, 2010, incorporated by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(ix) |
Talking Points for use with Investors/Analysts, dated November 23, 2010, incorporated by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(x) |
Talking Points for Senior Managers, dated November 23, 2010, incorporated by reference to Exhibit 99.10 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (b)(1) |
Equity Commitment Letter, dated as of November 23, 2010, by and between Parent and TPG Partners VI, L.P.* | |
| (b)(2) |
Equity Commitment Letter, dated as of November 23, 2010, by and among Parent, Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P.* | |
| (b)(3) |
Debt Commitment Letter, dated as of November 23, 2010, by and among Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Inc. and Merger Sub. | |
| (c)(1) |
Opinion of Perella Weinberg Partners LP, dated November 22, 2010, incorporated herein by reference to Annex B to the Preliminary Proxy Statement. | |
| (c)(2) |
Financial Analysis Presentation Materials, dated November 22, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.* | |
| (c)(3) |
Discussion Materials, dated October 4, 2010, of Goldman Sachs & Co. to TPG Capital, L.P. | |
| (c)(4) |
Presentation Materials, dated October 25, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(5) |
Presentation Materials, dated October 29, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(6) |
Presentation Materials, dated November 1, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(7) |
Presentation Materials, dated November 4, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(8) |
Presentation Materials, dated November 9, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(9) |
Presentation Materials (Presentation 1), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(10) |
Presentation Materials (Presentation 2), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (d)(1) |
Agreement and Plan of Merger, dated November 23, 2010, by and among J.Crew Group, Inc., Chinos Holdings, Inc. and Chinos Acquisition Corporation, incorporated herein by reference to Annex A to the Preliminary Proxy Statement. | |
| (d)(2) |
Rollover Commitment Letter, dated as of November 23, 2010, by and among Millard S. Drexler, the Drexler Trusts and Parent* | |
| (d)(3) |
Cooperation Agreement, dated as of November 23, 2010, by and between Company and Millard S. Drexler, incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 26, 2010. | |
| (d)(4) |
Interim Investors Agreement, dated as of November 23, 2010, by and among TPG Capital, L.P., Millard S. Drexler and the Drexler Trusts, incorporated by reference to Amendment No. 11 to the Schedule 13D filed by Millard S. Drexler with the Securities and Exchange Commission on November 26, 2010. | |
| (d)(5) |
Third Amended and Restated Employment Agreement, dated as of July 13, 2010, by and among the Company, J.Crew Operating Corp. and Millard S. Drexler, incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on September 3, 2010. | |
| (f) |
Section 262 of the Delaware General Corporation Law, incorporated herein by reference to Annex C to the Preliminary Proxy Statement. | |
| (g) |
None. | |
| * | Previously filed on December 6, 2010. |
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| J.CREW GROUP, INC. | ||
| By: |
/s/ JAMES S. SCULLY | |
| James S. Scully | ||
| Chief Administrative Officer and Chief Financial Officer | ||
Dated: December 29, 2010
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| CHINOS HOLDINGS, INC. | ||
| By: |
/s/ RONALD CAMI | |
| Ronald Cami | ||
| Vice President | ||
Dated: December 29, 2010
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| CHINOS ACQUISITION CORPORATION | ||
| By: |
/s/ RONALD CAMI | |
| Ronald Cami | ||
| Vice President | ||
Dated: December 29, 2010
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| TPG PARTNERS VI, L.P. | ||
| By: | TPG GenPar VI, L.P., its General Partner | |
| By: | TPG GenPar VI Advisors, LLC, its General Partner | |
| By: |
/s/ RONALD CAMI | |
| Ronald Cami | ||
| Vice President | ||
Dated: December 29, 2010
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| GREEN EQUITY INVESTORS V, L.P. | ||
| By: |
GEI Capital V, LLC, its General Partner | |
| By: |
/s/ MICHAEL GENNARO | |
| Michael Gennaro | ||
| Chief Operating Officer and Secretary | ||
Dated: December 29, 2010
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| GREEN EQUITY INVESTORS SIDE V, L.P. | ||
| By: |
GEI Capital V, LLC, its General Partner | |
| By: |
/s/ MICHAEL GENNARO | |
| Michael Gennaro | ||
| Chief Operating Officer and Secretary | ||
Dated: December 29, 2010
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
| MILLARD S. DREXLER |
| /s/ MILLARD S. DREXLER |
Dated: December 29, 2010
EXHIBIT INDEX
| (a)(1) | Preliminary Proxy Statement of J.Crew Group, Inc., incorporated by reference to the Schedule 14A filed with the Securities and Exchange Commission on December 29, 2010 (the “Preliminary Proxy Statement”). | |
| (a)(2)(i) | Form of Proxy Card, incorporated herein by reference to the Preliminary Proxy Statement. | |
| (a)(2)(ii) | Joint press release issued by J.Crew Group, Inc., dated November 23, 2010, incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iii) | M. Drexler All-Associate E-mail, dated November 23, 2010, incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(iv) | M. Drexler Associate Voicemail Transcript, dated November 23, 2010, incorporated by reference to Exhibit 99.4 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(v) | M. Drexler Prepared Remarks for Town Hall Meeting, dated November 23, 2010, incorporated by reference to Exhibit 99.5 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vi) | Associate FAQ, dated November 23, 2010, incorporated by reference to Exhibit 99.6 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(vii) | Investor Conference Call Script, dated November 23, 2010, incorporated by reference to Exhibit 99.7 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(viii) | Master Q&A, dated November 23, 2010, incorporated by reference to Exhibit 99.8 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(ix) | Talking Points for use with Investors/Analysts, dated November 23, 2010, incorporated by reference to Exhibit 99.9 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (a)(2)(x) | Talking Points for Senior Managers, dated November 23, 2010, incorporated by reference to Exhibit 99.10 to the Company’s Current Report on Form 8-K filed with the SEC on November 23, 2010. | |
| (b)(1) | Equity Commitment Letter, dated as of November 23, 2010, by and between Parent and TPG Partners VI, L.P.* | |
| (b)(2) | Equity Commitment Letter, dated as of November 23, 2010, by and among Parent, Green Equity Investors V, L.P. and Green Equity Investors Side V, L.P.* | |
| (b)(3) | Debt Commitment Letter, dated as of November 23, 2010, by and among Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Inc. and Merger Sub. | |
| (c)(1) | Opinion of Perella Weinberg Partners LP, dated November 22, 2010, incorporated herein by reference to Annex B to the Preliminary Proxy Statement. | |
| (c)(2) | Financial Analysis Presentation Materials, dated November 22, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc.* | |
| (c)(3) | Discussion Materials, dated October 4, 2010, of Goldman Sachs & Co. to TPG Capital, L.P. | |
| (c)(4) | Presentation Materials, dated October 25, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(5) | Presentation Materials, dated October 29, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(6) | Presentation Materials, dated November 1, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(7) | Presentation Materials, dated November 4, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(8) | Presentation Materials, dated November 9, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(9) | Presentation Materials (Presentation 1), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (c)(10) | Presentation Materials (Presentation 2), dated November 21, 2010, of Perella Weinberg Partners LP to the Special Committee of the Board of Directors of J.Crew Group, Inc. | |
| (d)(1) | Agreement and Plan of Merger, dated November 23, 2010, by and among J. Crew Group, Inc., Chinos Holdings, Inc. and Chinos Acquisition Corporation, incorporated herein by reference to Annex A to the Preliminary Proxy Statement. | |
| (d)(2) | Rollover Commitment Letter, dated as of November 23, 2010, by and among Millard S. Drexler, the Drexler Trusts and Parent.* | |
| (d)(3) | Cooperation Agreement, dated as of November 23, 2010, by and between Company and Millard S. Drexler, incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed by J.Crew Group, Inc. with the SEC on November 26, 2010. | |
| (d)(4) | Interim Investors Agreement, dated as of November 23, 2010, by and among TPG Capital, L.P., Millard S. Drexler and the Drexler Trusts, incorporated by reference to Amendment No. 11 to the Schedule 13D filed by Millard S. Drexler with the Securities and Exchange Commission on November 26, 2010. | |
| (d)(5) | Third Amended and Restated Employment Agreement, dated as of July 13, 2010, by and among the Company, J.Crew Operating Corp. and Millard S. Drexler, incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on September 3, 2010. | |
| (f) | Section 262 of the Delaware General Corporation Law, incorporated herein by reference to Annex C to the Preliminary Proxy Statement. | |
| (g) | None. | |
| * | Previously filed on December 6, 2010. |
Exhibit (b)(3)
| MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED BANK OF AMERICA, N.A. One Bryant Park New York, New York 10036 |
GOLDMAN SACHS BANK USA 200 West Street |
November 23, 2010
Chinos Acquisition Corporation
c/o TPG Capital, L.P.
345 California Street
San Francisco, California 94104
Attention: Jack Weingart
Project Chino
$250,000,000 Senior Secured Asset-Based Revolving Facility
$1,000,000,000 Senior Secured Term Loan Facility
$600,000,000 Senior Unsecured Increasing Rate Bridge Facility
Commitment Letter
Ladies and Gentlemen:
You have advised each of Bank of America, N.A. (“Bank of America”), Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPFS”) and Goldman Sachs Bank USA (“GS Bank” and, together with Bank of America and MLPFS, the “Commitment Parties,” “we” or “us”) that Chinos Acquisition Corporation (“Newco”), formed at the direction of TPG Capital, L.P. and/or its affiliates (collectively, the “Sponsor”), intends to acquire a company previously identified to us and code-named “Chino” (the “Company”), and to consummate the other transactions described in Exhibit A hereto. Capitalized terms used but not defined herein have the meanings assigned to them in the Exhibits attached hereto.
| 1. | Commitments. |
In connection with the Transactions, (a) Bank of America is pleased to advise you of its commitment to provide 50% of each of the Facilities and (b) GS Bank (together with Bank of America, the “Initial Lenders”) is pleased to advise you of its commitment to provide 50% of each of the Facilities, upon the terms and subject to the conditions set forth or referred to in this commitment letter (together with the Term Sheets, this “Commitment Letter”). The commitments of the Initial Lenders hereunder will be allocated ratably among the Facilities and are several and not joint.
| 2. | Titles and Roles. |
It is agreed that MLPFS and GS Bank will act as joint lead arrangers (in such capacity, the “Lead Arrangers”) and as joint bookrunners for each of the ABL Facility, the Term Facility and the Senior Bridge Facility, that Bank of America will act as administrative agent for the ABL Facility (the “ABL Administrative Agent”), Bank of America will act as administrative agent for the Term Facility (the “Term Administrative Agent”) and GS Bank will act as administrative agent for the Senior Bridge
Facility (the “Bridge Administrative Agent” and, collectively with the ABL Administrative Agent and the Term Administrative Agent, each an “Administrative Agent”). It is further agreed that MLPFS will appear on the top left of the cover page of any marketing materials for the ABL Facility, MLPFS will appear on the top left of the cover page of any marketing materials for the Term Facility and GS Bank will appear on the top left of the cover page of any marketing materials for the Senior Bridge Facility, and in each case will hold the roles and responsibilities conventionally understood to be associated with such name placement. No compensation (other than that expressly contemplated by this Commitment Letter and the Fee Letter referred to below) will be paid in connection with obtaining any Lender’s commitment to the Facilities unless you and the Commitment Parties shall so agree.
| 3. | Syndication. |
The Lead Arrangers reserve the right, prior to or after the execution of the Facilities Documentation (as defined below), to syndicate all or a portion of the Initial Lenders’ commitments hereunder to a group of banks, financial institutions and other institutional lenders identified by the Commitment Parties in consultation with you and, with respect to the ABL Facility only, subject to your consent (such consent not to be unreasonably withheld, delayed or conditioned), including any relationship lenders designated by you in consultation with the Commitment Parties (together with the Initial Lenders, the “Lenders”); provided, that, the Lead Arrangers may syndicate and the Initial Lenders may assign all or any portion of the Initial Lenders’ commitments hereunder prior to the Closing Date, provided that such syndication and assignment shall not relieve any Initial Lender of its obligations set forth herein (including its obligations to fund the Facilities on the Closing Date on the terms and conditions set forth in this Commitment Letter) and, unless you agree in writing, each Commitment Party shall retain exclusive control over all rights and obligations with respect to its commitments, including all rights with respect to consents, modifications, waivers and amendments, until after the initial funding of the Senior Facilities on the Closing Date has occurred and, unless you agree in writing, the Lead Arrangers will not syndicate to those banks, financial institutions and other institutional lenders separately identified in writing by you or the Sponsor to us prior to the date hereof (“Disqualified Lenders”). The Commitment Parties intend to commence syndication efforts promptly upon the execution of this Commitment Letter and as part of their syndication efforts, it is the Commitment Parties’ intent to have Lenders commit to the Facilities prior to the Closing Date. You agree to use your commercially reasonable efforts to assist the Commitment Parties in completing a timely syndication that is reasonably satisfactory to them (and, in the case of the ABL Facility only, you) until the date that is the earlier of (a) 90 days after the Closing Date and (b) the date on which the successful syndication (as defined in the Fee Letter) is achieved (the earlier such date, the “Syndication Date”). Such assistance shall include (a) your using commercially reasonable efforts to ensure that any syndication efforts benefit materially from your existing lending and investment banking relationships and the existing lending and investment banking relationships of the Sponsor and, to the extent practical and appropriate, the Company, (b) direct contact between senior management, representatives and advisors of you and the Sponsor (and your using commercially reasonable efforts to arrange for direct contact between senior management, representatives and advisors of the Company) and the proposed Lenders at times and locations mutually agreed upon, (c) your and the Sponsor’s assistance (and your using commercially reasonable efforts to cause the Company to assist) in the preparation of a customary confidential information memorandum (a “Confidential Information Memorandum”) for each of the Senior Facilities and the Senior Bridge Facility and other customary marketing materials to be used in connection with the syndications, (d) using your commercially reasonable efforts to procure prior to the launch of the general syndication of the Term Facility a public corporate credit rating and a public corporate family rating, as the case may be, for the Borrower and public ratings for each of the Facilities (other than the ABL Facility) and the Senior Notes from each of Standard & Poor’s Ratings Services (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”) and (e) the hosting, with the Commitment Parties, of one or more meetings of prospective Lenders at times and locations mutually agreed upon. Until the Syndication Date, (i) you will ensure that
2
there will not be any competing issues of debt securities or commercial bank or other credit facilities of Holdings, you or any of Holdings’ or your respective subsidiaries, and you will use commercially reasonable efforts to cause the Company to ensure that there will not be any competing issues of debt securities or commercial bank or other credit facilities of the Company or any of the Company’s subsidiaries, in each case (other than the Senior Notes or any debt securities or loans issued pursuant to, or as contemplated by, the Fee Letter) being offered, placed or arranged that would materially impair the primary syndication of the Facilities (it being understood that any indebtedness permitted to be incurred or outstanding without any consent from you or your affiliates under the Merger Agreement as in effect on the date hereof shall not be subject to this clause (i)) and (ii) you agree to prepare and provide (and to use commercially reasonable efforts to cause the Sponsor and the Company to provide) promptly to the Lead Arrangers all customary information with respect to you, the Company and each of your and its respective subsidiaries, the Transactions and the other transactions contemplated hereby, including all financial information and projections (including financial estimates, forecasts and other forward-looking information, the “Projections”), as the Lead Arrangers may reasonably request. Notwithstanding anything to the contrary contained in this Commitment Letter or the Fee Letter, neither the commencement nor the completion of the syndication of the Facilities shall constitute a condition precedent to the Closing Date.
The Lead Arrangers will, in consultation with you, manage all aspects of any syndication, including decisions as to the selection of institutions to be approached, subject to, with respect to the ABL Facility only, your consent not to be unreasonably withheld, delayed or conditioned and excluding Disqualified Lenders, and when they will be approached, when their commitments will be accepted, which institutions will participate (with respect to the ABL Facility only, with your consent not to be unreasonably withheld, delayed or conditioned) and in any case, excluding Disqualified Lenders, the allocation of the commitments among the Lenders and the amount and distribution of fees among the Lenders.
| 4. | Information. |
You hereby represent and warrant that (a) (with respect to information provided by the Company and its subsidiaries, to the best of your knowledge) all written information and written data other than the Projections and information of a general economic or general industry nature (the “Information”) that have been or will be made available to any of the Commitment Parties by or on behalf of you, the Company, the Sponsor or any of your or their respective representatives, taken as a whole, does not or will not, when furnished, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made (after giving effect to all supplements and updates thereto) and (b) the Projections that have been or will be made available to the Lead Arrangers by or on behalf of you, the Company, the Sponsor or any of your or their respective representatives have been or will be prepared in good faith based upon assumptions that are believed by you to be reasonable at the time made and at the time any such Projections are delivered to the Commitment Parties; it being understood that any such financial projections are subject to significant uncertainties and contingencies, many of which are beyond your control, that no assurance can be given that any particular financial projections will be realized, that actual results may differ and that such differences may be material. You agree that, if at any time prior to the Syndication Date, you become aware that any of the representations and warranties in the preceding sentence would be incorrect in any material respect if the Information and Projections were being furnished, and such representations were being made, at such time, then you will (i) with respect to Information or Projections relating to Holdings, you and any of Holdings’ or your respective subsidiaries, promptly supplement the Information and the Projections and (ii) with respect to Information or Projections relating to the Company or its subsidiaries, use commercially reasonable efforts to promptly supplement the Information and the Projections, in each case, so that such
3
representations will be correct under those circumstances. In arranging and syndicating the Facilities, the Lead Arrangers will be entitled to use and rely on the Information and the Projections without responsibility for independent verification thereof and does not assume responsibility for the accuracy or completeness of the Information or Projections.
You hereby acknowledge that (a) we will make available the Information and the Projections to the proposed syndicate of Lenders by posting on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders may be “public side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Company, its subsidiaries or its respective securities) (each, a “Public Lender”). At the request of the Lead Arrangers, you agree to assist us in preparing an additional version of each Confidential Information Memorandum to be used by Public Lenders. The information to be included in the additional version of each Confidential Information Memorandum will consist exclusively of information and documentation that is either publicly available or not material with respect to the Company, its subsidiaries or its securities for purposes of United States federal and state securities laws. It is understood that in connection with your assistance described above, (a) a customary authorization letter will be included in each Confidential Information Memorandum that authorizes the distribution of such Confidential Information Memorandum to prospective Lenders and confirms that the public-side version does not include material non-public information about the Company, its subsidiaries or its securities; (b) each Confidential Information Memorandum shall exculpate us with respect to any liability related to the use of the content of such Confidential Information Memorandum or any related marketing material by the recipients thereof; (c) the public information shall include the following information except to the extent you notify us to the contrary and provided that you shall have been given a reasonable opportunity to review such documents and comply with the U.S. Securities and Exchange Commission (the “SEC”) disclosure requirements (and such public information is permitted to be made available to all prospective Lenders, including through a Platform designated “Public Lenders”): (i) drafts and final definitive documentation with respect to the Facilities, (ii) administrative materials prepared by the Commitment Parties for prospective Lenders (such as a lender meeting invitation, allocations and funding and closing memoranda) and (iii) notification of changes in the terms of the Facilities; (d) at our request, you shall identify information to be distributed to Public Lenders by clearly and conspicuously marking the same as “PUBLIC”; and (e) we shall be entitled to treat any Information and Projections that are not specifically identified as “Public” as being suitable only for posting on a portion of the Platform not designated Public Lenders.
| 5. | Fees. |
As consideration for the several commitments of the Initial Lenders hereunder and the Lead Arrangers’ several agreements to perform the services described herein, you agree to pay the fees set forth in this Commitment Letter and in the Fee Letter dated the date hereof and delivered herewith with respect to the Facilities (the “Fee Letter”). Once paid, such fees shall not be refundable under any circumstances, except as otherwise contemplated by the Fee Letter or agreed in writing by the parties hereto.
| 6. | Conditions Precedent. |
The several commitment of the Initial Lenders hereunder and the Lead Arrangers’ several agreements to perform the services described herein are subject to (a) the execution and delivery by the Borrower to the ABL Administrative Agent of definitive documentation with respect to the ABL Facility, the execution and delivery by the Borrower to the Term Administrative Agent of definitive documentation with respect to the Term Facility and, if applicable, the execution and delivery by the Borrower to the Bridge Administrative Agent of definitive documentation with respect to the Senior Bridge Facility (collectively, including the Intercreditor Agreement, the “Facilities Documentation”), in each case, which shall be consistent with the applicable Term Sheets, (b) since January 31, 2010, except
4
(i) as set forth in the Company Disclosure Schedule (as defined in the Merger Agreement) or (ii) disclosed in any Filed SEC Document (as defined in the Merger Agreement), other than disclosures in such Filed SEC Documents contained in the “Risk Factors” and “Forward Looking Statements” sections thereof or any other disclosures in the Filed SEC Documents which are forward-looking in nature), there shall not have been any effect, change, event or occurrence that has had or would reasonably be expected to have a Material Adverse Effect (as defined below) and (c) the conditions set forth in the Term Sheets under the headings beginning with the words “Conditions Precedent” and in Exhibit E; it being understood that there are no conditions (implied or otherwise) to the commitments hereunder (including compliance with the terms of the Commitment Letter, the Fee Letter and the Facilities Documentation) other than those that are expressly stated to be conditions to the initial funding under the Facilities on the Closing Date (and upon satisfaction of such conditions, the initial funding under the Facilities shall occur). “Material Adverse Effect” shall mean any effect, change, event or occurrence (whether or not constituting any breach of a representation, warranty, covenant or agreement set forth in the Merger Agreement) that, individually or in the aggregate with all other effects, changes, events or occurrences (i) has a material adverse effect on the business, results of operations, assets or financial condition of the Company and its Subsidiaries taken as a whole, or (ii) would or would reasonably be expected to prevent or materially impair or delay the consummation of the Transactions; provided, however, that none of the following, and to the extent arising out of or resulting from the following, no other effect, change, event or occurrence, shall constitute or be taken into account, individually or in the aggregate, in determining whether a Material Adverse Effect has occurred or may occur: any effect, change, event or occurrence (A) generally affecting (1) the industry in which the Company and its Subsidiaries operate or (2) the economy, credit or financial or capital markets, in the United States or elsewhere in the world, including changes in interest or exchange rates, or (B) to the extent arising out of, resulting from or attributable to (1) changes in Law or in generally accepted accounting principles or in accounting standards after the date of the Merger Agreement or prospective changes in Law or in generally accepted accounting principles or in accounting standards, or any changes or prospective changes in the interpretation or enforcement of any of the foregoing, or any changes or prospective changes in general legal, regulatory or political conditions, (2) the negotiation, execution or announcement of the Merger Agreement or the consummation of the Transactions (other than for purposes of any representation or warranty contained in Section 3.3(c) and Section 3.4 of the Merger Agreement), including the impact thereof on relationships, contractual or otherwise, with customers, suppliers, distributors, partners, employees or regulators, or any litigation arising from allegations of breach of fiduciary duty or violation of Law relating to the Merger Agreement or the transactions contemplated by the Merger Agreement, (3) acts of war (whether or not declared), sabotage or terrorism, or any escalation or worsening of any such acts of war (whether or not declared), sabotage or terrorism, (4) pandemics, earthquakes, hurricanes, tornados or other natural disasters, (5) any action taken by the Company or its Subsidiaries that is described in, and permitted to be taken without consent under, clauses (i) through (xviii) of Section 5.1(a) of the Merger Agreement, that were taken at the Parent’s written request or upon its advance written consent pursuant to Section 5.1 of the Merger Agreement (in each case, with the consent of the Lead Arrangers) or the failure by the Company or its Subsidiaries to take any action that is prohibited by the Merger Agreement to the extent Parent fails to give its consent thereto (and such failure is the result of the Lead Arrangers refusing to consent, after the request of the Parent, to Parent giving such consent) after a written request therefor pursuant to Section 5.1 of the Merger Agreement, (6) any change resulting or arising from the identity of, or any facts or circumstances relating to, Parent, Merger Sub or any of their respective Affiliates, (7) any change or prospective change in the Company’s credit ratings, (8) any decline in the market price, or change in trading volume, of the capital stock of the Company or (9) any failure to meet any internal or public projections, forecasts, guidance, estimates, milestones, budgets or internal or published financial or operating predictions of revenue, earnings, cash flow or cash position (it being understood that the exceptions in clauses (7), (8) and (9) shall not prevent or otherwise affect a determination that the underlying cause of any such decline or failure referred to therein (if not otherwise falling within any of the exceptions provided by clause (A) and clauses (B)(1) through (6) hereof) is a Material Adverse
5
Effect); provided, further, however, that any effect, change, event or occurrence referred to in clauses (A) or (B)(1), (3) or (4) may be taken into account in determining whether or not there has been a Material Adverse Effect to the extent such effect, change, event or occurrence has a materially disproportionate adverse affect on the Company and its Subsidiaries, taken as a whole, as compared to other participants in the industry in which the Company and its Subsidiaries operate (in which case the incremental materially disproportionate impact or impacts may be taken into account in determining whether or not there has been or may be a Material Adverse Effect). For purposes hereof, “Company”, “Subsidiaries”, “Transactions”, “Laws”, “Parent”, “Merger Sub” and “Affiliates” shall have the meanings assigned to such terms in the Merger Agreement.
Notwithstanding anything in this Commitment Letter, the Fee Letter, the Facilities Documentation or any other letter agreement or other undertaking concerning the financing of the Transactions to the contrary, (i) the only representations and warranties the accuracy of which shall be a condition to availability of the Facilities on the Closing Date shall be (A) such of the representations and warranties made by the Company in the Merger Agreement as are material to the interests of the Lenders, but only to the extent that you have (or your applicable affiliate has) the right to terminate your (or its) obligations under the Merger Agreement or decline to consummate the Acquisition as a result of a breach of such representations and warranties and (B) the Specified Representations (as defined below) and (ii) the terms of the Facilities Documentation and the Closing Deliverables shall be in a form such that they do not impair availability of the Facilities on the Closing Date if the conditions expressly set forth herein and in the Term Sheets are satisfied (it being understood that, to the extent any Collateral (other than to the extent that a lien on such Collateral may be perfected (x) by the filing of a financing statement under the Uniform Commercial Code or (y) by the delivery of stock certificates of the Borrower and its wholly-owned domestic subsidiaries) is not or cannot be provided on the Closing Date after your use of commercially reasonable efforts to do so, the delivery of such Collateral shall not constitute a condition precedent to the availability of the Facilities on the Closing Date, but shall be required to be delivered within 90 days after the Closing Date (subject to extensions by the Term Administrative Agent). For purposes hereof, “Specified Representations” means the representations and warranties set forth in the Facilities Documentation relating to corporate or other organizational existence, organizational power and authority (as to execution, delivery and performance of the applicable Facilities Documentation), the due authorization, execution, delivery and enforceability of the applicable Facilities Documentation, solvency (such representation and warranty to be consistent with the solvency certificate in the form set forth in Annex I attached to Exhibit E), no conflicts of Facilities Documentation with charter documents or material laws, Federal Reserve margin regulations, the Patriot Act, the Investment Company Act, status of the Senior Facilities and the related guaranties as senior debt (to the extent applicable), and, subject to permitted liens and the limitations set forth in the prior sentence and, in the case of priority, to the Intercreditor Agreement, creation, validity and perfection of first priority security interests. This paragraph shall be referred to herein as the “Certain Funds Provision”.
| 7. | Indemnification; Expenses. |
You agree (a) to indemnify and hold harmless each of the Commitment Parties and their respective affiliates and controlling persons and the respective officers, directors, employees, partners, agents and representatives of each of the foregoing and their successors and permitted assigns (each, an “Indemnified Person”) from and against any and all losses, claims, damages, liabilities and expenses, joint or several, to which any such Indemnified Person may become subject arising out of, resulting from or in connection with this Commitment Letter, the Fee Letter, the Transactions or the Facilities, or any claim, litigation, investigation or proceeding (“Action”) relating to any of the foregoing, regardless of whether any such Indemnified Person is a party thereto, whether or not such Action is brought by you, your equity holders, affiliates, creditors or any other person, and to reimburse each such Indemnified Person promptly after receipt of a written request together with customary backup documentation for any
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reasonable legal (limited to one counsel for all Indemnified Persons taken as a whole and, if reasonably necessary, a single local counsel for all Indemnified Persons taken as a whole in each relevant material jurisdiction and, solely in the case of a conflict of interest, one additional counsel in each relevant jurisdiction to each group of affected Indemnified Persons similarly situated taken as a whole) or other reasonable out-of-pocket expenses incurred in connection with investigating or defending any of the foregoing; provided, that the foregoing indemnity will not, as to any Indemnified Person, apply to losses, claims, damages, liabilities or expenses (i) to the extent resulting from the willful misconduct, bad faith or gross negligence of such Indemnified Person or any Related Indemnified Person (as defined below) of the foregoing, (ii) to the extent arising from a material breach of the obligations of such Indemnified Person or any Related Indemnified Persons of the foregoing under this Commitment Letter, the Fee Letter or the Facilities Documentation (in the case of each of preceding clauses (i) and (ii), as determined by a court of competent jurisdiction in a final and non-appealable judgment) or (iii) to the extent arising from any dispute solely among Indemnified Persons other than any claims against any Commitment Party in its capacity or in fulfilling its role as an administrative agent or arranger or any similar role under any Facility and other than any claims arising out of any act or omission on the part of you or your affiliates (as determined by a court of competent jurisdiction in a final and non-appealable judgment), and (b) to reimburse the Commitment Parties and each Indemnified Person from time to time for all reasonable and documented out-of-pocket expenses (including but not limited to expenses of the Commitment Parties’ due diligence investigation (including, without limitation, appraisals and field audits), syndication expenses, travel expenses and reasonable fees, disbursements and other charges of counsel to the Commitment Parties identified in the Term Sheets and, if necessary, of a single local counsel to the Commitment Parties in each relevant jurisdiction material to the interests of the Lenders), in each case incurred in connection with the Facilities and the preparation of this Commitment Letter, the Fee Letter, the Facilities Documentation and any security arrangements in connection therewith (collectively, the “Expenses”); provided, that you shall not be required to reimburse any of the Expenses in the event the Closing Date does not occur. Notwithstanding any other provision of this Commitment Letter, (i) no Indemnified Person shall be liable for any damages arising from the use by others of information or other materials obtained through electronic, telecommunications or other information transmission systems, except to the extent such damages are found in a final non-appealable judgment of a court of competent jurisdiction to have resulted from the willful misconduct or gross negligence of such Indemnified Person or any of its Related Indemnified Persons, and (ii) neither (x) any Indemnified Person, nor (y) you shall be liable for any indirect, special, punitive or consequential damages (in the case of this clause (y), other than in respect of any such damages incurred or paid by an Indemnified Party to a third party) in connection with this Commitment Letter, the Fee Letter, the Facilities, the Transactions (including the Facilities and the use of proceeds thereunder), or with respect to any activities related to the Facilities. You shall not be liable for any settlement of any Action effected without your consent (which consent shall not be unreasonably withheld or delayed), but if settled with your written consent or if there is a final judgment for the plaintiff in any such Actions, you agree to indemnify and hold harmless each Indemnified Person from and against any and all losses, claims, damages, liabilities and expenses by reason of such settlement or judgment in accordance with this Section 7. You shall not, without the prior written consent of an Indemnified Person, effect any settlement of any pending or threatened Actions in respect of which indemnity could have been sought hereunder by such Indemnified Person unless such settlement (a) includes an unconditional release of such Indemnified Person in form and substance reasonably satisfactory to such Indemnified Person from all liability on claims that are the subject matter of such Actions and (b) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of such Indemnified Person.
For purposes hereof, a “Related Indemnified Person” of an Indemnified Person means (1) any controlling person or controlled affiliate of such Indemnified Person, (2) the respective directors, officers, or employees of such Indemnified Person or any of its controlling persons or controlled affiliates and (3) the respective agents of such Indemnified Person or any of its controlling persons or controlled affiliates,
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in the case of this clause (3), acting at the instructions of such Indemnified Person, controlling person or such controlled affiliate; provided that each reference to a controlled affiliate or controlling person in this sentence pertains to a controlled affiliate or controlling person involved in the negotiation or syndication of this Commitment Letter and the Facilities.
| 8. | Sharing Information; Absence of Fiduciary Relationship; Affiliate Activities. |
You acknowledge that the Commitment Parties and their affiliates may be providing debt financing, equity capital or other services (including without limitation investment banking and financial advisory services, securities trading, hedging, financing and brokerage activities and financial planning and benefits counseling) to other companies in respect of which you may have conflicting interests. We will not furnish confidential information obtained from you by virtue of the transactions contemplated by this Commitment Letter or our other relationships with you to other companies (except as contemplated below). You also acknowledge that we do not have any obligation to use in connection with the transactions contemplated by this Commitment Letter, or to furnish to you, confidential information obtained by us or any of our respective affiliates from other companies.
You further acknowledge and agree that (a) no fiduciary, advisory or agency relationship between you and the Commitment Parties is intended to be or has been created in respect of any of the transactions contemplated by this Commitment Letter, irrespective of whether the Commitment Parties have advised or are advising you on other matters, (b) the Commitment Parties, on the one hand, and you, on the other hand, have an arm’s-length business relationship that does not directly or indirectly give rise to, nor do you rely on, any fiduciary duty on the part of the Commitment Parties and you waive, to the fullest extent permitted by law, any claims you may have against us for breach of fiduciary duty or alleged breach of fiduciary duty and agree that we will have no liability (whether direct or indirect) to you in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on your behalf, including equity holders, employees or creditors, (c) you are capable of evaluating and understanding, and you understand and accept, the terms, risks and conditions of the transactions contemplated by this Commitment Letter, (d) you have been advised that the Commitment Parties and their affiliates are engaged in a broad range of transactions that may involve interests that differ from your and your affiliates’ interests and that the Commitment Parties have no obligation to disclose such interests and transactions to you or your affiliates, (e) you have consulted your own legal, accounting, regulatory and tax advisors to the extent you have deemed appropriate and (f) each Commitment Party has been, is and will be acting solely as a principal and, except as otherwise expressly agreed in writing by the relevant parties, has not been, is not and will not be acting as an advisor, agent or fiduciary for you, any of your affiliates or any other person or entity. In addition, the Commitment Parties may employ the services of their respective affiliates in providing certain services hereunder and may exchange with such affiliates in connection therewith information concerning you and the Company, and such affiliates shall be entitled to the benefits afforded to, and subject to the obligations of, the Commitment Parties under this Commitment Letter.
You further acknowledge that each Commitment Party and its affiliates is a full service securities firm engaged in securities trading and brokerage activities as well as providing investment banking and other financial services. In the ordinary course of business, each Commitment Party may provide investment banking and other financial services to, and/or acquire, hold or sell, for its own accounts and the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of, you, the Borrower, the Company and its subsidiaries and other companies with which you, the Borrower, the Sponsor or the Company or its subsidiaries may have commercial or other relationships. With respect to any securities and/or financial instruments so held by the Commitment Parties, their affiliates or any of their respective customers, all rights in respect of such securities and financial instruments, including any voting rights, will be exercised by the holder of the rights, in its sole discretion.
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You further acknowledge and agree that you are responsible for making your own independent judgment with respect to such transactions and the process leading thereto. Additionally, you acknowledge and agree that we are not advising you as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction (including, without limitation, with respect to any consents needed in connection with the transactions contemplated hereby). You shall consult with your own advisors concerning such matters and shall be responsible for making your own independent investigation and appraisal of the transactions contemplated hereby (including, without limitation, with respect to any consents needed in connection therewith), and we shall have no responsibility or liability to you with respect thereto.
| 9. | Assignments; Amendments; Governing Law, Etc. |
This Commitment Letter and the commitments hereunder shall not be assignable by any party hereto (except by you to an affiliate that is a newly formed domestic “shell” company controlled by the Sponsor that consummates or intends to consummate the Acquisition or any other assignment that occurs as a matter of law pursuant to the merger of you with the Company at the closing of the Acquisition in accordance with the Merger Agreement) without the prior written consent of each other party hereto (and any attempted assignment without such consent shall be null and void), is intended to be solely for the benefit of the parties hereto (and Indemnified Persons), is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto (and Indemnified Persons) and is not intended to create a fiduciary relationship among the parties hereto. Any and all services to be provided by the Commitment Parties hereunder may be performed by or through any of their respective affiliates or branches. This Commitment Letter may not be amended or any provision hereof waived or modified except by an instrument in writing signed by the Commitment Parties and you. This Commitment Letter may be executed in any number of counterparts, each of which shall be an original and all of which, when taken together, shall constitute one agreement. Delivery of an executed counterpart of a signature page of this Commitment Letter by facsimile transmission or by “.pdf” or similar electronic transmission shall be effective as delivery of a manually executed counterpart hereof. Section headings used herein are for convenience of reference only, are not part of this Commitment Letter and are not to affect the construction of, or to be taken into consideration in interpreting, this Commitment Letter. You acknowledge that information and documents relating to the Facilities may be transmitted through SyndTrak, Intralinks, the internet, e-mail, or similar electronic transmission systems, and, notwithstanding anything herein to the contrary, that the Commitment Parties shall not be liable for any damages arising from the unauthorized use by others of information or documents transmitted in such manner. This Commitment Letter, together with the Fee Letter dated the date hereof, supersedes all prior understandings, whether written or oral, among us with respect to the Facilities and sets forth the entire understanding of the parties hereto with respect thereto. THIS COMMITMENT LETTER, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATING TO THIS COMMITMENT LETTER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK; provided, however, that whether there shall have been any effect, change, event or occurrence that has had or would reasonably be expected to have a Material Adverse Effect shall be construed in accordance with the laws of the State of Delaware, applicable to contracts executed in and to be performed entirely within the State, regardless of the laws that might otherwise govern under any applicable conflict of laws principles.
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| 10. | WAIVER OF JURY TRIAL. |
EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BROUGHT BY OR ON BEHALF OF ANY PARTY RELATED TO OR ARISING OUT OF THE ACQUISITION, THIS COMMITMENT LETTER, THE FEE LETTER OR THE PERFORMANCE BY US OR ANY OF OUR AFFILIATES OF THE SERVICES HEREUNDER OR THEREUNDER.
| 11. | Jurisdiction. |
Each of the parties hereto hereby irrevocably and unconditionally (a) submits, for itself and its property, to the exclusive jurisdiction of (i) any New York State court or Federal court of the United States of America sitting in the Borough of Manhattan in the City of New York, and any appellate court from any thereof, as to any action or proceeding arising out of or relating to this Commitment Letter, the Fee Letter or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court, (b) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Commitment Letter, the Fee Letter or the transactions contemplated hereby or thereby in any court in which such venue may be laid in accordance with clause (a) of this sentence, (c) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court and (d) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Service of any process, summons, notice or document by registered mail or overnight courier addressed to any of the parties hereto at the addresses above shall be effective service of process against such party for any suit, action or proceeding brought in any such court.
| 12. | Confidentiality. |
This Commitment Letter is delivered to you on the understanding that none of this Commitment Letter or the Fee Letter or their terms or substance shall be disclosed, directly or indirectly, to any other person or entity (including other lenders, underwriters, placement agents, advisors or any similar persons) except (a) to the Sponsor, any Investor (as defined in Exhibit A) and to your and their officers, directors, employees, affiliates, members, partners, stockholders, attorneys, accountants, agents and advisors and on a confidential basis, (b) if the Commitment Parties consent in writing to such proposed disclosure, (c) that the Term Sheets and the existence of this Commitment Letter (but not this Commitment Letter, the contents of this Commitment Letter, or the Fee Letter) may be disclosed to any rating agency in connection with the Transactions or (d) pursuant to the order of any court or administrative agency in any pending legal or administrative proceeding, or otherwise as required by applicable law or regulation or as requested by a governmental authority (in which case you agree to inform us promptly thereof to the extent lawfully permitted to do so); provided that (i) you may disclose this Commitment Letter and the contents thereof (but not the Fee Letter and the contents thereof except to the extent the foregoing shall have been redacted in a manner reasonably acceptable to the Commitment Parties) to the Company and its officers, directors, employees, attorneys, accountants, agents and advisors, on a confidential basis, (ii) you may disclose, on a confidential basis, the aggregate amount of the fees (including upfront fees and original issue discount) payable under the Fee Letter as part of generic disclosure regarding sources and uses (but without disclosing any specific fees set forth therein) in connection with any syndication of the Facilities or prospectus or offering memorandum related to the Senior Notes (or any debt securities or loans issued pursuant to, or as contemplated by, the Fee Letter), (iii) you may disclose, on a confidential
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basis, to the Company’s auditors the Fee Letter and the contents thereof after the Closing Date for customary accounting purposes, including accounting for deferred financing costs and (iv) you may, in each case solely to the extent required pursuant to United States federal and state securities laws, disclose the existence and terms of the Commitment Letter (but not the Fee Letter or the contents thereof) in any syndication of the Facilities or in any prospectus or other offering memorandum related to the Senior Notes (or any Permanent Debt issued in lieu of the Senior Notes) or in any proxy statement or other public filing in connection with the Acquisition.
Each Commitment Party and its affiliates will use all confidential information provided to it or such affiliates by or on behalf of you hereunder solely for the purpose of providing the services which are the subject of this Commitment Letter and shall treat confidentially all such information; provided that nothing herein shall prevent a Commitment Party from disclosing any such information (a) pursuant to the order of any court or administrative agency or otherwise as required by applicable law or regulation or as requested by a governmental authority (in which case such Commitment Party, to the extent permitted by law, rule or regulation, agrees to inform you promptly thereof), (b) upon the request or demand of any regulatory authority having jurisdiction over such Commitment Party or any of its affiliates (in which case such Commitment Party agrees to inform you promptly thereof prior to such disclosure, unless such Commitment Party is prohibited by applicable law from so informing you, or except in connection with any request as part of a regulatory examination), (c) to the extent that such information becomes publicly available other than by reason of improper disclosure by such Commitment Party or any of its affiliates, (d) to the extent that such information is received by such Commitment Party from a third party that is not to such Commitment Party’s knowledge subject to confidentiality obligations to you, the Company, the Borrower or the Sponsor, (e) to the extent that such information is independently developed by such Commitment Party, (f) to such Commitment Party’s affiliates and their officers, directors, employees, legal counsel, independent auditors and other experts or agents who need to know such information in connection with the Transactions and are informed of the confidential nature of such information, (g) to prospective Lenders, participants or assignees or any potential counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower or any of its subsidiaries or any of their respective obligations, in each case who agree to be bound by the terms of this paragraph (or language substantially similar to this paragraph), (h) for purposes of establishing a “due diligence” defense or (i) to ratings agencies. Each Commitment Party’s obligations under this paragraph shall automatically terminate and be superseded by the confidentiality provisions in the definitive documentation relating to each of the Facilities upon the execution and delivery of the definitive documentation therefor and in any event shall terminate two years from the date hereof.
| 13. | Surviving Provisions. |
The indemnification, payment of fees, confidentiality, jurisdiction, venue, governing law, no agency or fiduciary duty and waiver of jury trial provisions contained herein and in the Fee Letter shall remain in full force and effect regardless of whether definitive financing documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or the Initial Lenders’ commitments hereunder and the Lead Arrangers’ agreements to provide the services described herein; provided that your obligations under this Commitment Letter, other than those relating to confidentiality and to the syndication of the Facilities, shall automatically terminate and be superseded by the definitive documentation relating to the Facilities upon the initial funding under the Senior Facilities, and you shall be released from all liability in connection therewith at such time (it being understood that your obligations under this Commitment Letter relating to confidentiality and syndication of the Facilities shall survive the execution and delivery of such definitive documentation).
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| 14. | PATRIOT ACT Notification. |
We hereby notify you that pursuant to the requirements of the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Patriot Act”), each Commitment Party and each Lender is required to obtain, verify and record information that identifies the Borrower and each Guarantor, which information includes the name, address, tax identification number and other information regarding the Borrower and each Guarantor that will allow such Commitment Party or such Lender to identify the Borrower and each Guarantor in accordance with the Patriot Act. This notice is given in accordance with the requirements of the Patriot Act and is effective as to the Commitment Parties and each Lender.
| 15. | Acceptance and Termination. |
If the foregoing correctly sets forth our agreement, please indicate your acceptance of the terms of this Commitment Letter and of the Fee Letter by returning to the Lead Arrangers executed counterparts hereof and of the Fee Letter not later than 11:59 p.m., New York City time, on November 26, 2010. Each Commitment Party’s respective commitments hereunder and agreements contained herein will expire at such time in the event that the Lead Arrangers have not received such executed counterparts in accordance with the immediately preceding sentence. In the event that the initial borrowing in respect of the Term Facility, the initial closing under the ABL Facility and, to the extent the Senior Notes (or any Permanent Debt (as defined in the Fee Letter) issued in lieu of the Senior Notes) have not been issued, the initial borrowing in respect of the Senior Bridge Facility, do not occur on or before May 18, 2011 (or such earlier date which is the earlier of (i) the date on which the Merger Agreement is validly terminated in accordance with its terms and (ii) the date of the consummation of the Acquisition (but not, for the avoidance of doubt, prior to the consummation thereof)), then this Commitment Letter and the commitments and undertakings of the Commitment Parties hereunder shall automatically terminate unless each of them shall, in their discretion, agree to an extension. In the event of the closing of the Acquisition without the use of the Senior Bridge Facility, our commitment hereunder with respect to the Senior Bridge Facility shall automatically terminate. Notwithstanding anything in this paragraph to the contrary, the termination of any commitment pursuant to this paragraph does not prejudice our or your rights and remedies in respect of any breach of this Commitment Letter.
[Remainder of this page intentionally left blank]
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The Commitment Parties are pleased to have been given the opportunity to assist you in connection with the financing for the Acquisition.
| Very truly yours, | ||
| BANK OF AMERICA, N.A. | ||
| By | /s/ Aaron J. Peyton | |
| Name: | Aaron J. Peyton | |
| Title: | Managing Director | |
| MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED | ||
| By | /s/ Aaron J. Peyton | |
| Name: | Aaron J. Peyton | |
| Title: | Managing Director | |
[SIGNATURE PAGE TO COMMITMENT LETTER]
| GOLDMAN SACHS BANK USA | ||
| By | /s/ Alexis Maged | |
| (Authorized Signatory) | ||
[SIGNATURE PAGE TO COMMITMENT LETTER]
| Accepted and agreed to as of | ||
| the date first above written: | ||
| Chinos Acquisition Corporation | ||
| By | /s/ Ronald Cami | |
| Name: Ronald Cami | ||
| Title: Vice President | ||
[SIGNATURE PAGE TO COMMITMENT LETTER]
EXHIBIT B
Project Chino
$250,000,000 Senior Secured Asset-Based Revolving Facility
Summary of Principal Terms and Conditions1
| Borrower: | Initially Chinos Acquisition Corporation (“Merger Sub”), a Delaware corporation, and, following the Acquisition, the Company as the survivor of the Merger contemplated thereby (the “Borrower”). | |
| ABL Administrative Agent: | Bank of America will act as sole and exclusive administrative agent (in such capacity, the “ABL Administrative Agent”) and collateral agent for a syndicate of banks, financial institutions and institutional lenders reasonably acceptable to the Borrower excluding any Disqualified Lender (together with the Initial ABL Lenders, the “ABL Lenders”), and will perform the duties customarily associated with such roles. | |
| Joint Bookrunners and Joint Lead Arrangers: |
MLPFS and GS Bank will act as joint lead arrangers for the ABL Facility (the “ABL Lead Arrangers”) and as joint bookrunners, and will perform the duties customarily associated with such roles. | |
| ABL Facility: | A senior secured asset-based revolving credit facility in an aggregate principal amount of $250.0 million (the “ABL Facility”), of which up to an amount to be agreed (and in any event no less than $125.0 million) will be available in the form of letters of credit. Amounts under the ABL Facility will be available in U.S. dollars and in such other currencies as the Borrower, the ABL Lead Arrangers and the ABL Administrative Agent may agree (subject to sublimits for such non-U.S. currencies to be agreed upon). | |
| Final Maturity: | The ABL Facility will mature on the date that is five years after the Closing Date and all outstanding amounts shall be due and payable on such date; provided, that the ABL Facility Documentation shall provide the right for the Borrower to extend commitments and/or outstandings pursuant to one or more tranches with only the consent of the respective extending ABL Lenders; it being understood that any such amend and extend will be subject to a most favored nation provision based on yield on terms to be mutually agreed by the ABL Lead Arrangers and the Borrower and that each ABL Lender shall have the opportunity to participate in such extension on the same terms and conditions as each other ABL Lender. | |
| Interest Rates: | As set forth on Annex I hereto. | |
| Default Rate: | Any principal payable under or in respect of the ABL Facility not paid when due shall bear interest at the applicable interest rate plus 2% per annum. Other overdue amounts (including overdue interest) shall bear interest at the interest rate applicable to ABR loans plus 2% per annum. | |
| 1 | All capitalized terms used but not defined herein have the meanings given to them in the Commitment Letter to which this Term Sheet is attached, including the Exhibits thereto. In the event any such capitalized term is subject to multiple and differing definitions, the appropriate meaning thereof in this Exhibit shall be determined by reference to the context in which it is used. |
B-1
EXHIBIT B
| Guarantees: | All obligations of the Borrower (the “Borrower Obligations”) under the ABL Facility and under any interest rate protection or other hedging arrangements entered into with an ABL Lender or any affiliate of an ABL Lender at the time of the entering into of such arrangements and designated by the Borrower as “ABL Hedging Obligations” (“Hedging Obligations”) and under any cash management arrangements entered into with an ABL Lender or any affiliate of an ABL Lender at the time of the entering into of such arrangements and designated by the Borrower as “ABL Cash Management Obligations” (“Cash Management Obligations”) will be unconditionally guaranteed jointly and severally on a senior secured basis (the “Guarantees”) by the direct parent company of the Borrower (“Holdings”) and, except to the extent prohibited or restricted by applicable law (including any requirement to obtain the consent of any governmental authority), each existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiary of the Borrower (other than any direct or indirect U.S. subsidiary of a direct or indirect non-U.S. subsidiary of the Borrower, any U.S. subsidiary that is a disregarded entity for U.S. federal income tax purposes if substantially all of its assets consist of the capital stock of one or more foreign subsidiaries, unrestricted subsidiaries, not-for-profit subsidiaries, special purpose entities used for securitization facilities and immaterial subsidiaries) (the “ABL Subsidiary Guarantors” and, together with Holdings, the “ABL Guarantors” and, collectively with the Borrower and Holdings, the “ABL Loan Parties”). Any guarantees to be issued in respect of the Term Facility, Senior Notes or the Senior Bridge Facility shall be pari passu in right of payment with the obligations under the Guarantees. | |
| Security: | The Borrower Obligations, the Guarantees, any Hedging Obligations and any Cash Management Obligations will be secured by the following: (a) a perfected first-priority security interest in substantially all personal property of the ABL Loan Parties consisting of all accounts receivable, inventory, cash, deposit accounts, securities and commodity accounts (other than the deposit account in which net cash proceeds from the sale of non-Current Asset Collateral (as defined below) are deposited pending reinvestment and which is subject to a first priority security interest in favor of the Term Administrative Agent and the Term Lenders pursuant to the Term Facility), books and records related to the foregoing and general intangibles evidencing, governing, securing or otherwise relating to the foregoing (but excluding, for the avoidance of doubt, intellectual property; provided that, subject to the Intercreditor Agreement (as defined below), the ABL Administrative Agent shall have a license allowing the use of such intellectual property as may be necessary or desirable for the liquidation of the Current Asset Collateral in addition to the benefit of other customary intercreditor provisions relating to access and use of non-Current Asset Collateral) and, in each case, proceeds thereof (the “Current Asset Collateral”); (b) a perfected second-priority pledge of all the capital stock directly held by the Borrower or any ABL Guarantor in any subsidiary (including the stock of the Borrower held by Holdings) (which pledge, in the case of the capital stock of any foreign subsidiary of a U.S. entity or of a U.S. entity that is a disregarded entity for U.S. federal income tax purposes if substantially all of its assets consist of the capital stock of one or more foreign | |
B-2
EXHIBIT B
| subsidiaries, shall be limited to 65% of the stock of such foreign subsidiary or such U.S. entity, as the case may be) and all evidence of indebtedness held by Holdings, the Borrower or any ABL Guarantor (the collateral described in clause (b) collectively, the “Pledged Collateral”); (c) perfected second-priority security interests in, and mortgages on, substantially all plant, owned real property and equipment of the ABL Loan Parties (the “PP&E Collateral”); and (d) perfected second-priority security interests in substantially all other personal property of the ABL Loan Parties, including, without limitation, investment property, contracts (other than those relating to the Current Asset Collateral), patents, copyrights, trademarks and other general intangibles (the “Other Personal Property Collateral” and, together with the Current Asset Collateral, Pledged Collateral and the PP&E Collateral, the “Collateral”), in each case, subject to permitted liens and to customary exceptions. The relative rights and priorities in the Collateral among the ABL Lenders and the lenders under the Term Facility will be set forth in an intercreditor agreement (the “Intercreditor Agreement”) consistent with the ABL Documentation Principles. | ||
| Notwithstanding the foregoing, (a) the Collateral shall not include: (i) any immaterial fee-owned real property and any leasehold interest (it being understood there shall be no requirement to obtain any landlord waivers, estoppels or collateral access letters), (ii) any governmental licenses or state or local franchises, charters and authorizations, to the extent security interests in such licenses, franchises, charters or authorizations are prohibited or restricted thereby (except to the extent such prohibition or restriction is ineffective under the Uniform Commercial Code) other than proceeds thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code notwithstanding such prohibition, (iii) pledges and security interests prohibited or restricted by applicable law (including any requirement to obtain the consent of any governmental authority), (iv) equity interests in joint ventures or any non-wholly-owned subsidiaries, but only to the extent that the organizational documents or other agreements with other equity holders do not permit or restrict the pledge of such equity interests and (v) pledges and security interests in agreements, licenses and leases that are prohibited or restricted by such agreements, licenses and leases (including any requirement to obtain the consent of any governmental authority or third party), to the extent prohibited or restricted thereby (except to the extent such prohibition or restriction is ineffective under the Uniform Commercial Code) other than proceeds thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code notwithstanding such prohibition, (b) control agreements and perfection by “control” (other than in respect of certificated Pledged Collateral) shall not be required with respect to any Collateral (including without limitation deposit accounts, other bank or securities accounts, etc.) (except to the extent expressly required under the caption “Cash Management/Cash Dominion” below); (c) no actions in any non-U.S. jurisdiction or required by the laws of any non-U.S. jurisdiction shall be required in order to create any security interests in assets located or titled outside of the U.S. or to perfect such security interests, including any intellectual property registered in any non-U.S. jurisdiction (it being understood that there shall be no security agreements or pledge agreements governed under the laws of any non-U.S. jurisdiction); and (d) no actions shall | ||
B-3
EXHIBIT B
| be required to perfect a security interest in letter of credit rights, motor vehicle and other assets subject to certificates of title, or commercial tort claims below a threshold to be agreed, other than the filing of a Uniform Commercial Code financing statement. | ||
| Notwithstanding the foregoing, (a) assets will be excluded from the Collateral in circumstances where the costs of obtaining a security interest in such assets exceed the practical benefit to the ABL Lenders afforded thereby, and (b) the requirements of the preceding two paragraphs shall be subject to the Certain Funds Provision. | ||
B-4
ANNEX I
to EXHIBIT B
| Interest Rates: | The interest rates under the ABL Facility will be as follows: | |
| At the option of the Borrower, initially, Adjusted LIBOR plus 2.50% or ABR plus 1.50%, or as otherwise agreed, which margins shall be subject to one step-down and one step-up commencing at the completion of the first full fiscal quarter completed after the Closing Date based on average historical borrowing availability during the preceding quarter less than a percentage of the total commitments to be agreed. | ||
| The Borrower may elect interest periods of 1, 2, 3 or 6 months (or, if agreed by all relevant ABL Lenders, 9 or 12 months or a shorter period) for Adjusted LIBOR borrowings. | ||
| Calculation of interest shall be on the basis of the actual days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of ABR loans based on the Prime Rate) and interest shall be payable (i) in the case of Adjusted LIBOR loans, at the end of each interest period and, in any event, at least every 3 months and (ii) in the case of ABR loans, quarterly in arrears. | ||
| ABR is the Alternate Base Rate, which is the highest of (x) the ABL Administrative Agent’s Prime Rate, (y) the Federal Funds Effective Rate plus 1/2 of 1.0% and (z) Adjusted LIBOR for interest periods of 1 month plus 1.00%.
Adjusted LIBOR is the London interbank offered rate for U.S. dollars, adjusted for customary Eurodollar reserve requirements, if any. | ||
I-B-1
EXHIBIT C
Project Chino
$1,000,000,000 Senior Secured Term Loan Facility
Summary of Principal Terms and Conditions2
| Borrower: | Initially Chinos Acquisition Corporation (“Merger Sub”), a Delaware corporation, and, following the Acquisition, the Company as the survivor of the Merger contemplated thereby (the “Borrower”). | |
| Administrative Agent: | Bank of America will act as sole and exclusive administrative agent (in such capacity, the “Term Administrative Agent”) and collateral agent for a syndicate of banks, financial institutions and institutional lenders (excluding any Disqualified Lender) (together with the Initial Lenders, the “Lenders”), and will perform the duties customarily associated with such roles. | |
| Joint Bookrunners and Joint Lead Arrangers: |
MLPFS and GS Bank will act as joint lead arrangers for the Term Facility (the “Lead Arrangers”) and as joint bookrunners, and will perform the duties customarily associated with such roles. | |
| Senior Secured Term Loan Facility: | A senior secured term loan B facility in an aggregate principal amount of $1,000 million (the “Term Facility”). | |
| Interest Rates: | As set forth on Annex I hereto. | |
| Default Rate: | Any principal payable under or in respect of the Term Facility not paid when due shall bear interest at the applicable interest rate plus 2% per annum. Other overdue amounts (including overdue interest) shall bear interest at the interest rate applicable to ABR loans plus 2% per annum. | |
| Final Maturity and Amortization: | The Term Facility will mature on the date that is seven years after the Closing Date and will amortize in equal quarterly installments in aggregate annual amounts equal to 1.00% of the original principal amount of the Term Facility, with the balance payable on the final maturity date; provided, that the Term Facility Documentation shall provide the right for the Borrower to extend commitments and/or outstandings pursuant to one or more tranches with only the consent of the respective extending Lenders; it being understood that any such amend and extend will be subject to a most favored nation provision based on yield on terms to be mutually agreed by the Lead Arrangers and the Borrower and that each Lender under the tranche that is being extended shall have the opportunity to participate in such extension on the same terms and conditions as each other Lender under such tranche. | |
| 2 | All capitalized terms used but not defined herein have the meanings given to them in the Commitment Letter to which this Term Sheet is attached, including the Exhibits thereto. In the event any such capitalized term is subject to multiple and differing definitions, the appropriate meaning thereof in this Exhibit shall be determined by reference to the context in which it is used. |
C-1
EXHIBIT C
| Guarantees: | All obligations of the Borrower (the “Borrower Obligations”) under the Term Facility and under any interest rate protection or other hedging arrangements entered into with a Lender or any affiliate of a Lender at the time of the entering into of such arrangements and designated by the Borrower as “Term Hedging Obligations” (“Hedging Obligations”) and under any cash management arrangements entered into with a Lender or any affiliate of a Lender at the time of the entering into of such arrangements and designated by the Borrower as “Term Cash Management Obligations” (“Cash Management Obligations”) will be unconditionally guaranteed jointly and severally on a senior secured basis (the “Guarantees”) by the direct parent company of the Borrower (“Holdings”) and, except to the extent prohibited or restricted by applicable law (including any requirement to obtain the consent of any governmental authority), each existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiary of the Borrower (other than any direct or indirect U.S. subsidiary of a direct or indirect non-U.S. subsidiary of the Borrower, any U.S. subsidiary that is a disregarded entity for U.S. federal income tax purposes if substantially all of its assets consist of the capital stock of one or more foreign subsidiaries, unrestricted subsidiaries, not-for-profit subsidiaries, special purpose entities used for securitization facilities and immaterial subsidiaries) (the “Subsidiary Guarantors” and, together with Holdings, the “Guarantors”). Any guarantees to be issued in respect of the ABL Facility, the Senior Notes or the Senior Bridge Facility shall be pari passu in right of payment with the obligations under the Guarantees. | |
| Security: | The Borrower Obligations, the Guarantees, any Hedging Obligations and any Cash Management Obligations will be secured by the following: (a) a perfected second-priority security interest in the Current Asset Collateral, (b) a perfected first-priority pledge of the Pledged Collateral, (c) perfected first-priority security interests in, and mortgages on, the PP&E Collateral and (d) perfected first priority security interests in the Other Personal Property Collateral (the foregoing, collectively, the “Collateral”), in each case, subject to permitted liens and to customary exceptions. “Current Asset Collateral”, “Pledged Collateral”, “PP&E Collateral” and “Other Personal Property Collateral” are each used herein as they are defined in the ABL Facility Term Sheet. The relative rights and remedies in the Collateral among the Lenders and the lenders under the ABL Facility will be set forth in an intercreditor agreement (the “Intercreditor Agreement”) consistent with the Term Facility Documentation Principles.
Notwithstanding the foregoing, (a) the Collateral shall not include: (i) any immaterial fee-owned real property and any leasehold interest (it being understood there shall be no requirement to obtain any landlord waivers, estoppels or collateral access letters), (ii) any governmental licenses or state or local franchises, charters and authorizations, to the extent security interests in such licenses, franchises, charters or authorizations are prohibited or restricted thereby (except to the extent such prohibition or restriction is ineffective under the Uniform Commercial Code) other than proceeds thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code notwithstanding such prohibition, (iii) pledges and security interests prohibited or restricted by applicable law (including any requirement to obtain the consent of any governmental authority), (iv) equity interests in joint ventures or any | |
C-2
EXHIBIT C
| non-wholly-owned subsidiaries, but only to the extent that the organizational documents or other agreements with other equity holders do not permit or restrict the pledge of such equity interests and (v) pledges and security interests in agreements, licenses and leases that are prohibited or restricted by such agreements, licenses and leases (including any requirement to obtain the consent of any governmental authority or third party), to the extent prohibited or restricted thereby (except to the extent such prohibition or restriction is ineffective under the Uniform Commercial Code) other than proceeds thereof, the assignment of which is expressly deemed effective under the Uniform Commercial Code notwithstanding such prohibition; (b) control agreements and perfection by “control” (other than in respect of certificated Pledged Collateral) shall not be required with respect to any Collateral (including without limitation deposit accounts, other bank or securities accounts, etc.) (except to the extent expressly required under the caption “Cash Management/Cash Dominion” in Exhibit B above); (c) no actions in any non-U.S. jurisdiction or required by the laws of any non-U.S. jurisdiction shall be required in order to create any security interests in assets located or titled outside of the U.S. or to perfect such security interests, including any intellectual property registered in any non-U.S. jurisdiction (it being understood that there shall be no security agreements or pledge agreements governed under the laws of any non-U.S. jurisdiction); and (d) no actions shall be required to perfect a security interest in letter of credit rights, motor vehicles and other assets subject to certificates of title or commercial tort claims below a threshold to be agreed, other than the filing of a Uniform Commercial Code financing statement. | ||
| Notwithstanding the foregoing, (a) assets will be excluded from the Collateral in circumstances where the Term Administrative Agent reasonably determines that the costs of obtaining a security interest in such assets exceed the practical benefit to the Lenders afforded thereby, and (b) the requirements of the preceding two paragraphs shall be subject to the Certain Funds Provision. | ||
C-3
ANNEX I
to EXHIBIT C
| Interest Rates: | The interest rates under the Term Facility will be as follows: | |
| At the option of the Borrower, Adjusted LIBOR plus 4.50% or ABR plus 3.50%, or as otherwise agreed. | ||
| The Borrower may elect interest periods of 1, 2, 3 or 6 months (or, if agreed by all relevant Lenders, 9 or 12 months or a shorter period) for Adjusted LIBOR borrowings. | ||
| Calculation of interest shall be on the basis of the actual days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of ABR loans based on the Prime Rate) and interest shall be payable (i) in the case of Adjusted LIBOR loans, at the end of each interest period and, in any event, at least every 3 months and (ii) in the case of ABR loans, quarterly in arrears. | ||
| ABR is the Alternate Base Rate, which is the highest of the Term Administrative Agent’s Prime Rate and the Federal Funds Effective Rate plus 1/2 of 1.0%, and subject to a floor of 2.50%, or as otherwise agreed. | ||
| Adjusted LIBOR is the London interbank offered rate for U.S. dollars, adjusted for customary Eurodollar reserve requirements, if any, and subject to a floor of 1.50%, or as otherwise agreed. | ||
I-C-1
EXHIBIT D
Project Chino
$600,000,000 Senior Unsecured Increasing Rate Bridge Facility
Summary of Principal Terms and Conditions3
| Borrower: | The Borrower under the Senior Facilities. | |
| Administrative Agent: | GS Bank will act as sole and exclusive administrative agent (in such capacity, the “Bridge Administrative Agent”) for a syndicate of banks, financial institutions and institutional lenders excluding any Disqualified Lender (together with the Initial Lenders, the “Lenders”), and will perform the duties customarily associated with such role. | |
| Joint Bookrunners and Joint Lead Arrangers: |
GS Bank and MLPFS will act as joint lead arrangers for the Senior Bridge Loans (the “Lead Arrangers”) and as joint bookrunners, and will perform the duties customarily associated with such roles. | |
| Bridge Loans: | Senior Unsecured Increasing Rate Bridge Loans (the “Senior Bridge Loans”). | |
| Principal Amount: | $600 million of Senior Bridge Loans. | |
| Guarantees: | Each existing and subsequently acquired or organized guarantor of the Senior Facilities will jointly and severally guarantee the Senior Bridge Loans on a senior unsecured basis, with the guarantee of each such guarantor under the Senior Bridge Facility being pari passu in right of payment with all obligations under the Senior Facilities. After the first anniversary of the Closing Date, any guarantee will be automatically released upon the release of the corresponding guarantee under the Senior Facilities (other than upon payment in full thereof). | |
| Interest Rates: | Interest for the first three-month period commencing on the Closing Date shall be payable in respect of Senior Bridge Loans, at (a) Adjusted LIBOR (as defined below) plus (b) 800 basis points (the “Initial Margin”). Thirty (30) days after the Closing Date, the interest rate shall be equal to a cap agreed between the Borrower and the Arrangers and the Bride Administrative Agent.
“Adjusted LIBOR” on any date, means the greater of (i) the London interbank offered rate for U.S. dollars, adjusted for customary Eurodollar reserve requirements if any, for a three month period (as determined two business days prior to the start of the applicable interest period) and (ii) 1.50%. | |
| Default Rate: | The applicable interest rate plus 2.0% on overdue amounts. | |
| Notwithstanding anything to the contrary set forth herein, in no event shall the senior cap affect the payment of any default rate of interest in respect of any Senior Bridge Loans, Senior Term Loans or Senior Exchange Notes. | ||
| 3 | All capitalized terms used but not defined herein have the meanings given to them in the Commitment Letter to which this Term Sheet is attached, including the Exhibits thereto. In the event any such capitalized term is subject to multiple and differing definitions, the appropriate meaning thereof in this Exhibit shall be determined by reference to the context in which it is used. |
D-1
EXHIBIT D
| Notwithstanding anything to the contrary set forth above, at no time shall the per annum yield on the Senior Bridge Loans exceed a cap agreed between the Borrower and the Arrangers and the Bridge Administrative Agent. | ||
| Maturity: | The Senior Bridge Loans will mature on the first anniversary of the Closing Date (the “Maturity Date”). On the Maturity Date, unless a bankruptcy event of default has occurred on such date, any Senior Bridge Loan that has not been previously repaid in full will be automatically converted into a senior unsecured term loan (a “Senior Term Loan”) that is due on the date that is eight years after the Closing Date. The date on which Senior Bridge Loans are converted into Senior Term Loans is referred to as the “Conversion Date”. On the Conversion Date, and no more than a number of times to be agreed per calendar month occurring thereafter, at the option of the applicable Lender, Senior Term Loans may be exchanged in whole or in part for senior unsecured exchange notes (the “Senior Exchange Notes”) having an equal principal amount; provided, that no Senior Exchange Notes shall be issued until the Borrower shall have received requests to issue at least $100 million in aggregate principal amount of Senior Exchange Notes. | |
| The Senior Term Loans will be governed by the provisions of the Senior Bridge Loan Documents and will have the same terms as the Senior Bridge Loans except as expressly set forth on Annex I hereto. The Senior Exchange Notes will be issued pursuant to an indenture that will have the terms set forth on Annex II hereto. The Senior Bridge Loans, the Senior Term Loans and the Senior Exchange Notes shall be pari passu for all purposes. | ||
D-2
ANNEX I to
EXHIBIT D
Senior Term Loans
| Maturity: | The Senior Term Loans will mature on the date that is eight years after the Closing Date. | |
| Interest Rate: | The Senior Term Loans will bear interest at a rate equal to the senior cap. Interest shall be payable quarterly and on the maturity date of the Senior Term Loans, in each case payable in arrears and computed on the basis of a 360 day year. | |
I-D-1
ANNEX II to
EXHIBIT D
Senior Exchange Notes
| Maturity: | The Senior Exchange Notes will mature on the date that is eight years after the Closing Date. | |
| Guarantees: | Same as the Senior Term Loans. | |
| Interest Rate: | The Senior Exchange Notes will bear interest payable semi-annually in arrears at the senior cap. | |
II-D-1
Exhibit (c)(3)
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PRELIMINARY DRAFT
Goldman Sachs
Discussion Materials on Project Tweed
Goldman, Sachs & Co.
October 4, 2010
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PRELIMINARY DRAFT
Goldman Sachs
Discussion Topics
Process and Timing
Initial approach
Anticipated Special Committee process
Announcement
Closing
Proposal
Price
Other terms
Conditions, if any
Price
Management projections vs. Tweed projections
Current business momentum
Shareholder perspectives
Financing
Leverage and terms
Commitment papers and conditions
Timing
Anticipated Special Committee Process
Legal and financial advisors
Length of process
Pre or post-signing market check
Deal protections
Interlopers and Other Related Issues
Financial buyers
Strategic buyers
Activists
ISS
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PRELIMINARY DRAFT
Goldman Sachs
Table of Contents
I. Process and Timing Considerations
II. Public Market Overview
III. Overview of Financials
IV. Take Private Analysis and Financing
V. Plaid Special Committee Considerations and Perspectives on Alternatives
Appendix A: Supplemental Materials
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PRELIMINARY DRAFT
Goldman Sachs
I. Process and Timing Considerations
Process and Timing Considerations 1
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Goldman Sachs
Key Process Considerations
Initial Approach
MD / JC to make calls to the board members over the next week
Special committee could be formed prior to receipt of the Proposal from Tweed to define and expedite the Process
Business diligence with Plaid subject to the approval of the Special Committee prior or after submitting the formal Proposal
Proposal
Proposal submitted after the initial board member conversations
Present a “fully baked” offer vs. indication of desire to present offer
Limited conditionality
Subject to confirmatory legal diligence (assuming business diligence takes place prior to submission of the Proposal)
Committed financing also subject to confirmatory legal diligence
Special Committee Process
The Board will set up an independent special committee after having preliminary conversations with MD / JC or after receiving a formal Proposal from Tweed
Obligation to represent all shareholders
Would retain its own investment bank and counsel
Likely to move deliberately and carefully
Generally, the Special Committee will consider two potential paths:
A pre-signing market check will generally lengthen the pre-announcement timeframe and could include both strategic and financial buyers
The time required for a post-signing market check / “go shop” will depend on the emergence of competing bids post announcement and requires careful consideration of deal protection mechanics
The go shop windows generally range from 30 to 45 days, with the median length of 40 days for the recent deals
Process and Timing Considerations 2
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PRELIMINARY DRAFT
Goldman Sachs
Key Process Considerations (cont.)
Special Committee Process (cont’d)
Special committee will evaluate fairness of process and price
Consider Plaid’s operating plan on a stand-alone basis compared to all alternatives, such as a sale or leveraged recap
Special committee’s financial advisor will conduct an independent review of the Company
Transaction Structure
Tender Offer generally faster than Merger
For the tender offer, ultimate timing from signing of Merger Agreement to full consummation of transaction using short-form merger is typically 5-6 weeks barring regulatory delays vs. 8-12 weeks for the Merger
Plaid transaction may be subject to regulatory review as a 13e-3 transaction which might diminish the timing advantage of the Tender
Offer
Disclosure
Transaction requires the Company to prepare and mail a proxy statement if structured as a merger
Transaction may require 13e-3 disclosure
Heightened disclosure obligations and SEC scrutiny of public filings
Increase in filing obligations, including filing projections and financial advisors’ presentations to the Board
Buyer required to provide its view as to the fairness of the transaction
SEC will often take more time to review and will comment extensively on disclosure
Process and Timing Considerations 3
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PRELIMINARY DRAFT
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Project Tweed Illustrative Timeline
October 2010
S M T W T F S
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
November 2010
S M T W T F S
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
December 2010
S M T W T F S
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
January 2011
S M T W T F S
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
February 2011
S M T W T F S
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Key Event US Holiday
Week starting Event
October 4 Preliminary calls to board members
Engage legal counsel
Conduct legal and accounting review based on public documents
Preliminary discussion with Tweed on acquisition and financing terms (October 4)
Draft Commitment papers sent to Tweed
October 11 Plaid Special Committee formed
Tweed and GS to conduct business diligence with Plaid (if approved by Special Committee)
Finalize Commitment papers
Proposal submitted to Plaid
October 18 - November 19
Special Committee Process
Draft and negotiate purchase agreement
Confirmatory legal diligence
Week starting Event
November 22 Sign definitive purchase agreement
Announce the transaction with quarterly earnings (November 23)
Go-shop period begins (November 23)
January 3 Go-shop period ends (40 days)
January 10 Meeting with Credit Rating Agencies
January 31 Bank Meeting
February 7 Shareholder Vote
Launch Bond Roadshow (February 7)
Commitments on Bank Loan / Bond Pricing (February 11)
February 23 Closing
Process and Timing Considerations 4
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PRELIMINARY DRAFT
Goldman Sachs
Selected Transactions with Go-Shop Provisions
Date Announced Target Name Acquiror Name Enterprise Value ($mm) Break-Up Fee ($mm) Reverse Break-Up Fee ($mm) Break-Up Fee as % of Trans. Value Reverse Break- Up Fee as % of Trans. Value Go Shop Go Shop Termination Fee as % of Trans. Value Go Shop Termination Fee ($mm) Go Shop Window (Days) Matching Offer Period (Days)
02-Sep-2010 Burger King Holdings, Inc. 3G Capital 3,900 175 175 5.4% 5.4% Yes 1.5% 50 40 3
16-Aug-2010 Res-Care, Inc. Onex Corporation 551 14 N/A 4.0% N/A Yes 2.7% 9 40 4
13-Aug-2010 Dynegy Inc. The Blackstone Group 5,067 50 100 9.2% 18.4% Yes 3.0% 16 40 4
19-Jul-2010 ATC Technology Corporation GENCO Distribution System, Inc. 415 20 N/A 4.0% N/A Yes 3.0% 15 30 4
15-Jul-2010 NBTY, Inc. The Carlyle Group LLC 3,714 98 214 2.8% 6.1% Yes 1.5% 54 34 3
24-May-2010 Odyssey HealthCare, Inc. Gentiva Health Services, Inc. 878 29 N/A 3.2% N/A Yes 2.7% 24 30 5
12-Apr-2010 DynCorp International Inc. Cerberus Capital Management, L.P. 1,473 30 100 3.0% 10.1% Yes N/A N/A 28 4
29-Mar-2010 BWAY Holding Company Madison Dearborn Partners LLC 829 13 28 2.8% 6.1% Yes 1.1% 5 30 3
08-Mar-2010 Infogroup Inc. CCMP Capital Advisors, LLC 639 16 25 3.4% 5.5% Yes 3.4% 16 21 5
05-Mar-2010 RCN Corporation ABRY Partners LLC 1,235 18 30 3.3% 5.6% Yes 1.9% 10 40 5
26-Feb-2010 CKE Restaurants, Inc. Thomas H. Lee Partners L.P. 920 15 31 2.5% 5.1% Yes 1.5% 9 40 4
16-Dec-2009 Cedar Fair, L.P. Apollo Management, L.P. 2,179 20 50 3.1% 7.9% Yes 1.8% 11 40 4
13-Nov-2009 Silicon Storage Technology, Inc. Prophet Equity LP 126 7 7 3.5% 3.5% Yes 2.0% 4 45 3
05-Nov-2009 IMS Health Incorporated Investment Group 5,057 115 275 2.9% 6.9% Yes 2.0% 80 46 3
28-Sep-2009 GenTek Inc. American Securities Capital Partners 539 10 12 2.6% 3.1% Yes 2.6% 10 45 2
21-Jul-2008 Foundry Networks, Inc. Brocade Communications Systems, 2,133 85 125 3.6% 5.2% Yes 3.6% 85 5 5
19-Jun-2008 Apria Healthcare Group Inc. The Blackstone Group 1,571 28 38 3.1% 4.1% Yes 2.1% 19 35 4
16-Jun-2008 Greenfield Online, Inc. Quadrangle Group LLC 377 10 13 2.5% 3.1% Yes 1.2% 5 50 3
25-Feb-2008 Getty Images, Inc. Hellman & Friedman LLC 2,067 52 78 2.6% 3.9% Yes 1.5% 31 40 3
30-Jan-2008 NuCo2 Inc. Aurora Capital Group 476 20 15 4.5% 3.4% Yes 3.4% 15 45 N/A
18-Jan-2008 Performance Food Group Company Investment Group 1,136 40 40 3.3% 3.3% Yes 1.6% 20 50 2
15-Jan-2008 Lifecore Biomedical, Inc. Warburg Pincus Partners LLC 191 3 9 1.3% 3.9% Yes 0.7% 2 30 3
14-Jan-2008 Bright Horizons Family Solutions, Inc. Bain Capital 1,275 39 39 3.1% 3.1% Yes 1.5% 20 60 N/A
26-Oct-2007 Puget Energy, Inc. Investment Group 3,964 40 130 1.1% 3.7% Yes 0.9% 30 45 5
05-Sep-2007 MarkWest Hydrocarbon, Inc. MarkWest Energy Partners, L.P. 1,223 15 15 2.0% 2.0% Yes 1.0% 8 30 N/A
25-Jul-2007 PRA International Genstar Capital, LLC 703 24 24 3.7% 3.7% Yes 1.2% 8 50 N/A
24-Jul-2007 Ryerson Inc. Platinum Equity LLC 1,888 25 25 2.7% 2.7% Yes 1.6% 15 25 3
23-Jul-2007 Neoware, Inc. Hewlett-Packard Company 252 10 N/A 3.0% N/A Yes 3.0% 10 26 5
23-Jul-2007 Cumulus Media Inc. Management Led Buyout 1,248 15 15 3.2% 3.2% Yes 1.6% 8 45 3
23-Jul-2007 United Rentals, Inc. Cerberus Capital Management, L.P. 5,429 100 100 3.5% 3.5% Yes 1.4% 40 40 3
19-Jul-2007 Williams Scotsman International, Inc. TDR Capital LLP 2,159 40 N/A 3.3% N/A Yes 2.0% 25 30 3
16-Jul-2007 DJO Incorporated The Blackstone Group 1,503 37 37 3.2% 3.2% Yes 1.6% 19 50 5
09-Jul-2007 Sequa Corporation The Carlyle Group LLC 2,648 61 61 3.0% 3.0% Yes 1.5% 30 45 N/A
02-Jul-2007 Reddy Ice Holdings, Inc. GSO Capital Partners LP 678 21 21 3.1% 3.1% Yes 1.0% 7 45 5
20-Jun-2007 Nuveen Investments, Inc. Investment Group 5,652 200 200 3.9% 3.9% Yes 1.9% 100 30 3
15-Jun-2007 Penn National Gaming, Inc. Investment Group 8,355 200 200 3.5% 3.5% Yes 1.7% 100 45 N/A
11-Jun-2007 James River Group, Inc. The D. E. Shaw Group 547 11 11 2.2% 2.2% Yes 1.4% 7 55 3
11-Jun-2007 Horizon Offshore, Inc. Cal Dive International, Inc. 665 25 N/A 3.0% N/A Yes 1.5% 9 45 N/A
Median $ 25 $ 38 3.1% 3.7% 1.6% $ 15 40 3
Mean $ 46 $ 70 3.3% 4.7% 1.9% $ 25 39 4
Source: Goldman Sachs internal analysis
Process and Timing Considerations 5
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PRELIMINARY DRAFT
Goldman Sachs
II. Public Market Overview
Public Market Overview 6
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Share Price has Outperformed Since IPO but Lagged Peers YTD
Since IPO (28-Jun-2006)
Indexed Price
250% 220% 190% 160% 130% 100% 70% 40% 10%
28-Jun-06 28-Nov-07 29-Apr-09 30-Sep-10
3-Year 1-Year 6-Month
Plaid (19.0)% (6.1)% (27.3)%
Specialty Softlines (3.5)% (1.8)% (14.8)%
S&P 500 (25.3)% 8.0% (2.7)%
31.6% 10.7% (8.4)%
Daily from 28-Jun-2006 to 30-Sep-2010
Year to Date
Indexed Price
150% 140% 130% 120% 110% 100% 90% 80% 70% 60%
1-Jan-10 10-Mar-10 17-May-10 24-Jul-10 30-Sep-10
Since Plaid Earnings Release
Q4 2009 Q1 2010 Q2 2010
Plaid (28.5)% (23.3)% 0.6%
Specialty Softlines (8.3)% (6.1)% 14.2%
S&P 500 0.1% 3.5% 9.0%
Q4 2009 Q1 2010 Q2 2010
5.2% 2.3% (24.9)%
Daily from 01-Jan-2010 to 30-Sep-2010
Plaid Specialty Softlines Index S&P 500
Source: Bloomberg
Note: Fiscal year ending January of the following year
Note: Specialty Softlines Index includes Abercrombie, Aeropostale, American Eagle, Ann Taylor, Buckle, Chico’s, Coach, Coldwater Creek, Gap, Guess?, Gymboree, Hot Topic, Limited Brands, and Urban Outfitters
Public Market Overview 7
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PRELIMINARY DRAFT
Goldman Sachs
Approximately 50% of Plaid Shares Have Traded in $40 - $50 Range in YTD Period
(US$ per share)
Plaid Share Price Performance – Since IPO
Closing Price (USD)
$70 $60 $50 $40 $30 $20 $10 $0
Jun-2006 May-2007 Mar-2008 Jan-2009 Nov-2009 Sep-2010
Since IPO 3-Yr 1-Yr YTD
High $56.63 $51.38 $50.00 $50.00
Low $8.77 $8.77 $30.23 $30.23
Median $36.70 $35.55 $41.66 $40.59
9-Mar-2010 Announced Q4 2009 EPS of $0.61, beating consensus estimate of $0.46
27-May-2010 Announced Q1 2010 EPS of $0.68, beating consensus estimate of $0.57
$33.62
26-Aug-2010 Announced Q2 EPS of $0.53, beating consensus estimate of $0.46
Daily from 28-Jun-2006 to 30-Sep-2010
Shares Traded at Various Prices – YTD
Weighted Average Price: $39.78
0.0% 27.0% 24.7% 23.3% 24.9% 0.0%
<$30 $30-$35 $35-$40 $40-$45 $45-$50 >$50
Shares Traded at Various Prices – Last 1 Year
Weighted Average Price: $40.31
0.0% 21.3% 22.6% 34.8% 21.4% 0.0%
<$30 $30-$35 $35-$40 $40-$45 $45-$50 >$50
Shares Traded at Various Prices – Last 3 Years
Weighted Average Price: $32.17
36.8% 16.7% 14.9% 18.8% 12.4% 0.4%
<$30 $30-$35 $35-$40 $40-$45 $45-$50 >$50
Source: Bloomberg. Note:
Note: Market data as of 30-Sep-2010
Public Market Overview 8
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Top 20 Institutional Shareholders
Top 20 Institutional Holders
Institutional Holder Equity Assets ($MM) Cost Basis ($) Q2 ‘10 Pos. (Shares) Q2 ‘10 % Shares Out. Q2 ‘09 Pos. (Shares) Q2 ‘09 % Shares Out. Q2 ‘08 Pos. (Shares) % Owned Q2 ‘08
Fidelity Management & Research $ 499,959 $ 33.87 9,272,405 14.2 % 8,754,586 12.4 % 9,269,007 12.8 %
Baron Capital Management, Inc. 14,289 34.52 5,524,641 8.5 5,815,365 8.2 6,131,275 8.5
Marsico Capital Management, L.L.C. 37,169 43.06 4,365,418 6.7 - - -
Columbia Wanger Asset Management, L.P. 25,777 22.16 2,885,600 4.4 2,529,050 3.6 2,653,550 3.7
Vanguard Group, Inc. 531,516 33.95 2,644,998 4.1 1,920,155 2.7 1,211,378 1.7
BlackRock Institutional Trust Company, N.A. 674,710 30.49 2,453,765 3.8 2,947,990 4.2 1,488,421 2.1
T. Rowe Price Associates, Inc. 240,060 34.68 1,988,520 3.1 6,814,900 9.7 4,457,800 6.2
Janus Capital Management LLC 73,573 35.11 1,560,843 2.4 2,192,818 3.1 - -
Blue Ridge Capital 5,945 44.02 1,490,000 2.3 - - - -
TIAA-CREF 146,817 39.74 1,437,096 2.2 334,736 0.5 697,825 1.0
American Century Investment Management, Inc. 45,636 26.27 1,407,925 2.2 1,650,304 2.3 - -
State Street Global Advisors (US) 447,209 32.87 1,392,942 2.1 2,093,485 3.0 955,584 1.3
Lord, Abbett & Co. LLC 39,674 36.72 1,288,477 2.0 9,714,648 13.8 8,978,969 12.4
Wells Capital Management Inc. 49,987 42.76 1,210,917 1.9 - - - -
JP Morgan Asset Management 103,066 28.94 1,055,019 1.6 557,546 0.8 1,238,697 1.7
AllianceBernstein L.P. 148,722 24.57 1,040,981 1.6 1,735,608 2.5 1,428,353 2.0
Gardner Lewis Asset Management, L.P. 2,595 43.21 983,185 1.5 - - - -
The Roosevelt Investment Group, Inc. 3,455 32.26 948,907 1.5 - - - -
Vinik Asset Management, L.P. 6,373 40.89 787,300 1.2 1,002,201 1.4 401,608 0.6
S.A.C. Capital Advisors, LP 9,282 43.07 748,991 1.1 95,000 0.1 - -
Top 20 Institutional Investors 68.3 % 68.3 % 53.8 %
Ownership Style on Mutual Fund Level
Q2 2010
Specialty 1%
Momentum 1%
Income 1%
Index 15%
Value 4%
GARP 6%
Growth 72%
Q2 2009
Specialty 1%
Momentum 1%
Index 12%
Income 14%
Value 4%
GARP 10%
Growth 58%
Q2 2008
Index 7%
Momentum 4%
Income 14%
Value 4%
GARP 11%
Growth 60%
Source: Thomson Financial. Data as of 30-Sep-10
Public Market Overview 9
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Trading Substantially Below Historical Trading Level
EV / Current Year EBITDA Multiple Over Time (Median Multiples for the Period)
Plaid
EV / 2010 EBITDA
Case EBITDA Mult.
Tweed $293 6.8x
Mgmt $303 6.6x
IBES $311 6.4x
2003 2004 2005 2006 2007 2008 2009 2010YTD Current (IBES)
Plaid NA NA NA 13.7 x 13.9 x 8.3 x 11.2 x 8.3 x 6.4 x
Abercrombie & Fitch 6.0 6.1 8.7 6.8 7.1 5.3 5.5 5.8 6.0
AÉROPOSTALE NA 10.4 8.0 7.6 8.4 7.2 5.7 4.7 4.0
AMERICAN EAGLE OUTFITTERS 5.3 7.4 7.2 7.1 6.7 4.5 6.8 5.0 5.5
ANN TAYLOR 6.1 5.8 7.5 8.0 6.0 4.3 7.7 5.3 4.5
Buckle 5.8 6.6 6.5 6.4 8.5 8.2 5.8 6.0 5.2
COACH 15.2 16.0 15.2 13.7 15.2 7.1 7.1 8.8 9.2
GAP 7.6 6.7 6.1 6.0 7.9 5.9 5.2 4.7 4.0
GUESS 13.2 9.6 6.9 11.4 13.5 8.4 7.2 6.9 7.4
Limitedbrands 5.5 6.0 7.2 8.0 7.8 6.2 6.4 6.5 6.6
lululemon athletica NA NA NA NA NM 21.1 14.2 18.2 18.3
POLO RALPH LAUREN 5.3 8.0 8.2 9.1 10.5 7.6 6.4 8.3 8.9
rue 21 NA NA NA NA NA NA NA 11.5 8.8
urban outfitters 8.5 15.3 17.5 11.9 14.1 13.1 9.3 10.6 8.6
Median 6.1 x 7.4 x 7.5 x 8.0 x 8.5 x 7.2 x 6.8 x 6.5 x 6.6 x
Source: Bloomberg, IBES estimates.
Note: Market data as of 30-Sep-2010
Public Market Overview 10
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Currently Trades Below Peer Median on a P/E Basis
Forward P/E Multiple Over Time (Median Multiples for the Period)
Plaid
2011 P/E
Case EPS Mult.
Tweed $2.45 13.7x
Mgmt $3.02 11.1x
IBES $2.59 13.0x
Plaid
2010 P/E
Case EPS Mult.
Tweed $2.19 15.4x
Mgmt $2.27 14.8x
IBES $2.31 14.6x
Current
2003 2004 2005 2006 2007 2008 2009 2010YTD
(IBES)
Plaid NA NA NA 29.0 x 26.6 x 16.0 x 22.9 x 16.9 x 13.0 x
Abercrombie & Fitch 11.6 12.9 15.9 12.5 13.3 10.3 16.0 15.8 15.9
AÉROPOSTALE 16.3 17.6 13.7 13.8 15.2 13.2 11.6 9.6 8.2
AMERICAN EAGLE OUTFITTERS 12.9 15.7 13.8 14.0 12.0 9.0 14.9 12.3 13.4
ANNTAYLOR 14.0 13.7 18.0 18.3 14.0 11.4 NM 20.0 14.7
Buckle 12.4 13.7 14.0 14.4 16.1 15.1 10.6 10.8 9.9
COACH 25.7 26.3 24.6 20.9 22.8 11.8 14.6 15.6 15.2
GAP 17.8 15.1 13.2 13.2 17.9 12.6 12.8 11.5 9.8
GUESS 30.0 19.4 17.0 21.5 22.0 13.1 12.6 11.7 12.3
Limitedbrands 13.6 14.7 13.9 15.4 12.8 10.6 13.5 13.4 13.4
lululemon athletica NA NA NA NA NA 27.8 25.6 29.8 30.6
POLORALPHLAUREN 11.7 13.3 14.5 17.9 20.0 14.4 15.5 16.1 16.2
rue21 NA NA NA NA NA NA NA 23.3 18.0
urban outfitters 18.5 27.2 28.3 19.0 21.6 21.7 16.6 18.6 15.6
Median 14.0 x 15.1 x 14.5 x 15.4 x 16.1 12.9 x 14.6 x 15.6 x 14.7 x
S&P 16.4 15.8 14.6 13.9 14.4 12.0 12.8 11.9 12.0
Source: Bloomberg, IBES estimates. Note: Market data as of 30-Sep-2010
Public Market Overview 11
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PRELIMINARY DRAFT
Goldman Sachs
Analyst Estimates and Price Targets for Plaid
Underperform 5%
Strong Buy 25%
Buy 15%
Hold 55%
EBITDA Implied EV/EBITDA EPS Implied P/E
Broker Date Recommendation Price Target PV of Price Target FY 2010 FY2011 FY 2010 FY2011 FY 2010 FY2011 FY 2010 FY2011
Goldman Sachs 21-Sep-2010 Hold $33 $31 $304 $321 6.6 x 6.2 x $2.23 $2.32 15.1 x 14.5 x
Atlantic Equities 27-Aug-2010 Underperform 28 NA NA NA NA NA $2.31 $2.46 14.6 13.7
BMO Capital Markets 27-Aug-2010 Hold 31 NA 334 386 6.0 5.2 2.32 2.60 14.5 12.9
BofA Merrill Lynch 8-Sep-2010 Hold 35 NA 303 314 6.6 6.4 2.29 2.35 14.7 14.3
Brean Murray, Carrel 27-Aug-2010 Strong Buy 42 $37 310 353 6.4 5.6 2.30 2.60 14.6 12.9
Janney Montgomery Scott 29-Sep-2010 Hold 37 $33 305 325 6.5 6.1 2.28 2.45 14.7 13.7
Jefferies 27-Aug-2010 Hold 35 $33 308 303 6.5 6.6 2.23 2.31 15.1 14.6
Miller Tabak 7-Sep-2010 Buy 40 NA NA NA NA NA 2.65 2.85 12.7 11.8
JP Morgan 7-Sep-2010 Hold 34 $30 321 333 6.2 6.0 2.34 2.50 14.4 13.4
MKM Partners 27-Aug-2010 Buy 41 $36 321 366 6.2 5.4 2.37 2.70 14.2 12.5
Morningstar 3-Jun-2010 Hold NA NA NA NA NA NA 2.29 NA 14.7 NA
Needham 27-Aug-2010 Hold NA NA NA NA NA NA 2.36 2.58 14.2 13.0
Oppenheimer 1-Jul-2010 Strong Buy 50 $42 332 313 6.0 6.4 2.26 2.70 14.9 12.5
Piper Jaffray 27-Aug-2010 Buy 38 NA 307 342 6.5 5.8 2.36 2.68 14.2 12.5
Raymond James 27-Aug-2010 Hold NA NA NA NA NA NA 2.31 2.58 14.6 13.0
Robert W. Baird 27-Aug-2010 Strong Buy 49 NA 320 367 6.2 5.4 2.40 2.75 14.0 12.2
Stifel Nicolaus 2-Sep-2010 Hold NA NA NA NA NA NA 2.33 2.75 14.4 12.2
UBS 28-Aug-2010 Hold 35 NA 310 345 6.4 5.8 2.32 2.48 14.5 13.6
Wedbush Securities 20-Sep-2010 Strong Buy 40 $35 NA NA NA NA 2.25 2.35 14.9 14.3
Weeden 30-Aug-2010 Strong Buy 40 NA NA NA NA NA 2.27 2.60 14.8 12.9
Median $38 $34 $310 $338 6.4 x 5.9 x $2.31 $2.59 14.6 x 13.0 x
Tweed Case $293 $327 6.8 x 6.1 x $2.19 $2.45 15.4 x 13.7 x
Management Case 303 394 6.6 5.1 2.27 3.02 14.8 11.1
Source: Wall Street Estimates. Market data as of 30-Sep-10
Note: Assumes the cost of equity to be 15.0% to calculate the PV of Target price. Research reports with “NA” unavailable
Public Market Overview 12
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PRELIMINARY DRAFT
Goldman Sachs
Research Analyst Commentary on Plaid is Mixed
Research Analysts’ Have Some Concerns on Near Term Outlook…
“Plaid currently operates near peak level productivity and margins, and laps daunting compares in the next two quarters. Competition is also fierce with extremely picky consumers and fellow women’s retailers providing more options comparable to J.Crew’s coveted style. Rising sourcing costs are also an industry-wide concern lurking ahead.” Jefferies & Company, August 27, 2010
“the outlook for shares over the next 6-12 months comes down to what happens to the earnings base of the core business…if trends deteriorate further, we could see some additional markdown pressure in 4Q and there is substantial risk to record margins.” Goldman Sachs, August 26, 2010
“We have become increasingly concerned regarding merch. margins trends into 1H:11…we anticipate downbeat commentary from management regarding 2H:10 and 2011 margin trends (inventory, sourcing)... should continue to put pressure on shares.” J.P. Morgan, July 15, 2010
“Though Plaid has longer-term store growth potential in Madewell, it is still somewhat unproven and for now EPS growth is much more dependent on comp sales and margin leverage at the core business. Concerns over inventory planned up mid to high-single digits at 2Q end, coupled with fear of sector-wide sales deceleration and tough compares for Plaid, will likely be an overhang.” Goldman Sachs, July 13, 2010
…But Are Bullish on Plaid’s Brand Strength and Growth
“One of the strongest brands with compelling initiatives to drive gradual long-term growth (wedding, men’s, madewell, etc).” Goldman Sachs, August 26, 2010
“Longer term, we believe the company still has the opportunity to expand margins to the high teens through continued 4-5% footage growth, expansion of its direct business and reversal of EBIT dilution from Madewell as it ramps footage and increases brand awareness (recently launched eCommerce).” J.P. Morgan, July 15, 2010 .
“The balance sheet is in the best shape we’ve seen since Plaid went public, with $300 million in cash and less than $50 million in debt following a $50 million prepayment in 2009. Furthermore, we believe CEO Mickey Drexler is highly regarded as a brand leader and merchant and has once again pleased investors with 2009’s 180 degree turnaround from last year’s operation missteps.” J.P.Morgan, July 15, 2010
“If Plaid can execute on its plans to drive more full-priced selling while maintaining a firm control over inventory levels, we believe the company will quickly realize higher margins and drive a premium multiple; we are also excited that the company will begin to aggressively expand in FY12, especially at the money-losing Madewell concept.” Brean Murray Carret & Co, August 27, 2010
Source: Wall Street Research
Public Market Overview 13
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PRELIMINARY DRAFT
Goldman Sachs
III. Overview of Financials
Overview of Financials 14
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Financial Overview
Tweed Projections vs. Management Projections vs. Street ($ in millions, except per share data)
FY 2010 EPS Guidance: $2.25 to $2.35
Q3 2010 EPS Guidance: $0.55 to $0.60
Implied Q4 Guidance: $0.49 to $0.54
FY 2010 Capex: $55 million
Tweed Management IBES Estimates
2H2010E 2010 E 2011 E 2H2010E 2010E Rev. 2010E (Old) 2011 E Q3 2010E Q4 2010E 2H2010E 2010E 2011 E
Total Revenues $ 919 $ 1,740 $ 1,900 $ 932 $ 1,753 $ 1,805 $ 2,034 $ 434 $ 485 $ 920 $ 1,741 $ 1,900
% Growth 5.0% 10.3% 9.2% 6.5% 11.1% 14.4% 16.0% 4.8% 5.3% 5.2% 10.3% 9.1%
% Growth vs. old projections 12.7%
EBITDA $ 132 $ 293 $ 327 $ 142 $ 303 $ 329 $ 394 $ 78 $ 73 $ 151 $ 311 $ 343
% Margin 14.4% 16.8% 17.2% 15.3% 17.3% 18.2% 19.4% 18.1% 15.1% 16.4% 17.9% 18.0%
% Growth (21.6)% 11.4% 11.6% (15.7)% 15.2% 25.1% 30.1% (10.8)% (9.1)% (10.7)% 18.4% 10.1%
% Growth vs. old projections 19.8%
Net Income $ 66 $ 145 $ 164 $ 71 $ 151 $ 166 $ 202 $ 38 $ 35 $ 73 $ 152 $ 173
EPS $ 0.98 $ 2.19 $ 2.45 $ 1.07 $ 2.27 $ 2.50 $ 3.02 $ 0.58 $ 0.53 $ 1.10 $ 2.31 $ 2.59
% Growth (24.0)% 14.3% 12.1% (17.2)% 18.9% 30.8% 32.9% (13.8)% (13.7)% (14.3)% 20.8% 12.1%
% Growth vs. old projections 20.8%
Net Income $ 66 $ 145 $ 164 $ 71 $ 151 $ 166 $ 202
D&A 23 47 52 23 48 48 56
Change in Working Capital 48 0 (10) 48 0 0 (19)
Capital Expenditure (34) (52) (75) (34) (52) (52) (54)
Other 7 6 8 7 6 6 8
Free Cash Flow $ 109 $ 146 $ 139 $ 115 $ 152 $ 167 $ 193
Source: Tweed estimates, Management projections and IBES estimates
Overview of Financials 15
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Financial Overview
Management Plan
($ in millions)
CAGR CAGR
FY 2007 A FY 2008 A FY 2009 A FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E FY 2015 E ‘07A- ‘10E ‘10E- ‘15E
Total Revenue $ 1,335 $ 1,428 $ 1,578 $ 1,753 $ 2,034 $ 2,356 $ 2,709 $ 3,087 $ 3,481 9.5 % 14.7 %
% Growth 7.0 % 10.5 % 11.1 % 16.0 % 15.8 % 15.0 % 14.0 % 12.7 %
Gross Profit $ 589 $ 555 $ 696 $ 777 $ 939 $ 1,091 $ 1,261 $ 1,444 $ 1,643
EBIT $ 175 $ 97 $ 211 $ 255 $ 338 $ 412 $ 501 $ 603 $ 724
D&A 34 44 52 48 56 62 66 69 70
Income Statement EBITDA $ 209 $ 141 $ 263 $ 303 $ 394 $ 474 $ 567 $ 672 $ 793 13.2 % 21.2 %
% Growth (32.7)% 87.1 % 15.2 % 30.1 % 20.2 % 19.5 % 18.5 % 18.1 %
% Margin 15.7 % 9.8 % 16.7 % 17.3 % 19.4 % 20.1 % 20.9 % 21.8 % 22.8 %
Net Income $ 98 $ 54 $ 123 $ 151 $ 202 $ 246 $ 299 $ 360 $ 432 15.3 % 23.4 %
Diluted Shares Outstanding 64 64 65 66 67 67 67 68 68
EPS $ 1.54 $ 0.85 $ 1.91 $ 2.27 $ 3.02 $ 3.67 $ 4.44 $ 5.32 $ 6.36 13.8 % 22.8 %
% Growth (45.2)% 126.2 % 18.9 % 32.9 % 21.3 % 21.1 % 19.9 % 19.5 %
Net Income $ 98 $ 54 $ 123 $ 151 $ 202 $ 246 $ 299 $ 360 $ 432
D&A 34 44 52 48 56 62 66 69 70
Cash Flow Working Capital 7 37 (14) (14) 6 1 (4) (9) (8)
in Working Capital (42) (15) (33) (0) 19 (5) (5) (5) 1
Capital Expenditures 81 78 45 52 54 59 59 58 65
Other 26 5 40 6 8 16 16 16 16
Free Cash Flow $ 120 $ 40 $ 203 $ 152 $ 193 $ 269 $ 326 $ 392 $ 452 8.3 % 24.3 %
Credit Stats Cash $ 132 $ 146 $ 298 $ 375 $ 568 $ 837 $ 1,163 $ 1,556 $ 2,008
Total Debt 125 100 49 0 0 0 0 0 0
Debt / EBITDA 0.6 x 0.7 x 0.2 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x
Adj. Debt / EBITDAR (1) 2.3 x 3.2 x 2.1 x 1.8 x 1.5 x 1.4 x 1.3 x 1.2 x 1.1 x
Op. Metrics Number of Stores 260 300 321 336 373 424 473 522 576
New Stores Growth (%) 14.5 % 15.4 % 7.0 % 4.7 % 11.0 % 13.7 % 11.6 % 10.4 % 10.4 %
Comp Store Sales (%) 5.6 % (4.0)% 4.1 % 10.2 % 6.2 % 6.3 % 6.0 % 6.1 % 6.1 %
Source: Public filings, Management Projections
Note: Assumes tax rate of 40.2%. Assumes rent expense to be 4.9% of sales.
(1) Rent Expense adjusted based on Moody’s methodology.
Overview of Financials 16
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Financial Overview
Tweed Plan
($ in millions)
CAGR CAGR
FY 2007 A FY 2008 A FY 2009 A FY 2010 E FY 2011 E FY 2012 E FY 2013 E FY 2014 E FY 2015 E ‘07A- ‘10E ‘10E- ‘15E
Retail $ 725 $ 743 $ 823 $ 842 $ 879 $ 929 $ 980 $ 1,033 $ 1,088
Factory 187 217 259 297 323 359 399 439 480
Direct 381 413 433 508 569 626 676 723 767
Other 42 55 63 93 129 186 247 313 387
Total Revenue $ 1,335 $ 1,428 $ 1,578 $ 1,740 $ 1,900 $ 2,100 $ 2,302 $ 2,508 $ 2,722 9.2 % 9.4 %
% Growth 7.0 % 10.5 % 10.3 % 9.2 % 10.5 % 9.6 % 8.9 % 8.5 %
Income Statement Gross Profit $ 589 $ 555 $ 696 $ 771 $ 877 $ 973 $ 1,072 $ 1,173 $ 1,284
EBITDA $ 209 $ 141 $ 263 $ 293 $ 327 $ 369 $ 412 $ 455 $ 500 11.9 % 11.3 %
% Growth (32.7)% 87.1 % 11.4 % 11.6 % 12.8 % 11.7 % 10.4 % 9.9 %
% Margin 15.7 % 9.8 % 16.7 % 16.8 % 17.2 % 17.6 % 17.9 % 18.1 % 18.4 %
Net Income $ 98 $ 54 $ 123 $ 145 $ 164 $ 187 $ 212 $ 238 $ 266 13.8 % 12.9 %
Diluted Shares Outstanding 64 64 65 66 67 67 67 68 68
EPS $ 1.54 $ 0.85 $ 1.91 $ 2.19 $ 2.45 $ 2.79 $ 3.15 $ 3.52 $ 3.91 12.3 % 12.3 %
% Growth (45.2)% 126.2 % 14.3 % 12.1 % 13.8 % 13.1 % 11.7 % 11.1 %
Net Income $ 98 $ 54 $ 123 $ 145 $ 164 $ 187 $ 212 $ 238 $ 266
D&A 34 44 52 47 52 55 56 56 54
Cash Flow Working Capital 7 37 (14) (14) (4) 6 16 26 36
in Working Capital (42) (15) (33) (0) 10 10 10 10 10
Capital Expenditures 81 78 45 52 75 85 59 58 65
Other 26 5 40 6 8 16 16 16 16
Free Cash Flow $ 120 $ 40 $ 203 $ 146 $ 139 $ 164 $ 216 $ 242 $ 262 6.9 % 12.3 %
Cash $ 132 $ 146 $ 298 $ 375 $ 514 $ 678 $ 893 $ 1,136 $ 1,397
Total Debt 125 100 49 0 0 0 0 0 0
Credit Stats Debt / EBITDA 0.6 x 0.7 x 0.2 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x 0.0 x
Adj. Debt / EBITDAR (1) 2.3 x 3.2 x 2.1 x 1.8 x 1.8 x 1.8 x 1.7 x 1.7 x 1.7 x
Op. Metrics Number of Stores 260 300 321 335 368 403 435 467 499
New Stores Growth (%) 14.5 % 15.4 % 7.0 % 4.4 % 9.9 % 9.5 % 7.9 % 7.4 % 6.9 %
Comp Store Sales (%) 5.6 % (4.0)% 4.1 %
Source: Public filings, Management Projections
Note: Assumes tax rate of 40.2%. Assumes rent expense to be 4.9% of sales.
(1) Rent Expense adjusted based on Moody’s methodology.
Overview of Financials 17
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PRELIMINARY DRAFT
Goldman
Sachs
Plaid Quarterly Momentum
Historicals and Tweed Projections ($ in millions)
Q1 2007 Q2 2007 Q3 2007 Q4 2007 FY 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 FY 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 FY 2009 Q1 2010 Q2 2010 2H 2010 FY 2010E
Total Revenue $ 297 $ 305 $ 333 $ 400 $ 1,335 $ 341 $ 336 $ 363 $ 388 $ 1,428 $ 346 $ 358 $ 414 $ 461 $ 1,578 $ 414 $ 408 $ 919 $ 1,740
% Growth 14.6% 10.4% 9.1% (3.0)% 1.5% 6.3% 14.1% 18.7% 19.7% 14.0% 5.0%
EBITDA $ 52 $ 45 $ 56 $ 55 $ 209 $ 62 $ 41 $ 43 $(6) $ 141 $ 48 $ 47 $ 88 $ 81 $ 263 $ 87 $ 74 $ 132 $ 293
% Growth 19.2% (8.3)% (23.0)% NA (32.6)% (22.6)% 12.4% 102.8% NA 87.1% 82.4% 58.1% (21.6)% 11.4%
Statement Income % Margin 17.4% 14.8% 16.9% 13.8% 15.6% 18.1% 12.3% 12.0% (1.5)% 9.8% 13.8% 13.0% 21.3% 17.5% 16.7% 21.1% 18.1% 14.4% 16.8%
Net Income $ 25 $ 21 $ 27 $ 26 $ 98 $ 31 $ 18 $ 19 $(14) $ 54 $ 20 $ 19 $ 44 $ 40 $ 123 $ 45 $ 35 $ 66 $ 145
EPS $0.39 $0.32 $0.42 $0.41 $1.54 $0.48 $0.28 $0.30 ($0.22) $0.84 $0.32 $0.29 $0.67 $0.61 $1.91 $0.68 $0.53 $0.98 $2.19
% Growth 22.2% (12.9)% (29.0)% NA (32.2)% 2.8% 126.8% NA 109.6% 83.1% (24.0)%
Net Income $25 $21 $27 $26 $98 $31 $18 $19($14) $54 $20 $19 $44 $40 $123 $45 $35 $66 $145
D&A 7 8 9 10 34 9 10 11 15 44 12 14 13 12 52 12 13 23 47
Cash Flow Working Capital 53 40 61 7 7 36 65 74 37 37 45 35 40 (14) (14) 6 (14) (6) (14)
in Working Capital (8) 25 (16) 41 42 (9)(17)(4) 45 15 (25) 24 (25) 59 33 (17) (30) 48 (0)
Capital Expenditures (11)(21)(27)(22)(81)(15)(19)(25)(18)(78)(16)(12)(8)(9)(45)(7)(11)(34)(52)
Free Cash Flow $ 13 $ 32 $(7) $ 82 $ 120 $ 15 $(8) $ 1 $ 32 $ 40 $ 8 $ 50 $ 43 $ 102 $ 203 $ 32 $ 6 $ 109 $ 146
Cash $81 $120 $64 $132 $132 $122 $114 $114 $146 $146 $155 $204 $247 $298 $298 $319 $282 $375 $375
Credit Stats Total Debt 175 175 125 125 125 100 100 100 100 100 100 100 99 49 49 49 49 0 0
Debt / LTM EBITDA 1.0 x 0.9 x 0.6 x 0.6 x 0.6 x 0.5 x 0.5 x 0.5 x 0.7 x 0.7 x 0.8 x 0.8 x 0.6 x 0.2 x 0.2 x 0.2 x 0.1 x 0 0.0 x
Adj. Debt / EBITDAR (1) 2.7 x 2.5 x 2.2 x 2.2 x 2.3 x 2.1 2.2 2.3 3.0 3.2 3.5 3.4 2.8 1.9 2.1 1.9 1.8 $1.8 1.8
Comp. sales (%) 0.0% 0.0% 0.0% 0.0% 5.6% 2.3%(0.4)%(2.9)%(13.1)%(4.0)%(5.1)%(5.1)% 8.5% 16.6% 4.1% 15.2% 10.6% 10.2%
Op. Metrics Sq. Footage growth 9.3% 10.1% 11.3% 9.4% 10.4% 10.4% 2.4% 2.0% 0.4% 0.2% 5.0% 0.9%(0.0)% 2.8%
Source: Management
Note: Assumes 8.0x rent adjustment
Overview of Financials 18
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PRELIMINARY DRAFT
Goldman
Sachs
IV. Take Private Analysis and Financing
Take Private Analysis and Financing 19
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PRELIMINARY DRAFT
Goldman
Sachs
Plaid Take Private: Assumptions and Key Takeaways
Goldman Sachs is excited about the opportunity to provide acquisition financing to the Plaid take-private and we think
the transaction would be well-received by the credit markets
— Goldman Sachs is ready to underwrite 100% of the transaction
Financing
Transaction There are several key items which make this a compelling transaction:
Observations — Gold standard, must-have brand for debt investors
— Well-known credit story in the leveraged finance markets
— Winning partnership with Plaid and Tweed
Purchase Price
Assumes transaction closes at the end of 2010
— Purchase price of $40.00 - $50.00 (premium of 19.0% - 48.7%) over the current stock price of $33.62 (30-Sep-2010)
— Implied purchase EBITDA multiple of 8.1x –10.5x based on 2010E EBITDA of $293mm1
Key Assumptions Financing
2010E Leverage Metrics: Total Adj. Debt / 2010E EBITDAR: 6.0x (Total Debt / 2010E EBITDA: 5.4x)
— Bank Debt: $1.1 billion @ L+450 and OID of 99 (LIBOR Floor of 1.75%)
— Senior Notes: $485 million @ 9.5% area
Implied new equity check of $1,232mm (41.6% of new equity) @ $45 price
Returns of 13%-22% assuming
— Purchase price: $45.00-$50.00
Key Takeaways
— Adjusted leverage of 6.0x
— Exit at 8.0x –9.0x
1 Assumes an 2010E EBITDA of $293million based on Tweed’s projections.
Take Private Analysis and Financing 20
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Goldman
Sachs
Illustrative LBO Analysis: Tweed Projections
Assumes Stock Price of $45.00 per share (33.8% Premium) or 9.3x EV / 2010E EBITDA ($ in millions)
Sources of Funds
Cost of % of Total x 2010E x 2010E
Amount Debt Cap. EBITDA EBITDAR
Target Existing Cash $ 375 0.5%
Bank Debt (1) 1,100 L + 450 37.1% 3.8 x 4.7 x
Sr. Notes 485 9.50% 16.4% 5.4 x 6.0 x
Total Debt $ 1,585 53.5% 5.4 x 6.0 x
Basic equity rolled over (2) $ 77 2.6%
Stock options equity rolled over (2) 71 2.4%
Sponsor Equity 1,232 41.6%
Total Sources of Funds $ 3,339 100.0%
Implied Adjusted Debt / EBITDAR
Purchase Price
$ 40.00 $ 42.00 $ 45.00 $ 48.00 $ 50.00
New
Equity Premium to current
Check 19.0% 24.9% 33.8% 42.8% 48.7%
40.0% 5.6 x 5.8 x 6.1 x 6.4 x 6.6 x
42.5% 5.4 x 5.6 x 5.9 x 6.2 x 6.4 x
45.0% 5.2 x 5.4 x 5.7 x 6.0 x 6.2 x
47.5% 5.1 x 5.3 x 5.5 x 5.8 x 6.0 x
50.0% 4.9 x 5.1 x 5.3 x 5.6 x 5.8 x
Uses of Funds
Amount
Equity Purchased - Basic ($45.00 per share) 2,868
Equity Purchased - Stock Options ($45.00 per share) 225
Existing Target Debt Retired 0
Total Purchase Price $ 3,094
EV / 2010E EBITDA (Adj. Cash) 9.3 x
Minimum Operating Cash 175
Financing and Other Fees (1) 71
Total Uses of Funds $ 3,339
Implied Debt / EBITDA
Purchase Price
$ 40.00 $ 42.00 $ 45.00 $ 48.00 $ 50.00
New
Equity Premium to current
Check 19.0% 24.9% 33.8% 42.8% 48.7%
40.0% 4.9 x 5.2 x 5.6 x 6.0 x 6.3 x
42.5% 4.7 x 4.9 x 5.3 x 5.7 x 6.0 x
45.0% 4.4 x 4.7 x 5.1 x 5.4 x 5.7 x
47.5% 4.2 x 4.4 x 4.8 x 5.2 x 5.4 x
50.0% 4.0 x 4.2 x 4.5 x 4.9 x 5.1 x
Source: Company Management for the years 2010E through 2015E Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
(2) Equity Rollover assumes rollover of 50.0% of MD's stake, 1.7 million basic shares and 2.0 million options at a strike price of $9.35.
Take Private Analysis and Financing 21
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PRELIMINARY DRAFT
Goldman
Sachs
Illustrative Returns to Tweed At Equity Check of 45 - 50%
Tweed Plan
Equity Check at 45% Equity Check at 50.0%
Illustrative Purchase Price Illustrative Purchase Price
$ 40.00 $ 45.00 $ 50.00 $ 40.00 $ 45.00 $ 50.00
Implied Premium 19.0% 33.8% 48.7% 19.0% 33.8% 48.7%
Plaid Existing Cash $ 375 $ 375 $ 375 $ 375 $ 375 $ 375
Bank Debt 1,100 1,100 1,100 1,100 1,100 1,100
Sr. Unsecured Notes 200 382 563 69 232 395
Total Debt $ 1,300 $ 1,482 $ 1,663 $ 1,169 $ 1,332 $ 1,495
Debt / EBTIDA 4.4 x 5.1 x 5.7 x 4.0 x 4.5 x 5.1 x
Adj Debt / EBITDAR 5.2 x 5.7 x 6.2 x 4.9 x 5.3 x 5.8 x
Roll-over Equity - Basic 68 77 85 68 77 85
Roll-over Equity - Options 61 71 81 61 71 81
Tweed Equity 1,169 1,333 1,496 1,298 1,479 1,660
Total Sources $ 2,974 $ 3,337 $ 3,700 $ 2,970 $ 3,333 $ 3,696
Total Equity Purchased $ 2,735 $ 3,094 $ 3,452 $ 2,735 $ 3,094 $ 3,452
Minimum Cash 175 175 175 175 175 175
Total Fees 64 68 73 60 64 68
Total Uses $ 2,974 $ 3,337 $ 3,700 $ 2,970 $ 3,333 $ 3,696
Enterprise Value $ 2,360 $ 2,719 $ 3,077 $ 2,360 $ 2,719 $ 3,077
EV / EBITDA 8.1 x 9.3 x 10.5 x 8.1 x 9.3 x 10.5 x
Total Debt 50% 50% 50% 45% 45% 45%
New Sponsor Equity 45% 45% 45% 50% 50% 50%
Total Equity 50% 50% 50% 55% 55% 55%
Returns at 2015E
- 8.0x Exit Multiple 22.6% 17.8% 13.5% 21.4% 17.0% 12.9%
- 8.5x Exit Multiple 24.2% 19.5% 15.3% 23.0% 18.6% 14.6%
Source: Company Management for the years 2010E through 2015E Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
(2) Equity Rollover assumes rollover of 50.0% of MD’s stake, 1.7 million basic shares and 2.0 million options at a strike price of $9.35.
Take Private Analysis and Financing 22
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PRELIMINARY DRAFT
Goldman
Sachs
Illustrative Ability To Pay Analysis: Tweed Projections
Share Price Required to Achieve Target Returns Assuming 2015E Exit Assumes 6.0x Adjusted Leverage
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenues 1,740 1,900 2,100 2,302 2,508 2,722
Growth % 10.3 % 9.2 % 10.5 % 9.6 % 8.9 % 8.5 %
EBITDA 293 327 369 412 455 500
Margin % 16.8 % 17.2 % 17.6 % 17.9 % 18.1 % 18.4 %
Net Income 75 93 119 149 181 215
(+) D&A 47 52 55 56 56 54
(+) Fin. Fees Amort. 5 5 5 5 5 5
(-) Capital Expenditure 52 75 85 59 58 65
(-) Change in OWC(0) 10 10 10 10 10
FCF For Debt Paydown $ 75 $ 66 $ 85 $ 141 $ 173 $ 200
Cumulative FCF 66 150 291 465 664
De-leveraging Profile
PF 2010 2011E 2012E 2013E 2014E 2015E
Bank Debt 1,100 1,034 950 809 635 436
Senior Notes 485 485 485 485 485 485
Total Debt $ 1,585 $ 1,519 $ 1,435 $ 1,294 $ 1,120 $ 921
Total Debt / EBITDA 5.4 x 4.6 x 3.9 x 3.1 x 2.5 x 1.8 x
Adj. Debt / EBITDAR 6.0 x 5.4 x 4.8 x 4.2 x 3.6 x 3.1 x
EBITDA / Int. Exp. 2.4 x 2.8 x 3.3 x 3.9 x 4.7 x 5.9 x
EBITDA-Capex / Int. Exp. 2.0 x 2.1 x 2.5 x 3.3 x 4.1 x 5.1 x
Illustrative Returns to Sponsor
Purchase Price $ 40.00 $ 42.00 $ 45.00 $ 48.00 $ 50.00
Premium to Current 19.0% 24.9% 33.8% 42.8% 48.7%
Implied EV / 2010E EBITDA
8.1 x 8.7 x 9.3 x 9.9 x 10.5 x
7.5 x 23.8% 20.6% 16.7% 13.4% 11.5%
8.0 x 25.8% 22.6% 18.5% 15.2% 13.3%
8.5 x 27.6% 24.4% 20.3% 16.9% 14.9%
Exit EBITDA Multiple 9.0 x 29.4% 26.1% 22.0% 18.5% 16.5%
9.5 x 31.1% 27.7% 23.5% 20.1% 18.0%
Returns to Sponsor exit in 2015 @ 8.5x EBITDA
Implied EV / 2010E EBITDA
8.1 x 8.7 x 9.3 x 9.9 x 10.5 x
4.5 x 21.7% 19.7% 16.9% 14.5% 13.0%
5.0 x 23.4% 21.0% 17.9% 15.2% 13.6%
Adj. Leverage 6.0 x 27.6% 24.4% 20.3% 16.9% 14.9%
5.5 x 25.2% 22.5% 19.0% 16.0% 14.2%
6.5 x 30.8% 26.8% 22.0% 18.1% 15.8%
Equity Value Per Share (Assumes 20.0% Returns and 8.5x exit in 2015E)
2010 - 2015 Sales CAGR
7.4% 8.4% 9.4% 10.4% 11.4%
15E EBITDA Per Year Change in Annual Sales Growth vs. Plan
Margin vs. Plan(2.0)%(1.0)% 0.0% 1.0% 2.0%
20.4% 2.0% $ 45.55 $ 46.67 $ 47.84 $ 49.05 $ 50.31
19.4% 1.0% $ 44.37 $ 45.43 $ 46.54 $ 47.69 $ 48.89
18.4% 0.0% $ 43.18 $ 44.20 $ 45.25 $ 46.34 $ 47.47
17.4%(1.0)% $ 42.00 $ 42.96 $ 43.95 $ 44.98 $ 46.05
16.4%(2.0)% $ 40.82 $ 41.72 $ 42.65 $ 43.62 $ 44.63
Source: Company Management for the years 2010E through 2015E Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
(2) Equity Rollover assumes rollover of 50.0% of MD’s stake, 1.7 million basic shares and 2.0 million options at a strike price of $9.35.
Take Private Analysis and Financing 23
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PRELIMINARY DRAFT
Goldman Sachs
Analysis At Various Prices
($ in millions)
Premium to Market Price 0.0% 19.0% 24.9% 33.8% 42.8% 48.7%
Purchase Price Per Share ($) $ 33.62 $ 40.00 $ 42.00 $ 45.00 $ 48.00 $ 50.00
Equity Value $ 2,278 $ 2,735 $ 2,879 $ 3,094 $ 3,309 $ 3,452
Enterprise Value (3) $ 1,903 $ 2,360 $ 2,504 $ 2,719 $ 2,934 $ 3,077
Enterprise Value / EBITDA (4)
2010E $ 293 6.5 x 8.1 x 8.5 x 9.3 x 10.0 x 10.5 x
Tweed 2011E 327 5.8 x 7.2 x 7.7 x 8.3 x 9.0 x 9.4 x
2010E $ 311 6.1 x 7.6 x 8.0 x 8.7 x 9.4 x 9.9 x
Street 2011E 343 5.6 6.9 7.3 7.9 8.6 9.0
2010E $ 303 6.3 x 7.8 x 8.3 x 9.0 x 9.7 x 10.2 x
Management 2011E 394 4.8 6.0 6.3 6.9 7.4 7.8
Price / Earnings (4)
2010E $ 2.19 15.4 x 18.3 x 19.2 x 20.5 x 21.9 x 22.8 x
Tweed 2011E $ 2.45 13.7 16.3 17.1 18.4 19.6 20.4
2010E $ 2.31 14.6 x 17.4 x 18.2 x 19.5 x 20.8 x 21.7 x
Street 2011E $ 2.59 13.0 15.4 16.2 17.4 18.5 19.3
2010E $ 2.27 14.8 x 17.6 x 18.5 x 19.8 x 21.1 x 22.0 x
Management 2011E $ 3.02 11.1 13.2 13.9 14.9 15.9 16.6
(1) Assumes 63.7 million basic shares outstanding as of 30-Sep-2010.
(2) Assumes options outstanding are not tax-deductible.
(3) Assumes net cash of $375.0 million as of 30-Jan-2011.
(4) Estimates as per IBES dated 30-Sep-2010.
Take Private Analysis and Financing 24
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PRELIMINARY DRAFT
Goldman Sachs
V. Plaid Special Committee Considerations and Perspectives on Alternatives
Plaid Special Committee Considerations and Perspectives on Alternatives 25
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PRELIMINARY DRAFT
Goldman Sachs
Potential Plaid Special Committee Considerations
Takeaways from Recent Special Committee Assignments
Key Takeaways Observations
Establish Clean Record of Special Committee Process from the Outset
Benefits of open process and careful record accrue to all parties
— Establish record of considering / exploring available alternatives
— Consider optimal process to deliver highest value to minorities while minimizing business disruption
Given potential level of scrutiny by shareholders, hedge funds and potentially the courts, lack of transparency can significantly increase pressure on directors
Level of transparency can significantly impact timetable of transaction and shareholder momentum for rejecting or accepting the ultimate offer / plan
Identify Strategies for Negotiating Value and Key Structural Aspects of Proposal
Current business plan and prospects and additional potential sources of value
Understanding motivations of all parties and individuals
Potential value from 100% ownership
Assessment of potential synergies, if any
Optimize Strategy to Position and Reinforce Special Committee Negotiating Posture
Effective use of valuation analyses and rebuttal documents to establish initial tone of negotiating dialogue
Consider maintenance of multiple communication channels to reinforce buyer’s view of Special Committee resolve
— Active engagement by financial and legal advisors
— Selective, but strategic, use of principal / Special Committee interface
Effective and timely use of press releases and other communications
Use of due diligence timetable to signal thorough and deliberate nature of Special Committee investigations
— Record-setting implications
— Full access to management and information
Constant assessment of potential tipping points
— Absolute walk-away thresholds
— Non-financial dynamics
Carefully Assess and Anticipate Reaction of Public Shareholders
Composition of institutional, retail and hedge fund components; turnover following announcement of offer
— Determine role and relative influence of public shareholders
Economic implications of cost basis
Potential for blocking coalitions
Communications strategy
Influence / impact of RiskMetrics
Plaid Special Committee Considerations and Perspectives on Alternatives 26
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Potential Plaid Special Committee Considerations
Challenges to “Going Private” Transactions Have Arisen
Increased Court Scrutiny
Litigation continues to target “going private” deals due to perceived settlement value
Recent court cases are focusing on the risks relating to LBO/MBO processes
Appraisal rights offer opportunity for court to recalculate the value of the company (plus interest) years after the deal closes
RiskMetrics Group
RiskMetrics (RMG, formerly ISS) Contentious List highlights deals that are facing opposition or which
RMG views to have “risks”
— RMG is often skeptical of LBO/MBO transactions, which frequently appear on the Contentious List
RMG has often recommended votes against LBO/MBO transactions, including Clear Channel, Cornell Companies, Genesis Healthcare, Lone Star Steakhouse, Riviera Holdings and Shopko
Increased Disclosure
Rule 13e-3 requires exhaustive public disclosure
Courts are increasingly demanding detailed disclosure of projections, interactions between sponsors and management and other aspects of the process
Hedge Fund Activism
Trying to obtain “alpha” returns by demanding a higher price or asserting appraisal rights
Criticism of transactions, analyses and processes in public filings
Mutual Fund Skepticism
Dissatisfaction with high returns achieved by sponsors after public company is taken “private”
Skepticism about management’s role in process
Plaid Special Committee Considerations and Perspectives on Alternatives 27
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Goldman Sachs
1 2 3 4
Perspective on Plaid Special Committee Review of Alternatives
Execute Current Plan Recapitalization Sale to Other Financial Buyers Sale to Strategic Buyer
Alternatives
Continue executing existing management plan
Management plan implies growth in EPS from $2.27 in FY2010E to $6.36 in FY2015E (22.9% CAGR)
Builds up over $2.0bn of cash by end of 2015E
One time share buyback with proceeds from the new debt
Buyback of $250 - $600m funded with proceeds from new debt issuance and excess cash on the balance sheet
EPS accretive due to the low cost of debt and excess cash
Robust cash flow generation and de-leveraging under the management plan
Premium paid for share buyback: 10%-15% assuming 15%-20% of shares outstanding bought back
Sale to other financial buyers
2010E Leverage Metrics: Total Adj. Debt / 2010E EBITDAR: 6.0x (Total Debt / 2010E EBITDA: 5.4x)
— Bank Debt: $1.1 billion @ L+450 and OID of 99 (LIBOR Floor of 1.75%)
— Senior Notes: $545million @ 9.5% area
Sale to domestic or international strategic buyers
Potential acquirers could include [Potential Buyers 1 through 5, names redacted]
Consideration
Achievability of the management plan
Future trading multiple
Value creative to the shareholders but potential negative impact on trading multiple due to increased leverage
Business deceleration likely to impact financing
Strategic fit with the potential acquirers may be limited
Plaid Special Committee Considerations and Perspectives on Alternatives 28
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Goldman Sachs
Illustrative Summary of Financial Analysis
(US$ per share)
Methodology Management Plan Tweed Plan Comments
Current Price: $33.62 Current Price: $33.62
52 week high: $50.00 (April 26, 2010)
52-Week Trading Range $30 $50 $30 $50 52 week low: $30.23 (August 30, 2010)
Based on published price targets from 16 sell-side analysts
Analyst Price Targets $28 $42 $28 $42 14 of 20 analysts at $28.00-$42.00 per share, excluding outliers1
Based on publicly traded specialty retail apparel companies
Selected Public Companies EV / EBITDA $28 $46 $27 $44 — Low-end: 5.0x 2010EV / EBITDA multiple; High-end: 9.0x
2010E / EBITDA multiple
— Low-end: 12.0x 2011P/E; High-end: 18.0x 2011P/E
Selected Public Companies P/E $36 $54 $29 $44
Low end of 11.0x Forward P/E and high end of 15.0x Forward
P/E
PV of Future Stock Price $33 $55 $25 $37 — Discounted at Illustrative cost of equity of 15.0%
Terminal growth rate of 3.0% - 5.0%
Discounted Cash Flow $50 $69 $33 $44 Illustrative cost of capital to be 13.0% - 15.0%
Pro Forma for the Share Repurchase of $600mm at $36.98
(15% premium)
PV of FSP - Recap $41 $61 $32 $40 — Discounted at Illustrative cost of equity of 15.0%
Illustrative Sponsor IRR range of approx. 25%
Leveraged Buyout $53 $60 $39 $44 Illustrative Exit EBITDA multiple of 7.5x – 9.5x
Premia Analysis: 25% -35% premium to the current stock price
Premia Paid $42 $45 $42 $45 ($33.62)
Precedent Retail Apparel Transactions
Precedent Transactions $37 $55 $36 $53 — Low-end: 7.0x; High-end: 11.0x
Source: Based on public filings, Management and Tweed estimates
1 Outliers include Oppenheimer ($50 price target) and Robert W Baird ($49 price target)
Plaid Special Committee Considerations and Perspectives on Alternatives 29
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Sachs
1 Status Quo
Illustrative Present Value of Future Share Price; Based on Forward P/E
Management Plan Tweed’s Plan
$ 55.00 $ 40.00
$ 54.53
$ 52.47
$ 50.00 $ 50.33 $ 36.76 $ 36.37
$ 35.00 $ 35.76
$ 34.72
$ 47.81 $ 47.26
$ 33.55
$ 45.00 $ 45.47
$ 45.31 $ 31.85
$ 31.52
$ 43.62 $ 30.00 $ 30.99
$ 30.09
$ 40.00 $ 41.43 $ 29.07
$ 39.99
$ 39.27
$ 38.48 $ 26.95 $ 26.67
$ 25.00 $ 26.22
$ 36.91 $ 25.46
$ 35.00 $ 24.60
$ 35.06
$ 33.23
$ 30.00 $ 20.00
Oct - 2010 Oct - 2011 Oct - 2012 Oct - 2013 Oct - 2014 Oct - 2010 Oct - 2011 Oct - 2012 Oct - 2013 Oct - 2014
Fwd EPS $ 3.02 $ 3.67 $ 4.44 $ 5.32 $ 6.36 Fwd EPS $ 2.45 $ 2.79 $ 3.15 $ 3.52 $ 3.91
EPS (Gr. %) 32.9 % 21.3 % 21.1 % 19.9 % 19.5 % EPS (Gr. %) 12.1 % 13.8 % 13.1 % 11.7 % 11.1 %
Cash $ 375 $ 568 $ 837 $ 1,163 $ 1,556 Cash $ 375 $ 514 $ 678 $ 893 $ 1,136
11.0x P/E Multiple 13.0x P/E Multiple 15.0x P/E Multiple
Source: Tweed Projections
Note: Assumes cost of equity as 15.0%
Plaid Special Committee Considerations and Perspectives on Alternatives 30
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Sachs
1 Status Quo
Illustrative DCF Analysis
Management Plan Tweed Plan
Equity Value Per Share Equity Value Per Share
Perpetuity Growth Rate Perpetuity Growth Rate
Discount Rate 3.0% 3.5% 4.0% 4.5% 5.0% Discount Rate 3.0% 3.5% 4.0% 4.5% 5.0%
13.0% $ 58.68 $ 60.75 $ 63.06 $ 65.64 $ 68.54 13.0% $ 38.07 $ 39.30 $ 40.66 $ 42.18 $ 43.90
13.5% 56.11 57.96 60.00 62.27 64.81 13.5% 36.55 37.64 38.85 40.20 41.70
14.0% 53.78 55.43 57.25 59.27 61.50 14.0% 35.17 36.15 37.23 38.42 39.74
14.5% 51.65 53.14 54.77 56.56 58.54 14.5% 33.92 34.80 35.76 36.82 37.99
15.0% 49.70 51.05 52.51 54.12 55.88 15.0% 32.76 33.56 34.43 35.37 36.42
Exit LTM EV / EBITDA Multiple Exit LTM EV / EBITDA Multiple
Perpetuity Growth Rate Perpetuity Growth Rate
Discount Rate 3.0% 3.5% 4.0% 4.5% 5.0% Discount Rate 3.0% 3.5% 4.0% 4.5% 5.0%
14.0% 5.5 x 5.8 x 6.1 x 6.4 x 6.8 x 14.0% 5.1 x 5.4 x 5.7 x 6.0 x 6.4 x
Business Sensitivity Business Sensitivity
FY2010 - FY2015 Sales CAGR FY2010 - FY2015 Sales CAGR
10.7% 11.7% 12.7% 13.7% 14.7% 7.4% 8.4% 9.4% 10.4% 11.4%
FY’15E Change in Annual Sales Growth vs. Plan FY’15E Change in Annual Sales Growth vs. Plan
EBITDA Per Year EBITDA Per Year
Margin vs. Plan (4.0)% (3.0)% (2.0)% (1.0)% 0.0% Margin vs. Plan (2.0)% (1.0)% 0.0% 1.0% 2.0%
22.8% 0.0% $ 49.96 $ 51.69 $ 53.49 $ 55.34 $ 57.25 20.4% 2.0% $ 38.63 $ 39.91 $ 41.22 $ 42.59 $ 43.99
21.8% (1.0)% 47.83 49.48 51.19 52.95 54.77 19.4% 1.0% 36.79 37.99 39.23 40.51 41.83
20.8% (2.0)% 45.70 47.27 48.89 50.56 52.29 18.4% 0.0% 34.94 36.06 37.23 38.43 39.67
19.8% (3.0)% 43.57 45.06 46.59 48.17 49.81 17.4% (1.0)% 33.09 34.14 35.23 36.35 37.52
18.8% (4.0)% 41.45 42.84 44.29 45.79 47.33 16.4% (2.0)% 31.25 32.22 33.23 34.28 35.36
Source: Management projections Note: Projections discounted to Jan-2011
Plaid Special Committee Considerations and Perspectives on Alternatives 31
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2 Recapitalization: One-Time Share Repurchases
Management Plan
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 250 $ 400 $ 500 $ 600
% of Market Cap 11.0% 17.6% 22.0% 26.3%
Cash Used 250 250 250 250
New Debt 5 162 267 372
Share Repurchase Price $ 35.30 $ 36.98 $ 36.98 $ 38.66
% Premium to Current 5.0% 10.0% 10.0% 15.0%
Shares Repurchased (mm) 7.1 10.8 13.5 15.5
% of Outstanding Shares Repurchased (1) 11.1% 17.0% 21.2% 24.3%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 202 $ 201 $ 198 $ 194 $ 190
FY 2011E Shares Outstanding 66.8 59.7 55.9 53.2 51.2
FY 2011 E EPS (2) (3) (4) $ 3.02 $ 3.36 $ 3.53 $ 3.64 $ 3.70
Accretion / (Dilution) (%) 11.4% 16.9% 20.5% 22.6%
FY 2011E - 2013 E EPS CAGR 21.2% 21.3% 22.1% 23.2% 24.4%
Implied Share Price at 11.0x 2011 P/E Mulitple $ 33.23 $ 37.01 $ 38.84 $ 40.04 $ 40.72
Share Price Accretion (5) 11.4% 16.9% 20.5% 22.6%
Implied EV / EBITDA 7.0 x 7.4 x 7.6 x 7.8 x
Implied Share Price at 13.0x 2011 P/E Mulitple $ 43.74 $ 45.91 $ 47.32 $ 48.12
Share Price Accretion (5) 31.6% 38.2% 42.4% 44.8%
Implied EV / EBITDA 8.4 x 8.7 x 8.9 x 9.1 x
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 5 $ 162 $ 267 $ 372
Debt / EBITDA 0.0 x 0.0 x 0.5 x 0.9 x 1.2 x
Adj. Debt / EBITDAR (6) 1.8 x 1.8 x 2.2 x 2.5 x 2.7 x
Source: Public filings, Management Case
(1) Based on 63.7 million basic shares outstanding as of 22-Sep-2010.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt to be L + 425. Assumes LIBOR floor of 1.75%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on implied price of $33.23.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
Plaid Special Committee Considerations and Perspectives on Alternatives 32
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2 Recapitalization: One-Time Share Repurchases
Tweed’s Plan
($ in millions, except per share data)
One-Time Share Repo Size Status Quo $ 250 $ 400 $ 500 $ 600
% of Market Cap 11.0% 17.6% 22.0% 26.3%
Cash Used 250 250 250 250
New Debt 5 162 267 372
Share Repurchase Price $ 35.30 $ 36.98 $ 36.98 $ 38.66
% Premium to Current 5.0% 10.0% 10.0% 15.0%
Shares Repurchased (mm) 7.1 10.8 13.5 15.5
% of Outstanding Shares Repurchased (1) 11.1% 17.0% 21.2% 24.3%
Accretion / (Dilution) Analysis
FY 2011E Net Income (2) (3) $ 164 $ 163 $ 159 $ 155 $ 151
FY 2011E Shares Outstanding 66.8 59.7 55.9 53.2 51.2
FY 2011 E EPS (2) (3) (4) $ 2.45 $ 2.73 $ 2.84 $ 2.91 $ 2.94
Accretion / (Dilution) (%) 11.3% 15.9% 18.6% 20.0%
FY 2011E - 2013 E EPS CAGR 13.4% 13.5% 14.7% 16.1% 17.0%
Implied Share Price at 11.0x 2011 P/E Mulitple $ 26.95 $ 29.99 $ 31.23 $ 31.97 $ 32.34
Share Price Accretion (5) 11.3% 15.9% 18.6% 20.0%
Implied EV / EBITDA 5.8 x 6.2 x 6.4 x 6.6 x
Implied Share Price at 13.0x 2011 P/E Mulitple $ 35.45 $ 36.91 $ 37.79 $ 38.22
Share Price Accretion (5) 31.5% 37.0% 40.2% 41.8%
Implied EV / EBITDA 6.9 x 7.3 x 7.5 x 7.7 x
Pro Forma Credit Statistics (2010)
Total Debt $ 0 $ 5 $ 162 $ 267 $ 372
Debt / EBITDA 0.0 x 0.0 x 0.6 x 0.9 x 1.3 x
Adj. Debt / EBITDAR (6) 1.8 x 1.8 x 2.2 x 2.5 x 2.8 x
Source: Public filings, Tweed Case
(1) Based on 63.7 million basic shares outstanding as of 22-Sep-2010.
(2) Assumes a tax rate of 40.2% for FY2011E.
(3) Assumes Interest rate on bank debt to be L + 425. Assumes LIBOR floor of 1.75%. Also assumes interest on cash to be 0.5%
(4) Based on 2011E weighted average diluted shares of 66.8 million.
(5) Accretion calculated based on implied price of $26.95.
(6) Assumes rent expense capitalized at 8.0x and 100% of rent expense attributed to interest expense.
Plaid Special Committee Considerations and Perspectives on Alternatives 33
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PRELIMINARY DRAFT
Goldman
Sachs
2 Pro Forma Recapitalization Analysis
Illustrative Present Value of Future Share Price; Based on Forward P/E
Management Plan Tweed’s Plan
$ 65.00 $ 45.00
$ 60.99
$ 58.72 $ 40.00
$ 55.00 $ 56.35 $ 39.20 $ 39.56
$ 38.22 $ 38.76
$ 37.43
$ 52.75
$ 51.61 $ 35.00
$ 49.69
$ 48.12
$ 47.68 $ 33.17 $ 33.47
$ 45.00 $ 32.34 $ 32.79
$ 44.63 $ 31.67
$ 30.00
$ 40.72
$ 35.00 $ 25.00
Oct - 2010 Oct - 2011 Oct - 2012 Oct - 2013 Oct - 2014 Oct - 2010 Oct - 2011 Oct - 2012 Oct - 2013 Oct - 2014
Fwd EPS $3.70 $4.67 $5.73 $6.87 $8.21 Fwd EPS $2.94 $3.47 $4.02 $4.53 $5.04
EPS (Gr. %) 38.7% 26.0% 22.9% 19.8% 19.5% EPS (Gr.%) 15.1% 18.0% 16.0% 12.7% 11.1%
Cash $ 125 $ 125 $ 177 $ 487 $ 863 Cash $ 125 $ 125 $ 125 $ 211 $ 437
Debt $ 372 $ 197 $ 0 $ 0 $ 0 Debt $ 372 $ 252 $ 111 $ 0 $ 0
11.0x P/E Multiple 13.0x P/E Multiple
Source: Tweed Projections
Note: Assumes cost of equity as 14.0%. Assumes a share repo size of $600 million financed with $372mm of debt and $250mm of cash in hand. Assumes financing charges of 2.5%on debt and 2.0% OID. Assumes a shares are bought back at a premium of 15.0%.
Plaid Special Committee Considerations and Perspectives on Alternatives 34
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PRELIMINARY DRAFT
Goldman
Sachs
3 Illustrative LBO Analysis: Management Projections
Assumes Stock Price of $45.00 per share (33.8% Premium) or 9.0x EV / 2010E EBITDA
($ in millions)
Sources of Funds
Cost of % of Tota 2010E x 2010E
Amount Debt Cap. EBITDA EBITDAR
Target Existing Cash $ 375 0.5%
Bank Debt (1) 1,100 L + 450 37.1% 3.6 x 4.6 x
Sr. Notes 545 9.50% 18.4% 5.4 x 6.0 x
Total Debt $ 1,645 55.5% 5.4 x 6.0 x
Basic equity rolled over (2) $ 77 2.6%
Stock options equity rolled over (2) 71 2.4%
Sponsor Equity 1,174 39.6%
Total Sources of Funds $ 3,341 100.0%
Implied Adjusted Debt / EBITDAR
Purchase Price
$ 40.00 $ 42.00 $ 45.00 $ 48.00 $ 50.00
New Equity Check
Premium to current
19.0% 24.9% 33.8% 42.8% 48.7%
40.0% 5.4 x 5.7 x 6.0 x 6.3 x 6.5 x
42.5% 5.3 x 5.5 x 5.8 x 6.1 x 6.3 x
45.0% 5.1 x 5.3 x 5.6 x 5.9 x 6.0 x
47.5% 4.9 x 5.1 x 5.4 x 5.6 x 5.8 x
50.0% 4.8 x 4.9 x 5.2 x 5.4 x 5.6 x
Uses of Funds
Amount
Equity Purchased - Basic ($45.00 per share) 2,868
Equity Purchased - Stock Options ($45.00 per share) 225
Existing Target Debt Retired 0
Total Purchase Price $ 3,094
EV / 2010E EBITDA (Adj. Cash) 9.0 x
Minimum Operating Cash 175
Financing and Other Fees (1) 72
Total Uses of Funds $ 3,341
Implied Debt / EBITDA
Purchase Price
$ 40.00 $ 42.00 $ 45.00 $ 48.00 $ 50.00
New Equity Check
Premium to current
19.0% 24.9% 33.8% 42.8% 48.7%
40.0% 4.7 x 5.0 x 5.4 x 5.8 x 6.0 x
42.5% 4.5 x 4.8 x 5.1 x 5.5 x 5.8 x
45.0% 4.3 x 4.5 x 4.9 x 5.2 x 5.5 x
47.5% 4.1 x 4.3 x 4.6 x 5.0 x 5.2 x
50.0% 3.9 x 4.1 x 4.4 x 4.7 x 4.9 x
Source: Company Management for the years 2010E through 2015E
Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
(2) Equity Rollover assumes rollover of 50.0% of MD’s stake, 1.7 million basic shares and 2.0 million options at a strike price of $9.35.
Plaid Special Committee Considerations and Perspectives on Alternatives 35
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PRELIMINARY DRAFT
Goldman Sachs
3 Illustrative Ability To Pay Analysis: Mgmt. Projections
Share Price Required to Achieve Target Returns Assuming 2015E Exit Assumes 6.0x Adjusted Leverage
Projected Free Cash Flow
PF 2010 2011E 2012E 2013E 2014E 2015E
Revenues 1,753 2,034 2,356 2,709 3,087 3,481
Growth % 11.1 % 16.0 % 15.8 % 15.0 % 14.0 % 12.7 %
EBITDA 303 394 474 567 672 793
Margin % 17.3 % 19.4 % 20.1 % 20.9 % 21.8 % 22.8 %
Net Income 77 129 179 240 312 394
(+) D&A 48 56 62 66 69 70
(+) Fin. Fees Amort. 5 5 5 5 5 5
(-) Capital Expenditure 52 54 59 59 58 65
(-) Change in OWC 0 19 (5) (5) (5) (1)
FCF For Debt Paydown $ 77 $ 117 $ 191 $ 256 $ 333 $ 405
Cumulative FCF 117 308 564 897 1,303
De-leveraging Profile
PF 2010 2011E 2012E 2013E 2014E 2015E
Bank Debt 1,100 983 792 536 203 0
Senior Notes 545 545 545 545 545 545
Total Debt $ 1,645 $ 1,528 $ 1,337 $ 1,081 $ 748 $ 545
Total Debt / EBITDA 5.4 x 3.9 x 2.8 x 1.9 x 1.1 x 0.7 x
Adj. Debt / EBITDAR 6.0 x 4.7 x 3.8 x 3.1 x 2.4 x 2.0 x
EBITDA / Int. Exp. 2.4 x 3.2 x 4.2 x 5.8 x 8.4 x 12.5 x
EBITDA-Capex / Int. Exp. 2.0 x 2.8 x 3.7 x 5.1 x 7.7 x 11.5 x
Illustrative Returns to Sponsor
Purchase Price $ 45.00 $ 50.00 $ 55.00 $ 60.00 $ 65.00
Premium to Current 33.8% 48.7% 63.6% 78.5% 93.3%
Implied EV / 2010E EBITDA
Exit EBITDA Multiple
9.0 x 10.2 x 11.3 x 12.5 x 13.7 x
7.5 x 34.1% 27.8% 23.0% 19.2% 15.9%
8.0 x 35.8% 29.6% 24.7% 20.7% 17.4%
8.5 x 37.5% 31.2% 26.2% 22.2% 18.9%
9.0 x 39.2% 32.7% 27.7% 23.7% 20.3%
9.5 x 40.7% 34.2% 29.1% 25.1% 21.6%
Returns to Sponsor exit in 2015 @ 8.5x EBITDA
Implied EV / 2010E EBITDA
Adj. Leverage
9.0 x 10.2 x 11.3 x 12.5 x 13.7 x
4.5 x 31.0% 26.5% 22.9% 19.8% 17.1%
5.0 x 32.8% 27.9% 23.9% 20.5% 17.6%
5.5 x 35.0% 29.4% 25.0% 21.3% 18.2%
6.0 x 37.5% 31.2% 26.2% 22.2% 18.9%
6.5 x 40.7% 33.3% 27.7% 23.3% 19.7%
Equity Value Per Share (Assumes 25.0% Returns and 8.5x exit in 2015E)
2010 - 2015 Sales CAGR
10.7% 11.7% 12.7% 13.7% 14.7%
15E EBITDA Per Year Change in Annual Sales Growth vs. Plan
Margin vs. Plan (4.0)% (3.0)% (2.0)% (1.0)% 0.0%
22.8% 0.0% $ 51.42 $ 52.61 $ 53.84 $ 55.12 $ 56.45
21.8% (1.0)% $ 50.28 $ 51.42 $ 52.60 $ 53.83 $ 55.10
20.8% (2.0)% $ 49.15 $ 50.24 $ 51.37 $ 52.53 $ 53.74
19.8% (3.0)% $ 48.02 $ 49.06 $ 50.13 $ 51.24 $ 52.39
18.8% (4.0)% $ 46.89 $ 47.87 $ 48.89 $ 49.95 $ 51.04
Source: Company Management for the years 2010E through 2015E
Note: Assumes 63.7 million of basic shares outstanding.
(1) Assumes LIBOR floor of 1.75%. Assumes financing fees of 2.5% and OID on bank debt to be 1.0%.
(2) Equity Rollover assumes rollover of 50.0% of MD’s stake, 1.7 million basic shares and 2.0 million options at a strike price of $9.35.
Plaid Special Committee Considerations and Perspectives on Alternatives 36
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PRELIMINARY DRAFT
Goldman Sachs
4 Selected Potential Strategic Buyers
($ in billions)
Potential Buyer Market Cap Debt Cash EV Cur. Credit Rating Lev. Adj. Lev. Strategic Fit Ability to Pay Comments
Expanding outside of Japan and looking to enter the US market
[Potential Buyer 1] 14.31 0.3 2.5 12.2 A 0.2x 2.2x Has looked both at luxury and mass concepts in the US; primary focus on teen retailers with established retail platform
Historically not acquisitive although may consider acquisitions going forward given slowdown in domestic organic growth
[Potential Buyer 2] $13.0 0.0 0.7 12.3 NR 0.0x 1.0 Acquisition of an apparel player could be complementary to existing accessory / handbag core competency
Similar price points / “accessible luxury” positioning to Plaid
Very acquisitive and focused on increasing presence in the US
[Potential Buyer 3] 20.71 6.2 1.0 27.0 BBB- 3.2x 4.7x Still significantly levered from Puma acquisition
Rumored to be focusing on mid-market brands to complement its brand portfolio
[Potential Buyer 4] 5.3 0.0 0.6 4.7 NR 0.0x 1.9x Unlikely to do an acquisition of Plaid’s size; focused on small, tuck in acquisitions
Very acquisitive
[Potential Buyer 5] 8.7 1.2 0.5 9.4 A- 1.2x 2.0x Primary focus remains on outdoor segment (secondary focus on lifestyle brands)
Prefers small, tuck-in acquisitions
Source: CapIQ and public filings
Note: Potential buyer names redacted
Note: Assumes Moody’s 8x rent methodology for adjusted 8x leverage calculations
1 Reflects exchange rate of 80.54JPY/USD and 0.73 EUR/USD as of September 30, 2010
Plaid Special Committee Considerations and Perspectives on Alternatives 37
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PRELIMINARY DRAFT
Goldman
Sachs
4 Illustrative Merger Analysis
[Potential Buyer 1] Acquires Plaid; Assumes No Synergies; Based on IBES Estimates
($ in millions, except per share data)
[Potential Buyer 1] Pro forma for the Acquisition of Plaid
Purchase Price Per Share ($)(1)(2) $ 140.77 $ 45.00 $ 47.50 $ 50.00 $ 52.50 $ 55.00
Premium to Market Price 33.8 % 41.3 % 48.7 % 56.2 % 63.6 %
Price / 2011E EPS 16.7 x 18.2 x 19.2 x 20.2 x 21.2 x 22.3 x
Equity Value ($) $14,329 $3,094 $3,273 $3,452 $3,632 $3,811
Enterprise Value ($) 12,179 2,803 2,982 3,161 3,340 3,520
100% Cash
Acquiror’s Cash Used (50.0%) $ 1,244 $ 1,244 $ 1,244 $ 1,244 $ 1,244
Target’s Cash Used (75.0%) 255 255 255 255 255
Total Cash Used $1,500 $1,500 $1,500 $1,500 $1,500
Cash used as % of Equity Consideration 48.5% 45.8% 43.4% 41.3% 39.4%
New Debt ($)(3) 1,637 1,820 2,003 2,186 2,369
Pro Forma Net Income
2011E Net Income $ 963 $ 958 $ 952 $ 946 $ 941
2012E Net Income $ 1,093 $ 1,088 $ 1,082 $ 1,077 $ 1,071
Pro Forma EPS
2011E EPS $ 9.40 $ 9.35 $ 9.29 $ 9.24 $ 9.19
2012E EPS $ 10.58 $ 10.52 $ 10.47 $ 10.41 $ 10.36
2011E EPS Accretion / (Dilution) (4) (5) (6) $ 8.43 11.6 % 11.0 % 10.3 % 9.7 % 9.0 %
2012E EPS Accretion / (Dilution) (4) (5) (6) $ 9.39 12.7 % 12.1 % 11.5 % 11.0 % 10.4 %
P/E to Maintain Share Price
Total Debt / LTM EBITDA 0.2 x 0.9 x 1.0 x 1.1 x 1.2 x 1.3 x
Adjusted Debt / LTM EBITDAR 2.2 2.7 2.8 2.9 2.9 3.0
Note: Potential buyer name redacted
(1) Market data as of 30-Sep-2010. Estimates per IBES.
(2) Assumes excess purchase price over book value is allocated 15.0% to net asset write-ups and the residual to goodwill.
(3) Assumes up to 50.0% of [Potential Buyer 1] existing cash and up to 75.0% of Plaid existing cash used to finance transaction.
(4) Assumes a pre-tax cost of debt of 3.50%.
(5) Assumes an opportunity cost of cash of 0.50% and a marginal tax rate of 40.5%.
(6) Assumes tax-deductible financing fees of 2.0% of incremental debt raised which are capitalized and amortized over 10 years.
Plaid Special Committee Considerations and Perspectives on Alternatives 38
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PRELIMINARY DRAFT
Goldman
Sachs
Appendix A: Supplemental Materials
Supplemental Materials 39
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PRELIMINARY DRAFT
Goldman Sachs
Common Stock Comparison
($ in millions, except per share data)
Enterprise
Closing % of 52 Equity Value Multiples (2) Calendarized 5-Year
Price Week Market Enterprise EBITDA EBIT P/E Multiples (2) EPS LTM Margins (1) Dividend
Company 30-Sep-2010 High Cap (1) Value (1) 2010 2011 2010 2011 2010 2011 CAGR (2) EBITDA EBIT Yield
Plaid (IBES) $ 33.62 67 % $ 2,278 $ 1,986 6.4 x 5.8 x 7.7 x 7.1 x 14.6 x 13.0 x 15.2 % 19.8 % 16.9 % 0.0 %
Plaid (Old Management) 6.0 x 5.0 x 7.1 x 5.9 x 13.4 x 11.1 x
Plaid (Management) 6.6 x 5.0 x 7.8 x 5.9 x 14.8 x 11.1 x
Plaid (Tweed) 6.8 x 6.1 x 8.1 x 7.2 x 15.4 x 13.7 x
Abercrombie & Fitch $ 39.32 79 % $ 3,474 $ 2,936 6.0 x 5.1 x 11.8 x 8.7 x 22.5 x 15.9 x 16.5 % 13.8 % 6.3 % 1.8 %
Aeropostale 23.25 72 2,161 1,863 4.0 3.7 4.5 4.2 8.8 8.2 11.6 20.1 17.8 0.0
American Eagle 14.96 76 2,925 2,494 5.5 5.1 8.1 7.2 15.5 13.4 12.5 13.3 8.3 3.5
AnnTaylor 20.24 81 1,208 948 4.5 4.0 8.5 7.7 17.6 14.7 15.0 10.2 4.9 0.0
Buckle 26.54 66 1,264 1,141 5.2 4.9 6.0 5.6 10.2 9.9 10.0 24.8 21.8 3.0
Coach 42.96 97 12,983 12,312 9.2 8.5 10.2 9.5 17.1 15.2 15.0 35.4 31.9 1.0
Gap 18.64 71 11,540 9,837 4.0 4.0 5.2 5.3 10.4 9.8 10.0 18.2 13.6 2.0
Guess? 40.63 81 3,784 3,341 7.4 6.5 8.7 7.4 14.1 12.3 15.0 20.3 17.4 1.5
Lululemon Athletica 44.72 98 3,233 3,059 18.1 14.7 21.3 17.8 36.7 30.4 25.0 27.1 23.0 0.0
Limited Brands 26.78 94 8,787 10,019 6.6 6.1 8.6 7.7 14.8 13.4 13.0 14.9 10.5 2.2
Polo 89.86 95 9,047 8,318 8.9 8.1 11.2 10.1 18.4 16.2 11.0 18.7 15.2 0.4
rue21 25.81 69 644 627 8.8 7.2 12.2 10.5 21.7 18.0 22.5 11.3 7.9 0.0
Urban Outfitters 31.44 78 5,301 4,710 8.6 7.3 10.6 8.9 18.5 15.6 20.0 23.2 19.0 0.0
High 98 % $ 12,983 $ 12,312 18.1 x 14.7 x 21.3 x 17.8 x 36.7 x 30.4 x 25.0 % 35.4 % 31.9 % 3.5 %
Mean 81 5,104 4,739 7.4 6.6 9.8 8.5 17.4 14.8 15.2 19.3 15.2 1.2
Median 79 3,474 3,059 6.6 6.1 8.7 7.7 17.1 14.7 15.0 18.7 15.2 1.0
Low 66 644 627 4.0 3.7 4.5 4.2 8.8 8.2 10.0 10.2 4.9 0.0
(1) Source: Latest publicly available financial statements. Equity Market Cap based on diluted shares outstanding.
(2) Sources: LTM numbers are based on latest publicly available financial statements. Projected revenues, EBITDA, EBIT, and EPS are based on IBES median estimates and/or other Wall Street research. All research estimates have been calendarized to January.
Supplemental Materials 40
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PRELIMINARY DRAFT
Goldman Sachs
Plaid Currently Trades Below Peer Median on a P/E Basis
Current Year Multiple Over Time (Median Multiples for the Period)
Plaid 2003 2004 2005 2006 2007 2008 2009 2010YTD Current (IBES)
2010 P/E
Case EPS Mult. Plaid NA NA NA 36.5 x 32.8 x 18.9 x 29.3 x 19.7 x 14.6 x
Tweed $2.19 15.4x Abercrombie & Fitch 13.5 14.5 18.6 15.0 15.3 11.0 25.4 22.3 22.5
Mgmt $2.27 14.8x
IBES $2.31 14.6x AÉROPOSTALE 20.0 21.4 16.7 16.6 17.7 15.3 12.3 10.4 8.8
AMERICAN EAGLE OUTFITTERS 14.7 17.8 15.2 17.0 13.6 9.9 19.3 14.4 15.5
ANNTAYLOR 16.0 15.7 22.2 19.7 16.3 12.6 10.7 18.1 17.6
Buckle 13.4 15.2 15.4 15.3 17.6 16.4 11.3 11.5 10.2
COACH 29.6 31.5 29.5 23.7 27.5 13.6 14.1 17.4 17.1
GAP 20.8 17.1 14.9 17.8 20.4 14.3 13.9 12.6 10.4
GUESS? 31.8 23.5 20.6 25.9 26.2 15.6 14.5 13.5 14.1
Limitedbrands 15.3 16.3 15.7 16.9 15.1 12.3 16.6 15.5 36.7
lululemon athletica NA NA NA NA NA 31.6 31.4 41.7 14.8
POLO RALPH LAUREN 13.8 16.2 16.8 19.9 22.9 16.2 15.2 18.4 18.4
rue21 NA NA NA NA NA NA NA 29.1 21.7
urban outfitters 22.0 33.1 36.0 25.5 27.6 26.6 20.7 22.6 18.5
Median 16.0x 17.1 x 16.8 x 17.8 x 17.7 x 14.8 x 14.9 x 17.4 x 17.1 x
S&P 18.6 17.6 16.2 15.6 16.1 14.2 16.3 14.2 13.8
Source: Bloomberg, IBES estimates. Note: Market data as of 30-Sep-2010
Supplemental Materials 41
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PRELIMINARY DRAFT
Goldman Sachs
Premiums Analysis – All Cash Transactions
Median Announced Premiums to 1-Day Prior Closing Target Share Price for Announced and Completed Transactions Larger than $1 Billion Involving US Targets
50.0%
45.0% 43.8%
40.3%
40.0% 37.8% 37.8%
35.0%
31.1%
30.0% 27.8% Median: 27.7%
26.5%
25.4% 25.0%
25.0% 22.7%
20.0%
15.0%
10.0%
5.0%
0.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Thomson SDC
Supplemental Materials 42
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PRELIMINARY DRAFT
Goldman
Sachs
Selected Precedent Transactions
Specialty Retail Transactions with Disclosed EBITDA Multiple ($ in millions)
Enterprise Value
Effective Enterprise Multiple
Date Acquirer / Target Value of LTM (x) EBITDA Target Business Description
Designs, sources, and markets men’s and women’ sportswear, and activewear, jeanswear, and childrenswear and holds licensing
Mar-2010 PVH / Tommy Hilfiger 3,168 8.3x agreements for various related apparel, accessories, footwear, fragrances, and home furnishings
Advent / Charlotte
Aug-2009 311 6.6x Mall-based specialty retailer of apparel and accessories targeting young women in their teens and twenties
Russe
Jul-2009 Eddie Bauer / Golden 286 5.91 Specialty retailer that sells men’s and women’s outerwear, apparel, and accesories for outdoor lifestyle in the United States and Canada
Gate
Dress Barn / Tween Specialty retailer for tween girls selling Justice and Limited Too branded apparel, accessories and footwear in the U.S.
Jun-2009 237 5.6
Brands and internationally
Jul-2007 M1 Group / Facconable $210 13.8 Premium wholesaler and retailer of high quality men’s and women’s apparel and accessories
Engage in the design and marketing of children’s footwear, and athletic and casual footwear for children and adults primarily in the United States
May-2007 Payless / Stride Rite 874 10.9 primarily in the United States
Nov-2006 Limited / La Senza 624 11.8 One of Canada’s leading specialty retailers of women’s lingerie and apparel
Sun Capital and Multi-channel specialty retailer that sells casual sportswear and accessories for the modern outdoor lifestyle to adults,
Nov-2006 Golden Gate Capital / 610 11.9
Eddie Bauer2 ages 35 to 50
Dec-2005 Apax / Tommy Hilfiger 1,540 7.9 Designs and markets of men’s and women’s sportswear and childrenswear
Bain / Burlington Coat Burlington operates a chain of department stores with products including linens, bath items, gifts, coats, suits, luggage,
Jul-2005 281 9.4
Factory family footwear, baby apparel, ladies sportswear, men’s wear
Median $461 8.9x
1 Assumes LTM EBITDA as of 04-Apr-2009 of $48.6 million.
2 Not consummated.
Supplemental Materials 43
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PRELIMINARY DRAFT
Goldman
Sachs
Plaid Capital Structure
As of 31-Jul-2010
($ in millions)
Moody’s Adj.
Amount LTM LTM Leverage Interest / Tranche Current Bid /
(USD) Leverage (1) Using 8x (2) Coupon Rating Implied Yield Maturity
Cash $340
Undrawn Revolving Credit Facility (3) 195
Total Liquidity $536
Revolving Credit Facility ($200mm Capacity) - 0.0 x 1.6 L + 100-125 NA / NA May-2013
Term Loan (5) 49 0.1 1.7 L + 175 (4) Ba2 / BB+ 93.00 / 6.2% May-2013
Total Debt $49 0.1x 1.7x
Market Equity (30-Sep-2010) 2,285
Total Capitalization $2,335
Corporate Rating BB+ / WR Stable / NA
Source: Company Filings as of 31-Jul-2010
(1) Assumes LTM EBITDA to be $336mm as of 31-Jul-10. (2) LTM rent expense of $86mm capitalized at 8.0x. (3) Adjusts for $6mm of Letters of Credit as of 31-Jul-2010.
(4) Interest rate is at company’s option, at base rate plus a margin of 0.75% or at L+175 bps
(5) On August 24, 2010, the Company notified its lenders that it would make a voluntary prepayment of the remaining outstanding balance on its credit agreement on August 31, 2010.
Supplemental Materials 44
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PRELIMINARY DRAFT
Goldman
Sachs
Illustrative WACC Analysis
WACC Calculation
Target Capital Structure (%)
Net Debt / (Net Debt + Equity)(1) 10.0%
Equity / (Net Debt + Equity)(1) 90.0%
Implied Net Debt/Equity Ratio 11.1%
WACC
Risk-Free Rate (2) 3.4%
Equity Beta (Relevered) (4) 1.75
Equity Risk Premium (3) 6.7%
Cost of Equity 15.0%
Pre-Tax Cost of Debt 7.0%
After-Tax Cost of Debt 4.2%
Weighted-Average Cost of Capital 14.0%
WACC Sensitivity
Net Debt / Net Debt + Equity
(20.0)%(10.0)% 0.0% 10.0% 20.0%
Beta 1.55 15.7% 14.7% 13.7% 12.8% 11.8%
1.60 16.1% 15.1% 14.1% 13.1% 12.1%
Equity 1.65 16.5% 15.4% 14.4% 13.4% 12.4%
Relevered 1.70 16.9% 15.8% 14.7% 13.7% 12.6%
1.75 17.3% 16.2% 15.1% 14.0% 12.9%
At 10.0% Net Debt / (Net Debt + Equity)
Ke WACC
Beta 1.65 14.4% 13.4%
1.70 14.7% 13.7%
Equity 1.75 15.0% 14.0%
Relevered 1.80 15.4% 14.3%
1.85 15.7% 14.6%
Source: Bloomberg
(1) Estimated target capital structure based on current capital structure. (2) Risk free rate based on 20 Year US Treasury rate.
(3) Per U.S. Ibbotson.
(4) Based on Plaid’s Axioma historical equity beta
Supplemental Materials 45
 PROJECT JADE SPECIAL COMMITTEE MATERIALS
OCTOBER 25, 2010
*
*
*
*
*
*
Exhibit (c)(4) |
 2
Confidential
BACKGROUND AND PRELIMINARY OBSERVATIONS
Source:
FactSet, Wall Street research
Note:
(1) Sector represented by equal weighted index of Abercrombie & Fitch,
Aeropostale, American Eagle, Ann Taylor, Bebe, Carter’s, Chico’s, Children’s Place, Coach, Coldwater Creek, The Dress Barn, The Gap,
Guess?,
Gymboree,
Limited
Brands,
New
York
&
Company,
Polo
Ralph
Lauren,
Talbot’s,
Under
Armour,
and
Urban
Outfitters
Management
has
been
in
discussions
with
TPG
and
has
provided
TPG
certain
information
about
the
recent
and
forecasted
performance of the business as well as management’s long range strategic
plan The
business
performed
very
well
in
the
1
st
half
of
FY2010,
but
starting
in
July
weaker
sales
and
margin
trends
began
–
Weather related in some cases
–
General economic conditions and state of the consumer in the U.S.
–
Fashion and assortment miss specific to the Company
Weaker sales and margin trends have continued in recent weeks prompting several
analysts to lower estimates and causing a recent decline in stock
price –
Janney
Montgomery,
Piper
Jaffray
and
Needham
lowered
EPS
forecast
for
FY2010
and
FY2011
–
Consensus EPS for FY2010 lowered from $2.45 to $2.30 (-6.1%)
–
Jade
stock
is
down
5%
since
the
August
26
th
earnings
announcement
and
down
11%
in
last
7
days
•
Sector
is
up
20%
since
August
26
th
and
down
5%
in
last
7
days
(1)
•
S&P500
is
up
13%
since
August
26
th
and
up
1%
in
the
last
7
days
•
Jade stock peaked for the year at $50.00 on April 26, 2010; and currently trades at
$31.68, down 37% (S&P Retail down 5% in the same period)
In response to the weaker trends, management has revised its estimates for Q3 and
Q4 –
Change in Q3 revenue from $450MM to $435MM (-3.5%)
–
Change in Q4 revenue from $519MM to $498MM (-3.9%)
–
Implies change in FY2010E revenue from $1,790MM to $1,754MM (-2.0%)
–
Change in FY2010E EPS from $2.55 to $2.24 (-12.2%)
|
 3
Confidential
BACKGROUND AND PRELIMINARY OBSERVATIONS (CONT’D)
In addition, management has lowered estimates in its long-range plan
–
FY2009 –
FY2013E sales growth reduction from 14% to 12%
–
180bps
reduction
in
gross
margins
to
44%
range
(1)
–
Implies FY2009 –
FY2013E EPS growth reduction from 23% to 14%
Historically,
Q4
sales
have
accounted
for
29%
(2)
of
annual
sales
on
average
–
Heavily dependent on November and December Holiday sales
Management indicated its inability to provide assurances about the holiday season,
consistent with other retailers Company
does
not
appear
to
have
any
successor,
heir
apparent,
or
reasonable
internal
candidate
to
succeed
the
current
CEO
–
Recent departure of Tracy Gardner (July 13)
–
No President or COO position currently
The operations team is deep and highly regarded
–
However, Libby Wadle, Retail and Factory Head, begins maternity leave October
25 The finance staff appears to be less deep, with little to no excess
resource capacity Earnings calendar (Q3 results and FY2010 guidance)
–
Typically last week of November
•
Flexibility on date, but Thanksgiving November 25
•
Notice
of
earnings
release
10
days
to
two
weeks
prior
(i.e.
week
of
November
8)
•
Later
earnings
release
provides
more
visibility
on
month
of
November
and
the
4
th
quarter,
but
must
balance
release
timing
with
Street’s timing expectations
Notes:
(1) Based on FY2011E –
FY2013E average
(2) Based on FY2007A –
FY2009A average |
 4
Confidential
ANALYSIS OF JADE FY 2010E ESTIMATES
Source:
Company management
Notes:
(1) % change calculated as absolute change
(2) Represents mid-point of range
(3) Includes Abercrombie & Fitch, Aeropostale, Chico’s, and Urban
Outfitters (2)
(1)
Jade
Peer Group
(3)
As of
% Change
% Change
($MM)
8/18/10
8/24/10
10/6/10
8/18 - 8/24
8/24 - 10/6
8/18 - 10/6
(8/1-Current)
Sales
Jade Budget
$1,740
$1,740
$1,740
--
--
--
--
Jade Estimate
1,790
1,765
1,754
(1.4%)
(0.6%)
(2.0%)
--
Street Consensus
1,747
1,747
1,741
--
(0.3%)
(0.3%)
(0.5%)
Gross Margin %
Jade Budget
45.1%
45.1%
45.1%
--
--
--
--
Jade Estimate
45.9%
45.1%
44.0%
(80 bps)
(102 bps)
(182 bps)
--
Street Consensus
45.8%
45.8%
45.0%
--
(80 bps)
(80 bps)
(63 bps)
EPS
Jade Budget
$2.27
$2.27
$2.27
--
--
--
--
Jade Estimate
2.55
2.39
2.24
(6.1%)
(6.5%)
(12.2%)
--
Jade Guidance
2.42
2.30
2.30
(5.0%)
--
(5.0%)
--
Street Consensus
2.45
2.45
2.30
--
(6.1%)
(6.1%)
(3.1%) |
 5
Confidential
EARNINGS PROGRESSION OF FY 2010E
$0.68
$0.53
$0.57
$0.45
$2.24
$0.68
$0.53
$0.60
$0.54
$2.35
$2.45
$2.30
$2.25
$0.55
$0.49
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Q1
Actual
Q2
Actual
Q3
Estimated
Q4
Estimated
FY
2010E
Q1
Actual
Q2
Actual
Q3
Guidance
Q4
Guidance
FY
2010E
Consensus
as of 8/18
Consensus
as of 10/6
Jade Current Estimate (10/6)
Source:
Company management
Notes:
(1)
Q3
includes
non-cash
$1.4MM
expense
related
to
paydown
of
term
loan
on
8/31/10
(2) Represents mid-point of range as of 8/24/10
(2)
(2)
(1)
Jade Guidance to Wall Street (8/24) |
 6
Confidential
EVOLUTION
OF
JADE
ANALYST
ESTIMATES
–
FY
2010E
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
Feb-09
Jul-09
Dec-09
May-10
Oct-10
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
Jade Share Price
Consensus FY 2010E EPS
Source:
FactSet, IBES |
 7
Confidential
RECENT SECTOR PERFORMANCE AND ANALYST EXPECTATIONS
Source:
FactSet, IBES
Note: (1) Current prices based on 10/22/10 close
Share Price
FY 2010E Consensus EPS Estimate
FY 2010E Consensus Gross Margin %
Company
8/1/2010
Current
% Change
8/1/2010
Current
% Change
8/1/2010
Current
% Change
Jade
$35.63
$31.68
(11.1%)
$2.45
$2.30
(6.1%)
45.8%
45.0%
(0.8%)
Selected Peers
Abercrombie & Fitch
36.94
42.40
14.8%
1.80
1.82
0.8%
64.5%
63.6%
(0.9%)
Chico's
9.37
9.89
5.5%
0.72
0.65
(9.7%)
57.2%
56.8%
(0.5%)
Urban Outfitters
32.16
30.28
(5.8%)
1.67
1.68
0.6%
42.1%
42.1%
0.0%
Aeropostale
28.43
25.70
(9.6%)
2.83
2.64
(6.7%)
38.9%
38.1%
(0.8%)
Mean
1.2%
(3.8%)
(0.5%)
Median
(0.1%)
(3.1%)
(0.6%)
High
14.8%
0.8%
0.0%
Low
(9.6%)
(9.7%)
(0.9%) |
 8
Confidential
JADE P/E MULTIPLE AND EPS GROWTH (SINCE IPO)
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
60.0x
Jun-06
Jul-07
Aug-08
Sep-09
Oct-10
0%
5%
10%
15%
20%
25%
30%
Price / NTM EPS
Long-Term EPS Growth Rate
Source:
FactSet, IBES. Jade IPO was 6/27/06 at a price of $20.00 per share
|
 9
Confidential
COMPARISON OF LONG RANGE PLAN: CURRENT VS. SEPTEMBER 1 BOARD MEETING
(US$ in MM, except per share data)
Source:
Company management
9/1/2010
Current
Fiscal Year
2009
2010E
2011E
2012E
2013E
2010E
2011E
2012E
2013E
Sales
1578.042
$1,805
$2,034
$2,356
$2,709
$1,753
$1,955
$2,208
$2,487
% Growth
14.4%
12.7%
15.8%
15.0%
11.1%
11.5%
13.0%
12.6%
% Comp
10.2%
6.2%
6.3%
6.0%
6.3%
5.3%
3.4%
3.7%
Gross Profit
695.7
$828
$939
$1,091
$1,261
$772
$868
$982
$1,108
% Growth
19.0%
13.3%
16.3%
15.6%
11.0%
12.4%
13.1%
12.8%
% Margin
45.9%
46.1%
46.3%
46.5%
44.1%
44.4%
44.5%
44.5%
EBIT
211.3
$280
$338
$412
$501
$243
$279
$319
$369
% Growth
32.7%
20.7%
21.8%
21.6%
15.1%
14.6%
14.5%
15.6%
% Margin
15.5%
16.6%
17.5%
18.5%
13.9%
14.2%
14.4%
14.8%
EPS
1.91
$2.50
$3.02
$3.67
$4.44
$2.18
$2.50
$2.81
$3.20
% Growth
30.9%
20.8%
21.5%
21.0%
14.1%
14.7%
12.4%
13.9% |
 10
Confidential
COMMITTEE OPTIONS AND DECISION POINTS
A.
Do nothing, terminate discussions
–
Potentially consider a proposal in January
–
Could pursue a recapitalization at a later date
B.
Entertain a proposal
–
Agree on protocol, steps, and timing
C.
Pursue a transaction with a pre-agreement process to solicit other buyers
–
Dependent on price and evaluation of effectiveness of pre-agreement process vs.
post-agreement process D.
Pursue a transaction with a post-agreement process to solicit other buyers
(“go shop”) –
Dependent on price and evaluation of effectiveness of post-agreement process
vs. pre-agreement process |
 11
Confidential
OUR WORK PLAN –
THIS WEEK
Complete build-out of our financial model
Continue our due diligence with management
Develop our views on value and value drivers
Evaluate alternatives other than a sale
Assist you with the decision points
Stand ready for next steps pending decisions by the Committee
|
 PROJECT JADE
PRESENTATION TO THE SPECIAL COMMITTEE
OCTOBER 29, 2010
*************************************
*************************************
*************************************
*************************************
*************************************
*************************
Exhibit (c)(5) |
 2
Confidential
AGENDA
Process Update and Preliminary Observations
Overview of Financial Analysis
–
Market Analysis
–
Long-Range Plan
–
Preliminary Valuation
Options and Key Decision Points
Appendix |
 PROCESS UPDATE AND PRELIMINARY OBSERVATIONS
********************************
********************************
********************************
********************************
********************************
************** |
 4
Confidential
PROCESS UPDATE AND PRELIMINARY OBSERVATIONS
Since the Special Committee meeting on October 25, Perella Weinberg Partners has
continued its analysis of Jade –
Additional due diligence meetings with management; focused on near-term
performance (Q3 and Q4) and the long-range plans (the September 1
Long-Range Plan (the “9/1 LRP”) and the October plan (the “Current Plan”))
–
Build-out of the financial model
–
Variance analysis comparing the 9/1 LRP to the Current Plan and sensitivity
analysis –
Preliminary views on value and value drivers
The business continues to experience weaker sales and margin trends
–
October-to-date
comp
for
Retail,
Factory
and
Madewell
of
-6%,
+5%
and
+19%,
respectively;
below
Spring
and
August/September
levels
–
Gross
margin
pressure
continues
(H2
gross
margin
of
41.7%
vs.
LY
of
46.0%
and
H1
of
46.8%)
–
Higher inventory trends than previously expected
–
Downside risk to management’s estimate FY2010E EPS of $2.24 (vs. current
consensus of $2.27) Market sentiment toward retailers and Jade specifically has
turned more cautious in recent weeks –
Equity research analysts have recently lowered Q3, Q4, and FY2011 estimates and
expressed concerns over Jade’s comp store sales and growth trends
•
Q3 EPS consensus lowered to $0.57 per share from $0.71; Q4 consensus lowered to
$0.52 from $0.63, FY2011 consensus lowered to $2.49 from $2.79
•
Morgan
Stanley
initiated
coverage
on
Jade
with
an
“Underweight”
rating
on
October
26
–
Earnings in the sector under pressure (e.g. Jones Apparel), but some positive
announcements at the higher end (e.g. Coach) |
 5
Confidential
PROCESS UPDATE AND PRELIMINARY OBSERVATIONS (CONTINUED)
Following a detailed review of the 9/1 LRP and the Current Plan with management, we
have developed a better understanding of the two plans and key
differences –
According
to
management,
the
9/1
LRP
was
an
aspirational
forecast
targeting
~20%
EPS
growth;
the
Current
Plan
is
based
on
recent trends and management’s longer-term outlook for the business
•
Management does not support the 9/1 LRP and is operating the business in pursuit of
the Current Plan •
Accordingly, in our preliminary valuation analysis set forth herein, we have
performed a valuation based on the Current Plan and show
similar
analysis
based
on
the
9/1
LRP
solely
for
illustrative
and
comparative
purposes,
and
does
not
represent
a
valuation
Both plans assume a similar level of investment through 2015 ($390MM in
infrastructure and capital expenditures in aggregate)
–
Retail store growth of 43 stores (19%)
–
Factory store growth of 63 stores (74%)
–
Madewell
store growth of 115 stores (575%)
The
key
difference
between
the
two
plans
is
the
comparable
sales
growth
assumption
for
the
Retail
channel
(which
accounts for roughly 50% of Jade’s overall revenues in the forecast
period) –
5.0% average Retail comp growth rate in the 9/1 LRP vs. 2.9% in the Current Plan,
accounting for approximately 50% of the gross margin differential between
the two plans –
Sales
growth
assumption
also
lower
for
Factory,
Madewell
and
Direct
channels
in
the
Current
Plan
vs.
the
9/1
LRP
Comp Sales Growth
9/1 LRP
Current Plan
Factory
8.0%
5.6%
Madewell
10.8%
9.4%
Direct
14.1%
13.0% |
 6
Confidential
PROCESS UPDATE AND PRELIMINARY OBSERVATIONS (CONTINUED)
The financial results in the 9/1 LRP are significantly above Street consensus for
FY2011 and FY2012, while the Current Plan’s estimates are more in line
with the Street for the same period –
Very few Wall Street estimates beyond FY2012 other than long-term EPS growth
consensus of 15.2% Based on our work to date, we have developed a preliminary
view of value based on discounted cash flow analysis and analyzed what a
private equity buyer could pay based on a leveraged buyout analysis
–
Discounted
cash
flow
value
range
of
$39
-
$52
per
share
based
on
Current
Plan
•
Compares to $52 -
$69 per share under 9/1 LRP
–
Leveraged
Buyout
value
range
of
$40
-
$51
per
share
based
on
Current
Plan
•
Compares to $50 -
$67 per share under 9/1 LRP
We also evaluated a leveraged recapitalization assuming a buyback of shares at a 20%
premium to current price –
Requires new debt of approximately $300MM and use of balance sheet cash of
$200MM –
Yields
a
blended
value
of
$36
-
$43
per
share
based
on
Current
Plan
•
Compares to $43 -
$51 per share under 9/1 LRP |
 7
Confidential
PROCESS UPDATE AND PRELIMINARY OBSERVATIONS (CONTINUED)
Lastly, we have developed a framework for discussion to evaluate
your options and key decision points
–
Options
•
Do nothing, pursue current plan
•
Alternatives to current plan
Merger
Sale
Leveraged recapitalization
–
Decision Points
•
Entertain a proposal now or at a later date?
Appropriate next steps
•
Pursue a proposal now or at a later date?
Appropriate process |
 OVERVIEW OF FINANCIAL ANALYSIS: MARKET ANALYSIS
**********************************
**********************************
**********************************
**********************************
**********************************
************************* |
 9
Confidential
SUMMARY JADE VALUATION (US$ IN MM)
(1)
EV / NTM EBITDA –
LAST 3 YEARS
PUBLIC MARKET OVERVIEW
Source:
FactSet, company filings, 9/1/2010 Long-Range Plan and 10/20/2010 Jade
Management projections. Fiscal year 2010 refers to year ending 1/31/2011, fiscal year 2011 refers to year ending 1/31/2012
Notes:
Peer multiple represented by median of Abercrombie & Fitch, Aeropostale,
American Eagle, Ann Taylor, Bebe, Carter’s, Chico’s, Children’s Place, Coach, Coldwater Creek, The Dress Barn, The Gap, Guess?,
Gymboree,
Limited
Brands,
New
York
&
Company,
Polo
Ralph
Lauren,
Talbots,
Under
Armour,
and
Urban
Outfitters
(1) Debt and cash shown pro forma for 8/31/2010 debt repayment detailed in 7/31/2010
10Q (2) Peers and S&P 500 scaled to JCG at 6/27/2006 opening of $20.00 per
share Jade
5.8x
Peers
5.9x
0.0x
3.0x
6.0x
9.0x
12.0x
15.0x
Oct-07
Jun-08
Jan-09
Aug-09
Mar-10
Oct-10
Share Price
$31.43
52 Week High (April 26, 2010)
$50.96
52 Week Low (August 31, 2010)
$30.06
Fully Diluted Shares Outstanding
68.2
Market Capitalization
$2,142
Add: Debt
0
Less: Cash
(291)
Net: Other
0
Enterprise Value
$1,851
Current
Valuation
Multiples
(Fiscal
Year)
Consensus
9/1
LRP
Plan
EV/2010E EBITDA
6.0x
5.6x
6.3x
EV/2011E EBITDA
5.8x
4.7x
5.5x
Price/2010E EPS
13.8x
12.6x
14.4x
Price/2011E EPS
12.6x
10.4x
12.6x |
 10
Confidential
13.8x
9.4x
18.2x
10.3x
10.7x
11.3x
11.9x
13.3x
16.0x
19.2x
19.3x
19.3x
23.6x
14.4x
12.6x
15.7x
15.6x
15.4x
Selected Peers Median: 16.8x
Other Peers Median: 15.6x
0.0x
7.0x
14.0x
21.0x
28.0x
9/1 LRP
Current Plan
IBES
Aeropostale
Chico's
Urban
Outfitters
A&F
Carter's
The Gap
Talbots
Dress Barn
Guess?
Children's
Place
Limited
Brands
American
Eagle
Polo
Coach
Ann Taylor
PUBLIC COMPANIES COMPARISON –
PRICE / 2010E EARNINGS
Source:
Company Filings, Factset, 9/1/2010 Long-Range Plan and 10/20/2010 Jade
Management projections Selected Peers
Other Peers
Jade |
 11
Confidential
EPS HISTORY VS. CONSENSUS SINCE IPO
Source:
FactSet, company filings, IBES
Notes:
(1) Prior to earnings announcement
$0.89
$0.97
$1.05
$0.00
$0.50
$1.00
$1.50
$2.00
6 Months
Prior
1 Week
Prior
Actual
$1.25
$1.52
$1.54
$0.00
$0.50
$1.00
$1.50
$2.00
1 Year
Prior
1 Week
Prior
Actual
$1.85
$0.79
$0.85
$0.00
$0.50
$1.00
$1.50
$2.00
1 Year
Prior
1 Week
Prior
Actual
$0.51
$1.75
$1.91
$0.00
$0.50
$1.00
$1.50
$2.00
1 Year
Prior
1 Week
Prior
Actual
FY 2006
FY 2007
FY 2008
FY 2009
$0.57
$0.40
$0.50
$0.60
$0.70
$0.80
Jan
Mar
May
Aug
Oct
$2.27
$2.00
$2.25
$2.50
$2.75
$3.00
Jan
Mar
May
Aug
Oct
$2.49
$2.00
$2.25
$2.50
$2.75
$3.00
Jan
Mar
May
Aug
Oct
Q3 2010
Q4 2010
FY 2010E
FY 2011E
$0.52
$0.40
$0.50
$0.60
$0.70
$0.80
Jan
Mar
May
Aug
Oct
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1) |
  12
Confidential
JADE STOCK PRICE PERFORMANCE SINCE IPO
Source:
FactSet
as of 10/28/2010, Wall Street research
Note:
(1) Selected Peers represented by equal weighted index of Abercrombie & Fitch,
Aeropostale, American Eagle, Ann Taylor, Bebe, Carter’s, Chico’s, Children’s Place, Coach, Coldwater Creek, The Dress Barn, The
Gap, Guess?, Gymboree, Limited Brands, New York & Company, Polo Ralph Lauren,
Talbots, Under Armour, and Urban Outfitters Jade
57%
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
Jun-06
May-07
Mar-08
Feb-09
Dec-09
Oct-10
5/29/2008
Negative
guidance
revision
7/13/2010
Tracy Gardner,
President,
resigns from
Jade
6/27/2006
Jade completes IPO at
$20.00 per share
8/26/2008
Negative guidance revision
11/25/2008
Negative
guidance
revision
2/27/2009
Announces $40MM cost
reduction program
5/27/2010
Positive
guidance
revision
8/26/2010
Negative guidance
revision
11/21/2006
Positive guidance revision
11/29/2007
Positive
guidance
revision
Company
Since IPO
4/26/2010
8/26/2010
Last 10 Days
Jade
57%
(37%)
(6%)
(10%)
Select Peers
33%
(16%)
20%
(0%)
S&P Retail Index
19%
(4%)
19%
1% |
 13
Confidential
GROSS MARGIN PERFORMANCE VS. INVENTORY/SALES TREND
Sources:
Capital IQ
(6.0%)
(4.0%)
(2.0%)
0.0%
2.0%
4.0%
6.0%
8.0%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
(600 bps)
(400 bps)
(200 bps)
0 bps
200 bps
400 bps
600 bps
800 bps
FY 2005
FY 2006
FY 2007
FY 2008
FY 2009
YTD 2010
Revenue Growth - Inventory Growth (Left Axis)
Absolute Change in LTM Gross Margin (Right Axis) |
 14
Confidential
Sell
10%
Hold
60%
Buy
30%
JADE SELECTED RESEARCH ANALYST RATING AND PRICE TARGET SUMMARY
Source:
Wall Street research
8/27
8/27
8/27
8/26
8/27
7/15
8/26
8/27
10/5
10/25
10/21
8/26
8/26
10/21
10/26
8/27
Buy
Buy
Buy
Buy
Buy
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Sell
Sell
Upside to Current
59%
56%
34%
27%
27%
18%
11%
11%
11%
11%
8%
5%
(1%)
(1%)
(5%)
(11%)
$50.00
$49.00
$42.00
$35.00
$35.00
$34.00
$33.00
$31.00
$28.00
$31.00
$30.00
$35.00
$35.00
$40.00
$40.00
$37.00
Current Price: $31.43
Median Price Target: $35.00
$25.00
$35.00
$45.00
$55.00
Oppenheimer
Baird
Brean
Murray
Weeden
Wedbush
JP Morgan
UBS
Jefferies
BOA
MKM
P. Jaffray
Goldman
BMO
Janney
Morgan
Stanley
Atlantic
Equities |
 15
Confidential
RECENT EQUITY RESEARCH ANALYST COMMENTARY
Source:
Wall Street research
BROKER
COMMENTARY |
 OVERVIEW OF FINANCIAL ANALYSIS: LONG-RANGE PLAN
*********************************************
*********************************************
*********************************************
*********************************************
*********************************************
*** |
 17
Confidential
$690
$804
$953
$1,152
$1,335
$1,428
$1,578
$1,805
$2,034
$2,356
$2,709
$3,087
$3,481
$1,753
$1,955
$2,208
$2,487
$2,783
$3,096
$0
$1,500
$3,000
$4,500
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
COMPARISON
OF
JADE
FINANCIAL
PLANS
-
REVENUE
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections, company
filings HISTORICAL
9/1 LRP
CURRENT PLAN
2003-2009 CAGR: 14.8%
2010-2015 CAGR: 14.0%
2010-2015 CAGR: 12.0%
(US$ in MM) |
 18
Confidential
COMPARISON OF COMPARABLE STORE SALES GROWTH ASSUMPTIONS
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections, Wall Street
research Note:
(1) Based on revenue growth
(2.5%)
16.4%
13.4%
13.0%
5.6%
(4.0%)
4.1%
12.8%
0.2%
(3.1%)
10.2%
6.2%
6.3%
6.0%
6.1%
6.2%
6.3%
5.3%
3.4%
3.7%
3.9%
4.1%
6.0%
4.0%
6.0%
4.0%
3.0%
3.0%
(10.0%)
0.0%
10.0%
20.0%
2003A
2004A
2005A
2006A
2007A
2008A
2009A
Spring
Sept.
Oct.
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
CONSOLIDATED
HISTORICAL
9/1 LRP
CURRENT PLAN
RETAIL
BY
CHANNEL
(AVERAGE
OF
2011
–
2015)
5.0%
2.9%
9/1 LRP
Current Plan
FACTORY
8.0%
5.6%
9/1 LRP
Current Plan
MADEWELL
9.4%
10.8%
9/1 LRP
Current Plan
DIRECT
(1)
13.0%
14.1%
9/1 LRP
Current Plan
2010 YTD
Consensus
Consensus |
 19
Confidential
COMPARABLE
STORE
SALES
ESTIMATES
–
SELECTED
PEERS
Sources:
Wall Street research
(5.9%)
(2.3%)
(1.3%)
(0.7%)
0.2%
0.3%
1.0%
2.7%
3.2%
3.6%
5.0%
5.0%
5.1%
5.6%
5.8%
6.0%
7.6%
1.4%
0.3%
3.0%
2.5%
4.5%
3.7%
1.7%
3.0%
4.0%
2.8%
8.0%
2.4%
2.0%
3.4%
(0.3%)
3.7%
3.0%
0.4%
2.0%
1.9%
2.4%
2.8%
3.8%
(8.0%)
(6.0%)
(4.0%)
(2.0%)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Coldwater
Creek
Bebe
Talbot's
Gymboree
Children's
Place
Gap
NY &
Company
Carter's
Guess?
Aero
Amer.
Eagle
Dress
Barn
Ralph
Lauren
A & F
Coach
Urban
Outfitters
Chico's
Jade
Ann
Taylor
Limited
Brands
FY 2010E
FY 2011E |
 20
Confidential
36.2%
40.5%
41.8%
43.4%
44.1%
38.9%
44.1%
45.9%
46.1%
46.3%
46.5%
46.8%
47.2%
44.5%
44.7%
45.1%
44.1%
44.4%
44.5%
45.4%
45.0%
45.0%
45.4%
45.0%
45.0%
35.0%
40.0%
45.0%
50.0%
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
COMPARISON
OF
JADE
FINANCIAL
PLANS
–
GROSS
MARGIN
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections, company
filings, FactSet, IBES HISTORICAL
9/1 LRP
CURRENT PLAN
2003-2009 AVERAGE: 41.3%
2010-2015 AVERAGE: 46.5%
2010-2015 AVERAGE: 44.6%
Consensus
(US$ in MM)
Consensus |
 21
Confidential
COMPARISON
OF
FINANCIAL
PLANS
–
EBIT
AND
EPS
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections, company
filings, IBES, FactSet (1) Excludes reversal of accrued equity compensation
expense related to departure of senior executive in July; impact of reversal is approximately $0.03 per share
($31)
$38
$79
$126
$172
$97
$211
$280
$338
$412
$501
$603
$724
$243
$279
$319
$369
$427
$494
($500)
$0
$500
$1,000
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
($3.31)
($0.39)
$1.49
$1.52
$0.85
$1.91
$2.50
$3.02
$3.67
$4.44
$5.32
$6.36
$2.18
$2.50
$2.81
$3.20
$3.64
$4.14
($4.82)
$2.88
$2.88
$2.49
$2.27
$2.49
$2.27
($5.00)
$0.00
$5.00
$10.00
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2010E
2011E
2012E
2013E
2014E
2015E
EBIT
EPS
HISTORICAL
9/1 LRP
CURRENT PLAN
Consensus
(1)
2004-2009 CAGR: 41.2%
2010-2015 CAGR: 20.9%
2010-2015 CAGR: 15.2%
2006-2009 CAGR: 8.6%
2010-2015 CAGR: 20.6%
2010-2015 CAGR: 13.7%
(US$ in MM, except per share amounts)
Consensus
Consensus LTGR: 15.2% |
 22
Confidential
EARNINGS BRIDGE: 9/1 LRP VS. CURRENT PLAN
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections
FY2011E EBITDA
FY2015E EBITDA
(US$ in MM)
$394
$11
$335
($34)
($36)
$300
$320
$340
$360
$380
$400
$420
9/1 LRP
EBITDA
Gross Profit
on Lost
Sales
Gross
Margin
Deterioration
SG&A
Benefit
Current Plan
EBITDA
$793
$15
$563
($182)
($64)
$400
$475
$550
$625
$700
$775
$850
9/1 LRP
EBITDA
Gross Profit
on Lost
Sales
Gross
Margin
Deterioration
SG&A
Benefit
Current Plan
EBITDA
15% Decrease
from 9/1 LRP
29% Decrease
from 9/1 LRP |
 23
Confidential
9/1 LRP WITH REVISED FY2010 RESULTS AS STARTING POINT
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections
$1,753
$3,481
2010E - Current Plan
2015E - 9/1 LRP
Revenue
44.1%
47.2%
2010E - Current Plan
2015E - 9/1 LRP
Gross Margin
$243
$724
2010E - Current Plan
2015E - 9/1 LRP
EBIT
EPS
$2.18
$6.36
2010E - Current Plan
2015E - 9/1 LRP
Implied CAGR: 15%
Implied CAGR: 24%
Implied CAGR: 24%
(US$ in MM, except per share amounts)
Implied Increase: 313 bps |
 OVERVIEW OF FINANCIAL ANALYSIS: PRELIMINARY VALUATION
****************************************
****************************************
****************************************
****************************************
****************************************
** |
 25
Confidential
PRELIMINARY DISCOUNTED CASH FLOW ANALYSIS
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections and Wall
Street research 9/1 LRP Comparison
Current Plan Value
(US$ in MM, except per share amounts)
Implied
Value
Per
Share
Terminal Multiple
WACC
5.5x
6.0x
6.5x
7.0x
11%
$44.65
$46.96
$49.27
$51.58
12%
43.25
45.46
47.67
49.88
13%
41.91
44.03
46.14
48.25
14%
40.64
42.67
44.69
46.71
15%
39.44
41.37
43.31
45.24
Implied
Value
Per
Share
Terminal Multiple
WACC
5.5x
6.0x
6.5x
7.0x
11%
$59.68
$62.93
$66.19
$69.44
12%
57.71
60.82
63.93
67.04
13%
55.84
58.82
61.79
64.77
14%
54.06
56.91
59.76
62.61
15%
52.37
55.10
57.82
60.55 |
 26
Confidential
PRELIMINARY LEVERAGED BUYOUT ANALYSIS
Sources:
9/1/2010 Long-Range Plan and 10/20/2010 Jade Management projections and Wall
Street research Note:
(1)
Value
per
share
range
implies
entry
multiples
of
8.2x
–
12.8x
2010E
EBITDA
(US$ in MM, except per share amounts)
9/1 LRP Comparison
(1)
Assumes fixed exit multiple of 6.0x EBITDA
Assumes fixed leverage of 5.75x EBITDA (6.2x EBITDAR)
Current Plan Value
(1)
Assumes fixed exit multiple of 6.0x EBITDA
Assumes fixed leverage of 5.75x EBITDA (6.3x EBITDAR)
Implied
Value
Per
Share
Leverage
Req. IRR
5.50x
5.75x
6.00x
15.0%
$47.16
$47.49
$47.83
17.5%
45.25
45.66
46.06
20.0%
43.58
44.04
44.50
22.5%
42.09
42.61
43.12
25.0%
40.78
41.35
41.91
Adj. Debt/
2010E
EBITDAR
6.1x
6.3x
6.5x
Implied
Value
Per
Share
Exit Multiple
Req. IRR
5.5x
6.0x
6.5x
7.0x
15.0%
$45.56
$47.49
$49.43
$51.37
17.5%
43.92
45.66
47.39
49.13
20.0%
42.47
44.04
45.60
47.17
22.5%
41.20
42.61
44.02
45.43
25.0%
40.07
41.35
42.62
43.90
Implied
Value
Per
Share
Leverage
Req. IRR
5.50x
5.75x
6.00x
15.0%
$61.18
$61.56
$61.93
17.5%
58.17
58.62
59.07
20.0%
55.52
56.04
56.56
22.5%
53.18
53.76
54.34
25.0%
51.11
51.74
52.37
Adj. Debt/
2010E
EBITDAR
6.0x
6.2x
6.4x
Implied
Value
Per
Share
Exit Multiple
Req. IRR
5.5x
6.0x
6.5x
7.0x
15.0%
$58.83
$61.56
$64.28
$67.01
17.5%
56.17
58.62
61.07
63.52
20.0%
53.83
56.04
58.24
60.45
22.5%
51.77
53.76
55.75
57.73
25.0%
49.94
51.74
53.54
55.33 |
 27
Confidential
PRELIMINARY
LEVERAGED
RECAPITALIZATION
ANALYSIS
–
CURRENT
PLAN
VALUE
Sources:
9/1/2010 Long-Range Plan, Jade Management projections
Note:
(1)
Assumes
$200MM
of
balance
sheet
cash
and
debt
raised
at
1.0x
2010E
EBITDA
(LTM)
(2) Assumes cost of debt of LIBOR + 450 bps
(3) Includes financing fees
(US$ in MM, except per share amounts)
(3)
(1)
(2)
BUYBACK
ASSUMPTIONS
PRO
FORMA
CAPITALIZATION
1/31/2011
Adjustment
Pro Forma
Buyback Price (20.0% Premium)
$37.72
Debt & Cash
Size of Repurchase
$493
Debt
$0
$293
$293
Shares Repurchased
13.1
Rent Adjusted Debt
736
293
1,029
% of Shares Out
19.8%
Cash
376
(203)
173
Pro Rata Cash Per Share
$7.48
Key Statistics
Pro Forma FY2011E EPS
$2.97
Debt/LTM EBITDA
0.0x
1.0x
Assumed Price/Earnings Multiple
12.0x
Adjusted Debt/LTM EBITDAR
1.9x
2.7x
Pro Forma Share Price
$35.66
EBITDA/Interest
--
16.7x
Pro Rata Value of Equity Per Share
$28.59
Total Blended Value
$36.07
TOTAL
BLENDED
VALUE
PER
SHARE
-
SENSITIVITY
ANALYSIS
Buyback
Adj. Debt /
Debt / 2010E
Pro Forma Price / 2011E Earnings
Size
2010E EBITDAR
EBITDA
11.0x
12.0x
13.0x
14.0x
15.0x
$346
2.3x
0.5x
$32.37
$34.83
$37.30
$39.76
$42.23
493
2.7x
1.0x
33.69
36.07
38.45
40.83
43.22
639
3.1x
1.5x
35.00
37.30
39.60
41.90
44.20
786
3.4x
2.0x
36.31
38.53
40.75
42.96
45.18
932
3.8x
2.5x
37.62
39.75
41.89
44.02
46.16 |
 28
Confidential
Sources:
9/1/2010 Long-Range Plan, Jade Management projections
Note:
(1)
Assumes
$200MM
of
balance
sheet
cash
and
debt
raised
at
1.0x
2010E
EBITDA
(LTM)
(2) Assumes cost of debt of LIBOR + 450 bps
(3) Includes financing fees
(US$ in MM, except per share amounts)
(3)
(1)
(2)
BUYBACK
ASSUMPTIONS
PRO
FORMA
CAPITALIZATION
1/31/2011
Adjustment
Pro Forma
Buyback Price (20.0% Premium)
$37.72
Debt
&
Cash
Size of Repurchase
$529
Debt
$0
$329
$329
Shares Repurchased
14.0
Rent Adjusted Debt
736
329
1,065
% of Shares Out
21.1%
Cash
407
(203)
203
Pro Rata Cash Per Share
$7.96
Key
Statistics
Pro Forma FY2011E EPS
$3.67
Debt/LTM EBITDA
0.0x
1.0x
Assumed Price/Earnings Multiple
12.0x
Adjusted Debt/LTM EBITDAR
1.7x
2.5x
Pro Forma Share Price
$44.02
EBITDA/Interest
--
16.7x
Pro Rata Value of Equity Per Share
$34.73
Total Blended Value
$42.69
TOTAL
BLENDED
VALUE
PER
SHARE
-
SENSITIVITY
ANALYSIS
Buyback
Adj. Debt /
Debt / 2010E
Pro Forma Price / 2011E Earnings
Size
2010E EBITDAR
EBITDA
11.0x
12.0x
13.0x
14.0x
15.0x
$365
2.1x
0.5x
$38.27
$41.25
$44.23
$47.21
$50.19
529
2.5x
1.0x
39.80
42.69
45.58
48.48
51.37
694
2.9x
1.5x
41.26
44.06
46.86
49.67
52.47
858
3.3x
2.0x
42.72
45.43
48.14
50.85
53.56
1,023
3.7x
2.5x
44.18
46.80
49.42
52.03
54.65
PRELIMINARY
LEVERAGED
RECAPITALIZATION
ANALYSIS
–
9/1
LRP
COMPARISON |
 29
Confidential
0.0x
0.2x
0.0x
0.0x
0.0x
0.0x
0.3x
0.1x
0.0x
0.3x
0.0x
1.6x
0.0x
0.0x
0.0x
0.9x
0.3x
0.0x
0.1x
0.0x
2.0x
4.0x
6.0x
8.0x
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
Bebe
Coldwater
Creek
Dress
Barn
Ann Taylor
Talbots
Children's
Place
Limited
Brands
American
Eagle
The Gap
Guess?
Carter's
Polo
Coach
Under
Armour
1.8x
3.2x
2.9x
6.3x
5.3x
4.3x
3.8x
3.8x
3.3x
3.2x
2.8x
2.0x
1.0x
0.8x
2.2x
2.3x
2.5x
1.5x
1.5x
Other Peers Median: 3.0x
Selected Peers Median: 2.2x
0.0x
2.0x
4.0x
6.0x
8.0x
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
Bebe
Coldwater
Creek
Dress
Barn
Ann Taylor
Talbots
Children's
Place
Limited
Brands
American
Eagle
The Gap
Guess?
Carter's
Polo
Coach
Under
Armour
INDUSTRY LEVERAGE BENCHMARKS
Source:
Company Filings, Factset, Jade earnings based on IBES consensus
Note:
(1) Assumes annual rent expense capitalized at 8.0x
Selected Peers
Other Peers
Jade
DEBT/2010E EBITDA
ADJUSTED
DEBT/2010E
EBITDAR
(1) |
 OPTIONS AND KEY DECISION POINTS
*************************************
*************************************
*************************************
*************************************
*************************************
**************** |
 31
Confidential
COMMITTEE OPTIONS AND DECISION POINTS
A.
Do nothing, terminate discussions
–
Potentially consider a proposal in 2011
–
Could pursue a recapitalization at a later date
B.
Entertain a proposal now
–
Agree on message, protocol, steps, and timing
C.
Pursue a transaction with a pre-agreement process to solicit other buyers
–
Dependent on price and evaluation of effectiveness of pre-agreement process vs.
post-agreement process D.
Pursue a transaction with a post-agreement process to solicit other buyers
(“go shop”) –
Dependent on price and evaluation of effectiveness of post-agreement process
vs. pre-agreement process |
 32
Confidential
DECISION POINTS DISCUSSION
Should
we
entertain
a
proposal
today?
Reasons For
Could lead to an attractive transaction for shareholders
If pursued and consummated, could avoid near-term
downside and volatility due to earnings revisions and
longer term execution risks of long range plan
Current buyer momentum and timing
Favorable credit conditions currently
Management
Reasons Against
In a weaker and more uncertain part of recovery cycle,
especially for retail
Recent downward revisions just getting reflected in the
Company’s stock price, potentially some over-reaction
Critically important time of year given holiday season
–
A valuation and management bandwidth issue
Management is in the midst of revising FY2010 estimate
and
the long range plan
Current buyer (and potentially others) likely to be there in
2011
Company is in beginning stages of next investment cycle
–
Factory build-out
–
Core Retail
–
Madewell |
 33
Confidential
DECISION POINTS DISCUSSION (CONT’D)
If
we
entertain
a
proposal
now,
should
we
pursue
a
transaction
now?
Considerations
Price and certainty compared to the current plan and other alternatives reasonably
available –
Are shareholders being compensated for current business and future prospects, risk
adjusted? Time required to announce and close
–
Announcing transaction after Q3 earnings materially less attractive than before or
concurrently with Q3 earnings –
Confidence level in buyer’s and Company’s ability to achieve an
accelerated timeframe for announcement (i.e. prior to or concurrent with Q3
earnings release) What does management want / what is their confidence level
in achieving the long-range plan / what are the consequences of not
pursuing a transaction? Management bandwidth to pursue a transaction and run
the business in Q4 State of the business and trending conditions
Evaluating the risks of pursuing a transaction now, but failing to reach an
agreement with a buyer in a timely manner or ever
Risk of leak and impact of a leak
Other terms of the proposal
–
Financing
–
Termination fee
–
Go-shop, if appropriate
–
Arrangements with management
–
Conditions to close |
 34
Confidential
DECISION POINTS DISCUSSION (CONT’D)
If we pursue a transaction now, should we conduct a pre-agreement process or a
post-agreement process (i.e. “go-shop”)?
Arguments For / Against
Pre-Agreement Process
For
An effective way to create competitive tension to achieve
attractive price and other terms
Avoid any buyer having an incumbent position that may
dissuade other buyers
–
Although TPG will still be viewed as having certain
attributes of incumbency
Against
May lose best buyer at proposed terms
Management may not be in a position to conduct a
comprehensive process at this time
Unlikely to conclude a process until early 2011
Existing buyer dynamics may dampen interest in a pre-
agreement process
May not yield intended benefits if there’s no competition or
if business or financing markets weaken
Difficult to maintain confidentiality
Arguments For / Against
Post-Agreement Process (“Go Shop”)
For
Lock-in a price and agreement now
Run process in December and January with certainty of a
deal and better visibility on Q4
Avoid increasing the burden on management pre-
Thanksgiving
Reduces risk of leaks / need for public statement
Given history with TPG, the transparency of deal terms
helps process and may improve competition
Against
Don’t want any buyer in an incumbent position
Only a few deals where go-shop led to a higher price
Private equity bidders may be reluctant to compete
against an announced deal with another private equity
buyer |
 35
Confidential
OVERVIEW OF POTENTIAL FINANCIAL SPONSOR BUYERS
POTENTIAL BUYER
FUND SIZE
PRECEDENT INVESTMENTS
POTENTIAL BUYER
FUND SIZE
PRECEDENT INVESTMENTS
$15.4Bn
Tommy Hilfiger
Bob’s Discount Furniture
CBR Group
Van Heusen
New Look Group
$17.6Bn
Dollar General
Pets at Home
Royal Vendex
Safeway
Toys “R” Us
$14.7Bn
AMC Entertainment
Claire’s Stores
GNC
Lamonts Apparel
Linens ‘n Things
$5.3Bn
Gart Sports
Petco
Rite Aid
Sports Authority
The Container Store
$11.5Bn
Burlington Coat Factory
Dunkin’ Brands
Gymboree
Michael’s Stores
Toys “R” Us
$4.1Bn
Carrols
Cornerstone Brands
Ruth’s Chris Steak House
Sports Authority
Tuesday Morning
$13.5Bn
Columbia House
Home Décor Group
Michael’s Stores
Spirit Group
Universal Orlando
4.3Bn
Costmetic Essence
RSI Home Products
Tropicana Las Vegas
Hawker Beechcraft
Allison Transmission
$13.7Bn
Dr. Pepper/Seven Up
Dunkin’ Brands
Hertz
NBTY
Oriental Trading
$8.1Bn
Dunkin’ Brands
Eye Care Centers of America
Finlay Enterprises
Michael Foods
Simmons
$2.7Bn
Everything But Water
New York & Company
Pet Supplies Plus/USA
PlayCore Holdings
Vitamin Shoppe
$15.0Bn
Jarden/Sunbeam/Holmes
Group
Neiman Marcus
NorthPole
Pound Land
|
 36
Confidential
OVERVIEW OF POTENTIAL STRATEGIC BUYERS / MERGER PARTNERS
(US$ in Bn)
Market Cap
$13.6
Enterprise Value
$11.4
Cash
$2.5
Debt / 2010E EBITDA
1.6x
EV / 2010E EBITDA
6.1x
Market Cap
$9.3
Enterprise Value
$9.8
Cash
$0.4
Debt / 2010E EBITDA
0.8x
EV / 2010E EBITDA
8.1x
Market Cap
$12.5
Enterprise Value
$10.8
Cash
$1.4
Debt / 2010E EBITDA
0.0x
EV / 2010E EBITDA
4.4x
Market Cap
$4.1
Enterprise Value
$3.6
Cash
$0.6
Debt / 2010E EBITDA
0.2x
EV / 2010E EBITDA
7.3x
Market Cap
$2.3
Enterprise Value
$2.0
Cash
$0.3
Debt / 2010E EBITDA
0.0x
EV / 2010E EBITDA
4.3x
Market Cap
$5.1
Enterprise Value
$4.4
Cash
$0.2
Debt / 2010E EBITDA
0.0x
EV / 2010E EBITDA
8.1x
Market Cap
$4.1
Enterprise Value
$6.3
Cash
$0.5
Debt / 2010E EBITDA
4.1x
EV / 2010E EBITDA
10.3x
ACQUISITION
MERGER
PRIVATE |
 APPENDIX
***************************************************
***************************************************
***************************************************
***************************************************
***************************************************
*********************************************** |
 38
Confidential
COMPARABLE
COMPANIES
–
EV
/
2010E
EBITDA
Source:
Company Filings, Factset, 9/1/2010 Long-Range Plan and 10/20/2010 Jade
Management projections 6.0x
4.3x
4.8x
7.3x
4.4x
4.8x
5.1x
6.5x
7.1x
7.1x
9.3x
13.8x
5.2x
5.6x
6.3x
8.1x
5.6x
6.3x
5.2x
5.5x
Selected Peers Median: 6.1x
Other Peers Median: 5.6x
0.0x
5.0x
10.0x
15.0x
20.0x
9/1 LRP
Current Plan
IBES
Aeropostale
Chico's
A&F
Urban
Outfitters
The Gap
Dress Barn
Talbots
Children's
Place
Ann Taylor
American
Eagle
Carter's
Coldwater
Creek
Coach
Guess?
Limited
Brands
Polo
Bebe
Selected Peers
Other Peers
Jade |
 39
Confidential
SUMMARY
INCOME
STATEMENT
–
CURRENT
PLAN
(US$ in MM, except per share amounts)
2010 -
2015
Fiscal Year
2009A
2010E
2011E
2012E
2013E
2014E
2015E
CAGR
Total Revenue
$1,578
$1,753
$1,955
$2,208
$2,487
$2,783
$3,096
12.0%
% Growth
10.5%
11.1%
11.5%
13.0%
12.6%
11.9%
11.3%
Gross Profit
$696
$772
$868
$982
$1,108
$1,244
$1,397
12.6%
% Growth
11.0%
12.4%
13.1%
12.8%
12.3%
12.3%
% Margin
44.1%
44.1%
44.4%
44.5%
44.5%
44.7%
45.1%
SG&A
$484
$529
$590
$664
$740
$818
$904
11.3%
% Sales
30.7%
30.2%
30.2%
30.0%
29.7%
29.4%
29.2%
EBITDA
$263
$293
$335
$381
$434
$495
$563
14.0%
% Growth
11.3%
14.3%
13.8%
14.0%
14.0%
13.7%
% Margin
16.7%
16.7%
17.1%
17.2%
17.5%
17.8%
18.2%
EBIT
$211
$243
$279
$319
$369
$427
$494
15.2%
% Growth
15.1%
14.6%
14.5%
15.6%
15.7%
15.7%
% Margin
13.4%
13.9%
14.2%
14.4%
14.8%
15.3%
15.9%
EPS
$1.91
$2.18
$2.50
$2.81
$3.20
$3.64
$4.14
13.7%
% Growth
14.1%
14.8%
12.5%
13.6%
13.8%
13.8%
Source:
10/20/2010
Jade management projections |
 40
Confidential
SUMMARY
INCOME
STATEMENT
–
9/1
LRP
Source:
9/1/2010 Long-Range Plan, Jade management projections
(US$ in MM, except per share amounts)
2010 -
2015
Fiscal Year
2009A
2010E
2011E
2012E
2013E
2014E
2015E
CAGR
Total Revenue
$1,578
$1,805
$2,034
$2,356
$2,709
$3,087
$3,481
14.0%
% Growth
10.5%
14.4%
12.7%
15.8%
15.0%
14.0%
12.7%
Gross Profit
$696
$828
$939
$1,091
$1,261
$1,444
$1,643
14.7%
% Growth
19.1%
13.3%
16.3%
15.6%
14.5%
13.7%
% Margin
44.1%
45.9%
46.1%
46.3%
46.5%
46.8%
47.2%
SG&A
$484
$548
$600
$679
$760
$841
$919
10.9%
% Sales
30.7%
30.4%
29.5%
28.8%
28.1%
27.3%
26.4%
EBITDA
$263
$329
$394
$474
$567
$672
$793
19.2%
% Growth
25.2%
19.8%
20.2%
19.5%
18.5%
18.1%
% Margin
16.7%
18.2%
19.4%
20.1%
20.9%
21.8%
22.8%
EBIT
$211
$280
$338
$412
$501
$603
$724
20.9%
% Growth
32.7%
20.7%
21.8%
21.6%
20.4%
20.0%
% Margin
13.4%
15.5%
16.6%
17.5%
18.5%
19.5%
20.8%
EPS
$1.91
$2.50
$3.02
$3.67
$4.44
$5.32
$6.36
20.6%
% Growth
30.7%
21.0%
21.3%
21.1%
19.9%
19.5% |
 41
Confidential
DISCOUNTED
CASH
FLOW
–
CURRENT
PLAN
Source:
Company filings. 10/20/2010 Jade Management projections
Notes:
(1) Assumes tax rate of 40.2%
(US$ in MM, except per share amounts)
(1)
Terminal
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Year
EBITDA
$335
$381
$434
$495
$563
$563
Less: Depreciation
(56)
(62)
(66)
(69)
(70)
EBIT
$279
$319
$369
$427
$494
Less: Taxes
(112)
(128)
(148)
(171)
(198)
After-Tax EBIT
$167
$191
$220
$255
$295
Add: Depreciation
56
62
66
69
70
Net: Change in Deferred Credits
(6)
2
2
2
2
Net: Change in Other Liabilities
(1)
(1)
0
0
0
Add: Stock Based Compensation
17
20
21
21
21
Less: Increase in NWC
3
4
4
4
5
Less: Capex
(85)
(101)
(68)
(68)
(66)
Unlevered Free Cash Flow
$150
$176
$245
$283
$326
Unlevered Free Cash Flows
$150
$176
$245
$283
$326
Terminal Value (Assumes 6.0x Exit Multiple)
$3,379
Total Free Cash Flows
$150
$176
$245
$283
$326
$3,379
Multiply: Discount Factor (Assumes 13.0% WACC)
0.94x
0.83x
0.74x
0.65x
0.58x
0.54x
Discounted Free Cash Flows
$141
$146
$180
$184
$188
$1,834
Implied Enterprise Value Sensitivity
Implied Value Per Share Sensitivity
Terminal Multiple
Terminal Multiple
WACC
5.5x
6.0x
6.5x
7.0x
WACC
5.5x
6.0x
6.5x
7.0x
11%
$2,719
$2,887
$3,054
$3,221
11%
$44.65
$46.96
$49.27
$51.58
12%
2,618
2,778
2,937
3,097
12%
43.25
45.46
47.67
49.88
13%
2,521
2,674
2,827
2,980
13%
41.91
44.03
46.14
48.25
14%
2,430
2,576
2,722
2,868
14%
40.64
42.67
44.69
46.71
15%
2,342
2,482
2,622
2,762
15%
39.44
41.37
43.31
45.24 |
 42
Confidential
DISCOUNTED
CASH
FLOW
–
9/1
LRP
Source:
Company filings, 9/1/2010 Long-Range Plan, Jade Management projections
Notes:
(1) Assumes tax rate of 40.2%
(US$ in MM, except per share amounts)
Terminal
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Year
EBITDA
$394
$474
$567
$672
$793
$793
Less: Depreciation
(56)
(62)
(66)
(69)
(70)
EBIT
$338
$412
$501
$603
$724
Less: Taxes
(136)
(166)
(201)
(242)
(291)
After-Tax EBIT
$202
$246
$300
$361
$433
Add: Depreciation
56
62
66
69
70
Net: Change in Deferred Credits
(6)
2
2
2
2
Net: Change in Other Liabilities
0
0
0
0
0
Add: Stock Based Compensation
17
17
17
17
17
Less: Increase in NWC
(7)
5
5
5
5
Less: Capex
(75)
(94)
(67)
(67)
(65)
Unlevered Free Cash Flow
$188
$238
$322
$386
$462
Unlevered Free Cash Flows
$188
$238
$322
$386
$462
Terminal Value (Assumes 6.0x Exit Multiple)
$4,759
Total Free Cash Flows
$188
$238
$322
$386
$462
$4,759
Multiply: Discount Factor (Assumes 13.0% WACC)
0.94x
0.83x
0.74x
0.65x
0.58x
0.54x
Discounted Free Cash Flows
$177
$198
$237
$252
$266
$2,583
(1)
Implied Enterprise Value
Implied Value Per Share
Terminal Multiple
Terminal Multiple
WACC
5.5x
6.0x
6.5x
7.0x
WACC
5.5x
6.0x
6.5x
7.0x
11%
$3,775
$4,011
$4,246
$4,481
11%
$59.68
$62.93
$66.19
$69.44
12%
3,633
3,858
4,083
4,308
12%
57.71
60.82
63.93
67.04
13%
3,498
3,713
3,928
4,144
13%
55.84
58.82
61.79
64.77
14%
3,369
3,575
3,781
3,987
14%
54.06
56.91
59.76
62.61
15%
3,247
3,444
3,641
3,839
15%
52.37
55.10
57.82
60.55 |
 43
Confidential
LEVERAGED
BUYOUT
–
CURRENT
PLAN
Source:
Company filings. 10/20/2010 Jade Management projections
Notes:
(1)
Assumes
transaction
fees
of
100bps
of
transaction
enterprise
value,
financing
fees
of
100bps
of
total
transaction
debt
raised
and
breakage
costs
of
$1.4MM
(2) Range represents Adjusted EV / 2010E EBITDAR of 6.1x –
6.5x
(US$ in MM, except per share amounts)
(1)
Assumes fixed exit multiple of 6.0x EBITDA
Assumes fixed leverage of 5.75x EBITDA (6.3x EBITDAR)
(2)
Implied Value Per Share
Leverage
Exit Multiple
Req. IRR
5.50x
5.75x
6.00x
Req. IRR
5.5x
6.0x
6.5x
7.0x
15.0%
$47.16
$47.49
$47.83
15.0%
$45.56
$47.49
$49.43
$51.37
17.5%
45.25
45.66
46.06
17.5%
43.92
45.66
47.39
49.13
20.0%
43.58
44.04
44.50
20.0%
42.47
44.04
45.60
47.17
22.5%
42.09
42.61
43.12
22.5%
41.20
42.61
44.02
45.43
25.0%
40.78
41.35
41.91
25.0%
40.07
41.35
42.62
43.90
PRICE
ASSUMPTION
SOURCES
&
USES
Current Price (As of 10/28/2010)
$31.43
Multiple
% Total
Amount
Premium
30.0%
Cash
1.3x
13%
$376
Transaction Price
$40.86
Revolver
0.0x
0%
0
Term Loan
3.0x
30%
878
Fully Diluted Shares Outstanding
69.0
Senior Notes
2.8x
28%
805
Less: Shares Rolled
0.0
Equity Investment
2.8x
29%
824
Shares Purchased
69.0
Total Sources
9.9x
100%
$2,884
Equity Value
$2,821
% Total
Amount
Purchase of Equity
98%
$2,821
Add: Debt
0
Fees & Expenses
1%
43
Less: Cash
(376)
Minimum Cash
1%
20
Net: Other
0
Total Uses
100%
$2,884
Enterprise Value
$2,445
Divide: LTM EBITDA at Entry
293
Implied Entry Multiple
8.4x |
 44
Confidential
LEVERAGED
BUYOUT
–
9/1
LRP
Source:
Company filings. 9/1/2010 Long-Range Plan, Jade Management projections
Notes:
(1)
Assumes
transaction
fees
of
100bps
of
transaction
enterprise
value,
financing
fees
of
100bps
of
total
transaction
debt
raised
and
breakage
costs
of
$1.4MM
(2)
Range
represents
Adjusted
EV
/
2010E
EBITDAR
of
6.0x
–
6.4x
(US$ in MM, except per share amounts)
(1)
Assumes fixed exit multiple of 6.0x EBITDA
Assumes fixed leverage of 5.75x EBITDA (6.2x EBITDAR)
(2)
PRICE
ASSUMPTION
SOURCES
&
USES
Current Price (As of 10/28/2010)
$31.43
Multiple
% Total
Amount
Premium
30.0%
Cash
1.2x
14%
$407
Transaction Price
$40.86
Revolver
0.0x
0%
0
Term Loan
3.0x
34%
988
Fully Diluted Shares Outstanding
69.0
Senior Notes
2.8x
31%
905
Less: Shares Rolled
0.0
Equity Investment
1.8x
20%
586
Shares Purchased
69.0
Total Sources
8.8x
100%
$2,886
Equity Value
$2,821
% Total
Amount
Purchase of Equity
98%
$2,821
Add: Debt
0
Fees & Expenses
2%
44
Less: Cash
(407)
Minimum Cash
1%
20
Net: Other
0
Total Uses
100%
$2,886
Enterprise Value
$2,415
Divide: LTM EBITDA at Entry
329
Implied Entry Multiple
7.3x
Implied
Value
Per
Share
Leverage
Exit Multiple
Req. IRR
5.50x
5.75x
6.00x
Req. IRR
5.5x
6.0x
6.5x
7.0x
15.0%
$61.18
$61.56
$61.93
15.0%
$58.83
$61.56
$64.28
$67.01
17.5%
58.17
58.62
59.07
17.5%
56.17
58.62
61.07
63.52
20.0%
55.52
56.04
56.56
20.0%
53.83
56.04
58.24
60.45
22.5%
53.18
53.76
54.34
22.5%
51.77
53.76
55.75
57.73
25.0%
51.11
51.74
52.37
25.0%
49.94
51.74
53.54
55.33 |
  45
Confidential
JADE WACC ANALYSIS
Source:
Bloomberg, Company Filings
Notes:
(1) 2 year adjusted beta
(2) Assumes 40% tax rate
(3) Based on yield on 10-Year U.S. Government Bond as of 10/28/10
(4) Based on 2009 Ibbotson Report
ASSET BETA ANALYSIS
Levered
Debt /
Unlevered
Company
Beta
(1)
Equity
Beta
(2)
Jade
1.58
0.0%
1.58
The Gap
0.99
0.0%
0.99
American Eagle
1.20
0.0%
1.20
Urban Outfitters
1.14
0.0%
1.14
Ann Taylor
1.52
0.1%
1.51
Pacific Sunwear
1.55
0.0%
1.55
Chico's
1.34
0.0%
1.34
Aeropostale
0.89
0.0%
0.89
Zumiez
1.33
0.0%
1.33
Guess?
1.52
0.5%
1.52
Buckle
1.02
0.0%
1.02
A&F
1.64
2.1%
1.62
Talbots
1.77
5.0%
1.72
Bebe
1.22
0.0%
1.22
Hot Topic
1.14
0.0%
1.14
Coldwater Creek
2.16
4.6%
2.10
Limited Brands
1.55
22.7%
1.36
Polo
1.24
3.0%
1.22
Coach
1.43
0.3%
1.43
Children's Place
1.10
0.0%
1.10
Carter's
1.12
15.4%
1.02
Dress Barn
1.11
1.7%
1.10
New York & Co
2.36
5.1%
2.29
Gymboree
1.21
0.0%
1.21
Under Armour
1.45
0.7%
1.44
Mean
1.38
2.5%
1.36
Median
1.33
0.0%
1.33
High
2.36
22.7%
2.29
Low
0.89
0.0%
0.89
WACC ANALYSIS
Cost of Equity
Low
High
U.S. Risk Free Rate
(3)
2.66%
2.66%
Equity Risk Premium
(4)
5.70%
7.70%
Asset Beta
1.40
1.60
Relevered
Beta (0% Target Debt / Equity)
1.40
1.60
Adjusted Equity Market Risk Premium
7.98%
12.32%
Cost of Equity
10.64%
14.98%
Cost of Debt
Low
High
Cost of Debt (Pre-Tax)
5.00%
7.00%
Tax Rate
40.0%
40.0%
Cost of Debt (After-Tax)
3.00%
4.20%
% Debt
0.0%
0.0%
% Equity
100.0%
100.0%
Weighted Average Cost of Capital
10.64%
14.98% |
 PROJECT JADE
PRESENTATION TO THE SPECIAL COMMITTEE
November 1, 2010
*
*
*
*
*
*
Exhibit (c)(6) |
 2
Confidential
DISCOUNTED
CASH
FLOW
ANALYSIS
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections
Discounted Cash Flow
(US$)
Implied Value Per Share
Terminal Multiple
WACC
5.5x
6.0x
6.5x
7.0x
11%
$44.65
$46.96
$49.27
$51.58
12%
43.25
45.46
47.67
49.88
13%
41.91
44.03
46.14
48.25
14%
40.64
42.67
44.69
46.71
15%
39.44
41.37
43.31
45.24 |
 3
Confidential
DISCOUNTED
CASH
FLOW
SENSITIVITY
ANALYSIS
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections
Increase / (Decrease) in Gross Margin %
Increase / (Decrease) in Gross Margin %
WACC
(200 bps)
(100 bps)
0 bps
100 bps
200 bps
11%
$42.34
$44.65
$46.96
$49.28
$51.59
12%
41.00
43.23
45.46
47.69
49.91
13%
39.73
41.88
44.03
46.17
48.32
14%
38.52
40.59
42.67
44.74
46.81
15%
37.37
39.37
41.37
43.37
45.37
2011-2015 Avg.
Gross Margin
42.7%
43.7%
44.7%
45.7%
46.7%
Analysis assumes 6.0x exit multiple
(US$)
Current Plan Gross Margin
FY2010E: 44.1%
FY2011E: 44.4%
FY2012E: 44.5%
FY2013E: 44.5%
FY2014E: 44.7%
FY2015E: 45.1% |
 4
Confidential
DISCOUNTED
CASH
FLOW
SENSITIVITY
ANALYSIS
–
CURRENT
PLAN
(CONTINUED)
Sources:
10/20/2010 Jade Management projections
% Increase / (Decrease) in SG&A
% Increase / (Decrease) in SG&A
WACC
(20.0%)
(10.0%)
0.0%
10.0%
20.0%
11%
$60.54
$53.75
$46.96
$40.17
$33.39
12%
58.54
52.00
45.46
38.92
32.36
13%
56.64
50.33
44.03
37.72
31.37
14%
54.83
48.75
42.67
36.58
30.43
15%
53.11
47.24
41.37
35.50
29.53
2011-2015 Avg.
SG&A % Sales
23.8%
26.7%
29.7%
32.7%
35.6%
2011-2015 Avg.
EBIT Margin
20.9%
17.9%
15.0%
12.0%
9.0%
2011-2015 Avg.
SG&A
$594
$669
$743
$817
$891
$ Variance to
Current Plan
($149)
($74)
$0
$74
$149
Analysis assumes 6.0x exit multiple
(US$ in MM, except per share amounts)
Current Plan SG&A as % Sales
FY2010E: 30.2%
FY2011E: 30.2%
FY2012E: 30.0%
FY2013E: 29.7%
FY2014E: 29.4%
FY2015E: 29.2%
Current Plan EBIT Margin
FY2010E: 13.9%
FY2011E: 14.2%
FY2012E: 14.4%
FY2013E: 14.8%
FY2014E: 15.3%
FY2015E: 15.9% |
 5
Confidential
LEVERAGED
BUYOUT
ANALYSIS
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections
(US$)
Assumes fixed leverage of 5.75x EBITDA (6.3x EBITDAR)
Assumes fixed exit multiple of 6.0x EBITDA
Implied Value Per Share
Leverage
Req. IRR
5.50x
5.75x
6.00x
15.0%
$47.16
$47.50
$47.83
17.5%
45.26
45.66
46.06
20.0%
43.58
44.04
44.50
22.5%
42.10
42.61
43.12
25.0%
40.78
41.35
41.91
Adj. Debt/
2010E
EBITDAR
6.1x
6.3x
6.5x
Implied Value Per Share
Exit Multiple
Req. IRR
5.5x
6.0x
6.5x
7.0x
15.0%
$45.56
$47.50
$49.43
$51.37
17.5%
43.92
45.66
47.40
49.13
20.0%
42.47
44.04
45.60
47.17
22.5%
41.20
42.61
44.02
45.43
25.0%
40.07
41.35
42.62
43.90
Leveraged Buyout |
 6
Confidential
LEVERAGED
BUYOUT
SENSITIVITY
ANALYSIS
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections
Increase / (Decrease) in Gross Margin %
Increase / (Decrease) in Gross Margin %
Req. IRR
(200 bps)
(100 bps)
0 bps
100 bps
200 bps
15%
$43.82
$45.66
$47.50
$49.34
$51.18
18%
42.36
44.01
45.66
47.31
48.97
20%
41.07
42.55
44.04
45.53
47.02
23%
39.93
41.27
42.61
43.95
45.30
25%
38.92
40.13
41.35
42.56
43.78
2011-2015 Avg.
Gross Margin
42.7%
43.7%
44.7%
45.7%
46.7%
Analysis assumes 5.75x leverage and 6.0x exit multiple
(US$)
Current Plan Gross Margin
FY2010E: 44.1%
FY2011E: 44.4%
FY2012E: 44.5%
FY2013E: 44.5%
FY2014E: 44.7%
FY2015E: 45.1% |
 7
Confidential
LEVERAGED
BUYOUT
SENSITIVITY
ANALYSIS
–
CURRENT
PLAN
(CONTINUED)
Sources:
10/20/2010 Jade Management projections
% Increase / (Decrease) in SG&A
% Increase / (Decrease) in SG&A
Req. IRR
(20.0%)
(10.0%)
0.0%
10.0%
20.0%
15%
$58.33
$52.91
$47.50
$42.11
$36.70
18%
55.39
50.51
45.66
40.82
35.96
20%
52.80
48.41
44.04
39.68
35.31
23%
50.51
46.55
42.61
38.68
34.73
25%
48.49
44.91
41.35
37.79
34.23
2011-2015 Avg.
SG&A % Sales
23.8%
26.7%
29.7%
32.7%
35.6%
2011-2015 Avg.
EBIT Margin
20.9%
17.9%
15.0%
12.0%
9.0%
2011-2015 Avg.
SG&A
$594
$669
$743
$817
$891
$ Variance to
Current Plan
($149)
($74)
$0
$74
$149
Analysis assumes 5.75x leverage and 6.0x exit multiple
(US$ in MM, except per share amounts)
Current Plan SG&A as % Sales
FY2010E: 30.2%
FY2011E: 30.2%
FY2012E: 30.0%
FY2013E: 29.7%
FY2014E: 29.4%
FY2015E: 29.2%
Current Plan EBIT Margin
FY2010E: 13.9%
FY2011E: 14.2%
FY2012E: 14.4%
FY2013E: 14.8%
FY2014E: 15.3%
FY2015E: 15.9% |
 8
Confidential
PRESENT
VALUE
OF
FUTURE
SHARE
PRICE
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections. Assumes 13.0% cost of equity and
mid-year convention. Based on fiscal year 2011, 2012, and 2013 EPS of $2.50, $2.81, and $3.20, respectively
Future Share Price (Undiscounted)
Present Value of Future Share Price (Discounted)
$28.24
$28.11
$28.26
$32.94
$32.79
$32.97
$37.65
$37.48
$37.68
$42.36
$42.16
$42.39
$20.00
$30.00
$40.00
$50.00
$60.00
FY2011E
FY2012E
FY2013E
$30.02
$33.76
$38.36
$35.02
$39.39
$44.76
$40.02
$45.02
$51.15
$45.02
$50.65
$57.54
$20.00
$30.00
$40.00
$50.00
$60.00
FY2011E
FY2012E
FY2013E
12.0x
14.0x
16.0x
18.0x
(US$) |
 9
Confidential
PRESENT
VALUE
OF
FUTURE
SHARE
PRICE
–
9/1
LRP
COMPARISON
Sources:
9/1/2010 Long-Range Plan. Assumes 13.0% cost of equity and mid-year
convention. Based on fiscal year 2011, 2012, and 2013 EPS of $3.02, $3.67, and $4.44, respectively
Future Share Price (Undiscounted)
Present Value of Future Share Price (Discounted)
$34.10
$36.61
$39.23
$39.78
$42.72
$45.77
$45.46
$48.82
$52.31
$51.15
$54.92
$58.85
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
FY2011E
FY2012E
FY2013E
$36.25
$43.98
$53.25
$42.29
$51.31
$62.13
$48.33
$58.64
$71.01
$54.37
$65.97
$79.88
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
FY2011E
FY2012E
FY2013E
12.0x
14.0x
16.0x
18.0x
(US$) |
 10
Confidential
Sources:
10/20/2010 Jade Management projections, company filings, FactSet
Note:
(1) Debt and cash shown pro forma for August 30 debt repayment detailed in July 31,
2010 10Q 10/29/10 Close
Proposal
Share Price
$31.99
$41.00
% Premium to 10/29/10 Close
0.0%
28.2%
Fully Diluted Shares Outstanding
68.2
69.1
Market Capitalization
$2,182
$2,831
Add: Debt
0
0
Less: Cash
(291)
(291)
Enterprise Value
$1,890
$2,540
EV/LTM EBITDA
$322
5.9x
7.9x
IBES CONSENSUS
EV/EBITDA
Metric
FY 2010E
$311
6.1x
8.2x
FY 2011E
324
5.8
7.8
Price/Earnings
Metric
FY 2010E
$2.27
14.1x
18.1x
FY 2011E
2.48
12.9
16.5
CURRENT PLAN
EV/EBITDA
Metric
FY 2010E
$293
6.5x
8.7x
FY 2011E
335
5.6
7.6
Price/Earnings
Metric
FY 2010E
$2.18
14.7x
18.8x
FY 2011E
2.50
12.8
16.4
OVERVIEW OF PROPOSAL
US$ IN MM, EXCEPT MULTIPLES AND PER SHARE AMOUNTS
PREMIUM / (DISCOUNT) METRICS
(1)
(1)
Date/Period
Metric
Premium /
(Discount)
10/29/10 Close
$31.99
28.2%
1 Month Average
$33.56
22.2%
3 Month Average
$33.75
21.5%
LTM Average
$40.47
1.3%
52 Week High (April 26, 2010)
$50.96
(19.5%)
52 Week Low (August 31, 2010)
$30.06
36.4% |
 11
Confidential
RELEVANT TRANSACTIONS
Source:
Company filings
Notes:
(1) Defined as Transaction Enterprise Value. Figures shown in
millions of US dollars EV/LTM EBITDA
Specialty Apparel
Branded
Private Equity Buyer
Strategic Buyer
(1)
Acquiror
Apax
Apollo
Lee Equity
Advent
V. Heusen
Bain
Jones
Federated
Consortium
Consortium
Apollo
Bain
Consortium
Consortium
Istithmar
Date Announced
12/05
3/07
7/07
8/09
3/10
10/10
11/04
2/05
3/05
5/05
11/05
1/06
6/06
7/06
6/07
Transaction Value
$1,547
$2,581
$259
$312
$3,136
$1,761
$400
$17,260
$6,213
$4,981
$1,305
$1,958
$5,604
$1,819
$942
6.6x
8.2x
8.9x
9.4x
10.2x
8.8x
12.2x
8.7x
14.1x
7.2x
7.9x
7.9x
7.8x
7.9x
8.1x
Branded Median: 8.9x
Specialty Apparel Median: 7.9x
Overall Median: 8.2x
CURRENT PROPOSAL: 7.9x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
Tommy
Hilfiger
Claire's
Sotres
Deb Shops
Charlotte
Russe
Tommy
Hilfiger
Gymboree
Barney's
May
Toys R Us
Neiman
Marcus
Linens n
Things
Burlington
Coat
Factory
Michaels
Stores
Petco
Barney's |
 PROJECT JADE: SPECIAL COMMITTEE DISCUSSION MATERIALS
November 4, 2010
***************************
***************************
***************************
***************************
***************************
***************************
**************************
Exhibit (c)(7) |
 2
Confidential
RETURN OF CAPITAL ANALYSIS FRAMEWORK
Cash Position Today
Future Cash Flow Profile
Optimal Balance Sheet /
Capital Structure
Timing
Return Of Capital
Cost And Risk Of Having
Less Cash / Financial
Flexibility
Consistent With
Shareholder Value-Creation
Mechanism
Amount |
 3
Confidential
RETURN OF CAPITAL ALTERNATIVES
Jade
will
have
over
$375MM
in
cash
on
hand
at
FYE
2010
and
an
undrawn
credit
facility
of
$200MM
(1)
The Current Plan contemplates significant free cash flow generation even after capital
expenditures and increases in SG&A related to infrastructure
improvements –
Free cash flow growing from $150MM in FY2011E to $326MM in FY2015E
–
Cash balance grows from $376MM at FYE2010 to $1.6Bn at FYE2015
–
No draw on credit facility through FYE 2015
Current
Plan
also
contemplates
a
deceleration
of
EPS
growth
from
~20%
to
low
to
mid
teens
growth
Jade could return capital to shareholders without meaningfully increasing financial
risk or altering the investment and growth plan contemplated by the Current
Plan –
Return a portion of excess cash and future free cash flow without debt
incurrence –
Create value for shareholders by distributing inefficient balance sheet cash while
continuing to execute against a robust growth plan
–
Combination of a dividend and buyback would be attractive to both Company and
shareholders •
Target 2% current dividend yield
•
$200MM
-
300MM
buyback
Accelerated buyback near-term
Broad authorization for longer-term purchases
Prior to any decision on a return of capital alternative, we would need to do
additional work on financial sensitivities to stress test specific
distribution amounts against variances in the Current Plan Note:
(1) Subject to availability under borrowing base |
 4
Confidential
RETURN OF CAPITAL ALTERNATIVES (CONTINUED)
Dividend
–
Positive attributes
•
Goes
to
all
shareholders
pro
rata;
no
change
to
ownership
•
Not subject to market price or any transaction, once authorized and declared,
payment follows without any action by shareholders
•
Bullish signal from Company about financial strength and confidence in future cash
flow generation •
May attract yield oriented investors
•
Sets
a
policy
and
is
more
predictable
than
share
repurchases
–
gets
more
market
credit
vs.
a
broad
buyback
authorization
•
Given
current
interest
rate
on
free
cash,
dividend
distribution
is
neutral
to
earnings
and
delivers
incremental
value
to
shareholders
–
Considerations
•
Less flexibility than share repurchase, once initiated becomes an expectation by
shareholders •
Signals that management cannot invest the cash in a timely manner or at a rate of
return that justifies keeping the cash •
Give up some degree of financial flexibility as a portion of current cash and
future free cash flow is returned to shareholders •
Dividend paying retailers typically do not trade at a premium to
non-dividend retailers
•
Shareholders
in
Jade
are
growth
oriented,
however
investors
have
asked
about
intended
use
of
excess
cash
•
Some fund managers may not want the cash, want growth and don’t want to make a
reinvestment decision •
Neutral to EPS vs. accretive share repurchases
•
Mechanism: special, one-time dividend or initiation of a dividend policy
|
 5
Confidential
RETURN OF CAPITAL ALTERNATIVES (CONTINUED)
Buyback
–
Positive attributes
•
Given
current
interest
rate
on
cash,
accretive
to
EPS
•
Allows shareholders to decide if they want a return of capital, not necessarily pro
rata •
Provides flexibility; not a firm commitment to buy shares vs. a dividend, which is
a commitment to distribute cash •
Signal that Company and management believe the stock is undervalued, generally
viewed as bullish –
Considerations
•
Requires a transaction, so there’s some execution risk
•
Requires shareholders to make an investment decision
•
May reward existing shareholders if done at a premium to market or if price falls
after a repurchase •
CEO participation necessary to avoid increase in his ownership
•
What is the best share buyback mechanism?
Authorization
Accelerated share repurchase (ASR)
Tender at fixed price
Dutch auction |
 6
Confidential
SHARE BUYBACK MECHANISMS
Mechanism
Description
ACCELERATED
SHARE
REPURCHASE
Forward contract entered
into where company
purchases shares at a fixed
purchase price from a
broker dealer
Guarantees certain number of shares at announcement –
element of certainty
Higher cost in terms of buyback price and effective fee
Ensuring CEO participation more complicated
May have limits on volume depending on appetite of broker-dealer
Impact of hedging or trading activity by broker-dealer
TENDER
Fixed price for up to a fixed
number of shares
No assurance that any shares will be repurchased
Likely requires a premium to market
Can be done in greater volume and at the same time vs. open market
authorization Know your price vs. Dutch Auction
Need CEO to commit to tender pro rata, otherwise his ownership increases
Typically used for larger size and when there is a competing transaction
More transparent for shareholders, perceived to be more fair than open market or
ASR DUTCH AUCTION
Fixed share amount and at
a range of prices with a final
fixed price for all shares set
by the market
No assurance that any shares will be repurchased
Likely requires a premium to market
Don’t know price until expiration date
Heavier burden on company for execution
Typically used when there is a competing transaction
Some benefit to market determining the price
More transparent for shareholders, perceived to be more fair than open market or
ASR AUTHORIZATION
Fixed dollar amount
Shares bought over time
and in open market
purchases as determined
by company and
management
No assurance that any shares will be repurchased
Usually done at market prices
Volume subject to SEC regulations
Lowest reward from the market
Need CEO participation to avoid increase in his ownership
Considerations |
 7
Confidential
CURRENT PLAN: FINANCIAL SUMMARY
Source:
10/20/2010 Jade Management projections. Jade’s current $200MM revolving credit
facility would remain fully undrawn in the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced
at
same
terms
as
current
facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM can be expanded to $250MM
Note:
(1)
Assumes
rent
grows
at
same
rate
as
EBITDA
for
projected
years.
Rent
expense
capitalized
at
8.0x
for
calculation
of
adjusted
debt
(US$ in MM, except per share amounts)
(1)
(1)
Fiscal Year
FY2010A
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
EBITDA
$293
$335
$381
$434
$495
$563
Stock Based Compensation
15
17
20
21
21
21
Changes in Inventory
(26)
(23)
(28)
(30)
(31)
(36)
Capex
(55)
(85)
(101)
(68)
(68)
(66)
Interest, Taxes and Other
(99)
(94)
(96)
(113)
(135)
(156)
Free Cash Flow
$127
$150
$175
$244
$282
$326
Ending Cash Balance
$376
$526
$701
$945
$1,227
$1,553
Cash Per Share
$5.71
$7.92
$10.38
$13.74
$17.54
$21.82
Revolver Facility Size
200
200
200
200
200
200
Key Statistics
EPS
$2.18
$2.50
$2.81
$3.20
$3.64
$4.14
% Growth
14.8%
12.5%
13.6%
13.8%
13.8%
Debt / EBITDA
0.0x
0.0x
0.0x
0.0x
0.0x
0.0x
Adjusted Debt / EBITDAR
1.9x
1.9x
1.9x
1.9x
1.9x
1.9x
EBITDA / Interest
179.4x
334.7x
380.8x
434.3x
495.1x
563.1x
EBITDA / (Interest + Rent Expense)
4.1x
4.1x
4.1x
4.2x
4.2x
4.2x |
 8
Confidential
0.0x
0.2x
0.0x
0.0x
0.0x
0.0x
0.3x
0.1x
0.0x
0.3x
0.0x
1.6x
0.0x
0.0x
0.0x
0.8x
0.3x
0.0x
0.1x
0.0x
2.0x
4.0x
6.0x
8.0x
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
Bebe
Coldwater
Creek
Dress
Barn
Ann Taylor
Talbots
Children's
Place
Limited
Brands
American
Eagle
The Gap
Guess?
Carter's
Polo
Coach
Under
Armour
1.9x
3.2x
2.9x
6.3x
5.3x
4.3x
3.8x
3.8x
3.3x
3.2x
2.8x
2.0x
1.0x
0.8x
2.2x
2.3x
2.5x
1.5x
1.5x
Other Peers Median: 3.0x
Selected Peers Median: 2.2x
0.0x
2.0x
4.0x
6.0x
8.0x
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
Bebe
Coldwater
Creek
Dress
Barn
Ann Taylor
Talbots
Children's
Place
Limited
Brands
American
Eagle
The Gap
Guess?
Carter's
Polo
Coach
Under
Armour
DEBT CAPITALIZATION VS. PEERS
Source:
Company Filings, Factset, IBES consensus. Jade earnings based on 10/20/2010
Jade Management projections Note:
(1) Assumes annual rent expense capitalized at 8.0x
Selected Peers
Other Peers
Jade
DEBT/2010E EBITDA
ADJUSTED
DEBT/2010E
EBITDAR
(1) |
 9
Confidential
SIZING UP THE CAPITAL STRUCTURE
Source:
Company filings, FactSet, 10/20/2010 Jade Management projections
Note:
(1) Based on most recent filings
(US$ in MM, except per share amounts)
(1)
Jade
Selected Peers
Company
(FYE 2010)
Cash
$376
$245
$614
$297
$18
Debt
$0
$0
$76
$0
$0
Capitalized Leases at 8.0x
736
1,024
2,499
877
1,293
Adjusted Total Debt
$736
$1,024
$2,575
$877
$1,293
Market Capitalization (Equity)
$2,190
$5,325
$4,174
$2,217
$1,765
Total Capitalization
$2,926
$6,348
$6,749
$3,095
$3,058
% Adjusted Debt
25%
16%
38%
28%
42%
% Equity
75%
84%
62%
72%
58%
Cash as % of:
Market Capitalization (Equity)
17.2%
4.6%
14.7%
13.4%
1.0%
Total Capitalization
12.9%
3.9%
9.1%
9.6%
0.6% |
 10
Confidential
PEER DIVIDEND YIELD AND PAYOUT RATIO
Source:
Company Filings, Factset, Jade earnings based on IBES consensus
Selected Peers
Other Peers
Jade
FY2011E
DIVIDEND
PAYOUT
RATIO
0.0%
1.6%
1.6%
2.6%
2.1%
2.0%
1.6%
1.5%
1.2%
0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Other Peers Median: 1.6%
Selected Peers Median: 1.6%
0.0%
1.0%
2.0%
3.0%
Jade
Chico's
A&F
Urban
Outfitters
Aero
postale
American
Eagle
The Gap
Limited
Brands
Guess?
Bebe
Coach
Polo
Under
Armour
Dress BarnCarter's
Children'sColdwater
Place
Creek
Talbots
Ann Taylor
0.0%
27.7%
36.1%
21.3%
28.8%
19.3%
66.7%
20.8%
5.7%
0.0%
0.0%
0.0%
0.0%
19.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Other Peers Median: 21.3%
Selected Peers Median: 23.4%
0.0%
25.0%
50.0%
75.0%
Jade
Chico's
A&F
Urban
Outfitters
Aero
postale
American
Eagle
The Gap
Limited
Brands
Guess?
Bebe
Coach
Polo
Under
Armour
Dress BarnCarter's
Children'sColdwater
Place
Creek
Talbots
Ann Taylor
DIVIDEND
YIELD
(BASED
ON
FY2011E
DIVIDEND
PER
SHARE)
0.01%
0.03%
0.01%
0.08%
0.08%
0.25%
0.19%
0.28%
0.10%
3.43%
0.39%
0.05%
0.17%
0.05%
0.04%
0.04%
0.05%
0.22%
0.05%
Yield Investors as
% Shareholders |
 11
Confidential
ANALYSIS OF ILLUSTRATIVE DIVIDEND INITIATION
Source:
10/20/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
Dividend at 2.0% Yield
Fiscal Year
2010
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Current Plan EPS
$2.18
$2.50
$2.81
$3.20
$3.64
$4.14
Pro Forma EPS
$2.18
$2.50
$2.81
$3.20
$3.64
$4.14
% Growth
14.8%
12.5%
13.6%
13.8%
13.8%
Implied Share Value at 14.0x
$35.01
$39.38
$44.73
$50.89
$57.90
Present Value of Share Price at 13.0% Discount Rate
$32.94
$32.78
$32.95
$33.18
$33.41
Yield
2.0%
2.0%
2.0%
2.0%
2.0%
Dividend Per Share (Future Value)
$0.70
$0.79
$0.89
$1.02
$1.16
Total Dividends Paid (Future Value)
$46
$53
$62
$71
$82
Total Implied Present Value at 13.0% Discount Rate
$33.60
$34.10
$34.93
$35.82
$36.71
Payout Ratio
28.0%
28.0%
28.0%
28.0%
28.0%
Free Cash Flow
$103
$122
$182
$211
$243
Ending Cash Balance
479
601
784
994
1,237
(US$ in MM, except per share amounts) |
 12
Confidential
RECENT RETAIL INDUSTRY DIVIDEND INITIATION ANNOUNCEMENTS
Source:
Factset, CapitalIQ, Company filings
Notes:
(1) Based on next twelve months consensus EPS at time of announcement
(2) At announcement date
(3) Relative to S&P500
(4) Adjusted for 2 for 1 stock split
(4)
DIVIDEND
ANNUALIZED
RELATIVE PRICE PERFORMANCE
(3)
COMPANY
ANNOUNCEMENT
DATE
DIVIDEND PER
SHARE
YIELD AT
ANNOUCEMENT
PAYOUT RATIO AT
ANNOUNCEMENT
(1)
LT GROWTH
RATE
(2)
1-DAY
1-MONTH
6-MONTHS
Apr-10
$0.28
3.6%
98.2%
13.5%
10.7%
(3.2%)
(14.0%)
Feb-10
0.16
1.2%
20.8%
15.0%
(1.2%)
(5.6%)
(35.1%)
Apr-09
0.30
1.4%
12.9%
15.0%
12.6%
25.4%
56.4%
Feb-07
0.24
0.6%
8.0%
16.0%
12.0%
10.6%
31.2%
MEAN
1.7%
35.0%
14.9%
8.5%
6.8%
9.6%
MEDIAN
1.3%
16.9%
15.0%
11.4%
3.7%
8.6%
Potential Jade
2.0%
28.0%
15.2% |
 13
Confidential
RECENT RETAIL INDUSTRY DIVIDEND INITIATION ANNOUNCEMENTS (CONTINUED)
Source:
Company filings, Wall Street research
COMPANY
DATE
COMMENTARY
Apr-10
"On the stock, we expect a nicely positive reaction to the dividend and sales news tomorrow, and
we are becoming more optimistic that a rising tide of teen spending will also lift Hot
Topic’s boat." - William Blair Feb-10
"We are also positive on CHS’s decision to initiate a new cash dividend of $0.04 a share
likely yielding a return to shareholders of ~$30mm annually." - Citigroup
"The dividend announcement highlights management’s confidence in CHS’s financial
condition and cash flow generation." - Susquehanna
Apr-09
"Management introduced a 30c annual dividend with today's results and repurchased $50m of stock
in the quarter. These events signal management's confidence in the company's liquidity,
balance sheet, cash flow generation and long-term outlook." - Jefferies
"Coach initiated an annual dividend of $0.30 per share to convey financial strength and increase
shareholder return." - Bank of America ML
"COH announced an annual cash dividend of $0.30 per share. We believe this is a good use of cash,
and remain confident that the Company's balance sheet strength will be able to support the
dividend along with continued share repurchases." - Thomas Weisel Partners
Feb-07
"The company also initiated a quarterly dividend of $0.12 per share, further evidence of the
company’s strong financial position" CIBC |
 14
Confidential
SHAREHOLDER BASE BY INVESTMENT STYLE
55.52%
42.56%
23.86%
47.93%
49.17%
23.83%
22.00%
38.61%
17.64%
30.07%
10.57%
22.38%
22.18%
21.61%
8.69%
10.07%
13.05%
15.27%
12.79%
11.99%
0.01%
0.01%
0.08%
0.03%
0.08%
0%
20%
40%
60%
80%
100%
Jade
Abercombie & Fitch
Aeropostale
Chico's
Urban Outfitters
Growth
GARP
Value
Index
Yield
Source:
Factset
Notes:
(1) Includes Growth and Aggressive Growth
(2) Includes Value and Deep Value
(1)
(2) |
 15
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK
$250MM BUYBACK EXECUTED IN FY2010
Source:
10/20/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2010E
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Share Repurchase Amount
$250
$0
$0
$0
$0
$0
Share Repurchase Price at 15% Premium
$36.93
$44.79
$50.29
$57.03
$64.78
$73.59
Shares Acquired (MM)
6.8
0.0
0.0
0.0
0.0
0.0
% of Shares Outstanding
10%
0%
0%
0%
0%
0%
Current Plan EPS
$2.18
$2.50
$2.81
$3.20
$3.64
$4.14
% Growth
14.8%
12.5%
13.6%
13.8%
13.8%
Pro Forma EPS
$2.43
$2.78
$3.12
$3.54
$4.02
$4.57
% Accretion
11.5%
11.2%
11.0%
10.8%
10.6%
10.4%
% Growth
14.6%
12.3%
13.4%
13.6%
13.6%
Implied Share Value at 14.0x
$33.99
$38.95
$43.73
$49.59
$56.33
$63.99
Remaining Equity Value (90%)
$30.50
$38.95
$43.73
$49.59
$56.33
$63.99
Buyback Value (10%)
3.80
0.00
0.00
0.00
0.00
0.00
Total Blended Value
$34.29
$38.95
$43.73
$49.59
$56.33
$63.99
Present Value at 13.0% Discount Rate
34.29
36.64
36.40
36.54
36.73
36.92
Free Cash Flow
($123)
$149
$175
$244
$282
$325
Ending Cash Balance
126
276
451
694
976
1,302
$250MM Buyback Executed In FY2010 (14.0x Multiple, 15% Premium)
|
 16
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK
$250MM
BUYBACK
EXECUTED
FY2011
–
FY2015
Source:
10/20/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Share Repurchase Amount
$50
$50
$50
$50
$50
Share Repurchase Price at 0% Premium
$35.77
$40.97
$47.26
$54.47
$62.66
Shares Acquired (MM)
1.4
1.2
1.1
0.9
0.8
% of Shares Outstanding
2%
2%
2%
1%
1%
Current Plan EPS
$2.50
$2.81
$3.20
$3.64
$4.14
% Growth
14.8%
12.5%
13.6%
13.8%
13.8%
Pro Forma EPS
$2.55
$2.93
$3.38
$3.89
$4.48
% Accretion
2.1%
4.0%
5.6%
7.0%
8.1%
% Growth
17.3%
14.5%
15.4%
15.3%
15.0%
Implied Share Value at 14.0x
$35.77
$40.97
$47.26
$54.47
$62.66
Present Value at 13.0% Discount Rate
$33.65
$34.10
$34.82
$35.51
$36.15
Free Cash Flow
$100
$125
$194
$232
$275
Ending Cash Balance
476
601
795
1,027
1,302
$250MM Buyback Executed FY2011 –
FY2015 (14.0x Multiple, No Premium) |
 17
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK AND DIVIDEND INITIATION
$250MM
BUYBACK
EXECUTED
FY2011
–
FY2015,
2.0%
DIVIDEND
YIELD
Source:
10/20/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Share Repurchase Amount
$50
$50
$50
$50
$50
Share Repurchase Price at 0% Premium
$35.76
$40.95
$47.24
$54.44
$62.61
Shares Acquired (MM)
1.4
1.2
1.1
0.9
0.8
% of Shares Outstanding
2%
2%
2%
1%
1%
Current Plan EPS
$2.50
$2.81
$3.20
$3.64
$4.14
% Growth
14.8%
12.5%
13.6%
13.8%
13.8%
Pro Forma EPS
$2.55
$2.93
$3.37
$3.89
$4.47
% Accretion
2.1%
4.0%
5.5%
6.9%
8.0%
% Growth
17.3%
14.5%
15.3%
15.2%
15.0%
Implied Share Value at 14.0x
$35.76
$40.95
$47.24
$54.44
$62.61
Present Value at 13.0% Discount Rate
$33.64
$34.09
$34.80
$35.49
$36.12
Yield
2.0%
2.0%
2.0%
2.0%
2.0%
Dividend Per Share (Future Value)
$0.72
$0.82
$0.94
$1.09
$1.25
Dividends Paid (Future Value)
$46
$53
$61
$71
$82
Total Implied Present Value at 13.0% Discount Rate
$34.32
$35.45
$36.85
$38.25
$39.61
Payout Ratio
28.0%
28.0%
28.0%
28.0%
28.0%
Free Cash Flow
$53
$72
$132
$161
$193
Ending Cash Balance
429
501
633
794
987
$250MM Buyback Executed FY2011 –
FY2015 (14.0x Multiple, No Premium), Dividend at 2.0% Yield
|
 18
Confidential
RETURN ON EQUITY COMPARISON
Source:
Company filings, FactSet, 10/20/2010 Jade Management projections
(US$ in MM, except per share amounts)
Return on Equity Comparison
FY2007A -
FY2009A
Average
FY2010E
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Current
Plan
Net Income
$143
$166
$190
$220
$254
$295
Book Value of Equity
537
720
929
1,170
1,445
1,761
Return on Equity
42.4%
26.7%
23.1%
20.5%
18.8%
17.6%
16.7%
Pro
Forma
Return
on
Equity
Ongoing Dividend at 2.0% Yield
26.7%
24.7%
23.0%
21.9%
21.0%
20.4%
One-Time Buyback ($250MM, 15% Premium)
50.1%
35.3%
28.0%
23.9%
21.3%
19.5%
5 Year Buyback ($250MM, No Premium)
26.7%
24.8%
22.9%
21.6%
20.4%
19.5%
26.7%
26.6%
26.0%
25.6%
25.1%
24.6%
5 Year Buyback ($250MM, No Premium),
Ongoing Dividend at 2.0% Yield |
  19
Confidential
RECENT RETAIL INDUSTRY SHARE REPURCHASE PROGRAM ANNOUNCEMENTS
Source:
Factset, CapitalIQ, Company filings
Notes:
(1) Includes cash and cash equivalents
(2) At announcement date
(3) Relative to S&P500
(4) Executed
under
$500MM
share
repurchase
program
authorized
on
8/18/2010
RELATIVE PRICE PERFORMANCE
(3)
COMPANY
DATE
SIZE ($MM)
SIZE AS A % OF
MARKET CAP
SIZE AS A %
CASH
(1)
LT GROWTH
RATE
(2)
1-DAY
1-MONTH
6-MONTHS
Sep-10
100
5.3%
30.7%
12.0%
(0.3%)
(7.7%)
NA
Aug-10
300
12.9%
32.1%
12.0%
(2.4%)
3.0%
NA
Aug-10
200
12.1%
41.0%
12.0%
9.8%
11.4%
NA
Mar-10
200
2.5%
11.1%
12.0%
3.4%
7.2%
10.6%
Feb-10
1,000
7.1%
38.9%
12.0%
0.7%
(3.1%)
(12.1%)
Dec-09
250
12.5%
87.5%
11.0%
4.6%
22.7%
52.8%
Nov-09
40
3.2%
18.9%
11.0%
2.2%
2.8%
8.1%
Nov-09
225
5.0%
24.3%
11.0%
2.1%
10.5%
3.4%
Aug-08
1,000
10.5%
143.1%
15.0%
6.4%
(2.0%)
(8.7%)
Mar-08
200
5.9%
72.6%
15.0%
2.9%
(4.9%)
27.5%
Jan-08
500
9.9%
127.8%
15.0%
3.4%
(15.3%)
12.4%
MEAN
7.9%
57.1%
12.5%
3.0%
2.2%
11.7%
MEDIAN
7.1%
38.9%
12.0%
2.9%
2.8%
9.3%
(4) |
 20
Confidential
RECENT RETAIL INDUSTRY SHARE REPURCHASE PROGRAM ANNOUNCEMENTS (CONTINUED)
Source:
Company filings, Wall Street research
COMPANY
DATE
COMMENTARY
Aug-10
"We favorably view management’s decision to increase shareholder returns through share
repurchases, however we remain cautious as RSH’s non-wireless categories remain
pressured." - Bank of America ML Aug-10
"The newly authorized $200M share repurchase program is a notable positive to the stock,
especially on the heels of a quarterly dividend initiation in February '10. We believe the
company's strong balance sheet, with $500m in net cash (>30% of market cap) and a ~10% FCF yield provide meaningful downside protection." -
Jefferies
"Chico’s announced that the Board has authorized a $200mn share repurchase program. With
quarter-end cash and equivalents of $487mn ($2.73 per share) and projected F2010 free cash
flow of $98mn, we view this buyback program favorably and are modeling $40mn in buybacks this year. The company has not bought back
its stock since Q206." - Bank of America ML
Mar-10
"We expect the stock to react favorably near-term to news of a new share buyback
authorization and special dividend. Of the two, we view the special dividend as the positive
surprise." - Morgan Stanley "We view the buyback and the dividend as a positive for
the stock as they are a reflection of ongoing stabilization at Limited and management's commitment to return
cash to shareholders." - Bank of America ML
Dec-09
"We view ARO's increased share repurchase authorization announced last night after the market
close as an important indication that ARO's Board of Directors and management team remain
confident in current business trends and the company's long-term positioning and growth potential. With the shares trading at a significant
discount to the peer group average, and with our belief that investors are continuing to misinterpret
the impact of y/y changes in calendar and promotional patterns, we remain buyers of the
stock." - Longbow Research "We suspect management is both looking to be
opportunistic (their last buyback authorization in November 2007 proved well timed with shares up 46% in the
subsequent 6 months) and send a message to investors on their confidence in the business." -
Goldman Sachs Nov-09
"We believe $40 million was a conservative start and still leaves ample cash for other strategic
initiatives including store growth plans or, in time, additional share repurchase programs
given our expectation of continued strong free cash flow of over $4.00 in CY10" - MKM Partners
"By announcing a stock repurchase of $40M over the next year (about 1M shares at the current
price), GYMB’s board is sending a message of confidence to the markets in its ability to
generate enough cash even in an economic downturn to invest in its core business and in its new avenues of growth as well as have a cushion
for these tough times." - Carris & Co.
Nov-09
"We believe shares should trade higher on this news, as the increased buyback authorization
provides another leg to power EPS acceleration as cash flow mounts." - Goldman
Sachs |
 PROJECT JADE
PRESENTATION TO THE SPECIAL COMMITTEE
November 9, 2010
***********************
***********************
***********************
***********************
***********************
******
Exhibit (c)(8) |
 2
Confidential
Sources:
10/20/2010 Jade Management projections, company filings, FactSet
Note:
(1) Debt and cash shown pro forma for August 30 debt repayment detailed in July 31,
2010 10Q OVERVIEW OF PROPOSAL
(1)
(1)
11/8/10 Close
11/1 Proposal
11/9 Proposal
Share Price
$34.65
$41.00
$45.00
Premium To:
Metric
11/8/10 Close
$34.65
0.0%
18.3%
29.9%
10/29/10 Close
31.99
8.3%
28.2%
40.7%
1 Month Average
33.32
4.0%
23.0%
35.0%
3 Month Average
33.49
3.5%
22.4%
34.4%
LTM Average
40.27
(14.0%)
1.8%
11.7%
Fully Diluted Shares Outstanding
68.5
69.1
69.3
Market Capitalization
$2,372
$2,831
$3,121
Add: Debt
0
0
0
Less: Cash
(291)
(291)
(291)
Enterprise Value
$2,081
$2,540
$2,829
EV/LTM EBITDA
$322
6.5x
7.9x
8.8x
IBES CONSENSUS
EV/EBITDA
Metric
FY 2010E
$311
6.7x
8.2x
9.1x
FY 2011E
318
6.5
8.0
8.9
Price/Earnings
Metric
FY 2010E
$2.27
15.3x
18.1x
19.9x
FY 2011E
2.46
14.1
16.7
18.3
CURRENT PLAN
EV/EBITDA
Metric
FY 2010E
$293
7.1x
8.7x
9.7x
FY 2011E
335
6.2
7.6
8.5
Price/Earnings
Metric
FY 2010E
$2.18
15.9x
18.8x
20.7x
FY 2011E
2.50
13.9
16.4
18.0
US$ IN MM, EXCEPT MULTIPLES AND PER SHARE AMOUNTS |
 3
Confidential
RELEVANT TRANSACTIONS
Source:
Company filings
Notes:
(1) Defined as Transaction Enterprise Value. Figures shown in
millions of US dollars EV/LTM EBITDA
Specialty Apparel
Branded
Private Equity Buyer
Strategic Buyer
(1)
Acquiror
Apax
Apollo
Lee Equity
Advent
V. Heusen
Bain
Jones
Federated
Consortium
Consortium
Apollo
Bain
Consortium
Consortium
Istithmar
Date Announced
12/05
3/07
7/07
8/09
3/10
10/10
11/04
2/05
3/05
5/05
11/05
1/06
6/06
7/06
6/07
Transaction Value
$1,547
$2,581
$259
$312
$3,136
$1,761
$400
$17,260
$6,213
$4,981
$1,305
$1,958
$5,604
$1,819
$942
6.6x
8.9x
9.4x
10.2x
8.8x
12.2x
8.7x
14.1x
8.2x
7.2x
7.9x
7.9x
7.8x
7.9x
8.1x
Branded Median: 8.9x
Specialty Apparel Median: 7.9x
Overall Median: 8.2x
CURRENT
PROPOSAL:
8.8x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
Tommy
Hilfiger
Claire's
Sotres
Deb Shops
Charlotte
Russe
Tommy
Hilfiger
Gymboree
Barney's
May
Toys R Us
Neiman
Marcus
Linens n
Things
Burlington
Coat
Factory
Michaels
Stores
Petco
Barney's |
 4
Confidential
ILLUSTRATIVE SOURCES AND USES
Sources:
10/20/2010 Jade Management projections
Note:
Pro forma capital structure assumed to include undrawn $250MM Revolver priced at L +
250 bps Illustrative Sources and Uses
Multiple
% Total
Amount
Cash
1.29x
12%
$376
Term Loan (L + 450 bps)
3.42x
31%
1,000
Senior Notes (L + 800 bps)
2.05x
19%
600
Equity Investment
4.13x
38%
1,209
Total Sources
100%
$3,186
% Total
Amount
Purchase of Equity
98%
$3,121
Fees & Expenses (Assumed)
1%
45
Minimum Cash
1%
20
Total Uses
100%
$3,186
(US$ in MM) |
 5
Confidential
PRESENT VALUE OF FUTURE SHARE PRICE
–
CURRENT PLAN
Sources:
10/20/2010 Jade Management projections. Assumes 13.0% cost of equity and
mid-year convention. Based on fiscal year 2011, 2012, and 2013 EPS of $2.50, $2.81, and $3.20, respectively
Future Share Price (Undiscounted)
Present Value of Future Share Price (Discounted)
$28.24
$28.11
$28.26
$32.94
$32.79
$32.97
$37.65
$37.48
$37.68
$42.36
$42.16
$42.39
$20.00
$30.00
$40.00
$50.00
$60.00
FY2011E
FY2012E
FY2013E
$30.02
$33.76
$38.36
$35.02
$39.39
$44.76
$40.02
$45.02
$51.15
$45.02
$50.65
$57.54
$20.00
$30.00
$40.00
$50.00
$60.00
FY2011E
FY2012E
FY2013E
12.0x
14.0x
16.0x
18.0x
(US$) |
 6
Confidential
DISCOUNTED
CASH
FLOW
ANALYSIS
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections
Discounted Cash Flow
(US$)
Implied Value Per Share
Terminal Multiple
WACC
5.5x
6.0x
6.5x
7.0x
11%
$44.65
$46.96
$49.27
$51.58
12%
43.25
45.46
47.67
49.88
13%
41.91
44.03
46.14
48.25
14%
40.64
42.67
44.69
46.71
15%
39.44
41.37
43.31
45.24 |
 7
Confidential
LEVERAGED
BUYOUT
ANALYSIS
–
CURRENT
PLAN
Sources:
10/20/2010 Jade Management projections
(US$)
Assumes fixed leverage of 5.75x EBITDA (6.3x EBITDAR)
Assumes fixed exit multiple of 6.0x EBITDA
Leveraged Buyout
Implied Value Per Share
Leverage
Req. IRR
5.47x
5.50x
5.75x
6.00x
15.0%
$47.28
$47.32
$47.67
$48.01
17.5%
45.34
45.40
45.81
46.22
20.0%
43.63
43.70
44.17
44.64
22.5%
42.13
42.20
42.73
43.25
25.0%
40.80
40.88
41.45
42.01
Adj. Debt/
2010E
EBITDAR
6.1x
6.1x
6.3x
6.5x
Implied Value Per Share
Exit Multiple
Req. IRR
5.5x
6.0x
6.5x
7.0x
15.0%
$45.73
$47.67
$49.60
$51.54
17.5%
44.07
45.81
47.55
49.28
20.0%
42.61
44.17
45.73
47.30
22.5%
41.31
42.73
44.14
45.55
25.0%
40.17
41.45
42.72
44.00 |
 PROJECT JADE: SPECIAL COMMITTEE DISCUSSION MATERIALS
November 21, 2010
********************************
********************************
********************************
********************************
********************************
********************************
********************************
Exhibit (c)(9) |
 2
Confidential
RETURN OF CAPITAL ANALYSIS FRAMEWORK
Cash Position Today
Future Cash Flow Profile
Optimal Balance Sheet /
Capital Structure
Timing
Return Of Capital
Cost And Risk Of Having
Less Cash / Financial
Flexibility
Consistent With
Shareholder Value-Creation
Mechanism
Amount |
 3
Confidential
RETURN OF CAPITAL ALTERNATIVES
Jade
will
have
over
$365MM
in
cash
on
hand
at
FYE
2010
and
an
undrawn
credit
facility
of
$200MM
(1)
The Current Plan contemplates significant free cash flow generation even after capital
expenditures and increases in SG&A related to infrastructure
improvements –
Free cash flow growing from $139MM in FY2011E to $308MM in FY2015E
–
Cash balance grows from $367MM at FYE2010 to $1.5Bn at FYE2015
–
No draw on credit facility through FYE 2015
Current
Plan
also
contemplates
a
deceleration
of
EPS
growth
from
~20%
to
low
to
mid
teens
growth
Jade could return capital to shareholders without meaningfully increasing financial
risk or altering the investment and growth plan contemplated by the Current
Plan –
Return a portion of excess cash and future free cash flow without debt
incurrence •
Target
$400MM
-
$500MM
minimum
cash
balance
under
stress
scenarios
•
No impact to credit profile or credit rating
–
Create value for shareholders by distributing inefficient balance sheet cash while
continuing to execute against a robust growth plan
–
Combination of a dividend and buyback would be attractive to both Company and
shareholders •
Target
1.5-2.0%
current
dividend
yield
–
approximately
$36MM
in
2011
Based
on
current
cash
of
roughly
$365MM
at
year
end,
Jade
has
10
years
of
dividends
without
any
addition
to
cash
from
operations assuming no increase in dividend
•
$200MM buyback
Accelerated buyback near-term
Broad authorization for longer-term purchases
Note:
(1) Based on 11/17/2010 Jade Management projections. Subject to availability under
borrowing bases |
 4
Confidential
DIVIDEND –
BENEFITS AND CONSIDERATIONS
Pro
Rata
to
all
shareholders
–
No investment decision
CEO liquidity with no ownership change
–
At 1.5% yield, CEO would receive $1.9MM in 2011
No transaction risk
–
Board declaration, no market risk
Low cost
–
No broker, no share price judgment
Bullish signal about financial strength and confidence in
future cash flow and still have ample cash to fully invest in the
business
Earnings neutral and value accretive given Company earns
less than 25bps on cash balance
Once initiated, becomes a shareholder expectation
–
Historically, when dividends have been suspended in the
sector
it
has
been
broad
based
(i.e.
2008
–
2009)
–
Currently have 10 years of dividends (without increase) in
current cash without accounting for future free cash flow
Signals management is not able to invest the cash in a
timely manner or at an acceptable rate of return
Limits future financial flexibility
No clear evidence that dividend payers in retail trade at a
premium multiple
Jade growth oriented investors likely to be concerned
Neutral to EPS vs. accretive share repurchases
Benefits
Considerations |
 5
Confidential
BUYBACK –
BENEFITS AND CONSIDERATIONS
Given current interest rate on cash (< 25bps), accretive to
EPS
Allows shareholders to decide if they want a return of capital,
not necessarily pro rata
Provides flexibility; not a firm commitment to buy shares vs. a
dividend, which is a commitment to distribute cash
Signal that Company and management believe the stock is
undervalued; generally viewed as bullish
Requires a transaction, so there is some execution risk
–
Company needs to make a price decision
Requires shareholders to make an investment decision
May reward exiting shareholders if done at a premium to
market or if price falls after a repurchase
CEO participation necessary to avoid increase in his
ownership
–
More difficult to ensure if repurchase is done in open
market over time
Depending on timing of repurchases, accretive in buyback
year, but results in slower EPS growth thereafter
What is the best share buyback mechanism?
–
Authorization
–
Accelerated share repurchase (ASR)
–
Tender at fixed price
–
Dutch auction
Benefits
Considerations |
 6
Confidential
SHARE BUYBACK MECHANISMS
Mechanism
Description
ACCELERATED
SHARE
REPURCHASE
Forward contract entered
into where Company
purchases shares at a fixed
purchase price from a
broker dealer
Guarantees certain number of shares at announcement –
element of certainty
Higher cost in terms of buyback price and effective fees, so lower return on
investment Ensuring CEO participation more complicated
May have limits on volume depending on appetite of broker-dealer
Impact of hedging or trading activity by broker-dealer
TENDER
Fixed price for up to a fixed
number of shares
No assurance that any shares will be repurchased
Likely requires a premium to market
Can be done in greater volume and at the same time vs. open market
authorization Know your price vs. Dutch Auction
Need CEO to commit to tender pro rata, otherwise his ownership increases
Typically used for larger size and when there is a competing transaction
More transparent for shareholders, perceived to be more fair than open market or
ASR DUTCH AUCTION
Fixed share amount and at
a range of prices with a final
fixed price for all shares set
by the market
No assurance that any shares will be repurchased
Likely requires a premium to market
Don’t know price until expiration date
Heavier burden on Company for execution
Typically used when there is a competing transaction
Some benefit to market determining the price
More transparent for shareholders, perceived to be more fair than open market or
ASR AUTHORIZATION
Fixed dollar amount
Shares bought over time
and in open market
purchases as determined
by Company and
management
No assurance that any shares will be repurchased
Usually done at market prices
Volume subject to SEC regulations
(1)
Lowest reward from the market
Need CEO participation to avoid increase in his ownership
Considerations
Note:
(1) Rule 10b-18 states that repurchases on any single day may not exceed 25% of
the security's four-week average daily trading volume. Jade’s four-week average daily trading volume is currently 3.0MM shares |
 7
Confidential
CURRENT PLAN: FINANCIAL SUMMARY
Source:
11/17/2010 Jade Management projections. Jade’s current $200MM revolving credit
facility would remain fully undrawn in the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced
at
same
terms
as
current
facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM can be expanded to $250MM
Note:
(1)
Assumes
rent
grows
at
same
rate
as
EBITDA
for
projected
years.
Rent
expense
capitalized
at
8.0x
for
calculation
of
adjusted
debt
(US$ in MM, except per share amounts)
(1)
(1)
Fiscal Year
FY2010E
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
EBITDA
$281
$326
$372
$423
$478
$535
Stock Based Compensation
11
15
20
21
21
21
Changes in Inventory
(29)
(11)
(30)
(34)
(36)
(38)
Capex
(55)
(90)
(103)
(69)
(69)
(67)
Interest, Taxes and Other
(137)
(102)
(88)
(103)
(122)
(142)
Free Cash Flow
$72
$139
$170
$237
$272
$308
Ending Cash Balance
$367
$506
$676
$913
$1,184
$1,492
Cash Per Share
$5.57
$7.63
$10.01
$13.28
$16.94
$20.99
Revolver Facility Size
200
200
200
200
200
200
Key Statistics
EPS
$2.07
$2.43
$2.72
$3.09
$3.48
$3.89
% Growth
17.1%
12.2%
13.4%
12.7%
11.7%
Debt / EBITDA
0.0x
0.0x
0.0x
0.0x
0.0x
0.0x
Adjusted Debt / EBITDAR
2.0x
2.0x
2.0x
2.0x
2.0x
2.0x
EBITDA / Interest
157.9x
326.3x
371.6x
422.9x
477.9x
534.7x
EBITDA / (Interest + Rent Expense)
4.0x
4.0x
4.0x
4.0x
4.0x
4.0x
Shareholders' Equity
$529
$705
$909
$1,142
$1,406
$1,703 |
 8
Confidential
0.0x
0.2x
0.0x
0.0x
0.0x
0.0x
0.3x
0.1x
0.0x
0.3x
0.0x
1.6x
0.0x
0.0x
0.0x
0.9x
0.3x
0.0x
0.1x
0.0x
2.0x
4.0x
6.0x
8.0x
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
Bebe
Coldwater
Creek
Dress
Barn
Ann Taylor
Talbots
Children's
Place
Limited
Brands
American
Eagle
The Gap
Guess?
Carter's
Polo
Coach
Under
Armour
1.9x
3.2x
2.9x
6.4x
5.3x
4.3x
3.8x
3.8x
3.4x
3.1x
2.8x
2.0x
1.0x
0.8x
2.2x
2.3x
2.4x
1.5x
1.6x
Other Peers Median: 3.0x
Selected Peers Median: 2.2x
0.0x
2.0x
4.0x
6.0x
8.0x
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
Bebe
Coldwater
Creek
Dress
Barn
Ann Taylor
Talbots
Children's
Place
Limited
Brands
American
Eagle
The Gap
Guess?
Carter's
Polo
Coach
Under
Armour
DEBT CAPITALIZATION VS. PEERS
Source:
Company Filings, Factset, IBES
Note:
(1) Assumes annual rent expense capitalized at 8.0x
Selected Peers
Other Peers
Jade
DEBT/2010E EBITDA
ADJUSTED
DEBT/2010E
EBITDAR
(1) |
 9
Confidential
SIZING UP THE CAPITAL STRUCTURE
Source:
Company filings, FactSet, 11/17/2010 Jade Management projections
Note:
(1) Based on most recent filings
(2)
On
11/15/2010,
Aeropostale
announced
a
$300MM
share
repurchase
authorization,
representing
13.2%
of
Aeropostale’s
market
capitalization
at
the
time
of
announcement
(US$ in MM, except per share amounts)
(1)
Jade
Selected Peers
Company
(FYE 2010)
Cash
$367
$254
$618
$297
$22
$436
$596
Debt
$0
$0
$82
$0
$0
$285
$25
Capitalized Leases at 8.0x
736
1,024
2,499
877
1,293
2,136
1,451
Adjusted Total Debt
$736
$1,024
$2,580
$877
$1,293
$2,421
$1,476
Market Capitalization (Equity)
$2,495
$6,280
$4,603
$2,431
$2,041
$10,663
$16,997
Total Capitalization
$3,231
$7,304
$7,183
$3,309
$3,334
$13,085
$18,472
% Adjusted Debt
23%
14%
36%
27%
39%
19%
8%
% Equity
77%
86%
64%
73%
61%
81%
92%
Cash as % of:
Market Capitalization (Equity)
15.1%
4.0%
13.4%
12.2%
1.1%
4.1%
3.5%
Total Capitalization
11.6%
3.5%
8.6%
9.0%
0.7%
3.3%
3.2% |
 10
Confidential
PEER DIVIDEND YIELD AND PAYOUT RATIO
Source:
Company Filings, Factset, Jade earnings based on IBES consensus
Selected Peers
Other Peers
Jade
FY2011E
DIVIDEND
PAYOUT
RATIO
DIVIDEND
YIELD
(BASED
ON
FY2011E
DIVIDEND
PER
SHARE)
0.01%
0.01%
0.03%
0.08%
0.08%
0.25%
0.19%
0.28%
0.10%
3.43%
0.39%
0.05%
0.17%
0.05%
0.04%
0.04%
0.05%
0.22%
0.05%
Yield Investors as
% Shareholders
0.0%
1.5%
1.4%
2.7%
1.9%
1.8%
1.6%
1.4%
1.1%
0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Other Peers Median: 1.6%
Selected Peers Median: 1.4%
0.0%
1.0%
2.0%
3.0%
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
American
Eagle
The Gap
Limited
Brands
Bebe
Guess?
Coach
Polo
Under
Armour
Dress Barn
Carter's
Children'sColdwater
Place
Creek
Talbots
Ann Taylor
0.0%
38.6%
20.9%
28.0%
69.0%
19.3%
20.3%
4.1%
0.0%
0.0%
0.0%
0.0%
19.0%
27.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Other Peers Median: 20.9%
Selected Peers Median: 23.0%
0.0%
25.0%
50.0%
75.0%
Jade
A&F
Chico's
Urban
Outfitters
Aero
postale
American
Eagle
The Gap
Limited
Brands
Bebe
Guess?
Coach
Polo
Under
Armour
Dress Barn
Carter's
Children'sColdwater
Place
Creek
Talbots
Ann Taylor |
 11
Confidential
ANALYSIS OF ILLUSTRATIVE DIVIDEND INITIATION
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
Dividend at 1.5% Yield
Fiscal Year
2010
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Current Plan EPS
$2.07
$2.43
$2.72
$3.09
$3.48
$3.89
% Growth
17.1%
12.2%
13.4%
12.7%
11.7%
Pro Forma EPS
$2.07
$2.43
$2.72
$3.09
$3.48
$3.89
% Growth
17.1%
12.1%
13.4%
12.6%
11.7%
Implied Share Value at 15.0x
$36.42
$40.84
$46.30
$52.16
$58.28
Present Value of Share Price at 13.0% Discount Rate
$34.26
$34.00
$34.11
$34.00
$33.62
Yield
1.5%
1.5%
1.5%
1.5%
1.5%
Dividend Per Share (Future Value)
$0.55
$0.61
$0.69
$0.78
$0.87
Total Dividends Paid (Future Value)
$36
$41
$48
$55
$62
Total Implied Present Value at 13.0% Discount Rate
$34.77
$35.02
$35.65
$36.05
$36.17
Payout Ratio
22.5%
22.5%
22.5%
22.5%
22.5%
Free Cash Flow
$103
$129
$189
$217
$246
Ending Cash Balance
469
598
787
1,004
1,250
(US$ in MM, except per share amounts) |
 12
Confidential
ANALYSIS OF ILLUSTRATIVE DIVIDEND INITIATION: SENSITIVITY ANALYSIS
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
Sensitivity Analysis
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Total Implied Present Value at 13.0% Discount Rate
Current Plan
$34.77
$35.02
$35.65
$36.05
$36.17
2% Reduced Comp in 2011-2015
31.69
29.21
27.47
25.77
24.07
10% Reduced Comp in 2012
34.77
20.33
22.02
23.41
24.45
Free Cash Flow
Current Plan
$103
$129
$189
$217
$246
2% Reduced Comp in 2011-2015
92
105
151
162
172
10% Reduced Comp in 2012
103
68
125
150
176
Ending Cash Balance
Current Plan
$469
$598
$787
$1,004
$1,250
2% Reduced Comp in 2011-2015
458
563
714
876
1,048
10% Reduced Comp in 2012
469
537
663
813
989
(US$ in MM, except per share amounts) |
 13
Confidential
RECENT RETAIL INDUSTRY DIVIDEND INITIATION ANNOUNCEMENTS
Source:
Factset, CapitalIQ, Company filings
Notes:
(1) Based on next twelve months consensus EPS at time of announcement
(2) At announcement date
(3) Relative to XRT
(4) Adjusted for 2 for 1 stock split
(4)
DIVIDEND
ANNUALIZED
RELATIVE PRICE PERFORMANCE
(3)
COMPANY
ANNOUNCEMENT
DATE
DIVIDEND PER
SHARE
YIELD AT
ANNOUNCEMENT
PAYOUT RATIO AT
ANNOUNCEMENT
(1)
LT GROWTH
RATE
(2)
1-DAY
1-MONTH
6-MONTHS
Apr-10
$0.28
3.6%
98.2%
13.5%
10.8%
(3.4%)
(15.8%)
Feb-10
0.16
1.2%
20.8%
15.0%
(1.9%)
(13.3%)
(39.4%)
Apr-09
0.30
1.4%
12.9%
15.0%
11.8%
29.1%
43.4%
Feb-07
0.24
0.6%
8.0%
16.0%
11.6%
9.9%
41.9%
MEAN
1.7%
35.0%
14.9%
8.1%
5.6%
7.5%
MEDIAN
1.3%
16.9%
15.0%
11.2%
3.3%
13.0%
Potential Jade (FY2011E)
$0.55
1.5%
22.5%
15.2% |
 14
Confidential
RECENT RETAIL INDUSTRY DIVIDEND INITIATION ANNOUNCEMENTS (CONTINUED)
Source:
Company filings, Wall Street research
COMPANY
DATE
COMMENTARY |
 15
Confidential
SHAREHOLDER BASE BY INVESTMENT STYLE
55.52%
42.56%
23.86%
47.93%
33.10%
39.78%
49.17%
23.83%
22.00%
38.61%
17.64%
35.91%
37.34%
30.07%
10.57%
22.38%
22.18%
21.61%
16.98%
11.15%
8.69%
10.07%
13.05%
15.27%
12.79%
13.62%
11.68%
11.99%
0.08%
0.05%
0.01%
0.01%
0.08%
0.03%
0.39%
0%
20%
40%
60%
80%
100%
Jade
Abercombie &
Fitch
Aeropostale
Chico's
Coach
Polo RL
Urban Outfitters
Growth
GARP
Value
Index
Yield
Source:
Factset
Notes:
(1) Includes Growth and Aggressive Growth
(2) Includes Value and Deep Value
(1)
(2) |
 16
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK
$200MM BUYBACK EXECUTED IN FY2010
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2010E
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Share Repurchase Amount
$200
$0
$0
$0
$0
$0
Share Repurchase Price at 15% Premium
$41.96
$45.08
$50.50
$57.19
$64.36
$71.84
Shares Acquired (MM)
4.8
0.0
0.0
0.0
0.0
0.0
% of Shares Outstanding
7%
0%
0%
0%
0%
0%
Current Plan EPS
$1.91
$2.07
$2.43
$2.72
$3.09
$3.48
$3.89
% Growth
8.6%
17.1%
12.2%
13.4%
12.7%
11.7%
Pro Forma EPS
$1.91
$2.24
$2.61
$2.93
$3.32
$3.73
$4.16
% Accretion
7.8%
7.6%
7.5%
7.4%
7.2%
7.1%
% Growth
17.0%
16.9%
12.0%
13.3%
12.5%
11.6%
Implied Share Value at 15.0x
$33.53
$39.20
$43.91
$49.73
$55.96
$62.47
Remaining Equity Value (93%)
$31.10
$39.20
$43.91
$49.73
$55.96
$62.47
Buyback Value (7%)
3.04
0.00
0.00
0.00
0.00
0.00
Total Blended Value
$34.14
$39.20
$43.91
$49.73
$55.96
$62.47
Present Value at 13.0% Discount Rate
34.14
36.88
36.56
36.64
36.49
36.04
Free Cash Flow
($73)
$139
$170
$237
$271
$308
Ending Cash Balance
167
306
475
712
983
1,292
$200MM Buyback Executed In FY2010 (15.0x Multiple, 15% Premium)
|
 17
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK
$200MM BUYBACK EXECUTED IN FY2010: SENSITIVITY ANALYSIS
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2010E
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Total Implied Present Value at 13.0% Discount Rate
Current Plan
$34.14
$36.88
$36.56
$36.64
$36.49
$36.04
2% Reduced Comp in 2011-2015
34.14
33.61
30.44
28.12
25.88
23.67
10% Reduced Comp in 2012
34.14
36.88
20.98
22.44
23.55
24.28
Free Cash Flow
Current Plan
($73)
$139
$170
$237
$271
$308
2% Reduced Comp in 2011-2015
(73)
124
139
187
201
213
10% Reduced Comp in 2012
(73)
139
92
154
185
218
Ending Cash Balance
Current Plan
$167
$306
$475
$712
$983
$1,292
2% Reduced Comp in 2011-2015
167
291
430
618
818
1,032
10% Reduced Comp in 2012
167
306
397
552
737
955
Sensitivity Analysis |
 18
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK
$200MM
BUYBACK
EXECUTED
FY2011
–
FY2015
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Share Repurchase Amount
$40
$40
$40
$40
$40
Share Repurchase Price at 0% Premium
$37.02
$42.11
$48.31
$54.98
$61.97
Shares Acquired (MM)
1.1
0.9
0.8
0.7
0.6
% of Shares Outstanding
2%
1%
1%
1%
1%
Current Plan EPS
$2.43
$2.72
$3.09
$3.48
$3.89
% Growth
17.1%
12.2%
13.4%
12.7%
11.7%
Pro Forma EPS
$2.47
$2.81
$3.22
$3.67
$4.13
% Accretion
1.6%
3.1%
4.3%
5.4%
6.3%
% Growth
19.0%
13.7%
14.7%
13.8%
12.7%
Implied Share Value at 15.0x
$37.02
$42.11
$48.31
$54.98
$61.97
Present Value at 13.0% Discount Rate
$34.83
$35.05
$35.59
$35.84
$35.75
Free Cash Flow
$99
$130
$197
$231
$268
Ending Cash Balance
466
596
792
1,024
1,292
$200MM Buyback Executed FY2011 –
FY2015 (15.0x Multiple, No Premium) |
 19
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK
$200MM
BUYBACK
EXECUTED
FY2011
–
FY2015:
SENSITIVITY
ANALYSIS
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Sensitivity Analysis
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Total Implied Present Value at 13.0% Discount Rate
Current Plan
$34.83
$35.05
$35.59
$35.84
$35.75
2% Reduced Comp in 2011-2015
31.79
29.32
27.54
25.74
23.89
10% Reduced Comp in 2012
34.83
20.34
22.21
23.70
24.77
Free Cash Flow
Current Plan
$99
$130
$197
$231
$268
2% Reduced Comp in 2011-2015
85
99
147
161
173
10% Reduced Comp in 2012
99
52
115
145
178
Ending Cash Balance
Current Plan
$466
$596
$792
$1,024
$1,292
2% Reduced Comp in 2011-2015
451
551
698
859
1,032
10% Reduced Comp in 2012
466
517
632
777
955 |
 20
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK AND DIVIDEND INITIATION
$200MM
BUYBACK
EXECUTED
FY2011
–
FY2015,
1.5%
DIVIDEND
YIELD
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Share Repurchase Amount
$40
$40
$40
$40
$40
Share Repurchase Price at 0% Premium
$37.02
$42.09
$48.29
$54.95
$61.93
Shares Acquired (MM)
1.1
1.0
0.8
0.7
0.6
% of Shares Outstanding
2%
1%
1%
1%
1%
Current Plan EPS
$2.43
$2.72
$3.09
$3.48
$3.89
% Growth
17.1%
12.2%
13.4%
12.7%
11.7%
Pro Forma EPS
$2.47
$2.81
$3.22
$3.66
$4.13
% Accretion
1.6%
3.0%
4.3%
5.3%
6.2%
% Growth
19.0%
13.7%
14.7%
13.8%
12.7%
Implied Share Value at 15.0x
$37.02
$42.09
$48.29
$54.95
$61.93
Present Value at 13.0% Discount Rate
$34.82
$35.04
$35.58
$35.83
$35.73
Yield
1.5%
1.5%
1.5%
1.5%
1.5%
Dividend Per Share (Future Value)
$0.56
$0.63
$0.72
$0.82
$0.93
Dividends Paid (Future Value)
$36
$41
$48
$55
$62
Total Implied Present Value at 13.0% Discount Rate
$35.35
$36.09
$37.16
$37.94
$38.39
Payout Ratio
22.5%
22.5%
22.5%
22.5%
22.5%
Free Cash Flow
$63
$89
$149
$177
$206
Ending Cash Balance
429
518
667
844
1,049
$200MM Buyback Executed FY2011 –
FY2015 (15.0x Multiple, No Premium), Dividend at 1.5% Yield
|
 21
Confidential
ANALYSIS OF ILLUSTRATIVE SHARE BUYBACK AND DIVIDEND INITIATION
$200MM
BUYBACK
EXECUTED
FY2011
–
FY2015,
1.5%
DIVIDEND
YIELD:
SENSITIVITY
ANALYSIS
Source:
11/17/2010 Jade Management projections
Note:
Jade’s current $200MM revolving credit facility would remain fully undrawn in
the above case. Assumes that at or before maturity on 5/4/2013, facility would be refinanced at same terms as current facility.
Borrowing
base
calculated
as
90%
of
credit
card
receivables
plus
85%
of
inventory
plus
real
property
minus
reserves.
Under
current
facility
and
under
certain
conditions,
maximum
size
of
$200MM
can
be
expanded
to
$250MM. Assumes 0.15% cost of cash
(US$ in MM, except per share amounts)
Sensitivity Analysis
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Total Implied Present Value at 13.0% Discount Rate
Current Plan
$35.35
$36.09
$37.16
$37.94
$38.39
2% Reduced Comp in 2011-2015
32.27
30.23
28.86
27.44
25.94
10% Reduced Comp in 2012
35.35
21.16
23.36
25.20
26.64
Free Cash Flow
Current Plan
$63
$89
$149
$177
$206
2% Reduced Comp in 2011-2015
52
65
111
122
132
10% Reduced Comp in 2012
63
28
85
110
136
Ending Cash Balance
Current Plan
$429
$518
$667
$844
$1,049
2% Reduced Comp in 2011-2015
418
483
594
716
848
10% Reduced Comp in 2012
429
457
543
653
788 |
 22
Confidential
RETURN ON EQUITY COMPARISON
Source:
Company filings, FactSet, 11/17/2010 Jade Management projections
(US$ in MM, except per share amounts)
Return on Equity Comparison
FY2007A -
FY2009A
Average
FY2010E
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
Current Plan
Net Income
$137
$161
$184
$212
$243
$276
Book Value of Equity
529
705
909
1,142
1,406
1,703
Return on Equity
42.4%
25.8%
22.8%
20.2%
18.6%
17.3%
16.2%
Pro
Forma
Return
on
Equity
Ongoing Dividend at 1.5% Yield
25.8%
24.1%
22.1%
20.9%
19.8%
18.9%
One-Time Buyback ($200MM, 15% Premium)
41.5%
31.8%
25.9%
22.5%
20.2%
18.4%
5 Year Buyback ($200MM, No Premium)
25.8%
24.2%
22.2%
20.8%
19.5%
18.4%
25.8%
25.6%
24.5%
23.7%
22.8%
21.9%
5 Year Buyback ($200MM, No Premium),
Ongoing Dividend at 1.5% Yield |
  23
Confidential
RECENT RETAIL INDUSTRY SHARE REPURCHASE PROGRAM ANNOUNCEMENTS
Source:
Factset, CapitalIQ, Company filings
Notes:
(1) Includes cash and cash equivalents
(2) At announcement date
(3) Relative to XRT
(4) LTD authorized a $200MM share repurchase program, $53MM of which remained from
the previous $200MM repurchase program announced in March. In addition, the company declared a special dividend of $3.00
per share, which represented an approximate $1Bn return of capital to
shareholders. The combination of the two represents roughly 11% of market capitalization, and 86% of cash
(5)
Executed
under
$500MM
share
repurchase
program
authorized
on
8/18/2010
RELATIVE PRICE PERFORMANCE
(3)
COMPANY
DATE
SIZE ($MM)
SIZE AS A % OF
MARKET CAP
SIZE AS A %
CASH
(1)
LT GROWTH
RATE
(2)
1-DAY
1-MONTH
6-MONTHS
Nov-10
147
1.4%
11.3%
15.0%
0.6%
NA
NA
Nov-10
300
13.2%
100.9%
11.0%
3.1%
NA
NA
Sep-10
100
5.3%
30.7%
12.0%
(1.1%)
(9.1%)
NA
Aug-10
300
12.9%
32.1%
8.0%
(1.8%)
0.7%
NA
Aug-10
200
12.1%
41.0%
15.0%
8.7%
10.7%
NA
Mar-10
200
2.5%
11.1%
12.5%
3.3%
7.3%
11.1%
Feb-10
1,000
7.1%
38.9%
12.0%
(0.3%)
2.9%
(15.2%)
Dec-09
250
12.5%
87.5%
15.0%
4.3%
15.1%
38.6%
Nov-09
40
3.2%
18.9%
12.0%
2.6%
4.4%
(3.5%)
Nov-09
225
5.0%
24.3%
15.0%
1.3%
2.7%
(8.5%)
Aug-08
1,000
10.5%
143.1%
15.0%
5.7%
(7.5%)
(12.7%)
Mar-08
200
5.9%
72.6%
25.5%
2.0%
7.8%
14.1%
Jan-08
500
9.9%
127.8%
12.5%
1.1%
(6.0%)
9.4%
MEAN
8.4%
60.7%
13.8%
2.4%
2.6%
4.2%
MEDIAN
8.5%
40.0%
12.5%
2.3%
2.9%
2.9%
(5)
(4) |
 24
Confidential
RECENT RETAIL INDUSTRY SHARE REPURCHASE PROGRAM ANNOUNCEMENTS (CONTINUED)
Source:
Company filings, Wall Street research
COMPANY
DATE
COMMENTARY
Nov-10
"The material share buyback allows us to maintain our bottom line projections but become even more
conservative in our margin and comp assumptions, allowing the company to continue to register
strong returns in a period of tough competition and material AUR pressures. We continue to view Aeropostale as the key winner in
the teen segment and believe that our projections will now prove even more conservative when the teen
segment returns to some level of AUR stability." - Brean Murray
Aug-10
"We favorably view management’s decision to increase shareholder returns through share
repurchases, however we remain cautious as RSH’s non-wireless categories remain
pressured." - Bank of America ML Aug-10
"The newly authorized $200M share repurchase program is a notable positive to the stock,
especially on the heels of a quarterly dividend initiation in February '10. We believe the
company's strong balance sheet, with $500m in net cash (>30% of market cap) and a ~10% FCF yield provide meaningful downside protection." -
Jefferies
"Chico’s announced that the Board has authorized a $200mn share repurchase program. With
quarter-end cash and equivalents of $487mn ($2.73 per share) and projected F2010 free cash
flow of $98mn, we view this buyback program favorably and are modeling $40mn in buybacks this year. The company has not bought back
its stock since Q206." - Bank of America ML
Mar-10
"We expect the stock to react favorably near-term to news of a new share buyback
authorization and special dividend. Of the two, we view the special dividend as the positive
surprise." - Morgan Stanley "We view the buyback and the dividend as a positive for
the stock as they are a reflection of ongoing stabilization at Limited and management's commitment to return
cash to shareholders." - Bank of America ML
Dec-09
"We view ARO's increased share repurchase authorization announced last night after the market
close as an important indication that ARO's Board of Directors and management team remain
confident in current business trends and the company's long-term positioning and growth potential. With the shares trading at a significant
discount to the peer group average, and with our belief that investors are continuing to misinterpret
the impact of y/y changes in calendar and promotional patterns, we remain buyers of the
stock." - Longbow Research "We suspect management is both looking to be
opportunistic (their last buyback authorization in November 2007 proved well timed with shares up 46% in the
subsequent 6 months) and send a message to investors on their confidence in the business." -
Goldman Sachs Nov-09
"We believe $40 million was a conservative start and still leaves ample cash for other strategic
initiatives including store growth plans or, in time, additional share repurchase programs
given our expectation of continued strong free cash flow of over $4.00 in CY10" - MKM Partners
"By announcing a stock repurchase of $40M over the next year (about 1M shares at the current
price), GYMB’s board is sending a message of confidence to the markets in its ability to
generate enough cash even in an economic downturn to invest in its core business and in its new avenues of growth as well as have a cushion
for these tough times." - Carris & Co.
Nov-09
"We believe shares should trade higher on this news, as the increased buyback authorization
provides another leg to power EPS acceleration as cash flow mounts." - Goldman
Sachs |
 25
Confidential
CEO LIQUIDITY OPTIONS
Dividend
Buyback
–
Tender or Dutch auction more practical than open
market purchase authorization or accelerated share
buyback
10b-5-1 Plan
Block trade during open trading window
Margin loan
Derivatives contracts
With Company Capital
Without Company Capital |
 PROJECT JADE
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
November 21, 2010
************
************
************
************
************
********
Exhibit (c)(10) |
 2
Confidential
TABLE OF CONTENTS
I.
Transaction Overview
II.
Financial Analysis |
 I.
TRANSACTION OVERVIEW
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 4
Confidential
SUMMARY OF TRANSACTION TERMS
Consortium consisting of TPG Capital (“TPG”) and Leonard Green &
Partners (“LGP”) (together the “Consortium”) ACQUIROR
One step merger
Merger of [Chino] with and into Jade
TRANSACTION
STRUCTURE
$45.50 cash per Jade share
–
$3.2Bn Equity Value
–
$2.8Bn Enterprise Value
TRANSACTION
VALUE
100% Cash
FORM OF
CONSIDERATION
Debt commitment letters from Bank of America Merrill Lynch, Goldman Sachs and
JPMorgan for $1,850MM ($1,600MM funded) –
$250MM ABL
–
$1,000MM Term Loan
–
$600MM Bridge Facility
Equity commitment letters from TPG and LGP
–
75% committed from TPG, 25% committed from LGP
Rollover commitment from Jade CEO and his affiliates
TRANSACTION
FUNDING
[45 -
60]-day “go-shop”
period
Jade may terminate to accept higher price
“GO-SHOP” |
 5
Confidential
SUMMARY OF TRANSACTION TERMS (CONTINUED)
Termination by Jade
–
During “go-shop”
period -
$[35]MM ([$0.51] per share, [1.25%] of enterprise value, [1.13%] of equity
value) –
After “go-shop”
period -
$[71]MM ([$1.03] per share, [2.50%] of enterprise value, [2.25%] of equity
value) Termination by Acquiror
–
Reverse termination fee of $[100 –
250]MM ([$1.46 -
$3.66] per share, [3.6% -
9.0%] of enterprise value, [3.2% -
7.9%] of equity value)
FEES
AGREEMENTS
APPROVALS
TIMING
Transaction Support Agreement
Cooperation Agreement
Jade shareholder approval
HSR and other customary regulatory approvals
Announcement [11/22/2010 –
11/23/2010]
“Go-shop”
ends [1/6/2011 –
1/31/2011]
Anticipated vote [TBD]
Closing expected [TBD] |
 6
Confidential
Sources:
11/17/2010
Jade
Management
projections,
company
filings,
FactSet.
Jade
shares,
options,
and
RSUs
as
of
10/2/2010
Notes:
(1) Represent Q3 FY2010 ending debt and cash balances
(2) Based on actual reported EBITDA of $315.9MM, adjusted for one-time items
(benefit related to forfeited share-based awards, lease termination, and severance costs)
TRANSACTION OVERVIEW
(1)
(1)
11/19/10 Close
Transaction Price
Share Price
$36.49
$45.50
Premium To:
Metric
11/19/10 Close
$36.49
0.0%
24.7%
1 Month Average
33.57
8.7%
35.5%
3 Month Average
33.66
8.4%
35.2%
12 Month Average
40.01
(8.8%)
13.7%
Fully Diluted Shares Outstanding
68.4
69.2
Equity Value
$2,495
$3,150
Add: Debt
0
0
Less: Cash
(312)
(312)
Enterprise Value
$2,184
$2,839
EV/LTM EBITDA (Q3 2010)
$314
7.0x
9.0x
IBES CONSENSUS
EV/EBITDA
FY 2010E
$303
7.2x
9.4x
FY 2011E
317
6.9
9.0
Price/Earnings
FY 2010E
$2.25
16.2x
20.2x
FY 2011E
2.45
14.9
18.6
CURRENT PLAN
EV/EBITDA
FY 2010E
$281
7.8x
10.1x
FY 2011E
326
6.7
8.7
Price/Earnings
FY 2010E
$2.07
17.6x
21.9x
FY 2011E
2.43
15.0
18.7
US$ IN MM, EXCEPT MULTIPLES AND PER SHARE AMOUNTS
(2) |
 7
Confidential
CAPITAL STRUCTURE AND TRANSACTION SOURCES AND USES
Sources:
11/17/2010
Jade
Management
projections.
Jade
shares,
options,
and
RSUs
as
of
10/2/2010
Note:
(1) Based on FY2010E EBITDA
SOURCES AND USES
Multiple of
EBITDA
% of Total
Amount
Cash (FY2010E)
1.30x
11%
$367
Revolver ($250MM committed, $0MM utilized at close, L + 250bps)
0.00x
0%
0
Term Loan (L + 450 bps)
3.55x
30%
1,000
Senior Notes (L + 800 bps)
2.13x
18%
600
TPG Equity
3.20x
27%
901
LGP Equity
1.07x
9%
300
Rollover Equity
0.52x
4%
147
Total Sources
100%
$3,315
% of Total
Amount
Purchase of Equity
95%
$3,150
Estimated Fees & Expenses
3%
90
Minimum Cash
2%
75
Total Uses
100%
$3,315
(US$ in MM)
(1) |
 II.
FINANCIAL ANALYSIS
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 9
Confidential
VALUATION SUMMARY –
EQUITY VALUE PER SHARE
$40.00
$39.00
$38.00
$32.00
$30.00
$30.06
$52.00
$47.00
$50.00
$41.00
$50.00
$50.96
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
DCF
Precedents
Premia Paid
Comps
Equity Research Price Targets
52 Week Range
52 Week Range
Equity Research Price Targets
Public Companies
6.5x –
8.0x 2010E EBITDA, 16.0x –
20.0x 2010E EPS
6.0x –
7.5x 2011E EBITDA, 15.0x –
17.0x 2011E EPS
Relevant Transactions
7.5x –
9.5x LTM EBITDA
Discounted Cash Flow Analysis
11% -
15% WACC, 6.0x –
7.5x
Exit Multiple
Current Price: $36.49
(11/19/10)
Premiums Paid
1-Day Premium: 11% -
36%
1-Week Premium: 18% -
39%
1-Month Premium: 22% -
34%
Current Offer: $45.50
Sources:
FactSet,
company
filings,
Wall
Street
Research,
11/17/2010
Jade
Management
projections.
Jade
shares,
options,
and
RSUs
as
of
10/2/2010 |
 10
Confidential
RELATIVE SHARE PRICE PERFORMANCE
LTM SHARE PRICE PERFORMANCE
SHARE PRICE PERFORMANCE SINCE IPO (6/27/06)
Source:
FactSet
as of 11/19/2010
Notes:
Selected Peers represented by equal weighted index of Abercrombie & Fitch,
Aeropostale, American Eagle, Ann Taylor, Bebe, Carter’s, Chico’s, Children’s Place, Coach, Coldwater Creek, The Dress Barn, The
Gap, Guess?, Limited Brands, New York & Company, Polo Ralph Lauren, Talbots,
Under Armour, and Urban Outfitters. Peers indexed to Jade share price of $41.11 for LTM performance and $20.00 for performance since IPO
(1) XRT represents the S&P Retail Index
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
Jun-06
May-07
Mar-08
Feb-09
Jan-10
Nov-10
Jade
82%
Peers
50%
XRT
26%
$25.00
$35.00
$45.00
$55.00
$65.00
$75.00
Nov-09
Jan-10
Apr-10
Jun-10
Sep-10
Nov-10
Jade
(11%)
XRT
31%
Peers
40%
(1)
(1)
Jade Since IPO
High (6/19/2007)
$56.63
Low (12/1/2008)
8.77
Average
34.65 |
 11
Confidential
Sell
5%
Hold
62%
Buy
33%
EQUITY RESEARCH PRICE TARGETS
Source:
Wall Street research
8/27
8/27
11/15
8/27
8/27
8/26
7/15
8/26
8/27
10/25
10/5
11/9
10/21
11/11
8/26
10/21
11/18
Buy
Buy
Buy
Buy
Buy
Buy
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Hold
Sell
Upside to Current
37%
34%
21%
15%
10%
10%
1%
(4%)
(4%)
(4%)
(4%)
(7%)
(7%)
(10%)
(15%)
(15%)
(18%)
$50.00
$49.00
$44.00
$35.00
$35.00
$31.00
$30.00
$34.00
$33.00
$31.00
$35.00
$37.00
$40.00
$42.00
$40.00
$35.00
$34.00
Current Price: $36.49
$25.00
$35.00
$45.00
$55.00
Oppenheimer
Baird
Atlantic
Equities
B. MurrayWedbush
Weeden
JP Morgan
UBS
Jefferies
MKM
BOA
Nomura
P. Jaffray
Goldman
BMO
Janney
Morgan
Stanley
Median Price Target: $35.00 |
 12
Confidential
PUBLIC COMPANIES –
EV / FY2010E EBITDA
Sources:
Company
Filings,
Factset,
11/17/2010
Jade
Management
projections,
IBES.
Jade
shares,
options,
and
RSUs
as
of
10/2/2010.
Based
on
Jade
Q3
FY2010
ending
debt
and
cash
balances
Selected Peers
Other Peers
Jade
4.6x
5.5x
8.3x
10.6x
4.9x
5.5x
7.8x
8.2x
10.4x
16.8x
5.8x
6.0x
7.8x
7.2x
4.8x
6.9x
7.6x
6.1x
6.6x
Selected Peers Median: 6.9x
Other Peers Median: 6.6x
0.0x
5.0x
10.0x
15.0x
20.0x
Current Plan
IBES
Aeropostale
Chico's
A&F
Urban
Outfitters
The Gap
Dress Barn
American
Eagle
Talbots
Children's
Place
Ann Taylor
Coldwater
Creek
Carter's
Coach
Limited
Brands
Guess?
Polo
Bebe |
 13
Confidential
10.0x
17.2x
25.7x
12.3x
12.3x
12.9x
16.1x
20.9x
21.1x
22.0x
15.3x
11.4x
16.2x
17.6x
17.3x
17.1x
22.3x
Selected Peers Median: 19.7x
Other Peers Median: 16.1x
0.0x
7.0x
14.0x
21.0x
28.0x
Current Plan
IBES
Aeropostale
Chico's
Urban
Outfitters
A&F
The Gap
Dress Barn
Carter's
Talbots
Guess?
American
Eagle
Limited
Brands
Children's
Place
Polo
Coach
Ann Taylor
PUBLIC COMPANIES –
PRICE / FY2010E EARNINGS
Sources:
Company Filings, Factset, 11/17/2010 Jade Management projections, IBES
Other Peers
Jade
Selected Peers |
 14
Confidential
RELATIVE VALUATION OVER TIME
PRICE / NTM EPS
EV / NTM EBITDA
Jade
7.0x
Peers
6.5x
0.0x
3.0x
6.0x
9.0x
12.0x
15.0x
Nov-08
Apr-09
Sep-09
Jan-10
Jun-10
Nov-10
Jade
15.1x
S&P500
13.3x
Peers
15.3x
0.0x
10.0x
20.0x
30.0x
40.0x
50.0x
Nov-08
Apr-09
Sep-09
Jan-10
Jun-10
Nov-10
Sources:
FactSet
as
of
11/19/2010,
company
filings.
Earnings
estimates
based
on
IBES
consensus
median
Note:
Peers
represented
by
median
of
group,
and
include
Abercrombie
&
Fitch,
Aeropostale,
American
Eagle,
Ann
Taylor,
Bebe,
Carter’s,
Chico’s,
Children’s
Place,
Coach,
Coldwater
Creek,
The
Dress
Barn,
The Gap,
Guess?,
Limited
Brands, New York & Company, Polo Ralph Lauren, Talbots, Under Armour, and Urban
Outfitters Company
12-Mo. Avg
18-Mo. Avg
24-Mo. Avg
Jade
7.7x
8.4x
7.6x
Peers
6.2x
6.5x
6.1x
Company
12-Mo. Avg
18-Mo. Avg
24-Mo. Avg
Jade
17.3x
21.5x
21.0x
S&P 500
13.6x
14.2x
13.7x
Peers
15.8x
16.0x
14.7x |
 15
Confidential
PREMIUMS PAID
Sources:
FactSet, Dealogic
Note:
Analysis includes 100% cash transactions with U.S. targets from 2005 to present
between $2.0Bn and $4.0Bn 24.7%
34.2%
43.6%
25.9%
21.0%
21.3%
Median of Precedents
Current Offer Premia
Premiums Paid (2nd Quartile High and 3rd Quartile Low)
Implied
Share
Price
2nd Quartile High
$49.72
$47.08
$42.52
Median
44.25
41.05
39.89
3rd Quartile Low
40.55
40.07
38.48
11.1%
18.2%
21.5%
36.2%
34.2%
38.8%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
1 Day Prior
1 Week Prior
1 Month Prior |
 16
Confidential
RELEVANT TRANSACTIONS
Sources:
Company
filings.
Jade
shares,
options,
and
RSUs
as
of
10/2/2010.
Implied
offer
multiple
based
on
Jade
LTM
EBITDA
as
of
Q3
FY2010
and
Q3
FY2010
ending
debt
and
cash
balances
Note:
(1) Based on actual reported EBITDA of $315.9MM, adjusted for
one-time items (benefit related to forfeited share-based awards, lease termination benefit, and severance costs)
(2) Defined as Transaction Enterprise Value. Figures shown in millions of US
dollars EV / LTM EBITDA
Specialty Apparel
Branded
Private Equity Buyer
Strategic Buyer
(2)
Acquiror
Apax
Apollo
Lee Equity
Advent
V. Heusen
Bain
Jones
Federated
Consortium
Consortium
Apollo
Bain
Consortium
Consortium
Istithmar
Date Announced
12/05
3/07
7/07
8/09
3/10
10/10
11/04
2/05
3/05
5/05
11/05
1/06
6/06
7/06
6/07
Transaction Value
$1,547
$2,581
$259
$312
$3,136
$1,761
$400
$17,260
$6,213
$4,981
$1,305
$1,958
$5,604
$1,819
$942
6.6x
8.9x
9.4x
10.2x
12.2x
14.1x
8.7x
8.8x
8.2x
7.2x
7.9x
7.9x
7.8x
7.9x
8.1x
Branded Median: 8.9x
Specialty Apparel Median: 7.9x
Overall Median: 8.2x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
Tommy
Hilfiger
Claire's
Sotres
Deb Shops
Charlotte
Russe
Tommy
Hilfiger
Gymboree
Barney's
May
Toys R Us
Neiman
Marcus
Linens n
Things
Burlington
Coat
Factory
Michaels
Stores
Petco
Barney's
IMPLIED TRANSACTION MULTIPLE: 9.0x
(1) |
 17
Confidential
HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE: REVENUE AND GROSS MARGIN
Sources:
11/17/2010 Jade Management projections, company filings
(2.5%)
16.4%
13.4%
13.0%
5.6%
(4.0%)
4.1%
5.3%
2.5%
3.5%
3.7%
3.9%
4.1%
$690
$804
$953
$1,152
$1,335
$1,428
$1,578
$1,731
$1,914
$2,148
$2,425
$2,719
$3,031
$0
$1,500
$3,000
$4,500
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
REVENUE
GROSS
MARGIN
(US$ in MM)
HISTORICAL
CURRENT PLAN
36.2%
40.5%
41.8%
43.4%
44.1%
38.9%
44.1%
43.4%
44.8%
44.7%
44.7%
45.0%
45.3%
35.0%
40.0%
45.0%
50.0%
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2003-2009 CAGR: 14.8%
2010-2015 CAGR: 11.9%
2003-2009 AVERAGE: 41.3%
2010-2015 AVERAGE: 44.7%
(Wall Street Consensus: 11.5%)
(Wall Street Consensus: 45.0%)
Comp Store
Sales |
 18
Confidential
HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE: EBITDA AND EBIT
$12
$75
$113
$159
$207
$141
$263
$281
$326
$372
$423
$478
$535
$0
$250
$500
$750
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
($31)
$38
$79
$126
$172
$97
$211
$232
$270
$308
$356
$408
$463
($500)
$0
$500
$1,000
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
EBITDA
EBIT
2003-2009 CAGR: 66.6%
2010-2015 CAGR: 13.7%
2004-2009 CAGR: 41.2%
2010-2015 CAGR: 14.9%
(US$ in MM)
HISTORICAL
CURRENT PLAN
(Wall Street Consensus: 15.0%)
(Wall Street Consensus: 14.5%)
Sources:
11/17/2010 Jade Management projections, company filings
|
 19
Confidential
HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE: EPS AND CAPEX
Sources:
11/17/2010 Jade Management projections, company filings, FactSet, IBES
Note:
(1) Excludes reversal of accrued equity compensation expense related to departure of
senior executive in July; impact of reversal is approximately $0.03 per share
EPS
CAPEX
(1)
(US$ in MM, except per share amounts)
Consensus LTGR: 15.2%
HISTORICAL
CURRENT PLAN
$10
$13
$22
$46
$81
$78
$45
$55
$90
$103
$69
$69
$67
$0
$50
$100
$150
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
($3.31)
($0.39)
$1.49
$1.52
$0.85
$1.91
$2.07
$2.43
$2.72
$3.09
$3.48
$3.89
($4.82)
($5.00)
$0.00
$5.00
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2011E
2012E
2013E
2014E
2015E
2006-2009 CAGR: 8.6%
2010-2015 CAGR: 13.4%
(Wall Street Consensus: 16.5%)
Average % of Revenues: 3.4%
Avg % of Revenues: 3.4%
(Wall Street Consensus: 3.2%)
$2.25 $2.45
$2.85 Consensus |
 20
Confidential
DISCOUNTED CASH FLOW ANALYSIS
Sources:
Company
filings,
11/17/2010
Jade
Management
projections.
Jade
shares,
options,
and
RSUs
as
of
10/2/2010
Note:
(1) Assumes tax rate of 40.2%
(US$ in MM, except per share amounts)
(1)
Fiscal Year
FY2011E
FY2012E
FY2013E
FY2014E
FY2015E
EBITDA
$326
$372
$423
$478
$535
Less: Depreciation
(56)
(63)
(67)
(70)
(71)
EBIT
$270
$308
$356
$408
$463
Less: Taxes
(109)
(124)
(143)
(164)
(186)
After-Tax EBIT
$162
$184
$213
$244
$277
Add: Depreciation
56
63
67
70
71
Net: Change in Deferred Credits
(6)
2
2
2
2
Net: Change in Other Liabilities
0
0
0
0
0
Add: Stock Based Compensation
15
20
21
21
21
Less: Increase in NWC
3
4
4
5
5
Less: Capex
(90)
(103)
(69)
(69)
(67)
Unlevered Free Cash Flow
$139
$171
$237
$272
$309
Unlevered Free Cash Flows
$139
$171
$237
$272
$309
Terminal Value (Assumes 6.5x Exit Multiple)
$3,475
Total Free Cash Flows
$139
$171
$237
$272
$309
$3,475
Multiply: Discount Factor (Assumes 13.0% WACC)
0.94x
0.83x
0.74x
0.65x
0.58x
0.54x
Discounted Free Cash Flows
$131
$142
$175
$177
$178
$1,886
Implied Enterprise Value
Implied Value Per Share
Terminal Multiple
Terminal Multiple
WACC
6.0x
6.5x
7.0x
7.5x
WACC
6.0x
6.5x
7.0x
7.5x
11%
$2,747
$2,906
$3,064
$3,223
11%
$45.00
$47.18
$49.36
$51.55
12%
2,643
2,795
2,947
3,099
12%
43.57
45.66
47.75
49.83
13%
2,545
2,690
2,835
2,980
13%
42.22
44.22
46.21
48.21
14%
2,451
2,590
2,729
2,868
14%
40.93
42.84
44.75
46.66
15%
2,362
2,495
2,628
2,761
15%
39.71
41.53
43.36
45.19 |
  21
Confidential
WEIGHTED AVERAGE COST OF CAPITAL ANALYSIS
Sources:
Bloomberg, Company Filings
Notes:
(1) 2 year adjusted beta
(2) Assumes 40% tax rate
(3) Based on yield on 10-Year U.S. Government Bond as of 11/19/2010
(4) Based on 2009 Ibbotson Report
ASSET BETA ANALYSIS
Levered
Debt /
Unlevered
Company
Beta
(1)
Equity
Beta
(2)
Jade
1.58
0.0%
1.58
The Gap
0.99
0.0%
0.99
American Eagle
1.20
0.0%
1.20
Urban Outfitters
1.14
0.0%
1.14
Ann Taylor
1.52
0.0%
1.52
Pacific Sunwear
1.55
0.0%
1.55
Chico's
1.34
0.0%
1.34
Aeropostale
0.89
0.0%
0.89
Zumiez
1.33
0.0%
1.33
Guess?
1.52
0.4%
1.52
Buckle
1.02
0.0%
1.02
A&F
1.64
2.0%
1.62
Talbots
1.77
4.4%
1.73
Bebe
1.22
0.0%
1.22
Hot Topic
1.14
0.0%
1.14
Coldwater Creek
2.16
4.5%
2.10
Limited Brands
1.55
20.4%
1.38
Polo
1.24
2.8%
1.22
Coach
1.43
0.2%
1.43
Children's Place
1.10
0.0%
1.10
Carter's
1.12
12.5%
1.04
Dress Barn
1.11
1.6%
1.10
New York & Co
2.36
5.9%
2.28
Gymboree
1.21
0.0%
1.21
Under Armour
1.45
0.6%
1.44
Mean
1.38
2.2%
1.36
Median
1.33
0.0%
1.33
High
2.36
20.4%
2.28
Low
0.89
0.0%
0.89
WACC ANALYSIS
Cost of Equity
U.S. Risk Free Rate
(3)
2.88%
Equity Risk Premium
(4)
6.70%
Asset Beta
1.50
Relevered
Beta (0% Target Debt / Equity)
1.50
Adjusted Equity Market Risk Premium
10.05%
Cost of Equity
12.93%
Cost of Debt
Cost of Debt (Pre-Tax)
6.00%
Tax Rate
40.00%
Cost of Debt (After-Tax)
3.60%
% Debt
0.00%
% Equity
100.00%
Weighted Average Cost of Capital
12.93%
Selected Range
11.00%
15.00%
Cost of Equity
12.93% |
 22
Confidential
LEGAL NOTICE |