UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2016
oo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-36212
VINCE HOLDING CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
75-3264870
(I.R.S. Employer
Identification No.)
500 5 th Avenue—20th Floor
New York, New York 10110
(Address of principal executive offices) (Zip code)
(212) 515-2600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 par value per share
Name of Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes x
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation of S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained,
to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
o
Accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
x
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o
No x
The aggregate market value of the registrant’s Common Stock held by non-affiliates as of August 1, 2015, the last day of the registrant’s most recently completed second quarter,
was approximately $164.1 million based on a closing price per share of $9.81 as reported on the New York Stock Exchange on July 31, 2015. As of March 31, 2016, there were
37,108,682 shares of the registrant’s Common Stock outstanding.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the registrant’s 2016 annual meeting of
stockholders are incorporated by reference into Part III of this annual report on Form 10-K.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Table of Contents
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART III
Item 15.
Exhibits, Financial Statement Schedules
PART IV
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INTRODUCTORY NOTE
On November 27, 2013, Vince Holding Corp. (“VHC” or the “Company”), previously known as Apparel Holding Corp., closed an initial public offering
(“IPO”) of its common stock and completed a series of restructuring transactions (the “Restructuring Transactions”) through which (i) Kellwood Holding, LLC
acquired the non-Vince businesses, which include Kellwood Company, LLC (“Kellwood Company” or “Kellwood”), from the Company and (ii) the Company
continues to own and operate the Vince business, which includes Vince, LLC.
Prior to the IPO and the Restructuring Transactions, VHC was a diversified apparel company operating a broad portfolio of fashion brands, which included
the Vince business. As a result of the IPO and Restructuring Transactions, the non-Vince businesses were separated from the Vince business, and the stockholders
immediately prior to the consummation of the Restructuring Transactions (the “Pre-IPO Stockholders”) (through their ownership of Kellwood Holding, LLC)
retained the full ownership and control of the non-Vince businesses. The Vince business is now the sole operating business of Vince Holding Corp. Historical
financial information for the non-Vince businesses has been presented as a component of discontinued operations, until the businesses were separated on
November 27, 2013, in this annual report on Form 10-K and our Consolidated Financial Statements and related notes included herein.
DISCLOSURES REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K, and any statements incorporated by reference herein, contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are indicated by words or phrases such as “may,” “will,” “should,” “believe,” “expect,” “seek,”
“anticipate,” “intend,” “estimate,” “plan,” “target,” “project,” “forecast,” “envision” and other similar phrases. Although we believe the assumptions and
expectations reflected in these forward-looking statements are reasonable, these assumptions and expectations may not prove to be correct and we may not achieve
the results or benefits anticipated. These forward-looking statements are not guarantees of actual results, and our actual results may differ materially from those
suggested in the forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control,
including, without limitation: our ability to maintain adequate cash flow from operations or availability under our revolving credit facility to meet our liquidity
needs (including our obligations under the Tax Receivable Agreement with the Pre-IPO Stockholders); our ability to successfully complete the migration of our
systems and processes from Kellwood Company; our ability to successfully transition our distribution system from Kellwood Company to a third party logistics
provider; our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, and customer service; our ability to anticipate and/or
react to changes in customer demand and attract new customers, including in connection with making inventory commitments; our ability to control the level of
sales in the off-price channels; our ability to manage current excess inventory in a way that will promote the long-term health of the brand; changes in consumer
confidence and spending; our ability to maintain projected profit margins; unusual, unpredictable and/or severe weather conditions; the execution and management
of our retail store growth, including the availability and cost of acceptable real estate locations for new store openings; the execution and management of our
international expansion, including our ability to promote our brand and merchandise outside the U.S. and find suitable partners in certain geographies; our ability to
expand our product offerings into new product categories, including the ability to find suitable licensing partners; our ability to successfully implement our
marketing initiatives; our ability to protect our trademarks in the U.S. and internationally; our ability to maintain the security of electronic and other confidential
information; serious disruptions and catastrophic events; changes in global economies and credit and financial markets; competition; the impact of recent turnover
in the senior management team; the fact that a number of members of the management team have less than one year of tenure with the Company, and the current
senior management team has not had a long period of time working together; our ability to attract and retain key personnel; commodity, raw material and other cost
increases; compliance with domestic and international laws, regulations and orders; changes in laws and regulations; outcomes of litigation and proceedings and the
availability of insurance, indemnification and other third-party coverage of any losses suffered in connection therewith; tax matters; our ability to complete the
proposed rights offering and related backstop commitment; and other factors as set forth from time to time in our Securities and Exchange Commission filings,
including those described in this annual report on Form 10-K under “Item 1A—Risk Factors.” We intend these forward-looking statements to speak only as of the
time of this annual report on Form 10-K and do not undertake to update or revise them as more information becomes available.
3
Par t I
ITEM 1.
BUSINESS.
For purposes of this annual report on Form 10-K, “Vince,” the “Company,” “we,” “us,” and “our,” refer to Vince Holding Corp. (“VHC”) and its
wholly owned subsidiaries, including Vince Intermediate Holding, LLC and Vince, LLC. References to “Kellwood” refer, as applicable, to Kellwood Holding,
LLC and its consolidated subsidiaries (including Kellwood Company, LLC) or the operations of the non-Vince businesses after giving effect to the
Restructuring Transactions.
Overview
Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. Founded in 2002, the brand now
offers a wide range of women’s and men’s apparel, women’s and men’s footwear, and handbags. Vince products are sold in prestige distribution worldwide,
including approximately 2,500 distribution points across 38 countries. While we have recently experienced a slowdown in sales growth, we believe that we can
generate growth by improving our product offering, expanding our selling into international markets, and growing our own branded retail and our e-commerce
direct-to-consumer businesses. We have a small number of wholesale partners who account for a significant portion of our net sales. Net sales to the full-price, off-
price and e-commerce operations of our three largest wholesale partners were 43%, 49% and 46% of our total revenue for fiscal 2015, fiscal 2014 and fiscal 2013,
respectively. These partners include Nordstrom, Saks Fifth Avenue and Neiman Marcus, each accounting for more than 10% of our total revenue for fiscal 2015,
fiscal 2014 and fiscal 2013. We design our products in the U.S. and source the vast majority of our products from contract manufacturers outside the U.S.,
primarily in Asia and South America.
We serve our customers through a variety of channels that reinforce the Vince brand image. Our diversified channel strategy allows us to introduce our
products to customers through multiple distribution points that are reported in two segments: wholesale and direct-to-consumer. Our wholesale segment is
comprised of sales to major department stores and specialty stores in the U.S. and in select international markets, with U.S. wholesale representing 56%, 67% and
71% of our fiscal 2015, fiscal 2014 and fiscal 2013 sales, respectively, and the total wholesale segment representing 67%, 76% and 79% of our sales in those same
periods. We believe that our success in the U.S. wholesale channel and our strong relationships with premier wholesale partners provide opportunities for further
growth. These growth initiatives include creating enhanced product assortments and brand extensions through both in-house development activities and licensing
arrangements, as well as continuing the build-out of branded shop-in-shops in select wholesale partner locations. We also believe international wholesale, which
represented 10%, 9% and 8% of net sales for fiscal 2015, fiscal 2014 and fiscal 2013, respectively, presents a significant growth opportunity as we strengthen our
presence in existing geographies and introduce Vince in new markets globally. Our wholesale segment also includes our licensing business related to our licensing
arrangements for our women’s and men’s footwear.
Our direct-to-consumer segment includes our company-operated retail and outlet stores and our e-commerce business. In 2008, we initiated a direct-to-
consumer strategy with the opening of our first retail store. During fiscal 2015, we opened 11 new stores consisting of six full-price retail stores and five outlet
locations. As of January 30, 2016, we operated 48 stores, consisting of 34 company-operated full-price retail stores and 14 company-operated outlet locations. The
direct-to-consumer segment also includes our e-commerce website, www.vince.com
, which was launched in 2008 and re-launched with enhancements to the
website during fiscal 2014. The direct-to-consumer segment accounted for 33%, 24% and 21% of fiscal 2015, fiscal 2014 and fiscal 2013 net sales, respectively.
We expect sales from this channel to continue to grow as we drive productivity in existing stores, open new stores and continue to make improvements in our e-
commerce business.
Vince operates on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52 or 53-week period ending on the
Saturday closest to January 31 of the following year.
·
·
·
References to “fiscal year 2015” or “fiscal 2015” refer to the fiscal year ended January 30, 2016;
References to “fiscal year 2014” or “fiscal 2014” refer to the fiscal year ended January 31, 2015;
References to “fiscal year 2013” or “fiscal 2013” refer to the fiscal year ended February 1, 2014.
Each of fiscal years 2015, 2014 and 2013 consisted of a 52-week period.
Vince Holding Corp., previously named Apparel Holding Corp., was incorporated in Delaware in February 2008 in connection with the acquisition of
Kellwood Company by affiliates of Sun Capital Partners, Inc. (“Sun Capital”). In September 2012, Kellwood Company formed Vince, LLC and all assets
constituting the Vince business were contributed to Vince, LLC at such time (the “Vince Transfer”). On November 27, 2013, Apparel Holding Corp. was renamed
Vince Holding Corp. in connection with the consummation of the IPO. Certain restructuring transactions were completed in connection with the consummation of
the IPO. These transactions, among other things, included Kellwood Holding, LLC acquiring the non-Vince businesses, which include Kellwood Company, LLC,
from the Company; and the Company continues to own and operate the Vince business, which includes Vince, LLC. The restructuring
4
transactions separated the Vince and non-Vince businesses on November 27, 2013. Any and all debt obligations outstanding at the time of the restructuring
transactions either remained with Kellwood Holding, LLC and its subsidiaries (i.e. the non-Vince businesses) and/or were discharged, repurchased or refinanced in
connection with the consummation of the IPO. Historical financial information for the non-Vince businesses has been presented as a component of discontinued
operations, u ntil the businesses were separated on November 27, 2013, in this annual report on Form 10-K and our Consolidated Financial Statements and related
notes included herein. Our principal executive office is located at 500 Fifth Avenue, 20th Floor, New York, Ne w York 10110 and our telephone number is
(212) 515-2600. Our corporate website address is www.vince.com
.
Brand and Products
Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. The Vince brand was founded in 2002
with a collection of stylish women’s knits and cashmere sweaters that rapidly attracted a loyal customer base drawn to the casual sophistication and luxurious feel
of our products. Over the last decade, Vince has generated strong sales momentum and has successfully grown to include a men’s collection in 2007, expanded our
leather and outerwear offerings and launched a women’s handbag line in 2014. In addition, through licensing partnerships, we launched women’s footwear in 2012
and men’s footwear in 2014. The Vince brand is synonymous with a clean, timeless aesthetic, sophisticated design and superior quality. We believe these attributes
have generated strong customer loyalty and have enabled us to hold a distinctive position among contemporary fashion brands. We also believe that we will
achieve continued success by expanding our product assortment and distributing this expanded product assortment through our premier wholesale partners in the
U.S. and select international markets, as well as through our growing number of branded retail locations and on our e-commerce platform.
Since our inception in 2002, we have offered contemporary apparel with a focus on clean and authentic design and superior quality. We believe that our
differentiated design aesthetic and strong attention to detail and fit allow us to maintain premium pricing, and that the combination of quality and value positions
Vince as an everyday luxury brand that encourages repeat purchases among our customers.
Our net sales by major product category were as follows:
(in thousands)
Women's collection
Men's collection
Other
2015
Amount
$ 272,338
22,685
7,434
$ 302,457
Fiscal Year
2014
2013
% of
Total
Amount
90% $ 301,076
8% 35,417
3,903
2%
100% $ 340,396
% of
Total
Amount
89% $ 253,647
10% 33,612
911
1%
100% $ 288,170
% of
Total
88%
12%
0%
100%
The women’s collection under the Vince brand includes seasonal collections of luxurious cashmere sweaters and silk blouses, leather and suede leggings
and jackets, dresses, denim, pants, tanks and t-shirts, and a growing assortment of outerwear. The men’s collection under the Vince brand includes t-shirts, knit and
woven tops, sweaters, denim, pants, blazers, outerwear and stylish leather jackets. Other primarily includes handbags and revenues earned under our licensing
arrangements for footwear.
We have identified additional brand extension opportunities, including elevating our men’s collection and expanding outerwear, women’s pants and dresses.
In addition, through our licensing arrangements, we also offer women’s and men’s footwear. We continue to evaluate other brand extension opportunities through
both in-house development activities as well as through potential licensing arrangements with third parties.
Design and Merchandising
We are focused on developing an elevated collection of Vince apparel and accessories that build upon the brand’s product heritage of modern, effortless
style and everyday luxury essentials. The current design vision is to create a cohesive and compelling product assortment with sophisticated head-to-toe looks for
multiple wear occasions. In November 2015, we entered into consulting agreements with our co-founders, Rea Laccone and Christopher LaPolice, with initial
terms of two years, to oversee our product, merchandising and creative efforts. Our design efforts are also supported by well-established product development and
production teams and processes that enable us to bring new products to market quickly. We are looking to further build our merchant capabilities and believe
continued collaboration between design and merchandising will ensure we respond to consumer preferences and market trends with new innovative product
offerings while maintaining our core fashion foundation.
5
Business Segments
We serve our customers through a variety of channels that reinforce the Vince brand image. Our diversified channel strategy allows us to introduce our
products to customers through multiple distribution points that are reported in two segments: wholesale and direct-to-consumer.
(in thousands)
Wholesale
Direct-to-consumer
Total net sales
Wholesale
Segment
Net Sales by Segment
Fiscal Year
2014
2013
2015
$
$
201,182 $
101,275
302,457 $
259,418 $
80,978
340,396 $
229,114
59,056
288,170
Our wholesale segment is comprised of sales to major department stores and specialty stores in the U.S. and in select international markets, with U.S.
wholesale representing 56%, 67% and 71% in fiscal 2015, fiscal 2014 and fiscal 2013 and international wholesale representing 10%, 9% and 8% of our net sales
for those same periods. Our products are currently sold in 38 countries. As of January 30, 2016, our products were sold to consumers at 2,441 doors through our
wholesale partners. In addition, we also have shop-in-shops which are operated by our domestic and international wholesale partners where we sell the merchandise
to the partners on a wholesale basis, recognizing revenue upon shipment of goods when title and risk of loss passes to the wholesale partner. The shop-in-shops are
dedicated spaces within the selling floors of select domestic and international wholesale partners where Vince product is prominently displayed and sold. Vince
generally provides the shop-in-shop fixtures needed to build out the spaces within the department stores operated by our wholesale partners. As of January 30,
2016, there were 53 shop-in-shops consisting of 33 shop-in-shops with our U.S. wholesale partners and 20 shop-in-shops with our international wholesale partners.
We also have one international free-standing store in Tokyo that is owned and operated through a distribution arrangement whereby Vince provides the
merchandise to the distribution partner for sale in the free-standing store which solely sells Vince product. Our wholesale segment also includes our licensing
business related to our licensing arrangements for our women’s and men’s footwear line. Under these licensing arrangements we launched women’s footwear in
fiscal 2012 and in fiscal 2014 we launched men’s footwear. The licensed products are sold in our own stores and by our licensee to select wholesale partners, and
we earn a royalty based on net sales to the wholesale partners.
Direct-to-Consumer
Segment
Our direct-to-consumer segment includes our company-operated retail and outlet stores and our e-commerce business. In 2008, we initiated a direct-to-
consumer strategy with the opening of our first retail store. As of January 30, 2016, we operated 48 stores, which consisted of 34 company-operated full-price retail
stores and 14 company-operated outlet locations. The direct-to-consumer segment also includes our e-commerce website, www.vince.com
, which was launched in
2008 and re-launched with website enhancements during fiscal 2014. The direct-to-consumer segment accounted for approximately 33%, 24% and 21% of fiscal
2015, fiscal 2014 and fiscal 2013 net sales, respectively. We expect sales from this channel to continue to grow as we drive productivity in existing stores, open
new stores and continue to make improvements in our e-commerce business.
The following table details the number of retail stores we operated for the past three fiscal years:
Beginning of fiscal year
Opened
Closed
End of fiscal year
Marketing, Advertising and Public Relations
Fiscal
2015
Fiscal
2014
Fiscal
2013
37
11
—
48
28
9
—
37
22
7
(1)
28
We use marketing, advertising and public relations as critical tools to deliver a consistent and compelling brand message to consumers. Our brand message
and marketing strategies are cultivated by dedicated creative, design, marketing, visual merchandising and public relations teams. These teams work closely
together to develop and execute campaigns that appeal to both our core and aspirational customers.
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To execute our marketing stra tegies, w e engage in a wide range of campaign tactics that include traditional media ( such as direct mail, print advertising,
cooperative advertising with wholesale partners and outdoor advertising), digital media ( such as email , search and social display ) and experiential campaigns
(such as events and collection previews) to drive traffic , brand awareness, conversion and ultimately sales across all channels.
In fiscal 2015, we believe these strategies increased our brand awareness and grew our customer and email databases. Email now drives approximately one-
third of our e-commerce business and growth of our database continues to be a key to our success. We use social platforms such as Instagram, Facebook, Twitter
and Pinterest to engage customers and create excitement about our brand. In addition, the growing number of visits to www.vince.com
, which totaled 5.6 million in
fiscal 2015, representing a 45% increase from fiscal 2014, provides an opportunity to grow our customer base and communicate directly with our customers.
Our public relations team conducts a wide variety of press activities to reinforce the Vince brand image and create excitement around the brand. Vince
apparel, handbags and footwear have appeared in the pages of major fashion magazines such as Vogue,
Harper’s
Bazaar
, Elle,
W,
GQ
, Esquire
and Vanity
Fair
.
Well-known trend setters in entertainment and fashion are also regularly seen wearing the Vince brand.
Sourcing and Manufacturing
Vince does not own or operate any manufacturing facilities. We contract for the purchase of finished goods with manufacturers who are responsible for the
entire manufacturing process, including the purchase of piece goods and trim. Although we do not have long-term written contracts with manufacturers, we have
long-standing relationships with a diverse base of vendors which we believe to be mutually satisfactory. We work with over 30 manufacturers across five countries,
with 89% of our products produced in China in fiscal 2015. For cost and control purposes, we contract with select third-party vendors in the U.S. to produce a small
portion of our merchandise that includes woven pants and products manufactured with man-made fibers.
All of our garments are produced according to our specifications, and we require that all of our manufacturers adhere to strict regulatory compliance and
standards of conduct. Our vendors’ factories are monitored by our production team to ensure quality control, and they are monitored by independent third-party
inspectors we employ for compliance with local manufacturing standards and regulations on an annual basis. Our quality assurance staff in the U.S. and Asia also
monitors our vendors’ manufacturing facilities regularly, providing technical assistance and performing in-line and final audits to ensure the highest possible
quality.
Shared Services Agreement
In connection with the consummation of the IPO, Vince, LLC entered into a shared services agreement with Kellwood Company, LLC on November 27,
2013 (the “Shared Services Agreement”) pursuant to which Kellwood Company, LLC would provide certain support services in various operational areas
including, among other things, e-commerce operations, distribution, logistics, information technology, accounts payable, credit and collections and payroll and
benefits. Since the IPO, we have been working on transitioning certain back office functions performed by Kellwood under the Shared Services Agreement. Among
these functions that have transitioned to Vince are certain accounting related functions as well as benefits administration. We have also been working on
developing our own information technology infrastructure and are now in the process of implementing our own enterprise resource planning (“ERP”) system,
point-of-sale systems, e-commerce platform and supporting systems. We are also in the process of migrating our U.S. distribution system from Kellwood to a new
third party provider. Until those systems are implemented, we will continue to utilize the Kellwood information technology infrastructure, including e-commerce
platform systems, under the Shared Services Agreement. Refer to the discussion under “Information Systems” below for further information on our ERP
implementation. See also “Item 1A. Risk Factors—Kellwood provides us with certain key services for our business, which we are in the process of transitioning to
our own systems and processes. If Kellwood fails to perform its obligations to us during the period of transition or if we cannot successfully transition these
services to our own systems, our business, financial condition, results of operations and cash flows could be materially harmed.” In addition, see “Shared Services
Agreement” under Note 15 “Related Party Transactions” to the Consolidated Financial Statements in this annual report on Form 10-K for further information.
Distribution Facilities
Pursuant to the Shared Services Agreement, Kellwood has provided distribution facilities and services to us in the U.S. These services included distribution,
storage and fulfillment. In November 2015, we entered into a service agreement with a new third-party distribution provider and commenced the migration of the
distribution facility from Kellwood in the first quarter of 2016. Kellwood will continue to provide these services to us through a transition period until such time as
we terminate the provision of such services in accordance with the terms of the Shared Services Agreement. See “Shared Services Agreements” under Note 15
“Related Party Transactions” to the Consolidated Financial Statements in this annual report on Form 10-K for additional information regarding the Shared Services
Agreement.
7
As of January 3 0 , 201 6 , we operated out of three distribution centers, two located in the U.S. and one in Belgium. The primary warehouse operated by
Kellwood is located in City o f Industry, California, and included 75,000 square feet dedicated to fulfilling orders for our wholesale partners and retail locations. An
adjacent warehouse span ning 22,000 square feet supported Vince’ s e-commerce business . Our space in both of the California warehouses utilize warehouse ma
nagement systems that are fully customer and vendor compliant and are completely integrated with our current ERP and accounting systems. The new distribution
center will be located in City o f Industry, California and will have approximately 100,000 square feet of dedicated space to fulfill orders for our wholesale partners
, our retail locations and our e-commerce business.
The warehouse in Belgium is operated by a third-party logistics provider and supports our wholesale orders for customers located primarily in Europe. The
warehouse management systems of the Belgium warehouse are integrated with our current ERP systems to provide us with near real-time visibility into our
international distribution.
We believe we have sufficient capacity in our domestic and international distribution facilities to support our continued growth.
Information Systems
Kellwood has continued to provide certain information technology services to us and will continue to do so until such time as we elect to terminate
provision of such services in accordance with the terms of the Shared Services Agreement. These services included information technology planning and
administration, desktop support and help desk, our ERP system, financial applications, warehouse systems, reporting and analysis applications and our retail and e-
commerce interfaces.
The ERP system we current use under the Shared Services Agreement was developed from a core system that is widely used in the apparel and fashion
industry, which was customized to suit our inventory management and order processing requirements. Oracle Financials has been integrated with the ERP system
to meet our financial reporting and accounting requirements. Additionally, we use a suite of third-party hosted retail applications integrated with the ERP system
that provide us with merchandising, retail inventory management, point-of-sale systems (“POS”), customer relationship management and retail accounting, all of
which are currently used under the Shared Services Agreement. The ERP and warehouse management systems are also integrated with a hosted, third-party e-
commerce platform. We have commenced the development and implementation of our own ERP, POS and supporting systems and network infrastructure, engaged
with a new e-commerce platform provider and completed the migration of the human resource recruitment system. The ERP, POS, e-commerce platform and
supporting system implementations are expected to be completed in 2016. Our new ERP system is operated on a system from Microsoft Dynamics AX and is cloud
based and will integrate with our new POS, e-commerce platform and other supporting systems. Collectively, these systems will replace the current ERP, Oracle
Financials and all other systems currently used under the Shared Services Agreement. Once implemented, we will no longer rely on Kellwood’s information
technology services.
See “—Shared Services Agreement,” above and “Item 1A. Risk Factors— Kellwood provides us with certain key services for our business, which we are in
the process of transitioning to our own systems and processes. If Kellwood fails to perform its obligations to us during the period of transition or if we cannot
successfully transition these services to our own systems, our business, financial condition, results of operations and cash flows could be materially harmed.” In
addition, see “Shared Services Agreement” under Note 15 “Related Party Transactions” to the Consolidated Financial Statements in this annual report on form 10-
K for further information.
Seasonality
The apparel and fashion industry in which we operate is cyclical and, consequently, our revenues are affected by general economic conditions and the
seasonal trends characteristic to the apparel and fashion industry. Purchases of apparel are sensitive to a number of factors that influence the level of consumer
spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates, consumer confidence as well as the impact
from adverse weather conditions. In addition, fluctuations in sales in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events
affecting direct-to-consumer sales; as such, the financial results for any particular quarter may not be indicative of results for the fiscal year.
Competition
We face strong competition in each of the product categories and markets where we compete on the basis of style, quality, price and brand recognition.
Some of our competitors have achieved significant recognition for their brand names or have substantially greater financial, marketing, distribution and other
resources than us. However, we believe that we have established a sustainable advantage and distinct position in the current marketplace, driven by a product
assortment that combines classic and fashion-forward styling, and a pricing strategy that offers customers accessible luxury. Our competitors are varied but include
Theory, Helmut Lang, Rag & Bone, Joie, J Brand, James Perse and J. Crew, among others.
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Employees
As of January 30, 2016, we had 565 employees, of which 340 were employed in our company-operated retail stores. Except for two employees in France,
who are covered by collective bargaining agreements pursuant to French law, none of our employees are currently covered by a collective bargaining agreement,
and we believe our employee relations are good.
Trademarks and Licensing
We own the Vince
trademark for the production, marketing and distribution of our products in the U.S. and internationally. We have registered the
trademark domestically and have registrations on file or pending in a number of foreign jurisdictions. We intend to continue to strategically register, both
domestically and internationally, trademarks that we use today and those we develop in the future. We license the domain name for our website, www.vince.com
,
pursuant to a license agreement. Under this license agreement, we have an exclusive, irrevocable license to use the www.vince.com
domain name without restriction
at a nominal annual cost. While we may terminate such license agreement at our discretion, the agreement does not provide for termination by the licensor. We also
own unregistered copyright rights in our design marks.
Available Information
We make available free of charge on our website, www.vince.com
, copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy and information statements and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after filing such material electronically with, or otherwise furnishing it
to, the Securities and Exchange Commission (the “SEC”). The public may read and copy these materials at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov
that contains reports, proxy and information statements and other information regarding Vince and other companies that
electronically file materials with the SEC. The reference to our website address does not constitute incorporation by reference of the information contained on the
website, and the information contained on the website is not part of this annual report on Form 10-K.
ITEM 1A.
RISK FACTORS.
The following risk factors should be carefully considered when evaluating our business and the forward-looking statements in this annual report on
Form 10-K. See “Disclosures Regarding Forward-Looking Statements.” All amounts disclosed are in thousands expect shares, per share amounts, percentages,
stores and number of leases.
Risks Related to Our Business
Intense competition in the apparel and fashion industry could reduce our sales and profitability.
As a fashion company, we face intense competition from other domestic and foreign apparel, footwear and accessories manufacturers and retailers.
Competition may result in pricing pressures, reduced profit margins, lost market share or failure to grow our market share, any of which could substantially harm
our business and results of operations. Competition is based on many factors including, without limitation, the following:
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establishing and maintaining favorable brand recognition;
developing products that appeal to consumers;
pricing products appropriately;
determining and maintaining product quality;
obtaining access to sufficient floor space in retail locations;
providing appropriate services and support to retailers;
maintaining and growing market share;
hiring and retaining key employees; and
protecting intellectual property.
Competition in the apparel and fashion industry is intense and is dominated by a number of very large brands, many of which have longer operating
histories, larger customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and
development, marketing, distribution and other resources than we do. These capabilities of our competitors may allow them to better withstand downturns in the
economy or apparel and fashion industry. Any increased competition, or our failure to adequately address any of these competitive factors, could result in reduced
sales, which could adversely affect our business, financial condition and operating results.
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Competition, along with such other factors as consolidation within the retail industry and changes in consumer spending patterns, could also result in
significant pricing pressure and cause the sales environmen t to be more promotional, as it has been in recent years . If promotional pressure remains intense, either
through actions of our competitors or through customer expectations, this may cause us to reduce our sales prices to our wholesale partners and retail consumers,
which could cause our gross margins to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable
reductions in our operating costs. If our sales prices decline and we fail to suff iciently reduce our product costs or operating expenses, our profitability may
decline, which could have a material adverse effect on our business, financial condition and operating results.
General economic conditions in the U.S. and other parts of the world, including a continued weakening of the economy and restricted credit markets, can
affect consumer confidence and consumer spending patterns.
The apparel industry has historically been subject to cyclical variations, recessions in the general economy or uncertainties regarding future economic
prospects that affect consumer spending habits which could negatively impact our business overall, the carrying value of our tangible and intangible assets and
specifically sales, gross margins and profitability. The success of our operations depends on consumer spending. Consumer spending is impacted by a number of
factors, including actual and perceived economic conditions affecting disposable consumer income (such as unemployment, wages, energy costs and consumer debt
levels), business conditions, interest rates and availability of credit and tax rates in the general economy and in the international, regional and local markets in
which our products are sold.
Recent global economic conditions have included significant recessionary pressures and declines in employment levels, disposable income and actual and/or
perceived wealth and further declines in consumer confidence and economic growth. The recent depressed economic environment was characterized by a decline in
consumer discretionary spending and has disproportionately affected retailers and sellers of consumer goods, particularly those whose goods are viewed as
discretionary or luxury purchases, including fashion apparel and accessories such as ours. During such recessionary periods, we may have to increase the number of
promotional sales or otherwise dispose of inventory which we have previously paid to manufacture. While we have seen occasional signs of stabilization in the
North American markets in recent years, the recent recession may have resulted in a shift in consumer spending habits that makes it unlikely that spending will
return to prior levels for the foreseeable future as the promotional environment has continued and may continue going forward. Such factors as well as another shift
towards recessionary conditions could adversely impact our sales volumes and overall profitability in the future.
Further, recent concerns that European countries could default on their national debt have caused instability in the European economy, which is one of the
areas that we are currently targeting for international expansion. Continued economic and political volatility and declines in the value of the Euro or other foreign
currencies could negatively impact the global economy as a whole and have a material adverse effect on the profitability and liquidity of our international
operations, as well as hinder our ability to grow through expansion in the international markets. In addition, domestic and international political situations also
affect consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts or other hostilities around the world could lead to decreases in
consumer spending.
Our ability to continue to have the liquidity necessary to service our debt, meet contractual payment obligations, including under the Tax Receivable
Agreement, and fund our operations depends on many factors, including our ability to generate sufficient cash flow from operations, maintain adequate
availability under our Revolving Credit Facility or obtain other financing.
Our ability to timely service our indebtedness, meet contractual payment obligations and to fund our operations will depend on our ability to generate
sufficient cash, either through cash flows from operations, borrowing availability under the Revolving Credit Facility or other financing. Our recent financial
results have been, and our future financial results are expected to be, subject to substantial fluctuations impacted by business conditions and macroeconomic
factors.
The Company had expected to make a required payment under the Tax Receivable Agreement in the fourth quarter of fiscal 2015. As a result of lower than
expected cash from operations due to weaker than projected performance, and the level of projected availability under the Company’s Revolving Credit Facility,
we concluded that we would not be able to fund the payment when due. Accordingly, on September 1, 2015, we entered into an amendment to the Tax Receivable
Agreement with Sun Cardinal, LLC, an affiliate of Sun Capital, for itself and as a representative of the other stockholders parties thereto. Pursuant to this
amendment, Sun Cardinal, LLC agreed to postpone payment of the tax benefit with respect to the 2014 taxable year, currently estimated at $21,762 plus accrued
interest, to September 15, 2016. The amendment to the Tax Receivable Agreement also waived the application of a default interest rate at LIBOR plus 500 basis
points per annum on the postponed payment. The interest rate on the postponed payment will remain at LIBOR plus 200 basis points per annum. See – “We are
required to pay to the Pre-IPO Stockholders 85% of certain tax benefits, and could be required to make substantial cash payments in which our stockholders will
not participate.”
Additionally, on December 9, 2015, the Company received a Rights Offering Commitment Letter from Sun Capital Partners V, L.P. (“Sun Fund V”) that
commits Sun Fund V that in the event we consummated a rights offering, provided the Company with an amount equal to $65,000 of cash proceeds reduced by the
aggregate proceeds received from any completed rights offering. The Company would be required to use the proceeds from any completed rights offering to satisfy
the Company’s current obligation with
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respect to the 2014 taxable y ear under the Tax Receivable Agreem ent, estimated at $21,762 plus accrued interest and payable on September 15, 2016. On March
29, 2016, the Company commenced a rights offering to give existing stockholders the ri ght to purchase additional shares of common stock at $5.50 per share. The
Company is seeking to issue 11,818,181 shares in order to raise gross proceeds of $65,000. The rights offering expired on April 14, 2016 at 5:00 p.m. New York
City time . The Company has also entered into an Investment Agreement with Sun Cardinal, LLC and SCSF Cardinal, LLC, affiliate s of Sun Capital, pursuant to
which Sun Cardinal and SCSF Cardinal have ag reed to back stop the rights offering by purchasing at the subscription price of $5.50 per share any and all shares
not subscribed through the exercise of rights, including the oversubscription. Consummation of the rights offering and the transactions contemplated by the
Investment Agreement are subject to customary closing conditions. The Investment Agreement supersedes the Rights Offering Commitment Letter.
While we believe based upon our actions to date, including the commencement of the rights offering and the proceeds committed to us under the Investment
Agreement, that we will have sufficient liquidity for the next twelve months, there can be no assurances that we will be able to complete the rights offering,
generate sufficient cash flow from operations to meet our liquidity needs, that we will have the necessary availability under the Revolving Credit Facility, or be
able to obtain other financing when liquidity needs arise. In the event that we are unable to timely service our debt service, meet other contractual payment
obligations or fund our other liquidity needs, we may need to refinance all or a portion of our indebtedness before maturity, seek waivers of or amendments to our
contractual obligations for payment, reduce or delay scheduled expansions and capital expenditures or sell material assets or operations. Payment defaults under our
debt agreements or other contracts could result in a default under the Term Loan Facility or the Revolving Credit Facility, which could result in all amounts
outstanding under those credit facilities becoming immediately due and payable. Additionally, the lenders under those credit facilities would not be obligated to
lend us additional funds.
Kellwood provides us with certain key services for our business, which we are in the process of transitioning to our own systems and processes. If Kellwood
fails to perform its obligations to us during the period of transition or if we cannot successfully transition these services to our own systems, our business,
financial condition, results of operations and cash flows could be materially harmed.
Prior to the IPO and Restructuring Transactions that closed on November 27, 2013, we operated as a business unit of Kellwood, and we historically relied
on the financial resources and the administrative and operational support systems of Kellwood to run our business. Some of the Kellwood systems we continue to
use following the IPO and Restructuring Transactions include ERP, POS and human resource management systems as well as distribution applications. We are in
the process of transitioning to our own systems and processes from those of Kellwood. We have recently commenced the development and implementation of our
own ERP, POS and supporting systems and network infrastructure, engaged with a new e-commerce platform provider and completed the migration of the human
resource recruitment system. The new systems we implement may not operate as successfully as the systems we historically used as such systems are highly
customized or proprietary. Moreover, we may be unable to obtain necessary goods, technology and services to continue replacing the Kellwood systems in a timely
manner to meet business needs or at prices and on terms as favorable as those available to us prior to the separation, which could increase our costs and reduce our
profitability. If we fail to successfully transition the systems, our business and results of operations may be materially and adversely affected.
We entered into a Shared Services Agreement in connection with the IPO and Restructuring Transactions on November 27, 2013. The Shared Services
Agreement governs the provisions by which Kellwood provides certain support services to us, including distribution, information technology and back office
support. Kellwood will provide these services until we elect to terminate the provision thereof in accordance with the terms of such agreement or, for services
which require a term as a matter of law or which are based on a third-party agreement with a set term, the related termination date specified in the schedule thereto.
Upon the termination of certain services, Kellwood may no longer be in a position to provide certain other related services. Assuming we proceed with our request
to terminate the original services, such related services shall also be terminated in connection with such termination. The Shared Services Agreement will terminate
automatically upon the termination of all services provided thereunder, unless earlier terminated by either party in connection with the other party’s material breach
upon 30 days prior notice to such defaulting party. After termination of the agreement, Kellwood will have no obligation to provide any services to us. See “Shared
Services Agreement” under Note 15 “Related Party Transactions” to the Consolidated Financial Statements in this annual report on Form 10-K for a description of
these services. The services provided under the Shared Services Agreement (as may be amended from time to time) may not be sufficient to meet our needs and we
may not be able to replace these services at favorable costs and on favorable terms, if at all. In addition, Kellwood has experienced financial difficulty in the past.
For example, in 2009, Kellwood’s independent auditors raised substantial doubt regarding Kellwood’s ability to continue as a going concern. If Kellwood
encounters any issues during the transitional period which impact its ability to provide services pursuant to the Shared Services Agreement, our business could be
materially harmed. Any failure or significant downtime in our own financial or administrative systems or in Kellwood’s financial or administrative systems during
the transitional period and any difficulty in separating our assets from Kellwood’s assets and integrating newly acquired assets into our business could result in
unexpected costs, impact our results or prevent us from paying our suppliers and employees and performing other administrative services on a timely basis and
materially harm our business, financial condition, results of operations and cash flows.
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We are in the process of migrating our U .S. distribution system from Kellwood to a new third party provider. Problems with our distribution system , including
any disruption caused by the migration, could materially harm our ability to meet customer expectations, manage inventory, complete sale t ransactions and
achieve targeted operating efficiencies.
In the U.S., we historically relied on a distribution facility operated by Kellwood in City of Industry, California as part of the Shared Services Agreement. In
November 2015, we entered into a service agreement with a new third-party distribution provider in California and commenced the migration of the distribution
facility from Kellwood. Our ability to meet the needs of our wholesale partners and our own direct-to-consumer business depends on the proper operation of this
distribution facility. The migration of these services from Kellwood requires us to implement new system integrations and requires Kellwood to assist with the
migration. The migration commenced during the first quarter of 2016. Although we have implemented a migration schedule and Kellwood has agreed to assist us
through the process of migrating the rest of the business, there can be no assurance that the transition from Kellwood to the third party, including the completion of
such transition within our expected timeline, will be successful, and problems encountered in such transition, including significant chargebacks from our wholesale
partners and delays in shipments of merchandise to our customers, could have a material adverse effect on our business, financial condition, liquidity and results of
operations. We also have a warehouse in Belgium operated by a third-party logistics provider to support our wholesale orders for customers located primarily in
Europe.
Because substantially all of our products are distributed from one location, our operations could also be interrupted by labor difficulties, or by floods, fires,
earthquakes or other natural disasters near such facility. For example, a majority of our ocean shipments go through the ports in Los Angeles, which were recently
subject to significant processing delays due to labor issues involving the port workers. We maintain business interruption insurance. These policies, however, may
not adequately protect us from the adverse effects that could result from significant disruptions to our distribution system, including those that may arise from the
migration. If we encounter problems with any of our distribution systems, our ability to meet customer expectations, manage inventory, complete sales and achieve
targeted operating efficiencies could be harmed. Any of the foregoing factors could have a material adverse effect on our business, financial condition and
operating results.
Any disputes that arise between us and Kellwood with respect to our past and ongoing relationships could harm our business operations.
Disputes may arise between Kellwood and us in a number of areas relating to our past and ongoing relationships, including:
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intellectual property and technology matters;
labor, tax, employee benefit, indemnification and other matters arising from our separation from Kellwood;
employee retention and recruiting;
business combinations involving us;
the nature, quality and pricing of transitional services Kellwood has agreed to provide us; and
business opportunities that may be attractive to both Kellwood and us.
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated
party. As of March 31, 2016, affiliates of Sun Capital, who also control Kellwood, owned 55.2% of our common stock, which does not include the potential effects
of the rights offering. Additionally, Sun Cardinal, LLC, an affiliate of Sun Capital, has the right to designate a majority of our directors.
Our business depends on a strong brand image, and if we are not able to maintain or enhance our brand, particularly in new markets where we have limited
brand recognition, we may be unable to sell sufficient quantities of our merchandise, which would harm our business and cause our results of operations to
suffer.
We believe that maintaining and enhancing the Vince brand is critical to maintaining and expanding our customer base. Maintaining and enhancing our
brand may require us to make substantial investments in areas such as visual merchandising (including working with our wholesale partners to transform select
Vince displays into branded shop-in-shops), marketing and advertising, employee training and store operations. A primary component of our strategy involves
expanding into other geographic markets and working with existing wholesale partners, particularly within the U.S. We anticipate that, as our business expands into
new markets and further penetrates existing markets, and as the markets in which we operate become increasingly competitive, maintaining and enhancing our
brand may become increasingly difficult and expensive. Certain of our competitors in the fashion industry have faced adverse publicity surrounding the quality,
attributes and performance of their products. Our brand may similarly be adversely affected if our public image or reputation is tarnished by failing to maintain
high standards for merchandise quality and integrity. Any negative publicity about these types of concerns may reduce demand for our merchandise. Maintaining
and enhancing our brand will depend largely on our ability to be a leader in the contemporary fashion industry and to continue to provide high quality products. If
we are unable to maintain or enhance our brand image, our results of operations may suffer and our business may be harmed.
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A substantial portion of our revenue is derived from a small number of large wholesale partners, and the loss of any of these wholesale par tners could
substantially reduce our total revenue.
We have a small number of wholesale partners who account for a significant portion of our net sales. Net sales to the full-price, off-price and e-commerce
operations of our three largest wholesale partners were 43% of our total revenue for fiscal 2015. These partners include Nordstrom, Saks Fifth Avenue and Neiman
Marcus, each accounting for more than 10% of our total revenue for fiscal 2015. We do not have written agreements with any of our wholesale partners, and
purchases generally occur on an order-by-order basis. A decision by any of our major wholesale partners, whether motivated by marketing strategy, competitive
conditions, financial difficulties or otherwise, to significantly decrease the amount of merchandise purchased from us or our licensing partners, or to change their
manner of doing business with us or our licensing partners, could substantially reduce our revenue and have a material adverse effect on our profitability.
Furthermore, due to the concentration of our wholesale partner base, our results of operations could be adversely affected if any of these wholesale partners fails to
satisfy its payment obligations to us when due. During the past several years, the retail industry has experienced a great deal of ownership change, and we expect
such change will continue. In addition, store closings by our wholesale partners decrease the number of stores carrying our products, while the remaining stores
may purchase a smaller amount of our products and may reduce the retail floor space designated for our brand. In the future, retailers may further consolidate,
undergo restructurings or reorganizations, realign their affiliations or reposition their stores’ target markets. Any of these types of actions could decrease the
number of stores that carry our products or increase the ownership concentration within the retail industry. These changes could decrease our opportunities in the
market, increase our reliance on a diminishing number of large wholesale partners and decrease our negotiating strength with our wholesale partners. These factors
could have a material adverse effect on our business, financial condition and operating results.
We may not be able to successfully expand our wholesale partnership base or grow our presence with existing wholesale partners.
As part of our growth strategy, we intend to increase productivity and penetration with existing wholesale partners and form relationships with new,
international wholesale partners. These initiatives may include the expansion of floor space with existing partners or new partners through the growth of offerings
in new or under-developed product categories, such as handbags and men’s apparel, as well as the establishment of additional shop-in-shops within select
department stores. The location of Vince displays or shop-in-shops within department stores is controlled in large part by our wholesale partners. Although the
investments made by us and our wholesale partners in the development and installation of Vince displays and shop-in-shops decreases the risk that our wholesale
partners will require us to move to a less desirable area of their store or reduce the space allocated to such displays and shops, they are not contractually prohibited
from doing so or required to grant additional or more desirable space to us. While expanding our floor base as well as the number of shop-in-shops is part of our
growth strategy, there can be no assurances we will be able to align our wholesale partners with this strategy and continue to receive floor space from our wholesale
partners to open or expand shop-in-shops.
Our ability to attract customers to our stores depends heavily on successfully locating our stores in suitable locations and any impairment of a store location,
including any decrease in customer traffic, could cause our sales to be less than expected.
Our approach to identifying locations for our retail stores typically favors street and mall locations near luxury and contemporary retailers that we believe
are consistent with our key customers’ demographics and shopping preferences. Sales at these stores are derived, in part, from the volume of foot traffic in these
locations. Changes in areas around our existing retail locations that result in reductions in customer foot traffic or otherwise render the locations unsuitable could
cause our sales to be less than expected and the related leases are generally non-cancelable. Store locations may become unsuitable due to, and our sales volume
and customer traffic generally may be harmed by, among other things:
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economic downturns in a particular area;
competition from nearby retailers selling similar apparel or accessories;
changing consumer demographics in a particular market;
changing preferences of consumers in a particular market;
the closing or decline in popularity of other businesses located near our stores; and
store impairments due to acts of God or terrorism.
Our ability to successfully open and operate new retail stores depends on many factors, including, among others, our ability to:
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identify new markets where our products and brand image will be accepted or the performance of our retail stores will be successful;
obtain desired locations, including store size and adjacencies, in targeted malls or streets;
negotiate acceptable lease terms, including desired rent and tenant improvement allowances, to secure suitable store locations;
achieve brand awareness, affinity and purchase intent in the new markets;
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hire, train and retain store associates and field management;
assimilate new store associates and field management into our corporate culture;
source and supply sufficient inventory levels; and
successfully integrate new retail stores into our existing operations and information technology systems, which following our IPO in November
2013, have been provided by Kellwood under the terms of the Shared Services Agreement (as more fully described in – “Kellwood provides us with
certain key services for our business, which we are in the process of transitioning to our own systems and processes. If Kellwood fails to perform its
obligations to us during the period of transition or if we cannot successfully transition these services to our own systems, our business, financial
condition, results of operations and cash flows could be materially harmed.”)
As of January 30, 2016, we operated 48 stores, including 34 company-operated full-price stores and 14 company-operated outlet stores throughout the
United States. We plan to increase our store base over the next three to five years, including the expected openings of six new stores in fiscal 2016. Our new stores,
however, may not be immediately profitable and we may incur losses until these stores become profitable. Unavailability of desired store locations, delays in the
acquisition or opening of new stores, delays or costs resulting from a decrease in commercial development due to capital restraints, difficulties in staffing and
operating new store locations or a lack of customer acceptance of stores in new market areas may negatively impact our new store growth and the costs or the
profitability associated with new stores. There can be no assurance that we will open the planned number of stores in fiscal 2016 or thereafter. Any failure to
successfully open and operate new stores may adversely affect our business, financial condition and operating results.
As we expand our store base, we may be unable to achieve comparable store sales growth or grow average sales per square foot, which could cause our share
price to decline.
As we expand our store base, we may not be able to achieve comparable store sales growth or grow our historic average sales per square foot as we move
into new markets. If our future comparable store sales or average sales per square foot decline or fail to meet market expectations, the price of our common stock
could decline. In addition, the aggregate results of operations through our wholesale partners and at our retail locations have fluctuated in the past and can be
expected to continue to fluctuate in the future. A variety of factors affect both comparable store sales and average sales per square foot, including, among others,
consumer spending patterns, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new merchandise and
promotional events, changes in our product assortment, changing the timing or frequency of our merchandise deliveries, the success of marketing programs and
weather conditions. If we misjudge the market for our products, we may incur excess inventory for some of our products and miss opportunities for other products.
See – “If we are unable to accurately forecast customer demand for our products, our manufacturers may not be able to deliver products to meet our requirements,
and this could result in delays in the shipment of products to our stores, wholesale partners and e-commerce customers.” These factors may cause our comparable
store sales results and average sales per square foot in the future to be materially lower than recent periods or our expectations, which could harm our results of
operations and result in a decline in the price of our common stock.
System security risk issues as well as other major system failures could disrupt our internal operations or information technology services, and any such
disruption could negatively impact our net sales, increase our expenses and harm our reputation.
Experienced computer programmers and hackers, and even internal users, may be able to penetrate our network security and misappropriate our confidential
information or that of third parties, including our customers, create system disruptions or cause shutdowns. In addition, employee error, malfeasance or other errors
in the storage, use or transmission of any such information could result in a disclosure to third parties outside of our network. As a result, we could incur significant
expenses addressing problems created by any such inadvertent disclosure or any security breaches of our network. This risk is heightened because we collect and
store customer information and use certain customer information for our marketing purposes. In addition, we rely on third parties for the operation of our website,
www.vince.com
, and for the various social media tools and websites we use as part of our marketing strategy.
Consumers are increasingly concerned over the security of personal information transmitted over the internet, consumer identity theft and user privacy, and
any compromise of customer information could subject us to customer or government litigation and harm our reputation, which could adversely affect our business
and growth. Moreover, we could incur significant expenses or disruptions of our operations in connection with system failures or breaches. In addition,
sophisticated hardware and operating system software and applications that we procure form third parties may contain defects in design or manufacture, including
“bugs” and other problems that could unexpectedly interfere with the operation of our systems. The costs to us to eliminate or alleviate security problems, viruses
and bugs, or any problems associated with the outsourced services could be significant, and the efforts to address these problems could result in interruptions,
delays or cessation of service that may impede our sales, distribution or other critical functions. In addition to taking the necessary precautions ourselves, we
require that third-party service providers implement reasonable security measures to protect our customers’ identity and privacy. We do not, however, control these
third-party service providers and cannot guarantee that no electronic or physical computer break-ins and security breaches will occur in the future. We could also
incur significant costs in complying with the multitude of state, federal and foreign laws regarding the use and unauthorized disclosure of personal information,
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to the extent they are applicable . In the case of a disaster affecting our information technology systems, we may experience delays in recovery of data, inability to
perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support our opera tions and other breakdowns in normal
communication and operating procedures that could materially and adversely affect our financial condition and results of operations.
We have grown rapidly in recent years and we have limited operating experience as a team at our current scale of operations. If we are unable to manage our
operations at our current size or are unable to manage any future growth effectively, our business results and financial performance may suffer.
We have expanded our operations rapidly since our inception in 2002, and we have limited operating experience at our current size. We have made and are
making investments to support our near and longer-term growth. If our operations continue to grow over the longer term, of which there can be no assurance, we
will be required to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other
processes, and to obtain more space for our expanding administrative support and other headquarters personnel. Our further growth could strain our existing
resources, and we could experience operating difficulties, including obtaining sufficient raw materials at acceptable prices, securing manufacturing capacity to
produce our products and experiencing delays in production and shipments as well as insufficient distribution capacity. These difficulties would likely lead to a
decrease in net revenue, income from operations and the price of our common stock.
Our limited operating experience and brand recognition in international markets may delay our expansion strategy and cause our business and growth to
suffer.
We face risks with respect to our strategy to expand internationally, including our efforts to further expand our business in Canada, select European
countries, Asia and the Middle East through arrangements with international partners. Our current operations are based largely in the U.S., with international
wholesale sales representing approximately 10% of net sales for fiscal 2015. Therefore we have a limited number of customers and experience in operating outside
of the U.S. We also do not have extensive experience with regulatory environments and market practices outside of the U.S. and cannot guarantee, notwithstanding
our international partners’ familiarity with such environments and market practices, that we will be able to penetrate or successfully operate in any market outside
of the U.S. Many of these markets have different operational characteristics, including employment and labor regulations, transportation, logistics, real estate
(including lease terms) and local reporting or legal requirements. See – “Changes in laws, including employment laws and laws related to our merchandise, as well
as foreign laws, could make conducting our business more expensive or otherwise change the way we do business.”
Furthermore, consumer demand and behavior, as well as style preferences, size and fit, and purchasing trends, may differ in these markets and, as a result,
sales of our product may not be successful, or the margins on those sales may not be in line with those that we currently anticipate. In addition, in many of these
markets there is significant competition to attract and retain experienced and talented employees. Failure to develop new markets outside of the U.S. or
disappointing sales growth outside of the U.S. may harm our business and results of operations.
Our plans to improve and expand our product offerings may not be successful, and the implementation of these plans may divert our operational, managerial
and administrative resources, which could harm our competitive position and reduce our net revenue and profitability.
In addition to our store expansion strategy, we plan to grow our business by increasing our core product offerings, which includes expanding our men’s
collection and women’s bottoms, dresses and outerwear assortment and introducing new categories. We also plan to develop and introduce select new product
categories and may pursue select additional licensing opportunities such as eyewear, home and fashion accessories.
The principal risks to our ability to successfully carry out our plans to improve and expand our product offerings are that:
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if our expected product offerings fail to maintain and enhance our brand identity, our image may be diminished or diluted and our sales may
decrease;
if we fail to find and enter into relationships with external partners with the necessary specialized expertise or execution capabilities, we may be
unable to offer our planned product extensions or to realize the additional revenue we have targeted for those extensions; and
the use of licensing partners may limit our ability to conduct comprehensive final quality checks on merchandise before it is shipped to our stores or
to our wholesale partners.
In addition, our ability to successfully carry out our plans to improve and expand our product offerings may be affected by economic and competitive
conditions, changes in consumer spending patterns and changes in consumer preferences and style trends. These plans could be abandoned, could cost more than
anticipated and could divert resources from other areas of our business, any of which could impact our competitive position and reduce our net revenue and
profitability.
15
Our current and future licensing arrangements may not be successful and may make us susceptible to the actions of third parties over whom we have limited
control.
We currently have licensing agreements for women’s footwear and men’s footwear. In the future, we may enter into select additional licensing
arrangements for product offerings which require specialized expertise. We may also enter into select licensing agreements pursuant to which we may grant third
parties the right to distribute and sell our products in certain geographic areas. Although we have taken and will continue to take steps to select potential licensing
partners carefully and monitor the activities of our licensing partners (through, among other things, approval rights over product design, production quality,
packaging, merchandising, marketing, distribution and advertising), such arrangements may not be successful. Our licensing partners may fail to fulfill their
obligations under their license agreements or have interests that differ from or conflict with our own, such as the pricing of our products and the offering of
competitive products. In addition, the risks applicable to the business of our licensing partners may be different than the risks applicable to our business, including
risks associated with each such partner’s ability to:
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obtain capital;
exercise operational and financial control over its business;
maintain relationships with suppliers;
manage its credit and bankruptcy risks; and
maintain customer relationships.
Any of the foregoing risks, or the inability of any of our licensing partners to successfully market our products or otherwise conduct its business, may result
in loss of revenue and competitive harm to our operations in regions or product categories where we have entered into such licensing arrangements.
If we are unable to accurately forecast customer demand for our products, our manufacturers may not be able to deliver products to meet our requirements,
and this could result in delays in the shipment of products to our stores, wholesale partners and e-commerce customers.
We stock our stores, and provide inventory to our wholesale partners, based on our or their estimates of future demand for particular products. Our
inventory management and planning team determines the number of pieces of each product that we will order from our manufacturers based upon past sales of
similar products, sales trend information and anticipated demand at our suggested retail prices. However, if our inventory and planning team fails to accurately
forecast customer demand, we may experience excess inventory levels or a shortage of products. There can be no assurance that we will be able to successfully
manage our inventory at a level appropriate for future customer demand.
Factors that could affect our inventory management and planning team’s ability to accurately forecast customer demand for our products include:
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a substantial increase or decrease in demand for our products or for products of our competitors;
our failure to accurately forecast customer acceptance for our new products;
new product introductions or pricing strategies by competitors;
changes in our product items across seasonal fashion items and replenishment;
changes to our overall seasonal promotional cadence and the number and timing of promotional events;
more limited historical store sales information for our newer markets;
weakening of economic conditions or consumer confidence in the future, which could reduce demand for discretionary items, such as our products;
and
acts or threats of war or terrorism which could adversely affect consumer confidence and spending or interrupt production and distribution of our
products and our raw materials.
In fiscal 2015, we recorded a charge of $10,300 associated with inventory write-downs of excess and aged product inventory. We cannot guarantee that we
will be able to match supply with demand in all cases in the future, whether as a result of our inability to produce sufficient levels of desirable product or our failure
to forecast demand accurately. As a result of these inabilities or failures, we may in the future encounter further difficulties in filling customer orders or in
liquidating excess inventory at discount prices and may experience significant write-offs. Additionally, if we over-produce a product based on an aggressive
forecast of demand, retailers may not be able to sell the product and cancel future orders or require give backs. These outcomes could have a material adverse effect
on brand image and adversely impact sales, gross margins and profitability.
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Because of the recent turnover in our senior management team , including the Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), Chief
Creative Officer (“CCO”), and certain other members of our senior executive te am, our current senior management team includes several recent hires
(including a new permanent CEO and CFO ) and has limited experience working together as a group, and may not be able to manage our business effectively.
We have experienced significant turnover in our senior executive team in recent months, including the departure of our CEO, CFO, CCO and certain other
members of our senior executive team. In October 2015, we hired Brendan L. Hoffman as our new permanent CEO. Mark E. Brody, who served as our interim
CEO since September 2015, resigned but remained with the Company in a non-executive capacity through a transition period that ended on November 20, 2015. In
January 2016, David Stefko, who served as our interim CFO and Treasurer since September 1, 2015, was appointed as our permanent CFO. In connection with the
appointment, Mr. Stefko resigned from his position at Sun Capital from which he was on leave of absence during his appointment as our interim CFO and
Treasurer.
Because of the recent management restructuring, the members of our senior management team have been with us for less than one year. As a result, our
current senior management team has limited experience working at the Company and working together as a group. This lack of experience working at the Company
and as a group could negatively impact our senior management team’s ability to quickly and efficiently respond to problems and effectively manage our business.
If our management team is not able to work effectively either individually or as together as a group, our results of operations may suffer and our business may be
harmed.
If we lose any key personnel, are unable to attract key personnel, or assimilate and retain our key personnel, we may not be able to successfully operate
or grow our business.
Our continued success is dependent on our ability to attract, assimilate, retain and motivate qualified management, designers, administrative talent and sales
associates to support existing operations and future growth. Competition for qualified talent in the apparel and fashion industry is intense, and we compete for these
individuals with other companies that in many cases have greater financial and other resources. The loss of the services of any members of senior management or
the inability to attract and retain qualified executives, including our new CEO and CFO, could have a material adverse effect on our business, results of operations
and financial condition. In addition, we will need to continue to attract, assimilate, retain and motivate highly talented employees with a range of other skills and
experience, especially at the store management levels. Although we have hired and trained new store managers and experienced sales associates at several of our
retail locations, competition for employees in our industry is intense and we may from time to time experience difficulty in retaining our associates or attracting the
additional talent necessary to support the growth of our business. These problems could be exacerbated as we embark on our strategy of opening new retail stores
over the next several years. We will also need to attract, assimilate and retain other professionals across a range of disciplines, including design, production,
sourcing and international business, as we develop new product categories and continue to expand our international presence. Furthermore, we will need to
continue to recruit employees to provide, or enter into consulting or outsourcing arrangements with respect to the provision of, services provided by Kellwood
under the Shared Services Agreement when Kellwood no longer provides such services thereunder. In addition, in November 2015, we entered into agreements
with consultants who provide consulting services to oversee the Company’s product, merchandising and creative efforts. If we are unable to attract, assimilate and
retain our employees with the necessary skills and experience, or if any of the consultants chooses to terminate his or her agreement pursuant to the terms therein,
we may not be able to grow or successfully operate our business, which would have an adverse impact on our results.
Our competitive position could suffer if our intellectual property rights are not protected.
We believe that our trademarks and designs are of great value. From time to time, third parties have challenged, and may in the future try to challenge, our
ownership of our intellectual property. In some cases, third parties with similar trademarks or other intellectual property may have pre-existing and potentially
conflicting trademark registrations. We rely on cooperation from third parties with similar trademarks to be able to register our trademarks in jurisdictions in which
such third parties have already registered their trademarks. We are susceptible to others imitating our products and infringing our intellectual property rights.
Imitation or counterfeiting of our products or infringement of our intellectual property rights could diminish the value of our brands or otherwise adversely affect
our revenues. The actions we have taken to establish and protect our trademarks and other intellectual property rights may not be adequate to prevent imitation of
our products by others or to prevent others from seeking to invalidate our trademarks or block sales of our products as a violation of the trademarks and intellectual
property rights of others. In addition, others may assert rights in, or ownership of, our trademarks and other intellectual property rights or in similar marks or marks
that we license and/or market and we may not be able to successfully resolve these conflicts to our satisfaction. We may need to resort to litigation to enforce our
intellectual property rights, which could result in substantial costs and diversion of resources. Successful infringement claims against us could result in significant
monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign our products, license rights from
third parties or cease using those rights altogether. Any of these events could harm our business and cause our results of operations, liquidity and financial
condition to suffer.
We license our website domain name from a third-party. Pursuant to the license agreement (the “Domain License Agreement”), our license to use
www.vince.com
will expire in 2018 and will automatically renew for successive one year periods, subject to our
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rig ht to terminate the arrangement with or without cause; provided, that we must pay the applicable early termination fee and provide 30 days prior notice in
connection with a termination without cause. The licensor has no termination rights under the Domain License Agreement. Any failure by the licensor to perform
its obligations under the License Agreement could adversely affect our brand and make it more difficult for users to find our website.
Our goodwill and indefinite lived intangible assets could become impaired, which may require us to take significant non-cash charges against earnings.
In accordance with Financial Accounting Standards Board ASC Topic 350 Intangibles-Goodwill and Other (“ASC 350”), goodwill and other indefinite-
lived intangible assets are tested for impairment at least annually during the fourth fiscal quarter and in an interim period if a triggering event occurs. Determining
the fair value of goodwill and other intangible assets is judgmental in nature and requires the use of significant estimates and assumptions, including revenue
growth rates and operating margins, discount rates and future market conditions, among others. It is possible that estimates of future operating results could change
adversely and impact the evaluation of the recoverability of the carrying value of goodwill and intangible assets and that the effect of such changes could be
material. There can be no assurances that we will not be required to record a charge in our financial statements which would negatively impact our results of
operations during the period in which any impairment of our goodwill or intangible assets is determined.
The extent of our foreign sourcing may adversely affect our business.
Our products are primarily produced by, and purchased or procured from, independent manufacturing contractors located outside of the U.S., with
approximately 97% of our total inventory purchases for fiscal 2015 attributable to manufacturing contractors located outside of the U.S. These manufacturing
contractors are located mainly in countries in Asia and South America, with approximately 89% of our purchases for fiscal 2015 attributable to manufacturing
contractors located in China. A manufacturing contractor’s failure to ship products to us in a timely manner or to meet the required quality standards could cause us
to miss the delivery date requirements of our customers for those items. The failure to make timely deliveries may cause customers to cancel orders, refuse to
accept deliveries or demand reduced prices, any of which could have a material adverse effect on us. As a result of the magnitude of our foreign sourcing, our
business is subject to the following risks:
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political and economic instability in countries or regions, especially Asia, including heightened terrorism and other security concerns, which could
subject imported or exported goods to additional or more frequent inspections, leading to delays in deliveries or impoundment of goods;
imposition of regulations, quotas and other trade restrictions relating to imports, including quotas imposed by bilateral textile agreements between
the U.S. and foreign countries;
imposition of increased duties, taxes and other charges on imports;
labor union strikes at ports through which our products enter the U.S.;
labor shortages in countries where contractors and suppliers are located;
a significant decrease in availability or an increase in the cost of raw materials;
restrictions on the transfer of funds to or from foreign countries;
disease epidemics and health-related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or
embargoing of goods produced in infected areas;
the migration and development of manufacturing contractors, which could affect where our products are or are planned to be produced;
increases in the costs of fuel, travel and transportation;
reduced manufacturing flexibility because of geographic distance between our foreign manufacturers and us, increasing the risk that we may have to
mark down unsold inventory as a result of misjudging the market for a foreign-made product; and
violations by foreign contractors of labor and wage standards and resulting adverse publicity.
If these risks limit or prevent us from manufacturing products in any significant international market, prevent us from acquiring products from foreign
suppliers, or significantly increase the cost of our products, our operations could be seriously disrupted until alternative suppliers are found or alternative markets
are developed, which could negatively impact our business.
We do not have written agreements with any of our third-party manufacturing contractors. As a result, any single manufacturing contractor could
unilaterally terminate its relationship with us at any time. Our top five manufacturers accounted for the production of approximately 45% of our finished products
during fiscal 2015. Supply disruptions from these manufacturers (or any of our other manufacturers) could have a material adverse effect on our ability to meet
customer demands, if we are unable to source suitable replacement materials at acceptable prices or at all. Our inability to promptly replace manufacturing
contractors that terminate their relationships with us or cease to provide high quality products in a timely and cost-efficient manner could have a material adverse
effect on our business, financial condition and operating results.
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Fluctuations in the price, availability and quality of raw materials could cause delays and increase costs and cause our operating results and financial
condition to suffer.
Fluctuations in the price, availability and quality of the fabrics or other raw materials, particularly cotton, silk, leather and synthetics used in our
manufactured apparel, could have a material adverse effect on cost of sales or our ability to meet customer demands. The prices of fabrics depend largely on the
market prices of the raw materials used to produce them. The price and availability of the raw materials and, in turn, the fabrics used in our apparel may fluctuate
significantly, depending on many factors, including crop yields, weather patterns, labor costs and changes in oil prices. We may not be able to create suitable
design solutions that utilize raw materials with attractive prices or, alternatively, to pass higher raw materials prices and related transportation costs on to our
customers. We are not always successful in our efforts to protect our business from the volatility of the market price of raw materials, and our business can be
materially affected by dramatic movements in prices of raw materials. The ultimate effect of this change on our earnings cannot be quantified, as the effect of
movements in raw materials prices on industry selling prices are uncertain, but any significant increase in these prices could have a material adverse effect on our
business, financial condition and operating results.
Our reliance on independent manufacturers could cause delays or quality issues which could damage customer relationships.
We use independent manufacturers to assemble or produce all of our products, whether inside or outside the U.S. We are dependent on the ability of these
independent manufacturers to adequately finance the production of goods ordered and maintain sufficient manufacturing capacity. The use of independent
manufacturers to produce finished goods and the resulting lack of direct control could subject us to difficulty in obtaining timely delivery of products of acceptable
quality. We generally do not have long-term contracts with any independent manufacturers. Alternative manufacturers, if available, may not be able to provide us
with products or services of a comparable quality, at an acceptable price or on a timely basis. We may also, from time to time, make a decision to enter into a
relationship with a new manufacturer. Identifying a suitable supplier is an involved process that requires us to become satisfied with their quality control,
responsiveness and service, financial stability and labor and other ethical practices. There can be no assurance that there will not be a disruption in the supply of our
products from independent manufacturers or that any new manufacturer will be successful in producing our products in a manner we expected. In the event of any
disruption with a manufacturer, we may not be able to substitute suitable alternative manufacturers in a timely manner. The failure of any independent
manufacturer to perform or the loss of any independent manufacturer could have a material adverse effect on our business, results of operations and financial
condition.
If our independent manufacturers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due
to negative publicity.
We have established and currently maintain operating guidelines which promote ethical business practices such as fair wage practices, compliance with
child labor laws and other local laws. While we monitor compliance with those guidelines, we do not control our independent manufacturers or their business
practices. Accordingly, we cannot guarantee their compliance with our guidelines. A lack of demonstrated compliance could lead us to seek alternative suppliers,
which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.
Violation of labor or other laws by our independent manufacturers or the divergence of an independent manufacturer’s labor or other practices from those
generally accepted as ethical in the U.S. or other markets in which we do business could also attract negative publicity for us and our brand. From time to time, our
audit results have revealed a lack of compliance in certain respects, including with respect to local labor, safety and environmental laws. Other fashion companies
have faced criticism after highly-publicized incidents or compliance issues have occurred or been exposed at factories producing their products. To the extent our
manufacturers do not bring their operations into compliance with such laws or resolve material issues identified in any of our audit results, we may face similar
criticism and negative publicity. This could diminish the value of our brand image and reduce demand for our merchandise. In addition, other fashion companies
have encountered organized boycotts of their products in such situations. If we, or other companies in our industry, encounter similar problems in the future, it
could harm our brand image, stock price and results of operations.
Monitoring compliance by independent manufacturers is complicated by the fact that expectations of ethical business practices continually evolve, may be
substantially more demanding than applicable legal requirements and are driven in part by legal developments and by diverse groups active in publicizing and
organizing public responses to perceived ethical shortcomings. Accordingly, we cannot predict how such expectations might develop in the future and cannot be
certain that our guidelines would satisfy all parties who are active in monitoring and publicizing perceived shortcomings in labor and other business practices
worldwide.
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Our operating results are subject to seasonal and quarterly variations in our net revenue and income from operations, which could cause the price o f our
common stock to decline.
We have experienced, and expect to continue to experience, seasonal variations in our net revenue and income from operations. Seasonal variations in our
net revenue are primarily related to increased sales of our products during our fiscal third and fourth quarters, reflecting our historical strength in sales during the
fall and holiday seasons. Historically, seasonable variations in our income from operations have been driven principally by increased net revenue in such fiscal
quarters.
Our rapid growth may have overshadowed whatever seasonal or cyclical factors might have influenced our business to date. In addition, as our revenue mix
evolves over time to include more sales from additional retail stores, we may see an increase in the percentage of sales occurring during the fourth quarter. Such
seasonal or cyclical variations in our business may harm our results of operations in the future, if we do not plan inventory appropriately, if customer shopping
patterns fluctuate during such seasonal periods or if bad weather during the fourth quarter constrains shopping activity.
Any future seasonal or quarterly fluctuations in our results of operations may not match the expectations of market analysts and investors to assess the
longer-term profitability and strength of our business at any particular point, which could lead to increased volatility in our stock price. Increased volatility could
cause our stock price to suffer in comparison to less volatile investments.
We are subject to risks associated with leasing retail and office space, are generally subject to long-term non-cancelable leases and are required to make
substantial lease payments under our operating leases, and any failure to make these lease payments when due would likely harm our business, profitability
and results of operations.
We do not own any of our stores, or our offices including our New York and Los Angeles offices, or our showroom space in Paris but instead lease all of
such space under operating leases. Our leases generally have initial terms of 10 years, and generally can be extended only for one additional 5-year term. All of our
leases require a fixed annual rent, and most require the payment of additional rent if store sales exceed a negotiated amount. Most of our leases are “net” leases,
which require us to pay all of the cost of insurance, taxes, maintenance and utilities, and we generally cannot cancel these leases at our option. Additionally, certain
of our leases allow the lessor to terminate the lease if we do not achieve a specified gross sales threshold. We have experienced circumstances in the past where
landlords have attempted to invoke these contractual provisions. Although we believe we will achieve the required threshold to continue those leases, we cannot
assure you that we will do so. Any loss of our store locations due to underperformance may harm our results of operations, stock price and reputation.
Payments under these leases account for a significant portion of our selling, general and administrative expenses. For example, as of January 30, 2016, we
were a party to 59 operating leases associated with our retail stores and our office and showroom spaces requiring future minimum lease payments of $20,083 in
the aggregate through fiscal 2016 and approximately $149,284 thereafter. Any new retail stores leased by us under operating leases will further increase our
operating lease expenses and require significant capital expenditures. Our substantial operating lease obligations could have significant negative consequences,
including, among others:
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increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing;
requiring a substantial portion of our available cash to pay our rental obligations, thus reducing cash available for other purposes;
limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete; and
placing us at a disadvantage with respect to some of our competitors.
We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not generate sufficient cash flow
from operating activities, and sufficient funds are not otherwise available to us from borrowings under our credit facilities or from other sources, we may not be
able to service our operating lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which would harm
our business.
In addition, additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. If an existing or future store is not profitable,
and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base
rent for the balance of the lease term if we cannot negotiate a mutually acceptable termination payment. In addition, as our leases expire, we may fail to negotiate
renewals, either on commercially acceptable terms or at all, which could cause us to close stores in desirable locations or incur costs in relocating our office space.
One of our existing leases will expire in fiscal 2016. If we are unable to enter into new leases or renew existing leases on terms acceptable to us or be released from
our obligations under leases for stores that we close, our business, profitability and results of operations may be harmed.
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Changes in laws, including employment laws and laws related to our merchandise, as we ll as foreign laws, could make conducting our business more
expensive or otherwise change the way we do business.
We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising, consumer protection, and zoning and occupancy
laws and ordinances that regulate retailers generally or govern the importation, promotion and sale of merchandise and the operation of stores and warehouse
facilities. If these regulations were to change or were violated by our management, employees, vendors, independent manufacturers or partners, the costs of certain
goods could increase, or we could experience delays in shipments of our products, be subject to fines or penalties, or suffer reputational harm, which could reduce
demand for our merchandise and hurt our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of business more expensive or require us to
change the way we do business. For example, changes in federal and state minimum wage laws could raise the wage requirements for certain of our employees at
our retail locations, which would increase our selling costs and may cause us to reexamine our wage structure for such employees. Other laws related to employee
benefits and treatment of employees, including laws related to limitations on employee hours, supervisory status, leaves of absence, mandated health benefits,
overtime pay, unemployment tax rates and citizenship requirements, could negatively impact us, by increasing compensation and benefits costs which would in
turn reduce our profitability.
Moreover, changes in product safety or other consumer protection laws could lead to increased costs to us for certain merchandise, or additional labor costs
associated with readying merchandise for sale. It is often difficult for us to plan and prepare for potential changes to applicable laws and future actions or payments
related to such changes could be material to us.
In addition, in August 2015, we established a branch of Vince, LLC in France and became subject to French laws including tax and corporate laws. We are
in the early stages of complying with the applicable laws relating to our French branch. If we fail to comply with some or all of these laws, we may be subject to
fines or penalties that could negatively impact our business and results of operations.
We are required to pay to the Pre-IPO Stockholders 85% of certain tax benefits, and could be required to make substantial cash payments in which our
stockholders will not participate.
We entered into a Tax Receivable Agreement with the Pre-IPO Stockholders in connection with the IPO and Restructuring Transactions which closed on
November 27, 2013. Under the Tax Receivable Agreement, we will be obligated to pay to the Pre-IPO Stockholders an amount equal to 85% of the cash savings in
federal, state and local income tax realized by us by virtue of our future use of the federal, state and local net operating losses (“NOLs”) held by us as of
November 27, 2013, together with section 197 intangible deductions (collectively, the “Pre-IPO Tax Benefits”). “Section 197 intangible deductions” means
amortization deductions with respect to certain amortizable intangible assets which are held by us and our subsidiaries immediately after November 27, 2013. Cash
tax savings generally will be computed by comparing our actual federal, state and local income tax liability to the amount of such taxes that we would have been
required to pay had such Pre-IPO Tax Benefits not been available to us. While payments made under the Tax Receivable Agreement will depend upon a number of
factors, including the amount and timing of taxable income we generate in the future and any future limitations that may be imposed on our ability to use the Pre-
IPO Tax Benefits, the payments could be substantial. Assuming the federal, state and local corporate income tax rates presently in effect, no material change in
applicable tax law and no limitation on our ability to use the Pre-IPO Tax Benefits under Section 382 of the U.S. Internal Revenue Code, as amended (the “Code”),
the estimated cash benefit of the full use of these Pre-IPO Tax Benefits as of January 30, 2016 would be approximately $203,602, of which 85%, or approximately
$173,062 plus accrued interest, is potentially payable to the Pre-IPO Stockholders under the terms of the Tax Receivable Agreement. As of January 30, 2016,
$169,913, plus accrued interest, is currently outstanding. Accordingly, the Tax Receivable Agreement could require us to make substantial cash payments.
Although we are not aware of any issue that would cause the U.S. Internal Revenue Service (the “IRS”) to challenge any tax benefits arising under the Tax
Receivable Agreement, the affiliates of Sun Capital will not reimburse us for any payments previously made if such benefits subsequently were disallowed,
although the amount of any tax savings subsequently disallowed will reduce any future payment otherwise owed to the Pre-IPO Stockholders. For example, if our
determinations regarding the applicability (or lack thereof) and amount of any limitations on the NOLs under Section 382 of the Code were to be successfully
challenged by the IRS after payments relating to such NOLs had been made to the Pre-IPO Stockholders, we would not be reimbursed by the Pre-IPO Stockholders
and our recovery would be limited to the extent of future payments (if any) otherwise remaining under the Tax Receivable Agreement. As a result, in such
circumstances we could make payments to the Pre-IPO Stockholders under the Tax Receivable Agreement in excess of our actual cash tax savings. Furthermore,
while we will generally only make payments under the Tax Receivable Agreement after we have recognized a cash flow benefit from the utilization of the Pre-IPO
Tax Benefits (other than upon a change of control or other acceleration event), the payments required under the agreement could require us to use a substantial
portion of our cash from operations for those purposes.
At the effective date of the Tax Receivable Agreement, the liability recognized was accounted for in our financial statements as a reduction of additional
paid-in capital. Subsequent changes in the Tax Receivable Agreement liability will be recorded through earnings. Even if the NOLs are available to us, the Tax
Receivable Agreement will operate to transfer 85% of the benefit to the Pre-
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IPO Stockholders. Additionally, the payments we make to the Pre-IPO Stockholders under the Tax Receivable Agreement are not expected to give rise to any
incidental tax benefits to us, such as ded uctions or an adjustment to the basis of our assets.
Federal and state laws impose substantial restrictions on the utilization of NOL carry-forwards in the event of an “ownership change,” as defined in
Section 382 of the Code. Under the rules, such an ownership change is generally any change in ownership of more than 50 percent of a company’s stock within a
rolling three-year period, as calculated in accordance with the rules. The rules generally operate by focusing on changes in ownership among stockholders
considered by the rules as owning directly or indirectly 5% or more of the stock of the company and any change in ownership arising from new issuances of stock
by the company.
While we have performed an analysis under Section 382 of the Code that indicates the IPO and Restructuring Transactions would not constitute an
ownership change, such technical guidelines are complex and subject to significant judgment and interpretation. With the IPO and Restructuring Transactions and
other transactions that have occurred over the past three years, we may trigger or have already triggered an “ownership change” limitation. We may also experience
ownership changes in the future as a result of subsequent shifts in stock ownership. As a result, if we earn net taxable income, our ability to use the pre-change
NOL carry-forwards (after giving effect to payments to be made to the Pre-IPO Stockholders under the Tax Receivable Agreement) to offset U.S. federal taxable
income may be subject to limitations, which could potentially result in increased future tax liability to us. Notwithstanding the foregoing, our analysis to date under
Section 382 of the Code indicates that the IPO Restructuring Transactions have not triggered an “ownership change” limitation.
If we did not enter into the Tax Receivable Agreement, we would be entitled to realize the full economic benefit of the Pre-IPO Tax Benefits, to the extent
allowed by federal, state and local law, including Section 382 of the Code. Subject to exceptions, the Tax Receivable Agreement is designed with the objective of
causing our annual cash costs attributable to federal state and local income taxes (without regard to our continuing 15% interest in the Pre-IPO Tax Benefits) to be
the same as we would have paid had we not had the Pre-IPO Tax Benefits available to offset our federal, state and local taxable income. As a result, we will not be
entitled to the economic benefit of the Pre-IPO Tax Benefits that would have been available if the Tax Receivable Agreement were not in effect (except to the
extent of our continuing 15% interest in the Pre-IPO Tax Benefits).
In certain cases, payments under the Tax Receivable Agreement to the Pre-IPO Stockholders may be accelerated and/or significantly exceed the actual benefits
we realize in respect of the Pre-IPO Tax Benefits.
Upon the election of an affiliate of Sun Capital to terminate the Tax Receivable Agreement pursuant to a change in control (as defined in the Tax Receivable
Agreement) or upon our election to terminate the Tax Receivable Agreement early, all of our payment and other obligations under the Tax Receivable Agreement
will be accelerated and will become due and payable. Additionally, the Tax Receivable Agreement provides that in the event that we breach any of our material
obligations under the Tax Receivable Agreement by operation of law as a result of the rejection of the Tax Receivable Agreement in a case commenced under Title
11 of the United States Code (the “Bankruptcy Code”) then all of our payment and other obligations under the Tax Receivable Agreement will be accelerated and
will become due and payable.
In the case of any such acceleration, we would be required to make an immediate payment equal to 85% of the present value of the tax savings represented
by any portion of the Pre-IPO Tax Benefits for which payment under the Tax Receivable Agreement has not already been made, which upfront payment may be
made years in advance of the actual realization of such future benefits. Such payments could be substantial and could exceed our actual cash tax savings from the
Pre-IPO Tax Benefits. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could
have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. There can be no
assurance that we will have sufficient cash available or that we will be able to finance our obligations under the Tax Receivable Agreement.
If we were to elect to terminate the Tax Receivable Agreement, based on a discount rate equal to monthly LIBOR plus 200 basis points, we estimate that as
of January 30, 2016 we would be required to pay approximately $154,621 in the aggregate under the Tax Receivable Agreement.
We could incur significant costs in complying with environmental, health and safety laws or as a result of satisfying any liability or obligation imposed under
such laws.
Our operations are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. We could be held liable for the
costs to address contamination of any real property ever owned, operated or used as a disposal site. In addition, in the event that Kellwood becomes financially
incapable of addressing the environmental liability incurred prior to the structural reorganization separating Kellwood from Vince that occurred on November 27,
2013, a third party may file suit and attempt to allege that Kellwood and Vince engaged in a fraudulent transfer by arguing that the purpose of the separation of the
non-Vince assets from Vince Holding Corp. was to insulate our assets from the environmental liability. For example, pursuant to a Consent Decree with the U.S.
Environmental Protection Agency (“EPA”) and the State of Missouri, a non-Vince subsidiary, which was separated from us in the Restructuring Transactions, is
conducting a cleanup of contamination at the site of a plant in New Haven, Missouri, which occurred between 1973 and 1985. Kellwood has posted a letter of credit
in the amount of approximately $5,900 as a
22
performance guarantee for the estimated cost of the required remediation work. If, despite the financial assurance provided by Kellwood as required by the EPA,
Kellwood became financially unable to address this remediation, and if the corporate separateness of Vince is disregarded or if a fraudulent transfer is found to
have occurred, we could be liable for the full amount of the remediation. If this were to occur or if we were to become liable for other environmental liabilities or
obligations, it could have a material adverse effect on our business, financial condition or results of operations.
We will continue to incur significant expenses as a result of being a public company, which will negatively impact our financial performance and could cause
our results of operations and financial condition to suffer.
We will continue to incur significant legal, accounting, insurance, share-based compensation and other expenses as a result of being a public company. The
Sarbanes-Oxley Act, as well as related rules implemented by the SEC and the securities regulators and by the NYSE, have required changes in corporate
governance practices of public companies. We expect that compliance with these laws, rules and regulations, including compliance with Section 404(b) of the
Sarbanes-Oxley Act once we are no longer an emerging growth company, will substantially increase our expenses, including our legal and accounting costs, and
make some activities more time-consuming and costly. We invest resources to comply with evolving laws, regulations and standards, and this investment could
result in increased general and administrative expenses and may divert management’s time and attention from product development activities. If our efforts to
comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice,
regulatory authorities may initiate legal proceedings against us and our business may be harmed. In connection with our IPO, we increased our directors’ and
officers’ insurance coverage, which increased our insurance cost. In the future, it will be more expensive for us to obtain director and officer liability insurance, and
we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to
attract and retain qualified members of our board of directors and qualified executive officers.
Our operations are restricted by our credit facilities.
We entered into the Revolving Credit Facility and the Term Loan Facility, in each case as amended, in connection with the IPO and Restructuring
Transactions which closed on November 27, 2013. Our facilities contain significant restrictive covenants. These covenants may impair our financing and
operational flexibility and make it difficult for us to react to market conditions and satisfy our ongoing capital needs and unanticipated cash requirements.
Specifically, such covenants will likely restrict our ability and, if applicable, the ability of our subsidiaries to, among other things:
·
·
·
·
·
·
·
·
·
·
·
incur additional debt;
make certain investments and acquisitions;
enter into certain types of transactions with affiliates;
use assets as security in other transactions;
pay dividends;
sell certain assets or merge with or into other companies;
guarantee the debt of others;
enter into new lines of businesses;
make capital expenditures;
prepay, redeem or exchange our debt; and
form any joint ventures or subsidiary investments.
Our ability to comply with the covenants and other terms of our debt obligations will depend on our future operating performance. If we fail to comply with
such covenants and terms, we would be required to obtain waivers from our lenders to maintain compliance with our debt obligations. If we are unable to obtain
any necessary waivers and the debt is accelerated, a material adverse effect on our financial condition and future operating performance would likely result. The
terms of our debt obligations and the amount of borrowing availability under our facilities may restrict or delay our ability to fulfill our obligations under the Tax
Receivable Agreement. In accordance with the terms of the Tax Receivable Agreement, delayed or unpaid amounts thereunder would accrue interest at a default
rate of one-year LIBOR plus 500 basis points until paid. Our obligations under the Tax Receivable Agreement could result in a failure to comply with covenants or
financial ratios required by our debt financing agreements and could result in an event of default under such a debt financing. See “Tax Receivable Agreement”
under Note 15 “Related Party Transactions” to the Consolidated Financial Statements in this annual report on Form 10-K for further information.
The Company had expected to make a required payment under the Tax Receivable Agreement in the fourth quarter of fiscal 2015. As a result of lower than
expected cash from operations due to weaker than projected performance, and the level of projected availability under the Revolving Credit Facility, we concluded
that we would not be able to fund the payment when due. Accordingly, on September 1, 2015, we entered into an amendment to the Tax Receivable Agreement
with Sun Cardinal, LLC, an affiliate of Sun Capital, for itself and as a representative of the other stockholders parties thereto. Pursuant to this amendment, Sun
Cardinal agreed to postpone payment of the tax benefit with respect to the 2014 taxable year, currently estimated at $21,762 plus accrued interest, to September 15,
2016. We will use a portion of the proceeds from the rights offering, which commenced on March 29, 2016 and expired
23
on April 14, 2016 at 5:00 p.m. New York City time. The amendment to the Tax Receivable Agreement also waived the application of a default interest rate at
LIBOR plus 500 basis points per annum on the postponed payment. The interest rate on the postponed payment will remain at LIBOR plus 200 basis points pe r
annum.
Risks Related to Our Structure and Ownership
We are a “controlled company,” controlled by investment funds advised by affiliates of Sun Capital, whose interests in our business may be different from
yours.
Affiliates of Sun Capital owned 55.2% of our outstanding common stock as of March 31, 2016, which does not include the potential effects of the rights
offering. As such, affiliates of Sun Capital will, for the foreseeable future, have significant influence over our reporting and corporate management and affairs, and
will be able to control virtually all matters requiring stockholder approval. For so long as affiliates of Sun Capital own 30% or more of our outstanding shares of
common stock, Sun Cardinal, LLC, an affiliate of Sun Capital, will have the right to designate a majority of our board of directors. For so long as affiliates of Sun
Capital have the right to designate a majority of our board of directors, the directors designated by affiliates of Sun Capital are expected to constitute a majority of
each committee of our board of directors, other than the Audit Committee, and the chairman of each of the committees, other than the Audit Committee, is
expected to be a director serving on such committee who is designated by affiliates of Sun Capital, provided that, at such time as we are not a “controlled
company” under the NYSE corporate governance standards, our committee membership will comply with all applicable requirements of those standards and a
majority of our board of directors will be “independent directors,” as defined under the rules of the NYSE (subject to applicable phase-in rules).
As a “controlled company,” the rules of the NYSE exempt us from the obligation to comply with certain corporate governance requirements, including the
requirements that a majority of our board of directors consists of “independent directors,” as defined under such rules, and that we have nominating and corporate
governance and compensation committees that are each composed entirely of independent directors. These exemptions do not modify the requirement for a fully
independent audit committee, which we have. Similarly, once we are no longer a “controlled company,” we must comply with the independent board committee
requirements as they relate to the nominating and corporate governance and compensation committees, which are permitted to be phased-in as follows: (1) one
independent committee member on the date we cease to be a “controlled company”; (2) a majority of independent committee members within 90 days of such date;
and (3) all independent committee members within one year of such date. Additionally, we will have 12 months from the date we cease to be a “controlled
company” to have a majority of independent directors on our board of directors.
Affiliates of Sun Capital control actions to be taken by us, our board of directors and our stockholders, including amendments to our amended and restated
certificate of incorporation and amended and restated bylaws and approval of significant corporate transactions, including mergers and sales of substantially all of
our assets. The directors designated by affiliates of Sun Capital have the authority, subject to the terms of our indebtedness and the rules and regulations of the
NYSE, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. The NYSE independence standards are
intended to ensure that directors who meet the independence standard are free of any conflicting interest that could influence their actions as directors. Our
amended and restated certificate of incorporation provides that the doctrine of “corporate opportunity” does not apply against Sun Capital or its affiliates, or any of
our directors who are associates of, or affiliated with, Sun Capital, in a manner that would prohibit them from investing in competing businesses or doing business
with our partners or customers. It is possible that the interests of Sun Capital and its affiliates may in some circumstances conflict with our interests and the
interests of our other stockholders, including you. For example, Sun Capital may have different tax positions from other stockholders which could influence their
decisions regarding whether and when we should dispose of assets, whether and when we should incur new or refinance existing indebtedness, especially in light of
the existence of the Tax Receivable Agreement, and whether and when we should terminate the Tax Receivable Agreement and accelerate our obligations
thereunder. In addition, the structuring of future transactions may take into consideration tax or other considerations of Sun Capital and its affiliates even where no
similar benefit would accrue to us. See “Tax Receivable Agreement” under Note 15 “Related Party Transactions” to the Consolidated Financial Statements in this
annual report on Form 10-K for additional information.
We are a holding company and we are dependent upon distributions from our subsidiaries to pay dividends, taxes and other expenses.
Vince Holding Corp. is a holding company with no material assets other than its ownership of membership interests in Vince Intermediate Holding, LLC, a
holding company that has no material assets other than its interest in Vince, LLC. Neither Vince Holding Corp. nor Vince Intermediate Holding, LLC have any
independent means of generating revenue. To the extent that we need funds, for a cash dividend to holders of our common stock or otherwise, and Vince
Intermediate Holding, LLC or Vince, LLC is restricted from making such distributions under applicable law or regulation or is otherwise unable to provide such
funds, it could materially adversely affect our liquidity and financial condition.
We file consolidated income tax returns on behalf of Vince Holding Corp. and Vince Intermediate Holding, LLC. Most of our future tax obligations will
likely be attributed to the operations of Vince, LLC. Accordingly, most of the payments against the Tax Receivable Agreement will be attributed to the operations
of Vince, LLC. We intend to cause Vince, LLC to pay distributions or make
24
funds available to us in an amount sufficient to allow us to pay our taxes and any payments due to certain of our stockholders under the Tax Receivable Agreement.
If, as a consequence of these various limitations and restrictions, we do not have sufficient funds to pay tax or other liabilities, we may have to borrow funds and
thus our liquidity and financial condition could be materially adversely affected. To the extent that we are unable to make payments under the Tax Receivable Agre
ement for any reason, such payments will be deferred and will accrue interest at a default rate of one-year LIBOR plus 500 basis points until paid. See “Tax
Receivable Agreement” under Note 15 “Related Party Transactions” to the Consolidated Financial Stat ements in this annual report on Form 10-K for more
information regarding the terms of the Tax Receivable Agreement.
Anti-takeover provisions of Delaware law and our amended and restated certificate of incorporation and bylaws could delay and discourage takeover attempts
that stockholders may consider to be favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make the acquisition of our Company
more difficult without the approval of our board of directors. These provisions include:
·
·
·
·
·
·
·
the classification of our board of directors so that not all members of our board of directors are elected at one time;
the authorization of the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued
without stockholder approval, and which may include super voting, special approval, dividend, or other rights or preferences superior to the rights of
the holders of common stock;
stockholder action can only be taken at a special or regular meeting and not by written consent following the time that Sun Capital and its affiliates
cease to beneficially own a majority of our common stock;
advance notice procedures for nominating candidates to our board of directors or presenting matters at stockholder meetings;
removal of directors only for cause following the time that Sun Capital and its affiliates cease to beneficially own a majority of our common stock;
allowing Sun Cardinal to fill any vacancy on our board of directors for so long as affiliates of Sun Capital own 30% or more of our outstanding
shares of common stock and thereafter, allowing only our board of directors to fill vacancies on our board of directors; and
following the time that Sun Capital and its affiliates cease to beneficially own a majority of our common stock, super-majority voting requirements
to amend our bylaws and certain provisions of our certificate of incorporation.
Our amended and restated certificate of incorporation also contains a provision that provides us with protections similar to Section 203 of the Delaware
General Corporation Law (“DGCL”), and prevents us from engaging in a business combination, such as a merger, with a person or group who acquires at least 15%
of our voting stock for a period of three years from the date such person became an interested stockholder, unless board or stockholder approval is obtained prior to
acquisition. However, our amended and restated certificate of incorporation also provides that both Sun Capital and its affiliates and any persons to whom a Sun
Capital affiliate sells its common stock will be deemed to have been approved by our board of directors.
These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change of control of
our Company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for you and other
stockholders to elect directors of your choosing and to cause us to take other corporate actions you desire.
Our amended and restated certificate of incorporation also provides that the Court of Chancery of the State of Delaware will be the sole and exclusive forum
for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with
us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is, to the fullest extent permitted by
applicable law, the sole and exclusive forum for any of the following: any derivative action or proceeding brought on our behalf; any action asserting a breach of
fiduciary duty; any action asserting a claim against us arising under the Delaware General Corporation Law, our amended and restated certificate of incorporation
or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may
limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may
discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in
our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such
action in other jurisdictions, which could adversely affect our business and financial condition.
We are an “emerging growth company” and have elected to comply with reduced public company reporting requirements, which could make our common
stock less attractive to investors.
We are an “emerging growth company,” as defined by the Jumpstart Our Business Startups (“JOBS”) Act. For as long as we continue to be an emerging
growth company, we have chosen to take advantage of certain exemptions from various public company reporting requirements. These exemptions include, but are
not limited to, (i) not being required to comply with the auditor attestation
25
requirements of Section 404 of the Sarbanes-Oxley Act, (ii) re duced disclosure obligations regarding executive compensation in our periodic reports, proxy
statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years after the first sale
of our common equity securities pursuant to an effective registration sta tement under the Securities Act whi ch such fifth anniversary will occur in 2018. However,
if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.0 billion or
we issue more than $1.0 billion o f non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-
year period. We will become a large accelerated filer the year after we have an aggregate worldwide market value of the voting an d non-voting common equity
held by non-affiliates of $700 million or more. We have taken advantage of certain of the reduced disclosure obligations regarding executive compensation in
certain of our reports filed with the SEC and may elect to take advantag e of other reduced burdens in future filings. As a result, the information we provide to
holders of our common stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict
if inve stors will find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a
result of any choice we make to reduce disclosure, there may be a less active trading market for our common stock and the price for our common stock may be
more volatile.
As an emerging growth company we are not required to comply with the rules of the SEC implementing Section 404(b) of the Sarbanes-Oxley Act and
therefore our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal controls over financial reporting
until the fiscal year after the fiscal year we cease to be an emerging growth company. We are required, however, to comply with the SEC’s rules implementing
Section 302 and 404 other than 404(b) of the Sarbanes-Oxley Act. These rules require management to certify financial and other information in our quarterly and
annual reports and provide an annual management report on the effectiveness of controls over financial reporting. If we are unable to conclude that we have
effective internal control over financial reporting, our independent registered public accounting firm is unable to provide us with an unqualified report as and when
required by Section 404 or we are required to restate our financial statements, we may fail to meet our public reporting obligations and investors could lose
confidence in our reported financial information, which could have a negative impact on the trading price of our stock.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to
private companies. However, we have irrevocably elected not to avail ourselves of this extended transition period for complying with new or revised accounting
standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
ITEM 1B.
UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
We do not own any real estate. Our 33,009 square-foot principal executive and administrative offices are located at 500 Fifth Avenue, 19th and 20th Floors,
New York, New York 10110 and are leased under an agreement expiring in April 2025. In July 2014, we signed a lease for a 28,541 square-foot design studio
located at 900 N. Cahuenga Blvd., Los Angeles, California leased under an agreement expiring in July 2020. We moved into the new design studio space in
February 2015 after the expiration in January 2015 of our previous 17,640 square-foot design studio at 5410 Wilshire Boulevard, Los Angeles, California. In
December 2014, we signed a lease for a 4,209 square-foot showroom space in Paris, France which opened in March 2015, and is leased under an agreement
expiring in December 2020.
As of January 30, 2016, we leased 110,424 gross square feet related to our 48 company-operated retail stores. Our leases generally have initial terms of 10
years and cannot be extended or can be extended for one additional 5-year term. Our leases require a fixed annual rent, and most require the payment of additional
rent if store sales exceed a negotiated amount. Most of our leases are “net” leases, which require us to pay all of the cost of insurance, taxes, maintenance and
utilities. Although we generally cannot cancel these leases at our option, certain of our leases allow us, and in some cases, the lessor, to terminate the lease if we do
not achieve a specified gross sales threshold.
The following store list shows the location, opening date, type and size of our company-operated retail locations as of January 30, 2016:
26
Vince Location
Robertson (Los Angeles)
Melrose (Los Angeles)
Washington St. (Meatpacking - Women's)
Prince St. (Nolita)
San Francisco
Chicago
Madison Ave.
Westport
Greenwich
Mercer St. (Soho)
Columbus Ave. (Upper West Side)
Washington St. (Meatpacking - Men's)
Newbury St. (Boston)
Pasadena
Walnut St. (Philadelphia)
Abott Kiney (Los Angeles)
Total Street (16):
Malibu
Dallas
Boca Raton
Copley Place (Boston)
White Plains
Atlanta
Palo Alto
Bellevue Square
Manhasset (Long Island)
Newport Beach
The Grove
Bal Harbour
Chestnut Hill
Brookfield (Downtown)
Merrick Park (Coral Gables)
Washington D.C. City Center
Scottsdale Quarter
Houston
Total Mall and Lifestyle Centers (18)
Total Full-Price (34)
Orlando
Cabazon
Riverhead
Chicago
Seattle
Las Vegas
San Marcos
Carlsbad
Wrentham
Camarillo
Livermore
Chicago Premium
Woodbury Commons
Sawgrass
Total Outlets (14)
Total (48)
Type
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Street
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Mall
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
Outlet
State
CA
CA
NY
NY
CA
IL
NY
CT
CT
NY
NY
NY
MA
CA
PA
CA
CA
TX
FL
MA
NY
GA
CA
WA
NY
CA
CA
FL
MA
NY
FL
DC
AZ
TX
FL
CA
NY
IL
WA
NV
TX
CA
MA
CA
CA
IL
NY
FL
Opening Date
April 9, 2008
September 4, 2008
February 3, 2009
July 25, 2009
October 15, 2009
October 1, 2010
August 3, 2012
March 28, 2013
July 19, 2013
August 22, 2013
December 18, 2013
June 2, 2014
May 24, 2014
August 7, 2014
August 4, 2014
September 26, 2015
August 9, 2009
August 28, 2009
October 13, 2009
October 20, 2009
November 6, 2009
April 16, 2010
September 17, 2010
November 5, 2010
April 22, 2011
May 20, 2011
November 20, 2012
October 4, 2014
July 25, 2014
March 26, 2015
April 30, 2015
April 30, 2015
May 15, 2015
October 1, 2015
June 17, 2009
November 11, 2011
November 30, 2012
August 1, 2013
August 30, 2013
October 3, 2013
October 10, 2014
October 24, 2014
September 29, 2014
February 1, 2015
August 13, 2015
August 27, 2015
November 6, 2015
December 4, 2015
27
Gross Square
Feet
Selling Square
Feet
1,151
1,537
2,000
1,396
1,895
2,590
3,503
1,801
2,463
4,500
4,465
1,827
4,124
3,475
3,250
1,990
41,967
797
1,368
1,547
1,370
1,325
1,643
2,028
1,460
1,414
1,656
1,862
2,600
2,357
2,966
2,512
3,202
2,753
2,998
35,858
77,825
2,065
2,066
2,100
2,611
2,214
2,028
2,433
2,453
2,000
3,001
2,500
2,300
2,289
2,539
32,599
110,424
938
1,385
1,600
1,108
1,408
1,371
1,928
1,344
1,724
3,080
3,126
1,027
3,100
2,200
2,000
1,815
29,154
705
1,182
1,199
1,015
1,045
1,356
1,391
1,113
1,000
1,242
1,160
1,820
1,886
2,373
1,871
2,562
2,200
2,398
27,518
56,672
1,446
1,653
1,490
1,828
1,550
1,420
1,703
1,717
1,400
2,101
1,767
1,840
1,831
1,771
23,517
80,189
ITEM 3.
LEGAL PROCEEDINGS.
We are a party to legal proceedings, compliance matters and environmental claims that arise in the ordinary course of our business. We are not currently a
party to any legal proceedings, compliance investigation or environmental claims that we believe would, individually or in the aggregate have a material adverse
effect on our financial position, results of operations or cash flows although these proceedings and claims are subject to inherent uncertainties.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
Part II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Market Information
Our common stock has been traded on the New York Stock Exchange under the symbol “VNCE” since November 22, 2013. Prior to that time there was no
public market for our stock. The following table sets forth the high and low sale prices of our common stock as reported on the New York Stock Exchange:
Fiscal 2015:
Fourth quarter
Third quarter
Second quarter
First quarter
Fiscal 2014:
Fourth quarter
Third quarter
Second quarter
First quarter
Market Price
High
Low
$
$
$
$
$
$
$
$
7.06
9.80
18.86
25.30
37.68
39.08
38.00
28.00
$
$
$
$
$
$
$
$
3.49
3.31
9.46
16.50
22.07
29.67
24.19
22.53
Record Holders
As of March 31, 2016 there were 3 record holders of our common stock.
Dividends
We have never paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development
and growth of our business, and we do not anticipate paying any cash dividends in the foreseeable future. In addition, because we are a holding company, our
ability to pay dividends depends on our receipt of cash distributions from our subsidiaries. The terms of our indebtedness substantially restrict the ability to pay
dividends. See “Current Existing Credit Facilities and Debt (Post IPO and Restructuring Transactions)” under “Item 7—Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources” of this annual report on Form 10-K for a description of the related restrictions.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of
operations, capital requirements, restrictions contained in current and future financing instruments and other factors that our board of directors deems relevant.
Performance Graph
The following graph shows a monthly comparison of the cumulative total return on a $100 investment in the Company’s common stock, the Standard &
Poor’s 500 Stock Index and the Standard & Poor’s Retail Select Industry Index. The cumulative total return for the Vince Holding Corp. common stock assumes an
initial investment of $100 in the common stock of the Company on November 22, 2013, which was the Company’s first day of trading on the New York Stock
Exchange after its IPO. The cumulative total returns for the Standard & Poor’s 500 Stock Index and the Standard & Poor’s Retail Select Industry Index assume an
initial
28
investment of $100 on October 31, 20 13. The comparison also assumes the reinvestment of any dividends. The stock price performance included in this graph is
not necessarily indicative of future stock price performance.
This performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be
incorporated by reference into any future filing under the Securities or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) except to the extent
we specifically incorporate it by reference into such filing.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not repurchase any shares of common stock during the three months ended January 30, 2016.
Unregistered Sales of Equity Securities
We did not sell any unregistered securities during fiscal year 2015.
29
ITEM 6.
SEL E CTED CONSOL IDATED FINANCIAL DATA.
The selected historical consolidated financial data set forth below for each of the years in the five-year period ended January 30, 2016 and as of January 30,
2016 have been derived from our audited consolidated financial statements.
The historical results presented below are not necessarily indicative of the results expected for any future period. The information should be read in
conjunction with “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this annual report on Form 10-K and our
Consolidated Financial Statements and related notes included herein.
(In thousands, except for share data)
Statement of Operations Data
Net sales
Gross profit (2)
Selling, general and administrative expenses (3)
Income from operations
Net income (loss) from continuing operations
Net loss from discontinued operations, net of tax
Net income (loss)
Basic earnings (loss) per share:
Basic earnings (loss) per share from continuing operations
Basic earnings (loss) per share
Diluted earnings (loss) per share:
Diluted earnings (loss) per share from continuing operations
Diluted earnings (loss) per share
Weighted average shares outstanding:
Basic
Diluted
(In thousands)
Balance Sheet Data:
Cash and cash equivalents
Working capital
Total assets (4)
Long-term debt
Other liabilities (long-term) (5)
Stockholders' equity (deficit)
Other Operating and Financial Data:
Total wholesale doors at end of period
Total company-operated stores at end of period
Comparable store sales growth (6) (7)
2015
2014
Fiscal Year (1)
2013
2012
2011
$
$
$
$
$
$
302,457
132,516
116,790
15,726
5,099
—
5,099
0.14
0.14
0.14
0.14
$
$
$
$
$
340,396
166,829
96,579
70,250
35,723
—
35,723
0.97
0.97
0.93
0.93
$
$
$
$
$
288,170
133,016
83,663
49,353
23,395
(50,815)
(27,420)
240,352 $
108,196
67,260
40,936
(29,695)
(78,014)
(107,709)
175,255
85,710
42,793
42,917
(41,922)
(105,944)
(147,866)
0.83
$
(0.98) $
(1.13) $
(4.11) $
$
0.83
(0.98) $
(1.13) $
(4.11) $
(1.60)
(5.64)
(1.60)
(5.64)
36,770,430
37,529,227
36,730,490
38,244,906
28,119,794
28,272,925
26,211,130 26,211,130
26,211,130 26,211,130
January 30,
2016
January 31,
2015
February 1,
2014
February
2, 2013
January
28, 2012
As of
$
6,230
$
(11,415)
363,568
60,000
140,838
78,502
$
112
16,650
378,648
88,000
146,063
71,969
21,484
65,398
409,374
170,000
169,015
33,551
$
$
317
9,746
442,124
391,434
—
1,839
(2,149)
468,445
605,292
—
(561,265) (743,021)
2015
2014
Fiscal Year (1)
2013
2012
2011
2,441
48
4.2%
2,394
37
12.6%
2,300
28
25.2%
2,145
22
35.9%
1,761
19
23.7%
(1)
(2)
Fiscal year ends on Saturday closest to January 31. Fiscal 2015 (ended January 30, 2016), Fiscal 2014 (ended January 31, 2015), fiscal 2013 (ended
February 1, 2014) and fiscal 2011 (ended January 28, 2012) consisted of 52 weeks. Fiscal 2012 (ended February 2, 2013) consisted of 53 weeks.
Fiscal 2015 includes the impact of $10,300 pre-tax expense associated with inventory write-downs primarily related to excess out of season and current
inventory.
( 3 )
Fiscal 2015 includes the net impact of $2,702 pre-tax expense associated with executive severance costs and executive search costs partly offset by the
favorable impact of executive stock option forfeitures. Fiscal 2014 includes $571 pre-tax expense
30
associated with the s econdary o ffering by certain stockholders of the Company completed in July 2014 . Fiscal 2013 and 2012 i nclude $9,751 and $9,331 ,
respectively, pre-tax expense associated with the impact of public compa ny transition costs.
(4)
Pursuant to new accounting guidance issued by the Financial Accounting Standards Board in April 2015, entities are no longer required to present deferred
financing costs as a deferred asset. The guidance is effective for our fiscal year beginning in 2016, however, the Company has early adopted this accounting
standard update effective as of February 1, 2015 and accordingly, the prior period comparative balance sheets have been adjusted to conform to the new
classification presentation.
( 5 ) Other liabilities includes the impact of recording the long-term portion of the Tax Receivable Agreement, which represents our obligation to pay 85% of
estimated cash savings on federal, state and local income taxes realized by us through our use of certain net tax assets retained by us subsequent to the
completion of the IPO and Restructuring Transactions executed in November 2013.
( 6 ) Beginning with the first quarter of fiscal 2015, comparable store sales now include our e-commerce sales in order to align with how we manage our brick-
and-mortar retail stores and e-commerce online store as a combined single direct-to-consumer segment. Prior to fiscal 2015, comparable store sales included
only our comparable brick-and-mortar retail stores. As a result of our omni-channel sales and inventory strategy as well as cross-channel customer shopping
patterns, there is less distinction between our brick-and-mortar retail stores and our e-commerce online store and we believe the inclusion of e-commerce
sales in our comparable store sales metric is a more meaningful representation of these results and provides a more comprehensive view of our year over
year comparable store sales metric. As a result of this change, the prior periods presented above have been adjusted to reflect comparable store sales
inclusive of e-commerce.
(7)
Beginning with the first quarter of fiscal 2015, a store is included in the comparable store sales calculation after it has completed at least 13 full fiscal
months of operations. Non-comparable store sales include new stores which have not completed at least 13 full fiscal months of operations and sales from
closed stores. In the event that we relocate, or change square footage of an existing store, we would treat that store as a non-comparable store until it has
completed at least 13 full fiscal months of operation following the relocation or square footage adjustment. For 53-week fiscal years, we adjust comparable
store sales to exclude the additional week. There may be variations in the way in which some of our competitors and other retailers calculate comparable
store sales.
31
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This discussion summarizes our consolidated operating results, financial condition and liquidity during each of the years in the three-year period ended
January 30, 2016. Our fiscal year ends on the Saturday closest to January 31. Fiscal years 2015, 2014 and 2013 ended on January 30, 2016 (“fiscal 2015”),
January 31, 2015 (“fiscal 2014”) and February 1, 2014 (“fiscal 2013”), respectively. Fiscal years 2015, 2014 and 2013 consisted of 52 weeks. The following
discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report on Form
10-K. All amounts disclosed are in thousands expect door and store counts, countries, share data and percentages.
On November 27, 2013, Vince Holding Corp. completed the IPO and the Restructuring Transactions. As a result, the non-Vince businesses were separated
from the Vince business. The Vince business is now the sole operating business of Vince Holding Corp. Historical financial information for the non-Vince
businesses has been included as discontinued operations until the businesses were separated on November 27, 2013.
This discussion contains forward-looking statements involving risks, uncertainties and assumptions that could cause our results to differ materially from
expectations. While we believe our growth strategy offers significant opportunities, it also presents risks and challenges, including among others, the risks that we
may not be able to match inventory purchases with demand, hire and train qualified associates, that our new product offerings and expanded sales channels may not
maintain or enhance our brand image and that our distribution facilities and information systems may not be adequate to support our growth plans. For a more
complete discussions of risks facing our business see “Item 1A—Risk Factors” included in this annual report on Form 10-K.
Executive Overview
Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials. Founded in 2002, the brand now
offers a wide range of women’s and men’s apparel, women’s and men’s footwear, and handbags. Vince products are sold in prestige distribution worldwide,
including approximately 2,500 distribution points across 38 countries. While we have recently experienced a slowdown in sales growth, we believe that we can
generate growth by improving our product offering, expanding our selling into international markets, and growing our own branded retail and e-commerce direct-
to-consumer businesses.
On October 22, 2015, the board of directors of the Company (the “Board’) approved the appointment of Brendan Hoffman to serve as the Chief Executive
Officer of the Company, effective immediately. Mr. Hoffman brings more than 20 years of retail industry experience and most recently served as the Chief
Executive Officer and President of The Bon-Ton Stores Inc. from February 2012 to August 2014. Previously, Mr. Hoffman served as the President and Chief
Executive Officer of Lord & Taylor, a division of Hudson’s Bay Trading Company, from October 2008 to January 2012. Mark E. Brody served as the Interim
Chief Executive Officer of the Company from September 1, 2015 through October 22, 2015 and remained with the Company in a non-executive capacity through a
transition period that ended on November 20, 2015. Mr. Brody will continue to serve as a member of the Board. The Board also approved the appointment of David
Stefko to Chief Financial Officer of the Company effective January 14, 2016. Mr. Stefko served as the Company’s interim Chief Financial Officer and Treasurer
since September 1, 2015. Mr. Stefko has over 28 years of senior finance and executive management experience. Prior to this appointment, Mr. Stefko held the
position of Group CFO at Sun Capital since 2011. Previously, he served as Senior Vice President, Chief Financial Officer and Chief Administrative Officer of
Things Remembered, a national multichannel specialty retailer since 2003.
As of January 30, 2016, we sold our products at 2,441 doors through our wholesale partners in the U.S. and international markets and we operated 48 retail
stores, including 34 company-operated full price stores and 14 company-operated outlet stores, throughout the United States.
The following is a summary of fiscal 2015 highlights:
·
·
·
·
·
Our net sales totaled $302,457, reflecting an 11.1% decrease over prior year net sales of $340,396.
Our wholesale net sales decreased 22.4% to $201,182 and our direct-to-consumer net sales increased 25.1% to $101,275. Comparable store sales
including e-commerce increased 4.2% compared to last year.
Net income was $5,099, or $0.14 per diluted share, compared to $35,723, or $0.93 per diluted share, in the prior year. The current year included pre-
tax expense of $10,300 associated with inventory write-downs primarily related to excess out of season and current inventory, pre-tax expense of
$3,394 of executive severance costs, pre-tax expense of $615 associated with executive search costs and pre-tax income of $1,307 related to
executive stock option forfeitures.
As of January 30, 2016, we had $60,000 of total debt principal outstanding comprised of $45,000 outstanding under our Term Loan Facility and
$15,000 outstanding under our Revolving Credit Facility.
We opened 11 new retail stores during fiscal year 2015 and increased our wholesale door count by 47 additional doors.
32
·
We continued to invest in new stores, shop-in-shop build-outs and infrastructure related to our IT migration.
We serve our customers through a variety of channels that reinforce the Vince brand image. Our diversified channel strategy allows us to introduce our
products to customers through multiple distribution points that are reported in two segments: wholesale and direct-to-consumer.
The following is a summary of our wholesale and direct-to-consumer net sales for fiscal 2015, fiscal 2014 and fiscal 2013:
(in thousands)
Wholesale
Direct-to-consumer
Total net sales
Results of Operations
Fiscal 2015 Compared to Fiscal 2014
Net Sales by Segment
Fiscal Year
2015
2014
2013
$
$
201,182 $
101,275
302,457 $
259,418 $
80,978
340,396 $
229,114
59,056
288,170
The following table presents, for the periods indicated, our operating results as a percentage of net sales as well as earnings per share data:
(In thousands, except share data, percentages and door and
store counts)
Statement of Operations:
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Other expense, net
Income before income taxes
Provision for income taxes
Net income (loss)
Basic earnings (loss) per share:
Basic EPS—Total
Diluted EPS—Total
Other Operating and Financial Data:
Total wholesale doors at end of period
Total company-operated stores at end of period
Comparable sales growth
Fiscal Year Ended
January 30, 2016
January 31, 2015
Variances
Amount
% of Net
Sales
Amount
% of Net
Sales
Amount
Percent
100.0% $
51.0%
49.0%
28.4%
20.6%
2.8%
0.3%
17.5%
7.0%
10.5% $
(37,939)
(3,626)
(34,313)
20,211
(54,524)
(4,018)
898
(51,404)
(20,780)
(30,624)
(11.1)%
(2.1)%
(20.6)%
20.9%
(77.6)%
(41.4)%
107.5%
(86.1)%
(86.6)%
(85.7)%
$
$
$
$
302,457
169,941
132,516
116,790
15,726
5,680
1,733
8,313
3,214
5,099
0.14
0.14
100.0% $
56.2%
43.8%
38.6%
5.2%
1.9%
0.6%
2.7%
1.0%
1.7% $
340,396
173,567
166,829
96,579
70,250
9,698
835
59,717
23,994
35,723
$
$
0.97
0.93
2,441
48
4.2%
2,394
37
12.6%
Net
Sales
for fiscal 2015 were $302,457, decreasing $37,939, or 11.1%, versus $340,396 for fiscal 2014. The decrease in sales compared to the prior year is
due to a decrease in volume across our wholesale segment. The following is a summary of our net sales by segment for fiscal 2015 and fiscal 2014:
(in thousands)
Net Sales:
Wholesale
Direct-to-consumer
Total net sales
Net Sales by Segment
Fiscal Year Ended
January 30,
2016
January 31,
2015
$
$
201,182 $
101,275
302,457 $
259,418
80,978
340,396
33
Net
sales
from
our
wholesale
segment
decreased $58,236, or 22.4%, to $201,182 in fiscal 2015 from $259,418 in fiscal 2014 primarily due to lower full
price customer reorders and lower off price orders. The contraction of our wholesale business was partly offset by an increase in net wholesale doors of 47 and the
addition of 11 shop-in-shops with our wholesale partners since the end of fiscal 2014.
Net
sales
from
our
direct-to-consumer
segment
increased $20,297, or 25.1%, to $101,275 in fiscal 2015 from $80,978 in fiscal 2014. $3,291 of the sales
growth is attributable to comparable store sales growth of 4.2%, including e-commerce, primarily due to an increase in transactions partly offset by a decrease in
the average order size. Non-comparable store sales contributed $17,006 of the sales growth and includes the impact of 11 new stores that have opened since the end
of fiscal 2014 (bringing our total retail store count to 48 as of January 30, 2016, compared to 37 as of January 31, 2015).
Gross
Profit
decreased $34,313, or 20.6%, to $132,516 in fiscal 2015 from $166,829 in fiscal 2014. As a percentage of sales, gross margin was 43.8%,
compared with 49.0% in the prior year. Gross profit and gross margin were negatively impacted by the full year $16,263 inventory reserve charge in the current
year. Of this charge, $10,300 is attributable to inventory that no longer supports our prospective brand positioning strategy, with the balance relating to normal,
recurring provisions based on our existing accounting policy for aged inventory. The total gross margin rate decrease was driven primarily by the following factors:
·
·
·
The impact from higher assistance to wholesale partners had a combined negative impact of 490 basis points;
Higher year-over-year inventory reserve charge impacted gross margins negatively by 301 basis points; and
Increased sales penetration of the direct-to-consumer segment contributed 190 basis points of improvement.
Selling,
general
and
administrative
expenses
(“SG&A”) for fiscal 2015 were $116,790, increasing $20,211, or 20.9%, versus $96,579 for fiscal 2014.
SG&A expenses as a percent of net sales were 38.6% and 28.4% for fiscal 2015 and fiscal 2014, respectively. SG&A expenses in the current year include a $2,702
charge for net management transition costs which consists of $3,394 of severance expense and $615 of executive search costs which were partly offset by $1,307 of
stock option forfeitures. See Note 8 “Commitments and Contingencies” within the notes to Consolidated Financial Statements in this annual report on Form 10-K
for additional details. SG&A expenses in the prior year include $571 of costs incurred by us related to the secondary offering by certain stockholders of the
Company completed in July 2014. As we continue to invest in our growth and from our recent decline in sales, our SG&A expenses as a percent of sales have
deleveraged. The increase in SG&A expenses compared to the prior year period is primarily due to:
·
·
·
·
·
·
Increase in compensation expense and professional search fees of $8,668, primarily driven by the net management transition costs discussed above,
as well as employee benefits and related increases due to hiring and retaining additional employees to support our growth plans;
Increase in rent and occupancy costs of $4,661 due primarily to the 11 new retail store openings and our new design studio and Paris showroom
space;
Increase in depreciation expense of $3,072 due to the 11 new stores, shop-in-shop expenditures and our new design studio and Paris showroom
space;
Increase in marketing, advertising and promotional expenses of $1,763 to support our brand awareness growth efforts primarily in the e-commerce
channel;
Increase in consulting fees of $1,546 largely driven by expenses associated with the consulting agreements with our co-founders; and
The above increases were partly offset by $2,340 of lower costs charged under our Shared Services Agreement as we have transitioned certain back
office support functions in-house that were previously performed by Kellwood under the Shared Services Agreement.
34
Income
fro
m
operations
by segment for fiscal 201 5 and fiscal 201 4 is summarized in the following table :
(in thousands)
Wholesale
Direct-to-consumer
Subtotal
Unallocated expenses
Total income from operations
Income from Operations by Segment
Fiscal Year Ended
January 30,
January 31,
2016
2015
$
$
61,571 $
7,839
69,410
(53,684)
15,726 $
100,623
14,556
115,179
(44,929)
70,250
Operating income from our wholesale segment decreased $39,052, or 38.8%, to $61,571 in fiscal 2015 from $100,623 in fiscal 2014. This decrease was
driven by the lower gross margin performance due to wholesale inventory reserves of $9,615 and the sales volume decrease noted above.
Operating income from our direct-to-consumer segment decreased $6,717, or 46.1% to $7,839 in fiscal 2015 from $14,556 in fiscal 2014. The decrease
resulted primarily from the impact of inventory reserves of $6,648 combined with lower gross margins driven by higher promotional activity and higher SG&A
expenses associated with the 11 new stores that have opened since the end of fiscal 2014.
Interest
expense
decreased $4,018, or 41.4%, to $5,680 in fiscal 2015 from $9,698 in fiscal 2014. The reduction in interest expense is primarily due to the
lower overall debt balances since the end of fiscal 2014 as a result of voluntary prepayments on the Term Loan Facility and borrowings against the Revolving
Credit Facility with more favorable interest rates.
Other
expense,
net
was $1,733 for fiscal 2015 compared to $835 for fiscal 2014. The increase resulted primarily from an increase in the obligation under the
Tax Receivable Agreement (see Note 15 “Related Party Transactions” within the notes to Consolidated Financial Statements in this annual report on Form 10-K).
Provision
for
income
taxes
for fiscal 2015 was $3,214 as compared to $23,994 for fiscal 2014. Our effective tax rate on pretax income for fiscal 2015 and
fiscal 2014 was 38.7% and 40.2%, respectively. The rate for fiscal 2015 differed from the U.S. statutory rate of 35.0% primarily due to state taxes and non-
deductible expenses, mostly offset by the favorable impact of recent changes to state and local tax laws, primarily New York City, that impacted the net operating
loss deferred tax assets and the return to provision adjustment. The rate for fiscal 2014 differed from the U.S. statutory rate of 35.0% primarily due to state taxes.
35
Fiscal 2014 Compared to Fiscal 2013
The following table presents, for the periods indicated, our operating results as a percentage of net sales as well as earnings per share data:
(In thousands, except share data, percentages and door and
store counts)
Statement of Operations:
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Other expense, net
Income before income taxes
Provision for income taxes
Net income from continuing operations
Net loss from discontinued operations, net of taxes
Net income (loss)
Basic earnings (loss) per share:
Basic EPS—continuing operations
Basic EPS—discontinued operations
Basic EPS—Total
Diluted earnings (loss) per share:
Diluted EPS—continuing operations
Diluted EPS—discontinued operations
Diluted EPS—Total
Other Operating and Financial Data:
Total wholesale doors at end of period
Total company-operated stores at end of period
Comparable store sales growth
Fiscal Year Ended
January 31, 2015
February 1, 2014
Variances
Amount
% of Net
Sales
Amount
% of Net
Sales
Amount
Percent
100.0% $
53.8%
46.2%
29.0%
17.2%
6.3%
0.2%
10.7%
2.5%
8.2%
(17.6)%
(9.4)% $
52,226
18,413
33,813
12,916
20,897
(8,313)
156
29,054
16,726
12,328
50,815
63,143
18.1%
11.9%
25.4%
15.4%
42.3%
(46.2)%
23.0%
94.8%
230.1%
52.7%
(100.0)%
(230.3)%
$
$
$
$
$
$
340,396
173,567
166,829
96,579
70,250
9,698
835
59,717
23,994
35,723
—
35,723
0.97
—
0.97
0.93
—
0.93
100.0% $
51.0%
49.0%
28.4%
20.6%
2.8%
0.3%
17.5%
7.0%
10.5%
0.0%
10.5% $
$
$
$
$
288,170
155,154
133,016
83,663
49,353
18,011
679
30,663
7,268
23,395
(50,815)
(27,420)
0.83
(1.81)
(0.98)
0.83
(1.81)
(0.98)
2,394
37
12.6%
2,300
28
25.2%
Net
Sales
for fiscal 2014 were $340,396, increasing $52,226, or 18.1% versus $288,170 for fiscal 2013. The increase in sales compared to the prior year is
due to an increase in volume across both of our business segments. The following is a summary of our net sales by segment for fiscal 2014 and fiscal 2013:
(in thousands)
Net Sales:
Wholesale
Direct-to-consumer
Total net sales
Net Sales by Segment
Fiscal Year Ended
January 31,
2015
February 1,
2014
$
$
259,418 $
80,978
340,396 $
229,114
59,056
288,170
Net
sales
from
our
wholesale
segment
increased $30,304, or 13.2%, to $259,418 in fiscal 2014 from $229,114 in fiscal 2013 driven by strong performance
in both our domestic and international markets. The expansion of our wholesale business contributed to the sales increase as our wholesale door counts increased
by a net 94 wholesale doors and we opened 21 additional shop-in-shops that are operated by our domestic and international partners. Additionally, there were two
international free-standing stores which were operated by our distribution partners.
36
Net
sales
from
our
direct-to-consumer
segment
increased $21, 9 22 , or 37.1%, to $80 ,978 in fiscal 201 4 from $59 ,056 in fiscal 201 3 . This sales growth
was due to (i) comparable store sales growth of 12 . 6 % which was driven primarily by increased transactions and contributed $ 6,664 , (ii) opening nine new
stores as compared to the end of the prior fiscal year (bringing our total retail store count to 37 as of January 31, 2015, compared to 28 as of February 1, 2014)
inclusive of non-comp arable sales growth contributing $ 15,258 , and (iii) e-commerce sales growth contributing $ 3, 3 23 .
Gross
Profit/Gross
Margin
rate increased 280 basis points to 49.0% for fiscal 2014 compared to 46.2% for fiscal 2013. The total gross margin rate increase
was driven primarily by the following factors:
·
·
·
·
·
Increased sales penetration of the international and licensing businesses contributed 80 basis points of improvement;
Continued supply chain efficiencies including our strategic shift to transport more of our product by sea versus air as well as other operational
improvements contributed 80 basis points of improvement;
Increased sales penetration of the direct-to-consumer segment contributed 90 basis points of improvement; and
Favorable impact from inventory reserve related adjustments contributed 50 basis points of improvement.
The above increases were partially offset by the impact of certain product mix which had a negative impact of (20) basis points.
SG&A
expenses
for fiscal 2014 were $96,579, increasing $12,916, or 15.4%, versus $83,663 for fiscal 2013. The increase in SG&A expenses compared to
the prior year period were primarily due to:
·
·
·
·
·
·
·
·
Increase in compensation expense of $7,294, including share-based and incentive compensation, employee benefits and related increases due to
hiring and retaining additional employees to support our growth plans;
Increase in rent and occupancy costs of $5,600 due primarily to new retail store openings and our new headquarter office spaces;
Increase in marketing, advertising and promotional expenses of $2,590 to support our efforts to increase brand awareness, drive traffic and build
customer loyalty;
Increase in depreciation expense of $2,484 due to new stores, shop-in-shop expenditures and our new headquarter office spaces;
Increase in other costs of $2,203 consisting of increases in areas such as design and development, travel, consulting and legal;
Increase in public company expenses of $1,925 due to costs incurred to be a stand-alone public company; and
Increase of $571 related to fees incurred in connection with the Secondary Offering completed in July 2014.
The above increases were partially offset by the decrease in public company transition costs of $9,751 incurred in the prior fiscal year in preparation
for our IPO that was completed on November 27, 2013.
Income
from
operations
by segment for fiscal 2014 and fiscal 2013 is summarized in the following table:
(in thousands)
Wholesale
Direct-to-consumer
Subtotal
Unallocated expenses
Total income from operations
Income from Operations by Segment
Fiscal Year Ended
January 31,
2015
February 1,
2014
$
$
100,623 $
14,556
115,179
(44,929)
70,250 $
81,822
10,435
92,257
(42,904)
49,353
Operating income from our wholesale segment increased $18,801, or 23.0%, to $100,623 in fiscal 2014 from $81,822 in fiscal 2013. This increase was
driven primarily from the sales volume increase of $30,304 and gross margin rate improvement noted above as well as the impact of wholesale segment operating
expenses which were lower as a percentage of net sales versus the prior fiscal year.
37
Operating income from our direct-to-consumer segment increased $4, 1 21, or 39.5% to $14,55 6 in fiscal 201 4 from $ 10, 4 35 in fiscal 201 3 . The
increase resulted primarily from t he sales volume increase of $21, 9 22 and gross margin rate improvement noted above which more than offset the additional
operating expenses incurred, prima rily as a result of opening new stores, during the period to support the sales growth.
Interest
expense
for fiscal 2014 was $9,698, decreasing $8,313, or 46.2%, versus $18,011 for fiscal 2013. Interest expense decreased as we had lower
average debt balances period over period. The decrease in overall debt balances was primarily due to certain affiliates of Sun Capital contributing certain
outstanding indebtedness to the Company in June 2013, thus eliminating interest expense on $407,527 in debt at that time. On November 27, 2013, in connection
with the IPO and Restructuring Transactions, we entered into a $175,000 Term Loan Facility and a $50,000 Revolving Credit Facility. Interest expense for fiscal
2014 relates to interest charges under these facilities.
Other
expense,
net
, was $835 for fiscal 2014 compared to $679 for fiscal 2013.
Provision
for
income
taxes
for fiscal 2014 was $23,994 as compared to $7,268 for fiscal 2013. Our effective tax rate on pretax income for fiscal 2014 and
fiscal 2013 was 40.2% and 23.7%, respectively. The rate for fiscal 2014 differed from the U.S. statutory rate of 35.0% primarily due to state taxes. The rate for
fiscal 2013 differed from the U.S. statutory rate of 35.0% primarily due to changes in our valuation allowance offset in part by state taxes and nondeductible
interest.
Net
loss
from
discontinued
operations
The separation of the non-Vince businesses was completed on November 27, 2013. Net loss from discontinued operations was $50,815 for fiscal 2013.
Discontinued Operations
On November 27, 2013, in connection with the IPO and Restructuring Transactions, we separated the Vince and non-Vince businesses whereby the non-
Vince businesses are now owned by Kellwood Holding, LLC, which is controlled by affiliates of Sun Capital. As the Company and Kellwood Holding, LLC were
under the common control of affiliates of Sun Capital, this separation transaction resulted in a $73,081 adjustment to additional paid-in capital on our Consolidated
Balance Sheet at February 1, 2014.
As a result of the separation with the non-Vince businesses, the financial results for the non-Vince businesses, through the separation on November 27,
2013, are now included in results from discontinued operations. The non-Vince businesses continue to operate as a stand-alone company. Due to differences in the
basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of the non-Vince businesses included
within discontinued operations of the Company may not be indicative of actual financial results of the non-Vince businesses as a stand-alone company.
In connection with the Restructuring Transactions, the Company issued a promissory note (the “Kellwood Note Receivable”) to Kellwood Company, LLC,
in the amount of $341,500. Following the completion of the IPO and the Company’s entry into the Term Loan Facility and the Revolving Credit Facility, the
Company used proceeds from the IPO and borrowings under the Term Loan Facility to repay the Kellwood Note Receivable, which proceeds, in turn, were
primarily used by Kellwood to repay, discharge or repurchase indebtedness of Kellwood Company, LLC. As a result, neither Vince Holding Corp. nor any of its
consolidated subsidiaries have any obligations with respect to the Wells Fargo Facility, the Cerberus Term Loan, the Sun Term Loan Agreements, any 12.875%
Notes or any 7.625% Notes, which are each described below under “Financing Activities”.
38
The separation of the non-Vince businesses was completed on No vember 27, 2013. Accordingly, there are no results from discontinued operations reflected
on the Consolidated Financial Statements for fiscal 201 5 and fiscal 201 4 . The results of the non-Vince businesses included in discontinued operations for fiscal
201 3 is summarized in the following table below.
(in thousands, except effective tax rate)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Restructuring, environmental and other charges
Impairment of long-lived assets
Change in fair value of contingent consideration
Interest expense, net
Other expense, net
Loss before income taxes
Income taxes
Net loss from discontinued operations, net of taxes
Effective tax rate
Fiscal Year
2013
400,848
313,620
87,228
98,016
1,628
1,399
1,473
46,677
498
(62,463)
(11,648)
(50,815)
18.6%
$
$
Liquidity and Capital Resources
Our sources of liquidity are cash and cash equivalents, cash flows from operations, borrowings available under the Revolving Credit Facility and our ability
to access capital markets. Our primary cash needs are capital expenditures for new stores and related leasehold improvements, for investment in our new ERP
platform and related infrastructure, meeting our debt service requirements, paying amounts due under the Tax Receivable Agreement and funding working capital
requirements. The most significant components of our working capital are cash and cash equivalents, accounts receivable, inventories, accounts payable and other
current liabilities.
The Company had expected to make a required payment under the Tax Receivable Agreement in the fourth quarter of fiscal 2015. As a result of lower than
expected cash from operations due to weaker than projected performance, and the level of projected availability under the Revolving Credit Facility, we concluded
that we would not be able to fund the payment when due. Accordingly, on September 1, 2015, we entered into an amendment to the Tax Receivable Agreement
with Sun Cardinal, LLC, an affiliate of Sun Capital, for itself and as a representative of the other stockholders parties thereto. Pursuant to this amendment, Sun
Cardinal, LLC agreed to postpone payment of the tax benefit with respect to the 2014 taxable year, currently estimated at $21,762 plus accrued interest, to
September 15, 2016. The amendment to the Tax Receivable Agreement also waived the application of a default interest rate at LIBOR plus 500 basis points per
annum on the postponed payment. The interest rate on the postponed payment will remain at LIBOR plus 200 basis points per annum. As of January 30, 2016 our
total obligation under the Tax Receivable Agreement is estimated to be $169,913, of which $29,075 is included as a component of other accrued expenses and
$140,838 is included as a component of other liabilities on our consolidated balance sheet. There is a remaining term of eight years under the Tax Receivable
Agreement. The net operating loss tax benefits subject to the Tax Receivable Agreement expire beyond the term of the Tax Receivable Agreement allowing us the
opportunity to realize the full value of these benefits.
Additionally, on December 9, 2015 the Company received a Rights Offering Commitment Letter from Sun Capital Partners V, L.P. (“Sun Fund V”) that
commits Sun Fund V to provide the Company with an amount equal to $65,000 of cash proceeds (the “Contribution Obligation”) in the event the Company
conducts a rights offering for its common stock to its stockholders. Such Contribution Obligation will be reduced by any proceeds received from a completed rights
offering. The Company would be required to use a portion of the proceeds from the rights offering or the Contribution Obligation to satisfy its current obligation
under the Tax Receivable Agreement (see above). On March 29, 2016, the Company commenced a rights offering to give existing stockholders the right to
purchase additional shares of common stock at $5.50 per share. The Company is seeking to issue 11,818,181 shares in order to raise gross proceeds of $65,000. The
rights offering expired on April 14, 2016 at 5:00 p.m. New York City time. If the Company is unable to raise the total proceeds of $65,000, Sun Fund V will
purchase the remaining shares up to $65,000 as per the terms of an Investment Agreement entered into with Sun Cardinal, LLC and SCSF Cardinal, LLC on March
15, 2016, which superseded the Rights Offering Commitment Letter . See Note 15 “Related Party Transactions” and Note 17 “Subsequent Event” within the notes
to Consolidated Financial Statements in this annual report on Form 10-K for additional details.
Based upon our actions to date, management believes that cash generated from operations and the proceeds from the rights offering or the Investment
Agreement transactions, will be sufficient to comply with any covenants under the Term Loan Facility and the Revolving Credit Facility, fund our debt service
requirements, fund our obligations under the Tax Receivable Agreement, and fund
39
pla nned capital expenditures and working capital needs for at least the next twelve months. However, there can be no assurance that we will be able to achieve our
strategic initiatives in the future and failure to do so would have a significant adverse effect on our operations . See “Item 1A. Risk Factors — Our ability to
continue to have the liquidity necessary to service our debt, meet contractual payment obligations, including under the Tax Receivable Agreement , and fund our
operations depends on many factor s, including our ability to generate sufficient cash flow from operations , maintain adequate availability under our Revolving
Credit Facility or obtain other financing .”
On November 27, 2013, in connection with the consummation of the IPO and Restructuring Transactions, all previously outstanding debt obligations either
remained with Kellwood (i.e. the non-Vince businesses) or were discharged, repurchased or refinanced. In connection with the consummation of these transactions,
Vince Holding Corp. entered into the Term Loan Facility and Revolving Credit Facility, which are discussed further below.
Operating Activities
(in thousands)
Operating activities
Net income (loss)
Less: Net loss from discontinued operations
Add (deduct) items not affecting operating cash flows:
Depreciation
Provision for inventories
Amortization of intangible assets
Amortization of deferred financing costs
Amortization of deferred rent
Deferred income taxes
Share-based compensation expense
Capitalized PIK Interest
Loss on disposal of property, plant and equipment
Changes in assets and liabilities:
Receivables, net
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Other assets and liabilities
Net cash provided by operating activities—continuing operations
Net cash used in operating activities—discontinued operations
Net cash provided by (used in) operating activities
$
2015
Fiscal Year
2014
2013
$
$
5,099
—
$
35,723
—
(27,420)
(50,815)
7,752
16,263
598
1,259
1,723
2,745
1,259
—
375
24,397
(15,420)
3,441
1,044
1,093
51,628
—
51,628
$
4,668
3,719
599
1,532
3,045
23,248
1,896
—
—
6,401
(7,182)
2,809
3,066
742
80,266
—
80,266
$
2,186
3,738
599
178
465
7,225
347
15,883
262
(6,265)
(18,807)
1,681
3,235
(156)
33,966
(54,667)
(20,701)
Continuing
operations
Net cash provided by operating activities during fiscal 2015 was $51,628, which consisted of net income from continuing operations of $5,099, impacted by
non-cash items of $31,974 and cash provided by working capital of $14,555. Net cash provided by working capital resulted from a $24,397 decrease in receivables
driven largely by the timing of current year collections from prior year receivables and lower wholesale performance. Inventories increased $15,420 due to new
store additions, increased handbag inventory and higher in-transit inventory. Additionally, prepaid expenses and other current assets decreased $3,441 primarily
due to timing.
Net cash provided by operating activities during fiscal 2014 was $80,266, which consisted of net income from continuing operations of $35,723, impacted
by non-cash items of $38,707 and cash provided by working capital of $5,836. Net cash provided by working capital was, in part, due to a decrease in receivables
of $6,401 driven largely by higher trade deductions, a decrease of $2,809 in prepaid expenses and other current assets and a $3,066 increase in accounts payable
and accrued expenses. This was partially offset by a $7,182 increase in inventory due to increased inventory purchases to support new stores and shop-in-shops and
the impact of higher in-transit inventory resulting primarily from a change in our shipping strategy to an FOB shipment basis.
40
Net cash provided by operating activities during fiscal 2013 primari ly consists of net income (loss), adjusted for certain non-cash items including PIK
interest on the Sun Promissory Notes and Sun Capital Loan Agreement, which was later contributed as capital, as well as depreciation, amortization and changes in
deferred i ncome taxes and the effects of changes in working capital and other activities.
Discontinued
operations
Net cash used in operating activities for fiscal 2013 was $54,667, which consisted of net loss of $50,815 adjusted for non-cash charges of $15,366, and cash
used in working capital of $19,218.
Investing Activities
(in thousands)
Investing activities
2015
Fiscal Year
2014
2013
Payments for capital expenditures
Net cash used in investing activities—continuing operations
Net cash used in investing activities—discontinued operations
Net cash used in investing activities
$
$
(17,591) $
(17,591)
—
(17,591) $
(19,699) $
(19,699)
—
(19,699) $
(10,073)
(10,073)
(5,936)
(16,009)
Continuing
operations
Net cash used in investing activities of $17,591 during fiscal 2015 represents capital expenditures related to retail store build-outs, including leasehold
improvements, costs related to the build-out of our new design studio and Paris showroom space, store fixtures as well as expenditures for our shop-in-shop spaces
operated by certain distribution partners and the investment in new ERP systems and related infrastructure.
Net cash used in investing activities of $19,699 during fiscal 2014 represents capital expenditures related to retail store build-outs, including leasehold
improvements and store fixtures as well as expenditures for our shop-in-shop spaces operated by certain distribution partners and the costs related to the build-out
of our new corporate office spaces and showroom facilities.
Net cash used in investing activities of $10,073 during fiscal 2013 represents capital expenditures, primarily related to retail store build-outs, including
leasehold improvements and store fixtures.
Discontinued
operations
Net cash used in investing activities for 2013 was $5,936, primarily consisting of $7,067 of cash and cash equivalents retained by the non-Vince business
after the Restructuring Transactions. Additionally there were $4,748 in payments for capital expenditures and other assets related to the non-Vince business during
the year, offset in part by proceeds from the sale of various assets of the non-Vince business prior to the Restructuring Transactions of $5,379, net of selling costs.
41
Financing Activities
2015
Fiscal Year
2014
2013
(in thousands)
Financing activities
Proceeds from borrowings under the Revolving Credit Facility
Payments for Revolving Credit Facility
Proceeds from borrowings under the Term Loan Facility
Payments for Term Loan Facility
Payment for Kellwood Note Receivable
Fees paid for Term Loan Facility and Revolving Credit Facility
Proceeds from common stock issuance, net of certain transaction costs
Stock option exercise
Net cash (used in) provided by financing activities—continuing operations
Net cash provided by financing activities—discontinued operations
Net cash (used in) provided by financing activities
$
$
115,127
$
(123,127)
—
(20,000)
—
(94)
—
175
(27,919)
—
(27,919) $
50,500
$
(27,500)
—
(105,000)
—
(114)
—
175
(81,939)
—
(81,939) $
—
—
175,000
(5,000)
(341,500)
(5,146)
186,000
42
9,396
46,917
56,313
Continuing
operations
Net cash provided by financing activities primarily relates to borrowings and repayments of the debt obligations and debt issuance costs related thereto, as
well as activity related to the issuance of our common stock and exercise of employee stock options.
Net cash used by financing activities was $27,919 during fiscal 2015, primarily consisting of voluntary prepayments totaling $20,000 on the Term Loan
Facility and $8,000 of net repayments under the Revolving Credit Facility.
Net cash used by financing activities was $81,939 during fiscal 2014, primarily consisting of voluntary prepayments totaling $105,000 on the Term Loan
Facility, partially offset by $23,000 of net borrowings under the Revolving Credit Facility.
Net cash provided by financing activities was $9,396 during fiscal 2013, primarily consisting of $186,000 of proceeds from the issuance of common stock,
net of certain transactions costs, on November 27, 2013. In connection with the IPO and the Restructuring Transactions discussed elsewhere in this annual report in
Form 10-K, the Company made borrowings of $175,000 under the Term Loan Facility and also entered into an agreement for the Revolving Credit Facility, for
which we paid $5,146 in debt issuance costs. Proceeds from the IPO and borrowings under the Term Loan Facility were then used to repay the Kellwood Note
Receivable of $341,500. In January of fiscal 2013, the Company made a voluntary prepayment of $5,000 on the Term Loan Facility.
Discontinued
operations
Net cash provided by financing activities during fiscal 2013 was $46,917, primarily consisting of $5,000 borrowings under the Sun Term Loan Agreements,
as well a $41,975 net increase in borrowings under the Kellwood revolving credit facilities, net of fees paid.
Current Existing Credit Facilities and Debt (Post IPO and Restructuring Transactions)
Revolving Credit Facility
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Vince, LLC entered into a $50,000 senior secured
revolving credit facility (as amended from time to time, the “Revolving Credit Facility”) with Bank of America, N.A. (“BofA”) as administrative agent. Vince,
LLC is the borrower and Vince Holding Corp. (“VHC”) and Vince Intermediate Holding, LLC, a direct subsidiary of VHC and the direct parent company of Vince,
LLC (“Vince Intermediate”), are the guarantors under the Revolving Credit Facility. On June 3, 2015, Vince LLC entered into a first amendment to the Revolving
Credit Facility, that among other things, increased the aggregate commitments under the facility from $50,000 to $80,000, subject to a loan cap which is the lesser
of (i) the Borrowing Base, as defined in the loan agreement, (ii) the aggregate commitments, or (iii) $70,000 until debt obligations under the Company’s term loan
facility have been paid in full, and extended the maturity date from November
42
27, 2018 to June 3, 2020. The Revolving Credit Faci lity also provides for a letter of credit sublimit of $25 ,000 (plus any increase in aggregate commitments) and
an accordion option that allows for an increase in aggregate commitments up to $20 ,000 . Interest is payable on the loans under the Revolving Cred it Facility at
either the LIBOR or the Base Rate, in each case, plus an applicable margin of 1.25% to 1.75% for LIBOR loans or 0.25% to 0.75% for Base Rate loans, and in each
case subject to a pricing grid based on an average daily excess availability calc ulation. The “Base Rate” means, for any day, a fluctuating rate per annum equal to
the highest of (i) the rate of interest in effect for such day as publicly announced from time to time by BofA as its prime rate; (ii) the Federal Funds Rate for such
day, p lus 0.50%; and (iii) the LIBOR Rate for a one month interest period as determined on such day, plus 1.0%. During the continuance of an event of default and
at the election of the required lender, interest will accrue at a rate of 2% in excess of the applic able non-default rate.
The Revolving Credit Facility contains a maintenance requirement that, at any point when “Excess Availability” is less than the greater of (i) 15% percent
of an adjusted loan cap (without giving effect to item (iii) of the loan cap described above) or (ii) $10,000, and continuing until Excess Availability exceeds the
greater of such amounts for 30 consecutive days, during which time, we must maintain a consolidated EBITDA (as defined in the related credit agreement) equal to
or greater than $20,000 measured at the end of each applicable fiscal month for the trailing twelve-month period. We have not been subject to this maintenance
requirement as Excess Availability was greater than the required minimum.
The Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing,
including limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions,
prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The
Revolving Credit Facility generally permits dividends in the absence of any event of default (including any event of default arising from the contemplated
dividend), so long as (i) after giving pro-forma effect to the contemplated dividend, for the following six months Excess Availability will be at least the greater of
20% of the adjusted loan cap and $10,000 and (ii) after giving pro forma effect to the contemplated dividend, the “Consolidated Fixed Charge Coverage Ratio” for
the 12 months preceding such dividend shall be greater than or equal to 1.0 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than
1.0 to 1.0 if, after giving pro forma effect to the contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of
35% of the adjusted loan cap and $15,000). We are in compliance with applicable financial covenants.
As of January 30, 2016, the availability under the Revolving Credit Facility was $28,127 net of the amended loan cap and there were $15,000 of borrowings
outstanding and $7,522 of letters of credit outstanding under the Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the
Revolving Credit Facility as of January 30, 2016 was 2.1%.
As of January 31, 2015, the availability under the Revolving Credit Facility was $19,353 and there was $23,000 of borrowings outstanding and $7,647 of
letters of credit outstanding under the Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the Revolving Credit Facility
as of January 31, 2015 was 2.1%.
There were no borrowings outstanding under the Revolving Credit Facility as of February 1, 2014.
Term Loan Facility
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Vince, LLC and Vince Intermediate entered into a
$175,000 senior secured term loan credit facility (as amended from time to time, the “Term Loan Facility”) with the lenders party thereto, BofA, as administrative
agent, JPMorgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers, and Cantor Fitzgerald as documentation agent. The
Term Loan Facility will mature on November 27, 2019. Vince, LLC and Vince Intermediate are borrowers and VHC is a guarantor under the Term Loan Facility.
On November 27, 2013, net borrowings under the Term Loan Facility were used at closing, together with proceeds from the IPO, to repay the Kellwood Note
Receivable issued by Vince Intermediate to Kellwood Company, LLC immediately prior to the consummation of the IPO as part of the Restructuring Transactions.
The Term Loan Facility also provides for an incremental facility of up to the greater of $50,000 and an amount that would result in the consolidated net total
secured leverage ratio not exceeding 3.00 to 1.00, in addition to certain other rights to refinance or repurchase portions of the term loan. The Term Loan Facility is
subject to quarterly amortization of principal equal to 0.25% of the original aggregate principal amount of the Term Loan Facility (adjusted to reflect any
prepayments), with the balance payable at final maturity. Interest is payable on loans under the Term Loan Facility at a rate of either (i) the Eurodollar rate (subject
to a 1.00% floor) plus an applicable margin of 4.75% to 5.00% based on a consolidated net total leverage ratio or (ii) the base rate applicable margin of 3.75% to
4.00% based on a consolidated net total leverage ratio. During the continuance of a payment or bankruptcy event of default, interest will accrue (i) on the overdue
principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue
amount at a rate of 2% in excess of the non-default interest rate then applicable to base rate loans. The Term Loan Facility requires Vince, LLC and Vince
Intermediate to make mandatory
43
prepayments upon the occurrence of certain events, including additional debt issuances, common and preferre d stock issuances, certain asset sales, and annual
payments of 50% of excess cash flow, subject to reductions to 25% and 0% if Vince, LLC and Vince Intermediate maintain a Consolidated Net Total Leverage
Ratio of 2.50 to 1.00 and 2.00 to 1.00, respectively , and subject to reductions for voluntary prepayments made during such fiscal year .
The Term Loan Facility contains a requirement that Vince, LLC and Vince Intermediate maintain a “Consolidated Net Total Leverage Ratio” as of the last
day of any period of four fiscal quarters not to exceed 3.75 to 1.00 for the fiscal quarters ending February 1, 2014 through November 1, 2014, 3.50 to 1.00 for the
fiscal quarters ending January 31, 2015, through October 31, 2015, and 3.25 to 1.00 for the fiscal quarter ending January 30, 2016 and each fiscal quarter thereafter.
In addition, the Term Loan Facility contains customary representations and warranties, other covenants, and events of default, including but not limited to,
limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of
other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year, and distributions and
dividends. The Term Loan Facility generally permits dividends to the extent that no default or event of default is continuing or would result from the contemplated
dividend and the pro forma Consolidated Net Total Leverage Ratio after giving effect to such contemplated dividend is at least 0.25 lower than the maximum
Consolidated Net Total Leverage Ratio for such quarter in an amount not to exceed the excess available amount, as defined in the loan agreement. All obligations
under the Term Loan Facility are guaranteed by Vince Holding Corp. and any future material domestic restricted subsidiaries of Vince, LLC and secured by a lien
on substantially all of the assets of Vince Holding Corp., Vince, LLC and Vince Intermediate and any future material domestic restricted subsidiaries. We are in
compliance with applicable financial covenants.
Through January 30, 2016, on an inception to date basis, we have made voluntary prepayments totaling $130,000 in the aggregate on the original $175,000
Term Loan Facility entered into on November 27, 2013. Of the $130,000 aggregate voluntary prepayments, $20,000 were paid during fiscal 2015. As of
January 30, 2016 we had $45,000 of debt outstanding under the Term Loan Facility.
Credit Facilities and Debt Prior to IPO and Restructuring Transactions which occurred on November 27, 2013
Sun Promissory Notes
On May 2, 2008, Vince Holding Corp. issued the Sun Promissory Notes in amounts totaling $300,000. The unpaid principal balance of the note accrued
interest at 12% per annum until the maturity date of October 15, 2016, at which point any unpaid principal balance of the note would have accrued interest at a rate
of 14% per annum until the note was paid in full. No interest was paid on the Sun Promissory Notes.
On December 28, 2012, all interest accrued under the note prior to July 19, 2012 was waived. This resulted in an increase to additional paid-in-capital in the
amount of $270,852 as both parties were under the common control of affiliates of Sun Capital.
Effective June 18, 2013, an affiliate of Sun Capital contributed $407,527 of indebtedness under the Sun Capital Loan Agreement and the Sun Promissory
Notes as a capital contribution to Vince Holding Corp., and as a result, no amount remains outstanding under either instrument.
Sun Capital Loan Agreement
Vince Holding Corp. was party to the Sun Capital Loan Agreement with SCSF Kellwood Finance, LLC (“SCSF Finance”) and Sun Kellwood Finance (as
successors to Bank of Montreal) for a $72,000 line of credit. Under the terms of this agreement, as amended from time to time, interest accrued at the greater of
prime plus 2% per annum or LIBOR plus 4.75% per annum and was due by the last day of each fiscal quarter.
On December 28, 2012, Sun Kellwood Finance and SCSF Finance waived all interest capitalized and accrued under the loan authorization agreement prior
to July 19, 2012 (which was the scheduled maturity date). As all parties were under the common control of affiliates of Sun Capital, this transaction resulted in a
capital contribution of $18,249, which was recorded as an adjustment to additional paid-in-capital as of February 2, 2013.
Effective June 18, 2013, an affiliate of Sun Capital contributed $407,527 of indebtedness under the Sun Capital Loan Agreement and the Sun Promissory
Notes as a capital contribution to Vince Holding Corp., and as a result, no amount remains outstanding under either instrument.
44
Wells Fargo Facility
On October 19, 2011 Kellwood Company and certain of its domestic subsidiaries, as borrowers, entered into a credit agreement with Wells Fargo Bank,
National Association, as agent, and lenders from time to time party thereto (“the “Wells Fargo Facility”). The Wells Fargo Facility provided a non-amortizing
senior revolving credit facility with aggregate lending commitments of $155,000. The borrowings were secured by a first-priority security interest in substantially
all of the assets of the borrowers, including the assets of Vince, LLC. Borrowings bore interest at a rate per annum equal to an applicable margin (generally 1.25%-
1.75% per annum plus, at the borrowers’ election, LIBOR or a Base Rate). On November 27, 2013, in connection with the consummation of the IPO and
Restructuring Transactions, the Wells Fargo Facility was amended and restated in accordance with its terms. After giving effect to such amendment and
restatement, neither Vince Holding Corp. nor any of its subsidiaries have any obligations thereunder.
Cerberus Term Loan
On October 19, 2011, Kellwood Company and certain of its domestic subsidiaries, as borrowers, entered into a Term Loan Agreement (the “Term Loan
Agreement”), as amended, with Cerberus Business Finance, LLC, as agent and the lenders from time to time party thereto. The Term Loan Agreement provided the
borrowers with a non-amortizing secured term loan in an aggregate amount of $55,000 (the “Cerberus Term Loan”), of which $10,000 was repaid during fiscal
2012. All borrowings under the Cerberus Term Loan bore interest at a rate per annum equal to an applicable margin (10.25%-11.25% per annum for LIBOR Rate
Loans and 8.25%-8.75% for Reference Rate Loans) plus, at the borrower’s election, LIBOR or a Reference Rate as defined in the Term Loan Agreement. The
Term Loan Agreement also provided for a portion of such interest equal to 1.0% per annum to be paid-in-kind and added to the principal amount of such term
loans. The Cerberus Term Loan was secured by a security interest in substantially all of the assets of the borrowers, including the assets of Vince, LLC. On
November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the Cerberus Term Loan was repaid with the proceeds from the
Company’s repayment of the Kellwood Note Receivable, as such neither Vince Holding Corp. nor any of its subsidiaries have any obligations thereunder.
Sun Term Loan Agreements
Since fiscal year 2009, Kellwood Company and certain of its domestic subsidiaries, as borrowers, entered into various term loan agreements (“Sun Term
Loan Agreements”) with affiliates of Sun Capital, as lenders, and Sun Kellwood Finance, as collateral agent. The Sun Term Loan Agreements were secured by a
security interest in substantially all of the assets of the borrowers, which included the assets of Vince, LLC, which security interest was contractually subordinated
to the security interests of the lenders under Wells Fargo Facility and the Cerberus Term Loan. The borrowings under the Sun Term Loan Agreements bore interest
at a rate per annum of 5.0%-6.0%, paid-in-kind and added to the principal amount of such term loans. On November 27, 2013, in connection with the closing of the
IPO and Restructuring Transactions, the obligations under the Sun Term Loan Agreements were discharged through (i) the application of Kellwood Note
Receivable proceeds repaid by the Company and (ii) capital contributions by Sun Capital affiliates, as such neither Vince Holding Corp. nor any of its subsidiaries
have any obligations thereunder.
12.875% Notes
Interest on the 12.875% Second-Priority Senior Secured Payment-In-Kind Notes due 2014 (the “12.875% Notes”) of Kellwood Company was paid (a) in
cash at a rate of 7.875% per annum payable in January and July; and (b) in the form of PIK interest at a rate of 5.0% per annum (“PIK Interest”) payable either by
increasing the principal amount of the outstanding 12.875% Notes, or by issuing additional 12.875% Notes with a principal amount equal to the PIK Interest
accrued for the interest period. The 12.875% Notes were guaranteed by various of Kellwood Company’s subsidiaries on a secured basis (including the assets of
Vince, LLC), which security interest was contractually subordinated to security interests of lenders under the Wells Fargo Facility, the Cerberus Term Loan and the
Sun Term Loan Agreements. On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the 12.875% Notes were redeemed
with proceeds from the repayment of the Kellwood Note Receivable by the Company, at which time Vince, LLC was released as a guarantor and the obligations
under the indenture were satisfied and discharged.
7.625% Notes
Interest on the 7.625% 1997 Debentures due October 15, 2017 of Kellwood Company (the “7.625% Notes”) was payable in April and October. On
November 27, 2013, in connection with the closing of the IPO and as an early settlement of the tender offer, Kellwood Company, LLC accepted for purchase (and
cancelled) approximately $33,474 in aggregate principal amount of the 7.625% Notes. On December 12, 2013, as part of the final settlement of the tender offer,
Kellwood Company, LLC accepted for purchase (and cancelled) an additional approximately $4,670 in aggregate principal amount of the 7.625% Notes. After
giving effect to these settlements, approximately $48,809 of the 7.625% Notes remain issued and outstanding; provided, that neither Vince Holding Corp. nor its
subsidiaries are a guarantor or obligor of such notes.
45
Off-Balance Sheet Arrangements
We did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that
would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes during the periods
presented herein.
Contractual Obligations
The following table summarizes our contractual obligations as of January 30, 2016 and the effect such obligations are expected to have on our liquidity and
cash flows in future periods:
(in thousands)
Unrecorded contractual obligations:
Operating lease obligations
Other contractual obligations (1)
Recorded contractual obligations:
Long-term debt obligations
Tax Receivable Agreement (2)
Total
(1)
(2)
Future payments due by period
2016
2017-2018
2019-2020
Thereafter
Total
$
$
$
20,083
18,752
$
41,603
4,045
$
40,237
3,184
$
67,444
—
169,367
25,981
—
29,075
67,910
$
—
—
45,648
$
60,000
—
103,421
$
—
—
67,444
$
60,000
169,913
425,261
Consists primarily of inventory purchase obligations and service contracts.
Vince Holding Corp. entered into the Tax Receivable Agreement with the Pre-IPO Stockholders (as described in Note 15 – Related Party Transactions
within the notes to Consolidated Financial Statements in this annual report on Form 10-K.) We cannot, however, reliably estimate in which future periods
these amounts would become due, other than those amounts expected to be paid within one year. The amount set forth in the “Total” column represents the
remaining obligation as of January 30, 2016 under the Tax Receivable Agreement.
The summary above does not include the following items:
·
·
·
·
Vince, LLC has entered into the Shared Services Agreement with Kellwood Company, LLC pursuant to which Kellwood provides support services
in various operational areas including, among other things, distribution, information technology and back office support (as described in Note 15 -
Related Party Transactions within the notes to Consolidated Financial Statements in this annual report on Form 10-K). We have excluded the
amounts due under such agreement from the table herein as we cannot precisely estimate the future payments to be made thereunder and timing
thereof. However, we currently expect to pay approximately $2,000 in fiscal 2016 for services provided by Kellwood under the Shared Services
Agreement.
As of January 30, 2016, we have recorded $2,127 of unrecognized tax benefits, excluding interest and penalties. We are unable to make reliable
estimates of cash flows by period due to the inherent uncertainty surrounding the effective settlement of these positions.
Interest payable under the Term Loan Facility which is calculated at a rate of either (i) the Eurodollar rate (subject to a 1.00% floor) plus an
applicable margin of 4.75% to 5.00% based on a consolidated net total leverage ratio or (ii) the base rate applicable margin of 3.75% to 4.00% based
on a consolidated net total leverage ratio.
Interest payable under the Revolving Credit facility which is calculated at either the LIBOR or the Base Rate, in each case, plus an applicable margin
of 1.25% to 1.75% for LIBOR loans or 0.25% to 0.75% for Base Rate loans, and in each case subject to a pricing grid based on an average daily
excess availability calculation. The “Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (i) the rate of interest in
effect for such day as publicly announced from time to time by BofA as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.50%; and (iii)
the LIBOR Rate for a one month interest period as determined on such day, plus 1.0%.
Seasonality
The apparel and fashion industry in which we operate is cyclical and, consequently, our revenues are affected by general economic conditions and the
seasonal trends characteristic to the apparel and fashion industry. Purchases of apparel are sensitive to a number of factors that influence the level of consumer
spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates, consumer confidence as well as the impact
from adverse weather conditions. In addition, fluctuations in sales in any fiscal quarter are affected by the timing of seasonal wholesale shipments and other events
affecting direct-to-consumer sales; as such, the financial results for any particular quarter may not be indicative of results for the fiscal year. We expect such
seasonality to continue.
46
Inflation
While inflation may impact our sales, cost of goods sold and expenses, we believe the effects of inflation on our results of operations and financial condition
are not significant. While it is difficult to accurately measure the impact of inflation, management believes it has not been significant and cannot provide any
assurances that our results of operations and financial condition will not be materially impacted by inflation in the future.
Critical Accounting Policies
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires
estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses. Management bases estimates on historical experience and
other assumptions it believes to be reasonable under the circumstances and evaluates these estimates on an on-going basis. Actual results may differ from these
estimates under different assumptions or conditions.
The following critical accounting polices reflect the significant estimates and judgments used in the preparation of our consolidated financial statements.
With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can potentially have a materially favorable or
unfavorable impact on subsequent consolidated results of operations. For more information on our accounting policies, please refer to the Notes to Consolidated
Financial Statements in this annual report on Form 10-K.
Revenue Recognition
Sales are recognized when goods are shipped in accordance with customer orders for the wholesale business, upon receipt by the customer for the e-
commerce business, and at the time of sale to consumers for the retail business. The estimated amounts of sales discounts, returns and allowances are accounted for
as reductions of sales when the associated sale occurs. These estimated amounts are adjusted periodically based on changes in facts and circumstances when the
changes become known. Accrued discounts, returns and allowances are included as an offset to accounts receivable. At January 30, 2016, a 1% change in the
reserves for returns and allowances would have resulted in a change of $25 in accounts receivable and net sales.
Accounts Receivable—Reserves for Allowances
Accounts receivable are recorded net of allowances for expected future chargebacks and margin support from wholesale partners. It is the nature of the
apparel industry that suppliers like us face significant pressure from wholesale partners in the retail industry to provide allowances to compensate for their margin
shortfalls. This pressure often takes the form of customers requiring us to provide price concessions on prior shipments as a prerequisite for obtaining future orders.
Pressure for these concessions is largely determined by overall retail sales performance and, more specifically, the performance of our products at retail. To the
extent our wholesale partners have more of our goods on hand at the end of the season, there will be greater pressure for us to grant markdown concessions on prior
shipments. Our accounts receivable balances are reported net of expected allowances for these matters based on the historical level of concessions required and our
estimates of the level of markdowns and allowances that will be required in the coming season in order to collect the receivables. We evaluate the allowance
balances on a continual basis and adjust them as necessary to reflect changes in anticipated allowance activity. We also provide an allowance for sales returns based
on historical return rates. At January 30, 2016, a hypothetical 1% change in the reserves for allowances would have resulted in a change of $103 in accounts
receivable and net sales.
Accounts Receivable—Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts receivable for estimated losses resulting from wholesale partners that are unable to meet their financial
obligations. Our estimation of the allowance for doubtful accounts involves consideration of the financial condition of specific customers as well as general
estimates of future collectability based on historical experience and expected future trends. The estimation of these factors involves significant judgment. In
addition, actual collection experience, and thus bad debt expense, can be significantly impacted by the financial difficulties of as few as one customer. At January
30, 2016, a hypothetical 1% change in the allowance for doubtful accounts would have resulted in a change of $2 in accounts receivable and SG&A expenses.
Inventory Valuation
Inventory values are reduced to net realizable value when there are factors indicating that certain inventories will not be sold on terms sufficient to recover
their cost. Our products can be classified into two types: replenishment and non-replenishment. Replenishment items are those basics that are not highly seasonal or
dependent on fashion trends. The same products are sold by
47
retailers 12 months a year and styles evolve slowly. Retailers generally replenish their stocks of these items as they are sold. Only a relatively small portion of our
business involves replenishment items.
The majority of our products consist of items that are non-replenishment as a result of being tied to a season. For these products, the selling season generally
ranges from three to six months. The value of this seasonal merchandise might be sufficient for us to generate a profit over its cost throughout the season, but after
its season a few months later the same inventory might be saleable at less than cost. The value may rise again the following year when the season in which the
goods sell approaches—or it may not, depending on the level of prior year merchandise on the market and on year-to-year fashion changes.
The majority of out-of-season inventories may be sold to off-price retailers and other customers who serve a customer base that will purchase prior year
fashions in addition to liquidation through our Vince outlets. The amount, if any, that these customers will pay for prior year fashions is determined by the
desirability of the inventory itself as well as the general level of prior year goods available to these customers. The assessment of inventory value, as a result, is
highly subjective and requires an assessment of the seasonality of the inventory, its future desirability, and future price levels in the off-price sector.
In our wholesale business, some of our products are purchased for and sold to specific customers’ orders. For the remainder of our business, products are
purchased in anticipation of selling them to a specific customer based on historical trends. The loss of a major customer, whether due to the customer’s financial
difficulty or other reasons, could have a significant negative impact on the value of the inventory expected to be sold to that customer. This negative impact can
also extend to purchase obligations for goods that have not yet been received. These obligations involve product to be received into inventory over the next one to
six months.
At January 30, 2016, a hypothetical 1% change in the lower of cost or market reserve would have resulted in a change of $132 in inventory and cost of
products sold.
Fair Value Assessments of Goodwill and Other Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually and in an interim period if a triggering event occurs.
Determining the fair value of goodwill and other intangible assets is judgmental in nature and requires the use of significant estimates and assumptions, including
revenue growth rates and operating margins, discount rates and future market conditions, among others. It is possible that estimates of future operating results could
change adversely and impact the evaluation of the recoverability of the carrying value of goodwill and intangible assets and that the effect of such changes could be
material. We completed our annual impairment testing on our goodwill and indefinite-lived intangible assets during the fourth quarters of fiscal 2015, fiscal 2014
and fiscal 2013.
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to ASC Topic 350 Intangibles-Goodwill
and
Other.
Under
this amendment, an entity may elect to perform a qualitative impairment assessment for goodwill. If adverse trends are identified during the qualitative assessment
that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test is required. “Step
one” of this quantitative impairment test requires that the fair value of the reporting unit be estimated and compared to its carrying amount. If the carrying amount
exceeds the estimated fair value of the asset, “step two” of the impairment test is performed to calculate the impairment loss. An impairment loss is recognized to
the extent the carrying amount of the reporting unit exceeds the implied fair value.
An entity may pass on performing the qualitative assessment for a reporting unit and directly perform “step one” of the assessment. This determination can
be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. The amendment is effective for annual and
interim impairment tests for goodwill performed for fiscal years beginning after December 15, 2011. We adopted this amendment during fiscal 2012.
In fiscal 2015 we elected to perform a quantitative impairment test on the goodwill. The results of the quantitative test did not result in any impairment of
goodwill because the fair values of each of the Company’s reporting units exceeded their respective carrying values. T he fair values of the Company’s reporting
units exceeded their respective carrying values by at least 15% as of the date of the impairment test. Significant assumptions utilized in a discounted cash flow
analysis included discount rates that ranged from 16.0% to 17.0%. Significant assumptions utilized in a market-based approach were market multiples ranging from
0.85x to 0.95x for the Company’s reporting units where a market-based approach was performed.
In fiscal 2014 and fiscal 2013, we elected to perform a qualitative assessment on the goodwill and determined that it was not more likely than not that the
carrying value of the reporting unit was greater than the fair value. As such, we were not required to perform “step two” of the impairment test.
48
In July 2012, FASB issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing
Indefinite
Lived
Assets
for
Impairment.
Under this amendment, an entity may elect to perform a qualitative impairment assessment for indefinite-lived intangible assets similar to the goodwil
l impairment testing guidance discussed above.
An entity may pass on performing the qualitative assessment for an indefinite-lived intangible asset and directly perform “step one” of the assessment. This
determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. The amendment is
effective for annual and interim impairment tests for indefinite-lived intangible assets performed for fiscal years beginning after September 15, 2012. We early
adopted this amendment during fiscal 2012.
In fiscal 2015 we elected to perform a quantitative assessment on indefinite-lived intangible assets. The results of the quantitative test did not result in any
impairment because the fair value of the Company’s indefinite-lived intangible asset exceeded its carrying value. The estimates of fair value of indefinite-lived
intangible assets are determined using a discounted cash flow valuation analysis, which is based on the “relief from royalty” methodology. Discount rate
assumptions are based on an assessment of the risk inherent in the projected future cash flows generated by the intangible asset. Also subject to judgment are
assumptions about royalty rates, which are based on the estimated rates at which similar tradenames are being licensed in the marketplace.
In fiscal 2014 and fiscal 2013, we elected to perform a qualitative assessment on the indefinite-lived intangible asset and determined that it was not more
likely than not that the carrying value of the asset exceeded the fair value, as such we were not required to perform “step two” of the impairment test.
Property, Plant and Equipment and Other Definite-Lived Intangible Assets
The Company reviews its property, plant and equipment and definite-lived intangibles assets for impairment when management determines that the carrying
value of such assets may not be recoverable due to events or changes in circumstances. Recoverability of these assets is evaluated by comparing the carrying value
of the asset with estimated future undiscounted cash flows. If the comparisons indicate that the value of the asset is not recoverable, an impairment loss is
calculated as the difference between the carrying value and the fair value of the asset and the loss is recognized during that period. The Company did not record any
material impairment charges in fiscal 2015, fiscal 2014 or fiscal 2013. Definite-lived intangible assets are comprised of customer relationships and are being
amortized on a straight-line basis over their useful lives of 20 years.
Income taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax
consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities at enacted rates. We determine the appropriateness of
valuation allowances in accordance with the “more likely than not” recognition criteria. We recognize tax positions in our Consolidated Balance Sheets as the
largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities assuming full knowledge of the position
and all relevant facts.
Recent Accounting Pronouncements
For information on certain recently issued or proposed accounting standards which may impact Vince Holding Corp., please refer to the notes to
Consolidated Financial Statements in this annual report on Form 10-K.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our principal market risk relates to interest rate sensitivity, which is the risk that changes in interest rates will reduce our net income or net assets. Our
variable rate debt consists of borrowings under the Term Loan Facility and Revolving Credit Facility. Our current interest rate on the Term Loan Facility is based
on the Eurodollar rate (subject to a 1.00% floor) plus 4.75%. Our interest rate on the Revolving Credit Facility is based on the Eurodollar rate or the Base Rate (as
defined in the Revolving Credit Facility) with applicable margins subject to a pricing grid based on excess availability. As of January 30, 2016, a one percentage
point increase in the interest rate on our variable rate debt would result in additional interest expense of approximately $600 for the $60,000 borrowings outstanding
under the Term Loan Facility and Revolving Credit Facility as of such date, calculated on an annual basis.
On September 1, 2015, we entered into an amendment to the Tax Receivable Agreement pursuant to which Sun Cardinal agreed to postpone payment of the
tax benefit with respect to the 2014 taxable year currently estimated at $21,762 plus accrued interest, to September 15, 2016. The amendment to the Tax Receivable
Agreement also waived the application of a default interest rate at LIBOR plus 500 basis points per annum on the postponed payment. The interest rate on the
postponed payment will remain at LIBOR plus 200 basis points per annum. The Company also expects to make a payment of $7,313 related the to 2015 taxable
year in the fourth
49
quarter of fiscal 2016. As of January 30, 2016, a one percentage point increase in the interest rate would result in additi onal inter est expense of approximately
$291 for the $29,075 total payment s owed under the Tax Receivable Agreement as of such date, calculated on an annual basis.
We do not believe that foreign currency risk, commodity price or inflation risks are expected to be material to our business or our consolidated financial
position, results of operations or cash flows. Substantially all of our foreign sales and purchases are made in U.S. dollars.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See “Index to Financial Statements,” which is located on page F-1 appearing at the end of this annual report on Form 10-K.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A.
CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Attached as exhibits to this Annual Report on Form 10-K are certifications of our Chief Executive Officer and Chief Financial Officer. Rule 13a-14 of the
Exchange Act requires that we include these certifications with this report. This Controls and Procedures section includes information concerning the disclosure
controls and procedures referred to in the certifications. You should read this section in conjunction with the certifications.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of January 30, 2016.
We evaluate the effectiveness of our disclosure controls and procedures on at least a quarterly basis. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure information is recorded, processed, summarized
and reported within the periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information
is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions
regarding required disclosure.
Limitations on the Effectiveness of Disclosure Controls and Procedures
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, our disclosure controls and
procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure system are met. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control
over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control over financial reporting is a process to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions
50
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements .
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of January 30, 2016. In making this assessment, management used
the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013).
Based on this assessment, management has concluded that, as of January 30, 2016, our internal control over financial reporting was effective, at a reasonable
assurance level.
Because we are an emerging growth company under the JOBS Act, this Annual Report on Form 10-K does not include an attestation report of our
independent registered public accounting firm.
ITEM 9B.
OTHER INFORMATION.
None.
ITEM 10.
DIRECTORS, EXECUTIVE O FFICERS AND CORPORATE GOVERNANCE.
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with our 2016 annual meeting of stockholders. Our definitive proxy statement will be filed on or before 120 days after the end
of fiscal 2015.
PART III
ITEM 11.
EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with our 2016 annual meeting of stockholders.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS
MATTERS.
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with our 2016 annual meeting of stockholders.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with our 2016 annual meeting of stockholders.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item is incorporated herein by reference from the Company’s definitive proxy statement to be filed with the Securities and
Exchange Commission in connection with our 2016 annual meeting of stockholders.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Part IV
(a)
Financial Statements and Financial statement Schedules. See “Index to the Audited Consolidated Financial Statements” which is located on F-1 of
this annual report on Form 10-K.
(b)
Exhibits. See the exhibit index which is included herein.
51
Exhibit Listing:
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6†
10.7†
10.8†
10.9†
10.10†
10.11†
10.13†
Exhibit Description
Amended & Restated Certificate of Incorporation of Vince Holding Corp. ( incorporated
by
reference
to
Exhibit
3.1
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Amended & Restated Bylaws of Vince Holding Corp. ( incorporated
by
reference
to
Exhibit
3.1
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Form of Stock certificate ( incorporated
by
reference
to
Exhibit
4.1
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
November
12,
2013
)
Registration Agreement, dated as of February 20, 2008, among Apparel Holding Corp., Sun Cardinal, LLC, SCSF Cardinal, LLC and the Other
Investors party thereto ( incorporated
by
reference
to
Exhibit
4.2
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Shared Services Agreement, dated as of November 27, 2013, between Vince, LLC and Kellwood Company, LLC (incorporated
by
reference
to
Exhibit
10.1
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Tax Receivable Agreement, dated as of November 27, 2013, between Vince Intermediate Holding, LLC, the Stockholders, and Sun Cardinal, LLC
as Stockholder Representative ( incorporated
by
reference
to
Exhibit
10.2
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Consulting Agreement, dated as of November 27, 2013, between Vince Holding Corp. and Sun Capital Partners Management V, LLC (
incorporated
by
reference
to
Exhibit
10.3
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Credit Agreement, dated as of November 27, 2013, by and among Vince, LLC, Vince Intermediate Holding, LLC, Bank of America, N.A., as
Administrative Agent, J.P. Morgan Securities LLC, as Syndication Agent, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Bookrunners, and Cantor Fitzgerald Securities, as Documentation
Agent ( incorporated
by
reference
to
Exhibit
10.5
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Credit Agreement, dated as of November 27, 2013, by and among Vince, LLC, the guarantors party thereto, Bank of America, N.A., as Agent, the
other lenders party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Sole Lead Arranger and Sole Book Runner ( incorporated
by
reference
to
Exhibit
10.4
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Employment Agreement, dated as of May 4, 2012, between Jill Granoff and Kellwood Company (incorporated
by
reference
to
Exhibit
10.48
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013)
Amendment to Employment Agreement, dated as of December 30, 2012, between Jill Granoff and Kellwood Company ( incorporated
by
reference
to
Exhibit
10.49
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Amendment No. 2 to Employment Agreement, dated as of September 24, 2013, between Jill Granoff and Kellwood Company ( incorporated
by
reference
to
Exhibit
10.50
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Debt Recovery Bonus Side Letter Agreement, dated June 11, 2013, between Jill Granoff and Kellwood Company ( incorporated
by
reference
to
Exhibit
10.51
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Employment Agreement, dated March 2013, between Karin Gregersen and Vince, LLC (incorporated
by
reference
to
Exhibit
10.51
to
the
Company’s
Annual
Report
on
Form
10-K
filed
on
April
4,
2014)
Employment Agreement, dated April 5 2013, between Michele Sizemore and Vince, LLC (incorporated
by
reference
to
Exhibit
10.52
to
the
Company’s
Annual
Report
on
Form
10-K
filed
on
April
4,
2014)
Employment Agreement, dated November 21, 2014, between Melissa Wallace and Vince Holding Corp. (incorporated
by
reference
to
Exhibit
10.13
to
the
Company’s
Annual
Report
on
Form
10-K
filed
on
March
27,
2015)
52
Exhibit
Number
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
10.25†
10.26†
10.27†
10.28†
10.29†
10.30†
Exhibit Description
Assignment and Assumption Agreement, dated as of November 27, 2013, by and among Kellwood Company, LLC, Apparel Holding Corp. and Jill
Granoff (incorporated
by
reference
to
Exhibit
10.55
to
the
Company’s
Annual
Report
on
Form
10-K
filed
on
April
4,
2014)
Employment Offer Letter, dated as of November 2, 2012, between Lisa Klinger and Kellwood Company ( incorporated
by
reference
to
Exhibit
10.52
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Assignment and Assumption Agreement, dated as of November 27, 2013, by and between Kellwood Company, LLC and Apparel Holding Corp.
(incorporated
by
reference
to
Exhibit
10.57
to
the
Company’s
Annual
Report
on
Form
10-K
filed
on
April
4,
2014)
2010 Stock Option Plan of Kellwood Company ( incorporated
by
reference
to
Exhibit
10.56
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Form of 2010 Stock Option Plan grant agreement for executive officers ( incorporated
by
reference
to
Exhibit
10.57
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
2010 Stock Plan of Kellwood Company Grant Agreement, dated as of May 4, 2012, by and between Kellwood Company and Jill Granoff (
incorporated
by
reference
to
Exhibit
10.43
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Amendment to Grant Agreement, between Kellwood Company and Jill Granoff ( incorporated
by
reference
to
Exhibit
10.59
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
First Amendment to Grant Agreement, dated December 30, 2012, between Kellwood Company and Jill Granoff ( incorporated
by
reference
to
Exhibit
10.60
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
Second Amendment to Grant Agreement, dated November 26, 2013, between Kellwood Company and Jill Granoff ( incorporated
by
reference
to
Exhibit
10.12
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
2010 Stock Plan of Kellwood Company Grant Agreement, dated as of December 10, 2012, by and between Kellwood Company and Lisa Klinger (
incorporated
by
reference
to
Exhibit
10.61
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
333-191336)
filed
with
the
Securities
Exchange
Commission
on
September
24,
2013
)
First Amendment to Grant Agreement, dated November 26, 2013, between Kellwood Company and Lisa Klinger ( incorporated
by
reference
to
Exhibit
10.13
to
the
Company’s
Current
Report
on
Form
8-K
filed
with
the
Securities
Exchange
Commission
on
November
27,
2013
)
Form of Indemnification Agreement (for directors and officers affiliated with Sun Capital Partners) ( incorporated
by
reference
to
Exhibit
10.6
to
the
Company’s
Current
Report
on
Form
8-K
filed
on
November
27,
2013
)
Form of Indemnification Agreement (for directors and officers not affiliated with Sun Capital Partners) ( incorporated
by
reference
to
Exhibit
10.7
to
the
Company’s
Current
Report
on
Form
8-K
filed
on
November
27,
2013
)
Vince Holding Corp. 2013 Incentive Plan ( incorporated
by
reference
to
Exhibit
10.66
to
the
Company’s
Registration
Statement
on
Form
S-1
(File
No.
(333-191336)
filed
with
the
Securities
Exchange
Commission
on
November
12,
2013
)
Form of Non-Qualified Stock Option Agreement ( incorporated
by
reference
to
Exhibit
10.15
to
the
Company’s
Current
Report
on
Form
8-K
filed
on
November
27,
2013
)
Form of Restricted Stock Unit Agreement ( incorporated
by
reference
to
Exhibit
10.16
to
the
Company’s
Current
Report
on
Form
8-K
filed
on
November
27,
2013
)
Vince Holding Corp. Amended and Restated 2013 Employee Stock Purchase Plan ( incorporated
by
reference
to
Annex
A
to
the
Company’s
Information
Statement
on
Schedule
14C
(File
No.
(001-36212)
filed
with
the
Securities
Exchange
Commission
on
September
3,
2015
)
53
Exhibit
Number
10.31
10.32†
10.33
10.34†
10.35†
10.36†
10.37†
10.38†
10.39†
10.40†
10.41
10.42
10.43
10.44†
10.45
21.1
23.1
31.1
31.2
32.1
32.2
Exhibit Description
First Amendment to Credit Agreement, dated as of June 3, 2015, by and among the Company, the guarantors parties thereto, BofA, as
administrative agent, and each lender party thereto ( incorporated
by
reference
to
Exhibit
10.1
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
September
8,
2015
).
Employment Offer Letter, dated as of June 25, 2015, from Vince Holding Corp. to Mark E. Brody relating to his appointment as the Interim Chief
Financial Officer and Treasurer of the Company ( incorporated
by
reference
to
Exhibit
10.2
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
September
8,
2015
).
First Amendment to the Tax Receivable Agreement, dated as of September 1, 2015, between Vince Holding Corp., the Stockholders, and the
Stockholder Representative ( incorporated
by
reference
to
Exhibit
10.1
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
December
8,
2015
).
Employment Offer Letter, dated as of September 1, 2015, from Vince Holding Corp. to Mark E. Brody relating to his appointment as the Interim
Chief Executive Officer of the Company ( incorporated
by
reference
to
Exhibit
10.2
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
December
8,
2015
).
Employment Offer Letter, dated as of September 1, 2015, from Vince Holding Corp. to David Stefko relating to his appointment as the Interim
Chief Financial Officer and Treasurer of the Company ( incorporated
by
reference
to
Exhibit
10.3
to
the
Company’s
Quarterly
Report
on
Form
10-
Q
filed
on
December
8,
2015
).
Employment Offer Letter, dated as of October 22, 2015, from Vince, LLC to Brendan Hoffman relating to his appointment as the Chief Executive
Officer of the Company ( incorporated
by
reference
to
Exhibit
10.4
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
December
8,
2015
).
Transition Services and Separation Agreement, dated as of October 6, 2015, between Vince Holding Corp and Jill Granoff ( incorporated
by
reference
to
Exhibit
10.5
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
December
8,
2015
).
Confidential Severance Agreement and General Release, dated as of August 6, 2015, between Vince Holding Corp and Lisa Klinger ( incorporated
by
reference
to
Exhibit
10.6
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
December
8,
2015
).
Severance Agreement and General Release, dated as of September 28, 2015, between Vince, LLC and Karin Gregersen McLennan ( incorporated
by
reference
to
Exhibit
10.7
to
the
Company’s
Quarterly
Report
on
Form
10-Q
filed
on
December
8,
2015
).
Employment Offer Letter, dated as of November 12, 2015, from Vince, LLC to Ryan Schreiber relating to his appointment as the Senior Vice
President, General Counsel of the Company.
Consulting Agreement, dated as of November 23, 2015, between Vince, LLC and Rea Laccone.
Consulting Agreement, dated as of November 23, 2015, between Vince, LLC and Christopher LaPolice.
Rights Offering Commitment Letter, dated as of December 9, 2015, from Sun Capital Partners V, L.P.
Employment Offer Letter, dated as of January 12, 2016, from Vince, LLC to David Stefko relating to his appointment as the Chief Financial
Officer of the Company.
Investment Agreement, dated as of March 15, 2016, by and among Vince Holding Corp., Sun Cardinal, LLC and SCSF Cardinal, LLC (
incorporated
by
reference
to
Exhibit
10.1
to
the
Company’s
Current
Report
on
Form
8-K
filed
on
March
16,
2016)
.
List of subsidiaries of Vince Holding Corp. (incorporated
by
reference
to
Exhibit
21.1
to
the
Company’s
Annual
Report
on
Form
10-K
filed
on
April
4,
2014)
Consent of PricewaterhouseCoopers LLP
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
54
Exhibit
Number
Exhibit Description
101
Financial Statements in XBRL Format
†
Indicates exhibits that constitute management contracts or compensatory plans or arrangements
55
SIGNAT URES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
VINCE HOLDING CORP.
/s/ Brendan Hoffman
By:
Name: Brendan Hoffman
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and
on the dates listed.
Signature
/s/ Brendan Hoffman
Brendan Hoffman
/s/ David Stefko
David Stefko
/s/ Jonathan H. Borell
Jonathan H. Borell
/s/ Robert A. Bowman
Robert A. Bowman
/s/ Mark E. Brody
Mark E. Brody
/s/ Jerome Griffith
Jerome Griffith
/s/ Marc J. Leder
Marc J. Leder
/s/ Steven M. Liff
Steven M. Liff
/s/ Eugenia Ulasewicz
Eugenia Ulasewicz
Chief Executive Officer (Principal Executive Officer) (Director)
Title
Date
April 14, 2016
Chief Financial Officer (Principal Financial and Accounting Officer)
April 14, 2016
Director
Director
Director
Director
Director
Director
Director
April 14, 2016
April 14, 2016
April 14, 2016
April 14, 2016
April 14, 2016
April 14, 2016
April 14, 2016
INDEX TO THE AUDITED CONSOL IDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm on Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
F-2
F-3
F-4
F-5
F-6
F-8
F-9
F-38
To the Board of Directors and Shareholders of Vince Holding Corp.:
R eport of Independent Regist ered Public Accounting Firm
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Vince
Holding Corp. and its subsidiaries at January 30, 2016 and January 31, 2015, and the results of their operations and their cash flows for each of the three years in
the period ended January 30, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
April 14, 2016
F-2
VINCE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents
Trade receivables, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Goodwill
Deferred income taxes and other assets
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued salaries and employee benefits
Other accrued expenses
Total current liabilities
Long-term debt
Deferred rent
Other liabilities
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock at $0.01 par value (100,000,000 shares authorized, 36,779,417 and
36,748,245 shares issued and outstanding at January 30, 2016 and January 31, 2015,
respectively)
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
January 30,
2016
January 31,
2015
$
$
$
6,230
9,400
36,576
8,027
60,233
37,769
109,046
63,746
92,774
363,568
28,719
5,755
37,174
71,648
57,615
14,965
140,838
112
33,797
37,419
9,812
81,140
28,349
109,644
63,746
95,769
378,648
29,118
7,380
27,992
64,490
84,450
11,676
146,063
368
1,012,677
(934,478)
(65)
78,502
363,568
$
367
1,011,244
(939,577)
(65)
71,969
378,648
$
$
$
$
See accompanying notes to Consolidated Financial Statements.
F-3
VINCE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data and share amounts)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Income from operations
Interest expense, net
Other expense, net
Income before income taxes
Provision for income taxes
Net income from continuing operations
Net loss from discontinued operations, net of tax
Net income (loss)
Basic earnings (loss) per share:
Basic earnings per share from continuing operations
Basic loss per share from discontinued operations
Basic earnings (loss) per share
Diluted earnings (loss) per share:
Diluted earnings per share from continuing operations
Diluted loss per share from discontinued operations
Diluted earnings (loss) per share
Weighted average shares outstanding:
Basic
Diluted
2015
Fiscal Year
2014
2013
$
$
$
$
$
$
302,457
169,941
132,516
116,790
15,726
5,680
1,733
8,313
3,214
5,099
—
5,099
0.14
—
0.14
0.14
—
0.14
$
$
$
$
$
$
340,396
173,567
166,829
96,579
70,250
9,698
835
59,717
23,994
35,723
—
35,723
0.97
—
0.97
0.93
—
0.93
$
$
$
$
$
$
288,170
155,154
133,016
83,663
49,353
18,011
679
30,663
7,268
23,395
(50,815)
(27,420)
0.83
(1.81)
(0.98)
0.83
(1.81)
(0.98)
36,770,430
37,529,227
36,730,490
38,244,906
28,119,794
28,272,925
See accompanying notes to Consolidated Financial Statements.
F-4
VINCE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Foreign currency translation adjustment
Comprehensive income (loss)
2015
Fiscal Year
2014
$
$
5,099
—
5,099
$
$
35,723
—
35,723
$
$
2013
(27,420)
1
(27,419)
See accompanying notes to Consolidated Financial Statements
F-5
Balance as of February 2, 2013
Comprehensive loss:
Net loss
Foreign currency translation adjustment
Common stock issuance, net of certain costs
Share-based compensation expense
Exercise of stock options
Capital contribution from stockholders
Recognition of certain deferred tax assets, net
Recognition of tax receivable agreement
obligation
Separation of non-Vince businesses
and settlement of Kellwood
Note Receivable
Balance as of February 1, 2014
Comprehensive income:
Net income
Share-based compensation expense
Exercise of stock options
Restricted stock unit vestings
Tax receivable agreement obligation
adjustment
Balance as of January 31, 2015
Comprehensive income:
Net income
Share-based compensation expense
Exercise of stock options
Restricted stock unit vestings
Balance as of January 30, 2016
VINCE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share amounts)
Common Stock
Par
Value
Additional
Paid-In
Capital
$
262
$
386,419
Accumulated
Deficit
(947,880)
$
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
(Deficit)
$
(66)
$
(561,265)
Number of
Shares
Outstanding
26,211,130
—
—
10,000,000
—
512,597
—
—
—
—
100
—
5
—
—
—
—
185,900
898
37
407,527
127,833
(27,420)
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
(65)
—
—
—
—
—
(65)
—
—
—
—
(65)
$
(27,420)
1
186,000
898
42
407,527
127,833
(173,146)
73,081
33,551
35,723
1,896
175
—
624
71,969
5,099
1,259
175
—
78,502
—
—
(173,146)
—
—
36,723,727
—
—
22,018
2,500
—
36,748,245
—
—
26,209
4,963
36,779,417
$
—
367
—
—
—
—
—
367
—
—
1
—
368
73,081
1,008,549
—
(975,300)
—
1,896
175
—
624
1,011,244
—
1,259
174
—
$ 1,012,677
$
35,723
—
—
—
—
(939,577)
5,099
—
—
—
(934,478)
$
See accompanying notes to Consolidated Financial Statements.
F-6
VINCE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net income (loss)
Less: Net loss from discontinued operations
Add (deduct) items not affecting operating cash flows:
Depreciation
Provision for inventories
Amortization of intangible assets
Amortization of deferred financing costs
Amortization of deferred rent
Deferred income taxes
Share-based compensation expense
Capitalized PIK Interest
Loss on disposal of property, plant and equipment
Changes in assets and liabilities:
Receivables, net
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Other assets and liabilities
Net cash provided by operating activities—continuing operations
Net cash used in operating activities—discontinued operations
Net cash provided by (used in) operating activities
Investing activities
Payments for capital expenditures
Net cash used in investing activities—continuing operations
Net cash used in investing activities—discontinued operations
Net cash used in investing activities
Financing activities
Proceeds from borrowings under the Revolving Credit Facility
Payments for Revolving Credit Facility
Proceeds from borrowings under the Term Loan Facility
Payments for Term Loan Facility
Payment for Kellwood Note Receivable
Fees paid for Term Loan Facility and Revolving Credit Facility
Proceeds from common stock issuance, net of certain transaction costs
Stock option exercise
Net cash (used in) provided by financing activities—continuing operations
Net cash provided by financing activities—discontinued operations
Net cash (used in) provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Less: Cash and cash equivalents of discontinued operations, end of period
Cash and cash equivalents, end of period
2015
Fiscal Year
2014
2013
$
$
5,099
—
35,723
—
$
(27,420)
(50,815)
7,752
16,263
598
1,259
1,723
2,745
1,259
—
375
24,397
(15,420)
3,441
1,044
1,093
51,628
—
51,628
(17,591)
(17,591)
—
(17,591)
115,127
(123,127)
—
(20,000)
—
(94)
—
175
(27,919)
—
(27,919)
6,118
112
6,230
—
6,230
$
4,668
3,719
599
1,532
3,045
23,248
1,896
—
—
6,401
(7,182)
2,809
3,066
742
80,266
—
80,266
(19,699)
(19,699)
—
(19,699)
50,500
(27,500)
—
(105,000)
—
(114)
—
175
(81,939)
—
(81,939)
(21,372)
21,484
112
—
112
$
2,186
3,738
599
178
465
7,225
347
15,883
262
(6,265)
(18,807)
1,681
3,235
(156)
33,966
(54,667)
(20,701)
(10,073)
(10,073)
(5,936)
(16,009)
—
—
175,000
(5,000)
(341,500)
(5,146)
186,000
42
9,396
46,917
56,313
19,603
1,881
21,484
—
21,484
$
See accompanying notes to Consolidated Financial Statements
F-7
VINCE HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Supplemental Disclosures of Cash Flow Information
Cash payments on TRA obligation
Cash payments for interest
Cash payments for income taxes, net of refunds
Supplemental Disclosures of Cash Flow Information,
discontinued operations
Cash payments for interest
Cash payments for income taxes, net of refunds
Supplemental Disclosures of Non-Cash Investing and
Financing Activities
Capital expenditures in accounts payable
2015
Fiscal Year
2014
2013
$
$
—
3,838
1,491
$
3,199
8,737
88
—
—
309
—
—
452
—
1,018
31
20,644
566
222
See accompanying notes to Consolidated Financial Statements
F-8
VINCE HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data and share amounts)
Note 1. Description of Business and Summary of Significant Accounting Policies
On
November
27,
2013,
Vince
Holding
Corp.
(“VHC”),
previously
known
as
Apparel
Holding
Corp.,
closed
an
initial
public
offering
of
its
common
stock
and
completed
a
series
of
restructuring
transactions
through
which
(i)
Kellwood
Holding,
LLC
acquired
the
non-Vince
businesses,
which
include
Kellwood
Company,
LLC,
from
the
Company
and
(ii)
the
Company
continues
to
own
and
operate
the
Vince
business,
which
includes
Vince,
LLC.
The
historical
financial
information
presented
herein
as
of
January
30,
2016
includes
only
the
Vince
businesses
and
all
historical
financial
information
prior
to
November
27,
2013
includes
the
Vince
business
as
continuing
operations
and
the
non-Vince
businesses
as
a
component
of
discontinued
operations.
(A) Description of Business : Vince is a leading contemporary fashion brand best known for modern effortless style and everyday luxury essentials.
Established in 2002, the brand now offers a wide range of women’s and men’s apparel, women’s and men’s footwear, and handbags. We reach our customers
through a variety of channels, specifically through major wholesale department stores and specialty stores in the United States (“U.S.”) and select international
markets, as well as through our branded retail locations and our website. We design our products in the U.S. and source the vast majority of our products from
contract manufacturers outside the U.S., primarily in Asia and South America. Products are manufactured to meet our product specifications and labor standards.
(B) Basis of Presentation : The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).
The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation. The amounts and disclosures included in the notes to the consolidated financial statements, unless otherwise indicated, are
presented on a continuing operations basis. In the opinion of management, the financial statements contain all adjustments (consisting solely of normal recurring
adjustments) and disclosures necessary to make the information presented therein not misleading. As used in this report, unless the context requires otherwise,
“our,” “us” and “we” refer to VHC and its consolidated subsidiaries.
Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation. The
reclassification had no impact on previously reported net income or stockholders’ equity.
(C) Fiscal Year : VHC operates on a fiscal calendar widely used by the retail industry that results in a given fiscal year consisting of a 52 or 53-week period
ending on the Saturday closest to January 31 of the following year.
·
·
·
References to “fiscal year 2015” or “fiscal 2015” refer to the fiscal year ended January 30, 2016;
References to “fiscal year 2014” or “fiscal 2014” refer to the fiscal year ended January 31, 2015;
References to “fiscal year 2013” or “fiscal 2013” refer to the fiscal year ended February 1, 2014.
Fiscal years 2015, 2014 and 2013 consisted of a 52-week period.
(D) Our Business and Liquidity : During fiscal 2015 we have experienced declining sales and additional costs associated with making strategic
investments for the future growth of the VINCE brand, including costs associated with the write-down of excess inventory, consulting agreements with our co-
founders and the reorganization of our management team. We have undertaken steps to enhance our liquidity position that we expect will allow us to maintain a net
debt balance sufficient to comply with any covenants under the Term Loan Facility and the Revolving Credit Facility, as well as provide additional cash for use in
our operations as we make these investments. Accordingly, on December 9, 2015 we received a Rights Offering Commitment Letter from Sun Capital Partners V,
L.P. (“Sun Fund V”) that commits Sun Fund V to provide the Company with an amount equal to $65,000 of cash proceeds in the event that the Company conducts
a rights offering for its common stock to its stockholders (a “Rights Offering”). Such contribution was to be reduced by any proceeds received from the Rights
Offering. On March 15, 2016, t he Company entered into an Investment Agreement with Sun Cardinal, LLC and SCSF Cardinal, LLC, affiliates of Sun Capital
Partners, Inc. (collectively the “Investors”), which supersedes the Rights Offering Commitment Letter.
F-9
Pursuant to the terms of the Investment Agreement, the Investors have agreed to backstop the Rights Offering by purchasing at the subscription price of
$5.50 per share any and all shares not subscribed through the exercise of rights, including the overs ubscription. Consummation of the Rights Offering and the
transactions contemplated by the Investment Agre ement are subject to customary closing conditions as well as specific representations, warranties and covenants
that all parties are required to satisf y up to and through the closing of the transactions contemplated in the Investment Agreement, which is estimated to occur on
about April 21, 2016, but can be no later than April 30, 2016. The Investment Agreement can be terminated by either party if the co unterparty breaches any of the
representations, warranties and covenants, as applicable to them, as set forth in the agreement. Representations, warranties and covenants that require adherence by
the Company include among others, compliance with debt coven ant requirements under the Company’s credit agreements and closing the backstop commitment
by no later than April 30, 2016.
On March 29, 2016, the Company commenced the Rights Offering, whereby the Company distributed, at no charge, to stockholders of record as of March
23, 2016 (the “Rights Offering Record Date”), rights to purchase 11,818,181 new shares of the Company’s common stock at $5.50 per share. Each stockholder as
of the Rights Offering Record Date (“Rights Holder”) received one non-transferrable right for every share of common stock owned on the Rights Offering Record
Date (the “subscription right”). Rights Holders who fully exercise their subscription rights are entitled to subscribe for additional shares that remain unsubscribed as
a result of any unexercised subscription rights (the “over-subscription right”). The over-subscription right allows a Rights Holder to subscribe for an additional
number of shares equal to up to 20% of the shares of common stock for which such holder was otherwise entitled to subscribe. Subscription rights may only be
exercised for whole numbers of shares; no fractional shares of common stock will be issued in the Rights Offering. The Rights Offering period expired on April 14,
2016 at 5:00 p.m. New York City time, prior to which payment for all subscription rights required an irrevocable funding of cash to the transfer agent, to be held in
an account for the benefit of the Company. The Investors have fully subscribed in the Rights Offering and exercised their oversubscription right. Under the terms of
the Investment Agreement, the Investors will fund the difference between the Rights Offering proceeds and $65,000 on or about April 21, 2016, but no later than
April 30, 2016, concurrently with the closing of the Rights Offering.
The Company intends to use a portion of the net proceeds received from the Rights Offering to (1) repay the amount owed by us under the Tax Receivable
Agreement with Sun Cardinal, for itself and as a representative of the other stockholders party thereto, for the tax benefit with respect to the 2014 taxable year,
equal to $21,762 plus accrued interest (see Note 15 “Related Party Transactions” for additional details), and (2) repay all outstanding indebtedness under our
Revolving Credit Facility. The Company intends to use the remaining net proceeds for general corporate purposes, which may include future amounts owed by us
under the Tax Receivable Agreement.
The Company believes that proceeds from the Rights Offering and Investment Agreement along with cash flows generated from operations will provide
sufficient liquidity for the Company to comply with covenants under the Term Loan Facility and Revolving Credit Facility as well as provide additional cash for
use in our operations. Failure to receive the proceeds from Rights Offering and Investment Agreement could have a material adverse effect on our ability to
comply with our debt covenant requirements and fund operations and capital expenditures in fiscal 2016.
(E) Use of Estimates : The preparation of consolidated financial statements in conformity with GAAP requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements which
affect revenues and expenses during the period reported. Estimates are adjusted when necessary to reflect actual experience. Significant estimates and assumptions
may affect many items in the financial statements. Actual results could differ from estimates and assumptions in amounts that may be material to the consolidated
financial statements.
Significant estimates inherent in the preparation of the consolidated financial statements include accounts receivable allowances, customer returns, the
realizability of inventory, reserves for contingencies, useful lives and impairments of long-lived tangible and intangible assets, and accounting for income taxes and
related uncertain tax positions, among others.
(F) Cash and cash equivalents : All demand deposits and highly liquid short-term deposits with original maturities of three months or less maintained
under cash management activities are considered cash equivalents. The effect of foreign currency exchange rate fluctuations on cash and cash equivalents was not
significant for fiscal 2015, fiscal 2014, or fiscal 2013.
(G) Accounts Receivable and Concentration of Credit Risk : We maintain an allowance for accounts receivable estimated to be uncollectible. The
activity in this allowance for continuing operations is summarized as follows:
(in thousands)
Balance, beginning of year
Provisions for bad debt expense, net of reversals
Bad debts written off
Balance, end of year
2015
2014
2013
$
$
379
$
(34)
(157)
$
188
$
353
168
(142)
$
379
279
249
(175)
353
F-10
The provision for bad debts is included in selling, general and administrative expense. Substantially all of our trade receivables are derived from sales to
retailers and are recorded at the invoiced amount and do not bear interest. We perform ongoing credit evaluations of our wholesale partners’ financial condition and
require collateral as deemed necessary. The past due status of a receivable is based on its contractual terms. Account balances are charged off against the allowance
when it is probable the receivable will not be collected.
Accounts receivable are recorded net of allowances for expected future chargebacks and margin support from wholesale partners. It is the nature of the
apparel and fashion industry that suppliers like us face significant pressure from customers in the retail industry to provide allowances to compensate for wholesale
partner margin shortfalls. This pressure often takes the form of customers requiring us to provide price concessions on prior shipments as a prerequisite for
obtaining future orders. Pressure for these concessions is largely determined by overall retail sales performance and, more specifically, the performance of our
products at retail. To the extent our wholesale partners have more of our goods on hand at the end of the season, there will be greater pressure for us to grant
markdown concessions on prior shipments. Our accounts receivable balances are reported net of expected allowances for these matters based on the historical level
of concessions required and our estimates of the level of markdowns and allowances that will be required in the coming season in order to collect the receivables.
We evaluate the allowance balances on a continual basis and adjust them as necessary to reflect changes in anticipated allowance activity. We also provide an
allowance for sales returns based on historical return rates.
In fiscal 2015, sales to three wholesale partners each accounted for more than ten percent of our net sales from continuing operations. These sales
represented 18.3%, 13.8% and 10.8% of fiscal 2015 net sales. In fiscal 2014, sales to three wholesale partners each accounted for more than ten percent of our net
sales from continuing operations. These sales represented 23.2%, 13.2% and 12.3% of fiscal 2014 net sales. In fiscal 2013, sales to three wholesale partners each
accounted for more than ten percent of our net sales from continuing operations. These sales represented 19.8%, 12.8% and 12.8% of fiscal 2013 net sales.
In fiscal 2015, accounts receivable from three wholesale partners each accounted for more than ten percent of our gross accounts receivable in continuing
operations. These receivables represented 19.3%, 17.8% and 14.7% of fiscal 2015 gross accounts receivable. In fiscal 2014 accounts receivable from four
wholesale partners each accounted for more than ten percent of our gross accounts receivable in continuing operations. These receivables represented 24.5%,
13.8%, 12.7% and 11.4% of fiscal 2014 gross accounts receivable.
(H) Inventories : Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out basis. The cost of inventory includes
manufacturing or purchase cost as well as sourcing, transportation, duty and other processing costs associated with acquiring, importing and preparing inventory for
sale. Inventory costs are included in cost of products sold at the time of their sale. Product development costs are expensed in selling, general and administrative
expense when incurred. Inventory values are reduced to net realizable value when there are factors indicating that certain inventories will not be sold on terms
sufficient to recover their cost.
Inventories of continuing operations consist of the following:
(in thousands)
Finished goods
Raw materials
Total inventories, net
Net of reserves of:
January 30,
2016
January 31,
2015
$
$
$
36,576
—
36,576
13,261
$
$
$
37,395
24
37,419
6,471
As of January 30, 2016, the lower of cost or market reserve included a write-down of the carrying value for certain excess inventory and aged product to its
estimated net realizable value, as during the three months ended August 1, 2015 the Company recorded a charge of $14,447 associated with inventory that no
longer supports the Company's prospective brand positioning strategy. As a result of changes in our estimates, during the three months ended October 31, 2015 and
January 30, 2016, the Company recorded pre-tax income of $1,986 and $2,161, respectively, associated with the recovery of the inventory write-down taken in the
three months ended August 1, 2015.
(I) Property, Plant and Equipment : Property, plant and equipment are stated at cost. Depreciation is computed on the straight-line method over estimated
useful lives of 3 to 10 years for furniture, fixtures, and computer equipment. Leasehold improvements are amortized on the straight-line basis over the shorter of
their estimated useful lives or the remaining lease term, excluding renewal terms. Capitalized software is amortized on the straight-line basis over the estimated
economic useful life of the software, generally three to five years. Maintenance and repair costs are charged to earnings while expenditures for major renewals and
improvements are
F-11
capitalized. Upon the disposition of property, plant and equipment, the accumulated depreciation is deducted from the original cost and any g ain or loss is reflected
in current earnings. Property, plant and equipment consist of the following:
(in thousands)
Building and improvements
Machinery and equipment
Capitalized software
Construction in process
Total property, plant and equipment
Less: accumulated depreciation and amortization
Property, plant and equipment, net
January 30,
January 31,
2016
2015
$
$
$
38,452
8,236
1,764
4,716
53,168
(15,399)
$
37,769
27,645
5,384
1,341
3,369
37,739
(9,390)
28,349
Depreciation expense related to continuing operations was $6,426, $3,381 and $1,562 for fiscal 2015, fiscal 2014 and fiscal 2013, respectively.
(J) Impairment of Long-lived Assets : We review long-lived assets with a finite life for existence of facts and circumstances which indicate that the useful
life is shorter than previously estimated or the carrying amount may not be recoverable from future operations based on undiscounted expected future cash flows.
Impairment losses are then recognized in operating results to the extent discounted expected future cash flows are less than the carrying value of the asset. There
were no material impairment charges for continuing operations related to long-lived assets recorded in fiscal 2015, fiscal 2014 or fiscal 2013.
(K) Goodwill and Other Intangible Assets : Goodwill and other indefinite-lived intangible assets are tested for impairment at least annually and in an
interim period if a triggering event occurs. We completed our annual impairment testing on our goodwill and indefinite-lived intangible assets during the fourth
quarters of fiscal 2015, fiscal 2014 and fiscal 2013. Goodwill is not allocated to our operating segments in the measure of segment assets regularly reported to and
used by management, however goodwill is allocated to operating segments (goodwill reporting units) for the sole purpose of the annual impairment test for
goodwill.
Goodwill represents the excess of the cost of acquired businesses over the fair market value of the identifiable net assets. Indefinite-lived intangible assets
are primarily company-owned trademarks. As the acquisition by Kellwood Company of the net assets of Vince occurred prior to the current requirements of ASC
Topic 805 Business
Combinations
, the additional purchase consideration paid to the former owners of Vince subsequent to the acquisition date was recorded as an
addition to the purchase price, and therefore goodwill, once determined.
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to the Intangibles-Goodwill
and
Other
topic of Accounting
Standards Codification (“ASC”). Under this amendment, an entity may elect to perform a qualitative impairment assessment for goodwill. If adverse qualitative
trends are identified during the qualitative assessment that indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount, a quantitative impairment test is required. “Step one” of this quantitative impairment test requires that the fair value of the reporting unit be estimated and
compared to its carrying amount. If the carrying amount exceeds the estimated fair value of the asset, “step two” of the impairment test is performed to calculate the
impairment loss. An impairment loss is recognized to the extent the carrying amount of the reporting unit exceeds the implied fair value.
An entity may pass on performing the qualitative assessment for a reporting unit and directly perform “step one” of the assessment. This determination can
be made on a reporting unit by reporting unit basis, and an entity may resume performing a qualitative assessment in subsequent periods. This amendment is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this amendment during fiscal
year 2012.
In light of the decline in our sales over recent periods, in fiscal 2015 we elected to perform a quantitative impairment test on the goodwill. The results of the
quantitative test did not result in any impairment of goodwill because the fair values of each of the Company’s reporting units exceeded their respective carrying
values. As such, we were not required to perform “step two” of the impairment test. In fiscal 2014 and fiscal 2013, we elected to perform a qualitative assessment
on the goodwill and determined that it was not more likely than not that the carrying value of the reporting unit was greater than the fair value. As such, we were
not required to perform “step two” of the impairment test.
In July 2012, the FASB issued Accounting Standards Update No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing
Indefinite
Lived
Assets
for
Impairment
(“ASU 2012-02”). Under this amendment, an entity may elect to perform a qualitative impairment assessment for indefinite-lived intangible assets
similar to the goodwill impairment testing guidance discussed above.
F-12
An entity may pass on performing the qual itative assessment for an indefinite-lived intangible asset and directly perform “step one” of the assessment. This
determination can be made on an asset by asset basis, and an entity may resume performing a qualitative assessment in subsequent periods. Th e amendment is
effective for annual and interim impairment tests for indefinite-lived intangible assets performed for fiscal years beginning after September 15, 2012. We early
adopted this amendment during fiscal 2012.
In light of the decline in our sales over recent periods, in fiscal 2015 we elected to perform a quantitative assessment on indefinite-lived intangible assets.
The results of the quantitative test did not result in any impairment because the fair value of the Company’s indefinite-lived intangible asset exceeded its carrying
value. As such we were not required to perform “step two” of the impairment test. In fiscal 2014 and fiscal 2013, we elected to perform a qualitative assessment on
indefinite-lived intangible assets and determined that it was not more likely than not that the carrying value of the assets exceeded the fair value. As such we were
not required to perform “step two” of the impairment test.
Determining the fair value of goodwill and other intangible assets is judgmental in nature and requires the use of significant estimates and assumptions,
including revenue growth rates and operating margins, discount rates and future market conditions, among others. It is possible that estimates of future operating
results could change adversely and impact the evaluation of the recoverability of the carrying value of goodwill and intangible assets and that the effect of such
changes could be material.
Definite-lived intangible assets are comprised of customer relationships and are being amortized on a straight-line basis over their useful lives of 20 years.
See Note 4 “Goodwill and Intangible Assets” for more information on the details surrounding goodwill and intangible assets.
(L) Deferred Financing Costs : Deferred financing costs, such as underwriting, financial advisory, professional fees, and other similar fees are capitalized
and recognized in interest expense over the contractual life of the related debt instrument using the straight-line method, as this method results in recognition of
interest expense that is materially consistent with that of the effective interest method.
(M) Deferred Rent and Deferred Lease Incentives : We lease various office spaces, showrooms and retail stores. Many of these operating leases contain
predetermined fixed escalations of the minimum rentals during the original term of the lease. For these leases, we recognize the related rental expense on a straight-
line basis over the life of the lease and record the difference between the amount charged to operations and amounts paid as deferred rent. Certain of our retail store
leases contain provisions for contingent rent, typically a percentage of retail sales once a predetermined threshold has been met. These amounts are expensed as
incurred. Additionally, we received lease incentives in certain leases. These allowances have been deferred and are amortized on a straight-line basis over the life of
the lease as a reduction of rent expense.
(N) Revenue Recognition : Sales are recognized when goods are shipped in accordance with customer orders for our wholesale business, upon receipt by
the customer for our e-commerce business, and at the time of sale to the consumer for our retail business. Revenue associated with gift cards is recognized upon
redemption. The estimated amounts of sales discounts, returns and allowances are accounted for as reductions of sales when the associated sale occurs. These
estimated amounts are adjusted periodically based on changes in facts and circumstances when the changes become known to us. Accrued discounts, returns and
allowances are included as an offset to accounts receivable in the Consolidated Balance Sheets for our wholesale business. The activity in the accrued discounts,
returns and allowances account for continuing operations is summarized as follows:
(in thousands)
Balance, beginning of year
Provision
Utilization
Balance, end of year
2015
2014
2013
$
$
$
16,098
55,656
(58,908)
$
12,846
$
9,265
54,467
(47,634)
$
16,098
7,179
39,171
(37,085)
9,265
For our wholesale business, amounts billed to customers for shipping and handling costs are not significant. Our stated terms are FOB shipping point. There
is no stated obligation to customers after shipment, other than specifically set forth allowances or discounts that are accrued at the time of sale. The rights of
inspection or acceptance contained in certain sales agreements are limited to whether the goods received by our wholesale partners are in conformance with the
order specifications.
(O) Cost of Products Sold : Our cost of products sold and gross margins may not necessarily be comparable to that of other entities as a result of different
practices in categorizing costs. The primary components of our cost of products sold are as follows:
·
·
the cost of purchased merchandise, including raw materials;
the cost of inbound transportation, including freight;
F-13
·
·
·
the cost of our production and sourcing departments;
other processing costs associated with acquiring and preparing the inventory for sale; and
shrink and valuation reserves.
(P) Marketing and Advertising : We provide cooperative advertising allowances to certain of our customers. These allowances are accounted for as
reductions in sales as discussed in “Revenue Recognition” above. Production expense related to company-directed advertising is deferred until the first time at
which the advertisement runs. Communication expense related to company-directed advertising is expensed as incurred. Marketing and advertising expense
recorded in selling, general and administrative expenses for continuing operations was $9,177, $7,427 and $4,858 in fiscal 2015, fiscal 2014 and fiscal 2013,
respectively. At January 30, 2016 and January 31, 2015, deferred production expenses associated with company-directed advertising were $416 and $643,
respectively.
(Q) Share-Based Compensation: New, modified and unvested share-based payment transactions with employees, such as stock options, are measured at
fair value and recognized as compensation expense over the requisite service period and is included as a component of selling, general and administrative expenses
in the Consolidated Statements of Operations. Additionally, share-based awards granted to non-employees are expensed over the period in which the related
services are rendered at their fair value, using the Black Scholes Pricing Model to determine the fair value.
(R) Income Taxes : We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities at enacted rates. We determine the
appropriateness of valuation allowances in accordance with the “more likely than not” recognition criteria. We recognize tax positions in the Consolidated Balance
Sheets as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with tax authorities assuming full knowledge of
the position and all relevant facts. Accrued interest and penalties related to unrecognized tax benefits are included in income taxes in the Consolidated Statements
of Operations.
(S) Earnings Per Share : Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares
outstanding during the period. Diluted net income (loss) per share is calculated similarly, but includes potential dilution from the exercise of stock options for
which future service is required as a condition to deliver the underlying stock.
(T) Recent Accounting Pronouncements : In November 2015, new accounting guidance on the balance sheet classification of deferred taxes was issued,
which requires entities to classify deferred tax assets and liabilities as noncurrent in the consolidated balance sheet. Currently deferred tax assets and liabilities must
be classified as current and noncurrent amounts in the consolidated balance sheet. This guidance is effective for financial statements issued for annual periods
beginning after December 15, 2016, and interim periods within those annual periods. The guidance may be applied either prospectively to all deferred tax liabilities
and assets or retrospectively to all periods presented. The Company is currently evaluating the impact of adopting this guidance on the consolidated financial
statements.
In July 2015, new accounting guidance on accounting for inventory was issued, which requires entities to measure inventory at the lower of cost and net
realizable value. This guidance is effective for interim and annual periods beginning on or after December 15, 2016. The Company is currently evaluating the
impact of the adoption of the new accounting guidance on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest.” The standard requires deferred financing costs to be presented on the
balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts, instead of being presented as a deferred
asset in the balance sheet. ASU 2015-03 does not change the recognition and measurement guidance for deferred financing costs. Once adopted, entities are
required to apply the new guidance retrospectively to all prior periods presented. ASU 2015-03 is effective for annual periods beginning after December 15, 2015,
and interim periods within those fiscal years and early application is permitted. The Company has elected to early adopt the standard, effective February 1, 2015
and accordingly, the consolidated balance sheets as of January 30, 2016 and January 31, 2015 reflect the deferred financing costs as a direct deduction from the
carrying amount of our long-term debt. Refer to Note 7 “Long-Term Debt”, for further information.
In April 2015, the FASB issued ASU No. 2015-05, “Customer's Accounting for Fees Paid in a Cloud Computing Arrangement,” which provides guidance
on accounting for cloud computing fees. If a cloud computing arrangement includes a software license, then the customer should account for the license element of
the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement
should be accounted for as a service contract. This guidance is effective for arrangements entered into, or materially modified, in interim and annual periods
beginning after December
F-14
15, 2015. Retrospective application is permitted but not required. The adoption of this guidance is not expected to have a material effect on the Company's
consolidated financial statements.
In May 2014, FASB issued revenue recognition guidance (ASU No. 2014-09). The new accounting guidance requires entities to recognize revenue when it
transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. In August 2015, FASB elected to defer the effective dates (ASU No. 2015-14). The updated guidance is now effective for interim and annual periods
beginning on or after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016, including interim reporting periods
within that reporting period. The Company is currently evaluating the impact of the adoption of the new guidance on its financial statements.
Note 2. The IPO and Restructuring Transactions
Initial Public Offering
On November 27, 2013, VHC completed an initial public offering (“IPO”) of 10,000,000 shares of VHC common stock at a public offering price of $20.00
per share. The selling stockholders in the offering sold an additional 1,500,000 shares of VHC common stock to the underwriters in the IPO. Shares of the
Company’s common stock are listed on the New York Stock Exchange under the ticker symbol “VNCE”. VHC received net proceeds of $177,000, after deducting
underwriting discounts, commissions and offering expenses from its sale of shares in the IPO. The Company retained approximately $5,000 of such proceeds for
general corporate purposes and used the remaining net proceeds, together with net borrowings under the Term Loan Facility (described under Note 7 “Long-Term
Debt”) to repay a promissory note (“the Kellwood Note Receivable”) issued to Kellwood Company, LLC in connection with the Restructuring Transactions
(described below) which occurred immediately prior to the consummation of the IPO. Proceeds from the repayment of the Kellwood Note Receivable were used to
repay or discharge certain existing debt of Kellwood Company.
In connection with the IPO and the Restructuring Transactions described below, we separated the Vince and non-Vince businesses on November 27, 2013.
Any and all debt obligations outstanding at the time of the transactions either remained with Kellwood Intermediate Holding, LLC and its subsidiaries (i.e. the non-
Vince businesses) and/or were discharged, repurchased or refinanced. See information below for a summary of the Company’s Revolving Credit Facility and Term
Loan Facility.
Stock split
In connection with the IPO, VHC’s board of directors approved the conversion of all non-voting common stock into voting common stock on a one for one
basis, and a 28.5177 for one split of its common stock. Accordingly, all references to share and per share information in all periods presented have been adjusted to
reflect the stock split. The par value per share of common stock was changed to $0.01 per share.
Restructuring Transactions
The following transactions were consummated as part of the Restructuring Transactions:
·
·
·
·
·
·
·
·
Affiliates of Sun Capital contributed certain indebtedness under the Sun Term Loan Agreements as a capital contribution to Vince Holding Corp.
(the “Additional Sun Capital Contribution”);
Vince Holding Corp. contributed such indebtedness to Kellwood Company as a capital contribution, at which time such indebtedness was cancelled;
Vince Intermediate Holding, LLC was formed and became a direct subsidiary of Vince Holding Corp.;
Kellwood Company, LLC (which was converted from Kellwood Company in connection with the Restructuring Transactions) was contributed to
Vince Intermediate Holding, LLC;
Vince Holding Corp. and Vince Intermediate Holding, LLC entered into the Transfer Agreement with Kellwood Company, LLC;
Kellwood Company, LLC distributed 100% of Vince, LLC’s membership interests to Vince Intermediate Holding, LLC, who issued the Kellwood
Note Receivable to Kellwood Company, LLC. Proceeds from the repayment of the Kellwood Note Receivable were used to, among other things,
repay, discharge or repurchase indebtedness of Kellwood Company, LLC;
Kellwood Holding, LLC was formed by Vince Intermediate Holding, LLC and Vince Intermediate Holding, LLC, through a series of steps,
contributed 100% of the membership interests of Kellwood Company, LLC to Kellwood Intermediate Holding, LLC (which was formed as a wholly-
owned subsidiary of Kellwood Holding, LLC);
100% of the membership interests of Kellwood Holding, LLC were distributed to the Pre-IPO Stockholders;
F-15
·
·
·
·
·
Revolving Credit Facility—Vince, LLC entered into a new senior secured revolving credit facility. Bank of America, N.A. (“BofA”) serves as
administrative agent under this new facility. This re volving credit facility provided for a revolving line of credit of up to $50,000 (see Note 6
“Financing Arra ngements” for additional details) ;
Term Loan Facility—Vince, LLC and Vince Intermediate Holding, LLC entered into a new $175,000 senior secured term loan credit facility with
the lenders party thereto, BofA, as administrative agent, J.P. Morgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint
lead arrangers (see Note 7 “Long-Term Debt” for additional details);
Shared Services Agreement—Vince, LLC entered into the Shared Services Agreement with Kellwood Company, LLC pursuant to which Kellwood
Company, LLC would provide support services to Vince, LLC in various operational areas including, among other things, distribution, logistics,
information technology, accounts payable, credit and collections, and payroll and benefits;
Tax Receivable Agreement—The Company entered into the Tax Receivable Agreement with its stockholders immediately prior to the
consummation of the Restructuring Transactions (the “Pre-IPO Stockholders”). The Tax Receivable Agreement provides for payments to the Pre-
IPO Stockholders in an amount equal to 85% of the aggregate reduction in taxes payable realized by the Company and its subsidiaries from the
utilization of certain tax benefits (including net operating losses and tax credits generated prior to the IPO and certain section 197 intangible
deductions); and
The conversion of all of our issued and outstanding non-voting common stock into common stock on a one-for-one basis and the subsequent stock
split of our common stock on a 28.5177 for one basis, at which time Apparel Holding Corp. became Vince Holding Corp.
As a result of the IPO and Restructuring Transactions, the non-Vince businesses were separated from the Vince business, and the Pre-IPO Stockholders
(through their ownership of Kellwood Holding, LLC) retained the full ownership and control of the non-Vince businesses. The Vince business is now the sole
operating business of Vince Holding Corp., with the Pre-IPO stockholders retaining approximately a 68% ownership (calculated immediately after consummation
of the IPO).
Immediately after the consummation of the IPO and as described below, Vince Holding Corp. contributed the net proceeds from the IPO to Vince
Intermediate Holding, LLC. Vince Intermediate Holding, LLC used such proceeds, less approximately $5,000 retained for general corporate purposes, and
approximately $169,500 of net borrowings under its Term Loan Facility to immediately repay the Kellwood Note Receivable. There was no outstanding balance on
the Kellwood Note Receivable after giving effect to such repayment. Proceeds from the repayment of the Kellwood Note Receivable were used to (i) repay,
discharge or repurchase indebtedness of Kellwood Company, LLC in connection with the closing of the IPO (including approximately $9,100 of accrued and
unpaid interest on such indebtedness), and (ii) pay (A) the restructuring fee payable to Sun Capital Management and (B) the debt recovery bonus payable to our
Chief Executive Officer, all after giving effect to the Additional Sun Capital Contribution. The Kellwood Note Receivable did not include amounts outstanding
under the Wells Fargo Facility. Kellwood Company, LLC refinanced the Wells Fargo Facility in connection with the consummation of the IPO. Neither Vince
Holding Corp. nor Vince, LLC guarantee or are a borrower party to the refinanced credit facility.
Kellwood Company, LLC used the proceeds from the repayment of the Kellwood Note Receivable to, after giving effect to the Additional Sun Capital
Contribution, (i) repay, at closing, all indebtedness outstanding under (A) the Cerberus Term Loan and (B) the Sun Term Loan Agreements, (ii) redeem at par all of
the 12.875% Notes, pursuant to an unconditional redemption notice issued at the closing of the IPO, plus, with respect to clauses (i) and (ii), fees, expenses and
accrued and unpaid interest thereon, (iii) pay a restructuring fee equal to $3,300 to Sun Capital Management pursuant to the Management Services Agreement, and
(iv) pay a debt recovery bonus to our Chief Executive Officer.
In addition, Kellwood Company conducted a tender offer for all of its outstanding 7.625% Notes, at par plus accrued and unpaid interest thereon, using
proceeds from the repayment of the Kellwood Note Receivable. On November 27, 2013, in connection with the closing of the IPO and as an early settlement of the
tender offer, Kellwood Company, LLC accepted for purchase (and cancelled) approximately $33,474 in aggregate principal amount of the 7.625% Notes. On
December 12, 2013, as part of the final settlement of the tender offer, Kellwood Company, LLC accepted for purchase (and cancelled) an additional $4,670 in
aggregate principal amount of the 7.625% Notes. After giving effect to these settlements, approximately $48,808 of the 7.625% Notes remain issued and
outstanding; provided, that neither VHC, nor Vince Intermediate nor Vince, LLC are a guarantor or obligor of such notes.
In addition, Kellwood Company, LLC refinanced the Wells Fargo Facility (as defined below), to among other things, remove Vince, LLC as an obligor
thereunder.
After completion of these various transactions (including the Additional Sun Capital Contribution) and payments and application of the net proceeds from
the repayment of the Kellwood Note Receivable, Vince, LLC’s obligations under the Wells Fargo Facility, the Cerberus Term Loan, the Sun Term Loan
Agreements and the 12.875% Notes were terminated or discharged. Neither
F-16
VHC, nor Vince Interme diate Holding, LLC nor Vince, LLC is a guarantor or obligor of the 7.625% Notes or the refinanced Wells Fargo Facility. Thereafter,
VHC is not responsible for the obligations described above and the only outstanding obligations of Vince Holding Corp. and i ts subsidiaries immediately after the
consummation of the IPO was $175,000 outstanding under the Term Loan Facility.
Note 3. Discontinued Operations
On November 27, 2013, in connection with the IPO and Restructuring Transactions, we separated the Vince and non-Vince businesses whereby the non-
Vince business is now owned by Kellwood Holding, LLC, of which 100% of the membership interests are owned by the Pre-IPO Stockholders. In connection with
the Restructuring Transactions, the Company issued the Kellwood Note Receivable to Kellwood Company, LLC, in the amount of $341,500, which was
immediately repaid with proceeds from the IPO and borrowings under the new term loan facility. There was no remaining balance on the Kellwood Note
Receivable after such repayment. Proceeds from the repayment of the Kellwood Note Receivable were used by Kellwood to (i) repay, discharge or repurchase
indebtedness of Kellwood Company, LLC (including approximately $9,100 of accrued and unpaid interest on such indebtedness), and (ii) pay (A) the restructuring
fee payable to Sun Capital Management and (B) the debt recovery bonus payable to our Chief Executive Officer.
As the Company and Kellwood Holding, LLC are under the common control of affiliates of Sun Capital, this separation transaction resulted in a $73,081
adjustment to additional paid in capital on our Consolidated Balance Sheet at February 1, 2014.
As a result of the separation with the non-Vince businesses, the financial results of the non-Vince businesses, through the separation date of November 27,
2013, are now included in results from discontinued operations. The non-Vince businesses continue to operate as a stand-alone company. Due to differences in the
basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of the non-Vince businesses included
within discontinued operations of the Company may not be indicative of actual financial results of the non-Vince businesses as a stand-alone company.
On November 27, 2013, we entered into a Shared Services agreement with Kellwood pursuant to which Kellwood provides support services in various
operational areas as further discussed in Note 15 “Related Party Transactions”. Other than the payments for services provided under this agreement, we do not
expect any future cash flows related to the non-Vince business.
The results of the non-Vince businesses included in discontinued operations (through the separation of the non-Vince businesses on November 27, 2013) for
the fiscal year ended February 1, 2014 is summarized in the following table:
(in thousands, except effective tax rate)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Restructuring, environmental and other charges
Impairment of long-lived assets
Change in fair value of contingent consideration
Interest expense, net
Other expense, net
Loss before income taxes
Income taxes
Net loss from discontinued operations, net of taxes
Effective tax rate
Fiscal Year
2013
400,848
313,620
87,228
98,016
1,628
1,399
1,473
46,677
498
(62,463)
(11,648)
(50,815)
18.6%
$
$
The fiscal 2013 effective tax rate for discontinued operations differs from the U.S. statutory rate of 35% primarily due to the release of valuation allowance.
The release in valuation allowance is primarily due to the allocation of the disallowed tax loss on the sale of a trademark to intangible assets with indefinite lives
resulting in fewer deferred tax liabilities that cannot be offset against deferred tax assets for valuation allowance purposes.
F-17
Financing
arr
angements
of
the
non-Vince
business
Wells Fargo Facility
On October 19, 2011 Kellwood Company and certain of its domestic subsidiaries, as borrowers, entered into a credit agreement with Wells Fargo Bank,
National Association, as agent, and lenders from time to time (the “Wells Fargo Facility”). The Wells Fargo Facility provided a non-amortizing senior revolving
credit facility with aggregate lending commitments of $160,000, of which $5,000 was permanently extinguished during fiscal 2012. The amount which the
borrowers could borrow was determined on the basis of a borrowing base formula, and borrowings were secured by a first-priority security interest in substantially
all of the assets of the borrowers, including the assets of Vince, LLC. Borrowings bore interest at a rate per annum equal to an applicable margin (generally 1.25%-
1.75% per annum at the borrowers’ election, LIBOR or a Base Rate (as defined in the Wells Fargo Facility)). On November 27, 2013, in connection with the
consummation of the IPO and Restructuring Transactions, the Wells Fargo Facility was amended and restated in accordance with its terms. After such amendment
and restatement, neither VHC nor any of its subsidiaries have any obligations thereunder.
Cerberus Term Loan
On October 19, 2011, Kellwood Company and certain of its domestic subsidiaries, as borrowers (the “Cerberus Borrowers”), entered into a term loan
agreement (the “Term Loan Agreement”), as amended, with Cerberus Business Finance, LLC (the “Agent”), as agent and the lenders from time to time party
thereto. The Term Loan Agreement provided the Cerberus Borrowers with a non-amortizing secured Cerberus Term Loan in an aggregate amount of $55,000 (the
“Cerberus Term Loan”), of which $10,000 was repaid during fiscal 2012. All borrowings under the Cerberus Term Loan bore interest at a rate per annum equal to
an applicable margin (10.25%-11.25% per annum for LIBOR Rate Loans (as defined in the Term Loan Agreement) and 7.75%-8.75% for Reference Rate Loans (as
defined in the Term Loan Agreement)) plus, at the Cerberus Borrowers’ election, LIBOR or a Reference Rate as defined in the Term Loan Agreement. The
agreement also provided for a portion of such interest equal to 1% per annum to be paid-in-kind and added to the principal amount of such term loans. The
Cerberus Term Loan was secured by a security interest in substantially all of the assets of the Cerberus Borrowers, including Vince, LLC. On November 27, 2013,
in connection with the closing of the IPO and Restructuring Transactions, the Cerberus Term Loan was repaid with the proceeds from the repayment of the
Kellwood Note Receivable, as such neither VHC nor any of its subsidiaries have any obligations thereunder.
Sun Term Loan Agreements
Since fiscal year 2009, Kellwood Company and certain of its domestic subsidiaries, as borrowers (the “Sun Term Loan Borrowers”), entered into various
term loan agreements (“Sun Term Loan Agreements”) with affiliates of Sun Capital, as lenders, and Sun Kellwood Finance, as collateral agent. The Sun Term Loan
Agreements were secured by a security interest in substantially all of the assets of the Sun Term Loan Borrowers, which included the assets of Vince, LLC, which
security interest was contractually subordinated to the security interests of the lenders under the Wells Fargo Facility and the Cerberus Term Loan. These term
loans bore interest at a rate per annum of 5.0%-6.0% paid-in-kind and added to the principal amounts of such term loans. On November 27, 2013, in connection
with the closing of the IPO and Restructuring Transactions, the Sun Term Loan Agreements were discharged through (i) the application of the Kellwood Note
Receivable proceeds and (ii) capital contributions by Sun Capital affiliates, as such neither VHC nor any of its subsidiaries have any obligations thereunder.
12.875% Notes
Interest on the 12.875% 2009 Debentures due December 31, 2014 of Kellwood Company (the “12.875% Notes”) was paid (a) in cash at a rate of 7.875% per
annum payable in January and July; and (b) in the form of PIK interest at a rate of 5.0% per annum (“PIK Interest”) payable either by increasing the principal
amount of the outstanding 12.875% Notes, or by issuing additional 12.875% Notes with a principal amount equal to the PIK Interest accrued for the interest period.
The 12.875% Notes were guaranteed by various of Kellwood Company’s subsidiaries on a secured basis (including the assets of Vince, LLC), which security
interest was contractually subordinated to security interests of lenders under the Wells Fargo Facility, the Cerberus Term Loan and the Sun Term Loan Agreements.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, the 12.875% Notes were redeemed with proceeds from the
repayment of the Kellwood Note Receivable, at which time VHC and all subsidiaries were released as a guarantor and the obligations under the indenture were
satisfied and discharged.
7.625% Notes
Interest on the 7.625% 1997 Debentures due October 15, 2017 of Kellwood Company (the “7.625% Notes”) was payable in cash at a rate of 7.625% per
annum in April and October. On November 27, 2013, in connection with the closing of the IPO and as an early settlement of the tender offer, Kellwood Company,
LLC accepted for purchase (and cancelled) approximately $33,474 in aggregate principal amount of the 7.625% Notes. On December 12, 2013, as part of the final
settlement of the tender offer, Kellwood Company,
F-18
LLC accepted for purchase (and cancelled) an additional $4,670 in aggregate principal amount of the 7.62 5% Notes. After giving effect to these settlements,
approximately $48,809 of the 7.625% Notes remain issued and outstanding; provided, that neither VHC nor its subsidiaries are a guarantor or obligor of such notes.
Note 4. Goodwill and Intangible Assets
Net goodwill balances and changes therein subsequent to the February 1, 2014 Consolidated Balance Sheet by segment are as follows:
(in thousands)
Balance as of February 1, 2014
Balance as of January 31, 2015
Balance as of January 30, 2016
Wholesale
$
41,435
$
$
41,435
41,435
$
$
$
Direct-to-
consumer
Total Net
Goodwill
22,311
22,311
22,311
$
$
$
63,746
63,746
63,746
The total carrying amount of goodwill for all periods presented was net of accumulated impairments of $46,942. There were no impairments recorded as a
result of our annual goodwill impairment test during fiscal 2015, 2014 or 2013.
Identifiable intangible assets summary:
(in thousands)
Balance as of January 31, 2015:
Amortizable intangible assets:
Customer relationships
Indefinite-lived intangible assets:
Trademarks
Total intangible assets
(in thousands)
Balance as of January 30, 2016
Amortizable intangible assets:
Customer relationships
Indefinite-lived intangible assets:
Trademarks
Total intangible assets
Gross Amount
Accumulated
Amortization
Net Book
Value
$
$
11,970
$
(4,176) $
7,794
101,850
113,820
$
—
(4,176) $
101,850
109,644
Gross Amount
Accumulated
Amortization
Net Book
Value
$
$
11,970
(4,774) $
7,196
101,850
113,820
$
—
(4,774) $
101,850
109,046
Amortization of identifiable intangible assets was $598, $599 and $599 for fiscal 2015, 2014 and 2013, respectively, which is included in selling, general
and administrative expenses on the Consolidated Statements of Operations. Amortization expense for each of the fiscal years 2016 to 2020 is expected to be as
follows:
(in thousands)
2016
2017
2018
2019
2020
Total next 5 fiscal years
Future
Amortization
598
598
598
598
598
2,990
$
$
Identifiable indefinite-lived intangible assets represent the Vince trademark. No impairments of the Vince trademark were recorded as a result of our annual
asset impairment tests during fiscal years 2015, 2014 or 2013. In fiscal 2015, we elected to perform a quantitative assessment on indefinite-lived intangible assets.
The results of the quantitative test did not result in any impairment because the fair value of the Company’s indefinite-lived intangible asset exceeded its carrying
value. In fiscal 2014 and 2013, we elected to perform the qualitative assessment on the Vince Trademark as allowed by the Intangible—Goodwill
and
Other
Topic
of ASC and determined that it was not more likely than not that the carrying value exceeded the fair value of the asset.
F-19
Note 5. Fair Value
ASC Subtopic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. This guidance outlines a valuation framework, creates a fair value hierarchy to increase the consistency and
comparability of fair value measurements, and details the disclosures that are required for items measured at fair value. Financial assets and liabilities are to be
measured using inputs from three levels of the fair value hierarchy as follows:
Level 1—
quoted market prices in active markets for identical assets or liabilities
Level 2—
observable market-based inputs (quoted prices for similar assets and liabilities in active markets and quoted prices for identical or similar
assets or liabilities in markets that are not active) or inputs that are corroborated by observable market data
Level 3—
significant unobservable inputs that reflect our assumptions and are not substantially supported by market data
The Company did not have any non-financial assets or non-financial liabilities recognized at fair value on a recurring basis at January 30, 2016 or
January 31, 2015. At January 30, 2016 and January 31, 2015, the Company believes that the carrying value of cash and cash equivalents, receivables and accounts
payable approximates fair value, due to the short maturity of these instruments and would be measured using Level 1 inputs. As the Company’s debt obligations as
of January 30, 2016 are at variable rates, the fair value approximates the carrying value of the Company’s debt and would be measured using Level 2 inputs.
The Company’s non-financial assets, which primarily consist of goodwill, intangible assets, and property and equipment, are not required to be measured at
fair value on a recurring basis and are reported at their carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their
carrying value may not be fully recoverable (and at least annually for goodwill and intangible assets), non-financial assets are assessed for impairment, if
applicable, written down to (and recorded at) fair value.
Note 6. Financing Arrangements
Revolving Credit Facility
On November 27, 2013, Vince, LLC entered into a $50,000 senior secured revolving credit facility (as amended from time to time, the “Revolving Credit
Facility”) with Bank of America, N.A. (“BofA”) as administrative agent. Vince, LLC is the borrower and VHC and Vince Intermediate Holding, LLC, a direct
subsidiary of VHC and the direct parent company of Vince, LLC (“Vince Intermediate”), are the guarantors under the Revolving Credit Facility. On June 3, 2015,
Vince LLC entered into a first amendment to the Revolving Credit Facility, that among other things, increased the aggregate commitments under the facility from
$50,000 to $80,000, subject to a loan cap which is the lesser of (i) the Borrowing Base, as defined in the loan agreement, (ii) the aggregate commitments or (iii)
$70,000 until debt obligations under the Company’s term loan facility have been paid in full, and extended the maturity date from November 27, 2018 to June 3,
2020. The Revolving Credit Facility also provides for a letter of credit sublimit of $25,000 (plus any increase in aggregate commitments) and an accordion option
that allows for an increase in aggregate commitments up to $20,000. Interest is payable on the loans under the Revolving Credit Facility at either the LIBOR or the
Base Rate, in each case, plus an applicable margin of 1.25% to 1.75% for LIBOR loans or 0.25% to 0.75% for Base Rate loans, and in each case subject to a pricing
grid based on an average daily excess availability calculation. The “Base Rate” means, for any day, a fluctuating rate per annum equal to the highest of (i) the rate
of interest in effect for such day as publicly announced from time to time by BofA as its prime rate; (ii) the Federal Funds Rate for such day, plus 0.50%; and (iii)
the LIBOR Rate for a one month interest period as determined on such day, plus 1.0%. During the continuance of an event of default and at the election of the
required lender, interest will accrue at a rate of 2% in excess of the applicable non-default rate.
The Revolving Credit Facility contains a maintenance requirement that, at any point when “Excess Availability” is less than the greater of (i) 15% percent
of an adjusted loan cap (without giving effect to item (iii) of the loan cap described above) or (ii) $10,000, and continuing until Excess Availability exceeds the
greater of such amounts for 30 consecutive days, during which time, we must maintain a consolidated EBITDA (as defined in the Revolving Credit Facility) equal
to or greater than $20,000 measured at the end of each applicable fiscal month for the trailing twelve-month period. We have not been subject to this maintenance
requirement as Excess Availability was greater than the required minimum.
The Revolving Credit Facility contains representations and warranties, other covenants and events of default that are customary for this type of financing,
including limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions,
prepayment of other debt, the repurchase of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year. The
Revolving Credit Facility generally permits
F-20
dividends in the absence of any event of default (including any event of default arising from the contemplated dividend), so long as (i) a fter giving pro forma effect
to the contemplated dividend, for the following six months Excess Availability will be at least the greater of 20% of the adjusted loan cap and $10,000 and (ii) after
giving pro forma effect to the contemplated dividend, the “C onsolidated Fixed Charge Coverage Ratio” for the 12 months preceding such dividend shall be greater
than or equal to 1. 0 to 1.0 (provided that the Consolidated Fixed Charge Coverage Ratio may be less than 1. 0 to 1.0 if, after giving pro forma effect to the
contemplated dividend, Excess Availability for the six fiscal months following the dividend is at least the greater of 35% of the adjusted loan cap and
$15,000). We are in compliance with applicable financial covenants.
As of January 30, 2016, the availability under the $80,000 Revolving Credit Facility was $28,127. As of January 30, 2016 there was $15,000 of borrowings
outstanding and $7,522 of letters of credit outstanding under the Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the
Revolving Credit Facility as of January 30, 2016 was 2.1%.
As of January 31, 2015, the availability under the $50,000 Revolving Credit Facility was $19,353. As of January 31, 2015, there was $23,000 of borrowings
outstanding and $7,647 of letters of credit outstanding under the Revolving Credit Facility. The weighted average interest rate for borrowings outstanding under the
Revolving Credit Facility as of January 31, 2015 was 2.1%.
Note 7. Long-Term Debt
Long-term debt consisted of the following as of, January 30, 2016 and January 31, 2015:
(in thousands)
Term Loan Facility
Revolving Credit Facility
Total long-term debt principal
Less: Deferred financing costs (1)
Total long-term debt
January 30,
2016
January 31,
2015
$
$
45,000
15,000
60,000
2,385
57,615
$
$
65,000
23,000
88,000
3,550
84,450
(1)
Pursuant to new accounting guidance issued by the Financial Accounting Standards Board (“FASB”) in April 2015, entities are no longer required to present
deferred financing costs as a deferred asset. The guidance is effective for our fiscal year beginning in 2016, however, the Company has early adopted this
accounting standard update effective as of February 1, 2015 and accordingly, the January 31, 2015 comparative balance sheet was adjusted to conform to
the new classification presentation. There was no other impact on the financial statements related to the adoption other than the reclassification change on
the consolidated balance sheet. Refer to Note 1 “Description of Business and Summary of Significant Accounting Policies”, for further information
regarding the accounting standard update.
Term Loan Facility
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, Vince, LLC and Vince Intermediate entered into the
$175,000 Term Loan Facility with the lenders party thereto, BofA, as administrative agent, JPMorgan Chase Bank and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as joint lead arrangers, and Cantor Fitzgerald as documentation agent. The Term Loan Facility will mature on November 27, 2019. Vince, LLC and
Vince Intermediate are borrowers and VHC is a guarantor under the Term Loan Facility. On November 27, 2013, net proceeds from the Term Loan Facility were
used, at closing, to repay the Kellwood Note Receivable.
The Term Loan Facility also provides for an incremental facility of up to the greater of $50,000 and an amount that would result in the consolidated net total
secured leverage ratio not exceeding 3.00 to 1.00, in addition to certain other rights to refinance or repurchase portions of the term loan. The Term Loan Facility is
subject to quarterly amortization of principal equal to 0.25% of the original aggregate principal amount of the Term Loan Facility (adjusted to reflect any
prepayments), with the balance payable at final maturity. Interest is payable on loans under the Term Loan Facility at a rate of either (i) the Eurodollar rate (subject
to a 1.00% floor) plus an applicable margin of 4.75% to 5.00% based on a consolidated net total leverage ratio or (ii) the base rate applicable margin of 3.75% to
4.00% based on a consolidated net total leverage ratio. During the continuance of a payment or bankruptcy event of default, interest will accrue (i) on the overdue
principal amount of any loan at a rate of 2% in excess of the rate otherwise applicable to such loan and (ii) on any overdue interest or any other outstanding overdue
amount at a rate of 2% in excess of the nondefault interest rate then applicable to base rate loans. The Term Loan Facility requires Vince, LLC and Vince
Intermediate to make mandatory prepayments upon the occurrence of certain events, including additional debt issuances, common and preferred stock issuances,
certain asset sales, and annual payments of 50% of excess cash flow, subject to reductions to 25% and 0% if Vince, LLC and Vince Intermediate maintain a
Consolidated Net Total Leverage Ratio of 2.50 to 1.00 and 2.00 to 1.00, respectively, and subject to reductions for voluntary prepayments made during such fiscal
year .
F-21
The Term Loan Facility contains a requirement that Vince, L LC and Vince Intermediate maintain a “Consolidated Net Total Leverage Ratio” as of the last
day of any period of four fiscal quarters not to exceed 3.75 to 1.00 for the fiscal quarters ending February 1, 2014 through November 1, 2014, 3.50 to 1.00 for the
fiscal quarters ending January 31, 2015 through October 31, 2015, and 3.25 to 1.00 for the fiscal quarter ending January 30, 2016 and each fiscal quarter thereafter.
In addition, the Term Loan Facility contains customary representations and warranties, oth er covenants, and events of default, including but not limited to,
limitations on the incurrence of additional indebtedness, liens, negative pledges, guarantees, investments, loans, asset sales, mergers, acquisitions, prepayment of
other debt, the repurcha se of capital stock, transactions with affiliates, and the ability to change the nature of its business or its fiscal year, and distributions and
dividends. The Term Loan Facility generally permits dividends to the extent that no default or event of defaul t is continuing or would result from the contemplated
dividend and the pro forma Consolidated Net Total Leverage Ratio after giving effect to such contemplated dividend is at least 0.25 lower than the maximum
Consolidated Net Total Leverage Ratio for such quarter in an amount not to exceed the excess available amount, as defined in the loan agreement . All obligations
under the Term Loan Facility are guaranteed by VHC and any future material domestic restricted subsidiaries of Vince, LLC and secured by a lie n on substantially
all of the assets of VHC, Vince, LLC and Vince Intermediate and any future material domestic restricted subsidiaries. We are in compliance with applicable
financial covenants.
Through January 30, 2016, on an inception to date basis, the Company has made voluntary prepayments totaling $130,000 in the aggregate on the original
$175,000 Term Loan Facility entered into on November 27, 2013. Of the $130,000 of aggregate voluntary prepayments made to date, $20,000 was paid during
fiscal 2015. As of January 30, 2016 the Company had $45,000 of debt outstanding under the Term Loan Facility.
Sun Promissory Notes
On May 2, 2008, VHC entered into a $225,000 Senior Subordinated Promissory Note and a $75,000 Senior Subordinated Promissory Note with Sun
Kellwood Finance, LLC (“Sun Kellwood Finance”), an affiliate of Sun Capital Partners, Inc. We collectively refer to these notes as our “Sun Promissory Notes”.
The unpaid principal balance of the notes accrue interest at 15% per annum until the maturity date of October 15, 2011, at which point any unpaid principal balance
of the notes shall accrue interest at a rate of 17% per annum until the notes are paid in full. All interest which is not paid in cash on or before the last day of each
calendar month are deemed paid in kind and added to the principal balance of the notes unless an election is made otherwise.
On July 19, 2012, Vince Holding Corp. amended the Sun Promissory Notes to extend the maturity date to October 15, 2016 and reduce the interest rate to
12% per annum until maturity, at which point any unpaid principal balance of the notes shall accrue interest at a rate of 14% per annum until the notes are paid in
full.
On December 28, 2012, Sun Kellwood Finance, LLC (“Sun Capital Finance”) waived all interest capitalized and accrued under the notes prior to July 19,
2012. As both parties were under the common control of affiliates of Sun Capital Partners, Inc. (“Sun Capital”), this transaction resulted in a capital contribution of
$270,852 which was recorded as an adjustment to additional paid in capital on our Consolidated Balance Sheet as of February 2, 2013.
On June 18, 2013, Sun Kellwood Finance assigned all title and interest in the Sun Promissory Notes to Sun Cardinal, LLC (“Sun Cardinal”). Immediately
following the assignment, Sun Cardinal contributed all outstanding principal and interest due under these notes as of June 18, 2013 to the capital of VHC. As both
parties were under common control of affiliates of Sun Capital at such time, this transaction resulted in a capital contribution of $334,595, which was recorded as
an adjustment to VHC’s additional paid in capital on the Consolidated Balance Sheet as of February 1, 2014.
Sun Capital Loan Agreement
VHC was party to a Loan Authorization Agreement, originally dated February 13, 2008, by and between VHC (as the successor entity to Cardinal
Integrated, LLC), SCSF Kellwood Finance, LLC (“SCSF Finance”) and Sun Kellwood Finance (as successors to Bank of Montreal) for a $72,000 line of credit,
and $69,485 principal balance, which we refer to as the “Sun Capital Loan Agreement”. Under the terms of this agreement, as amended from time to time, interest
accrued at a rate equal to the rate per annum announced by the Bank of Montreal, Chicago, Illinois, from time to time as its prime commercial rate, or equivalent,
for U.S. dollar loans to borrowers located in the U.S. plus 2%. Interest on the loan was due by the last day of each fiscal quarter and is payable either in
immediately available funds on each interest payment date or by adding such interest to the unpaid principal balance of the loan on each interest payment date. The
original maturity date of the loan was August 6, 2009. On July 19, 2012, the maturity date of the loan was extended to August 6, 2014.
On December 28, 2012, Sun Kellwood Finance and SCSF Finance waived all interest capitalized and accrued under the loan authorization agreement prior
to July 19, 2012. As all parties were under the common control of affiliates of Sun Capital, this transaction resulted in a capital contribution of $18,249, which was
recorded as an adjustment to additional paid in capital on our Consolidated Balance Sheet as of February 2, 2013.
F-22
On June 18, 2013, Sun Kellwood Finance and SCSF F inance assigned all title and interest in the note under the Sun Capital Loan Agreement to Sun
Cardinal. Immediately following the assignment, Sun Cardinal contributed all outstanding principal and interest due under this note as of June 18, 2013 to the ca
pital of VHC. As all parties were under common control of affiliates of Sun Capital at such time, this transaction resulted in a capital contribution of $72,932,
which was recorded as an adjustment to VHC’s additional paid in capital on the Consolidated Ba lance Sheet as of February 1, 2014.
Note 8. Commitments and Contingencies
Leases
We lease substantially all of our office and showroom space, retail stores and certain machinery and equipment under operating leases having remaining
terms up to eleven years, excluding renewal terms. Most of our real estate leases contain covenants that require us to pay real estate taxes, insurance, and other
executory costs. Certain of these leases require contingent rent payments, kick-out clauses and/or opt-out clauses, based on the operating results of the retail
operations utilizing the leased premises. Rent under leases with scheduled rent changes or lease concessions are recorded on a straight-line basis over the lease
term. Rent expense under all operating leases was $20,015, $16,161 and $10,467 for fiscal 2015, fiscal 2014 and fiscal 2013, respectively, the majority of which is
recorded within selling, general and administrative expenses.
The future minimum lease payments under operating leases at January 30, 2016 were as follows:
(in thousands)
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Thereafter
Total minimum lease payments
Minimum Lease
Payments
$
$
20,083
20,891
20,712
20,653
19,584
67,444
169,367
Other Contractual Cash Obligations
At January 30, 2016, our other contractual cash obligations of $25,981 consist primarily of inventory purchase obligations and service contracts.
Restructuring Charges
In the second quarter of fiscal 2015, a number of senior management departures and announced departures occurred. In connection with these departures
and announced departures, the Company has certain obligations under existing employment arrangements with respect to severance and employee related
benefits. As a result, the Company recognized a charge of $3,717 for these expected departures within selling, general, and administrative expenses on the
condensed consolidated statement of operations for the three months ended August 1, 2015. In the fourth quarter of fiscal 2015, the Company recorded $323 of pre-
tax income within selling, general and administrative expenses associated with the recovery of severance expense. This net charge is reflected within the
“unallocated corporate expenses” for segment disclosures. These amounts will be paid over a period of six to eighteen months, which began in the third quarter of
fiscal 2015.
The following is a reconciliation of the accrued severance and employee related benefits included within total current liabilities on the consolidated balance
sheet:
(in thousands)
Balance at August 1, 2015
Cash payments
Non-cash recovery
Balance at January 30, 2016
F-23
$
$
3,717
(1,557)
(323)
1,837
Litigation
We are currently party to various legal proceedings. While management currently believes that the ultimate outcome of these proceedings, individually and
in the aggregate, will not have a material adverse impact on our financial position or results of operations or cash flows, litigation is subject to inherent
uncertainties.
Note 9. Share-Based Compensation
Prior to November 27, 2013, Vince Holding Corp. did not have convertible equity or convertible debt securities, any of which could result in share-based
compensation expense. In connection with the IPO, which closed on November 27, 2013, and the separation of the Vince and non-Vince businesses, VHC assumed
Kellwood Company’s remaining obligations under the 2010 Stock Option Plan of Kellwood Company (the “2010 Option Plan”) and all Kellwood Company stock
options previously issued to Vince employees under such plan became options to acquire shares of VHC common stock. Additionally, VHC assumed Kellwood
Company’s obligations with respect to the vested Kellwood Company stock options previously issued to Kellwood Company employees, which options were
cancelled in exchange for shares of VHC common stock. Accordingly, option information presented below for previously issued Kellwood Company stock options
under the 2010 Option Plan has been adjusted to account for the split of the Company’s common stock and applicable conversion to options to acquire shares of
Vince Holding Corp. common stock.
Employee Stock Plans
2010
Option
Plan
Kellwood Company had convertible equity securities that result in recognition of share-based compensation expense. On June 30, 2010, the board of
directors approved the 2010 Stock Option Plan. On November 21, 2013 and as discussed above, VHC assumed Kellwood Company’s remaining obligations under
the 2010 Option Plan; provided, that none of the issued and outstanding options (after giving effect to such assumption and the stock split effected as part of the
Restructuring Transactions) were exercisable until the consummation of the IPO. Additionally, prior to the consummation of the IPO and after giving effect to the
assumption described in this paragraph, VHC and the Vince employees to whom options had been previously granted under the 2010 Option Plan, amended the
related grant agreements to eliminate, effective as of the consummation of the IPO, restrictions on the exercisability of the subject employees vested options.
Prior to the IPO, the 2010 Option Plan, as amended, provided for the grant of options to acquire up to 2,752,155 shares of Kellwood Company common
stock. The options granted pursuant to the 2010 Option Plan (i) vest in five equal installments on the first, second, third, fourth, and fifth anniversaries of the grant
date, subject to the employee’s continued employment and, (ii) expire on the earlier of the tenth anniversary of the grant date or upon termination of employment.
We will not grant any future awards under the 2010 Option Plan. Future awards will be granted under the Vince 2013 Incentive Plan described further below.
Vince
2013
Incentive
Plan
In connection with the IPO, the Company adopted the Vince 2013 Incentive Plan, which provides for grants of stock options, stock appreciation rights,
restricted stock and other stock-based awards. The aggregate number of shares of common stock which may be issued or used for reference purposes under the
Vince 2013 Incentive Plan or with respect to which awards may be granted may not exceed 3,400,000 shares. The shares available for issuance under the Vince
2013 Incentive Plan may be, in whole or in part, either authorized and unissued shares of our common stock or shares of common stock held in or acquired for our
treasury. In general, if awards under the Vince 2013 Incentive Plan are cancelled for any reason, or expire or terminate unexercised, the shares covered by such
award may again be available for the grant of awards under the Vince 2013 Incentive Plan. As of January 30, 2016, there were 1,391,996 shares under the Vince
2013 Incentive Plan available for future grants. Options granted pursuant to the Vince 2013 Incentive Plan (i) vest in equal installments over two, three or four
years or at 33 1/3% per year beginning in year two, over four years, subject to the employees’ continued employment and (ii) expire on the earlier of the tenth
anniversary of the grant date or upon termination as outlined in the Vince 2013 Incentive Plan. Restricted stock units granted vest in equal installments over a three
year period.
On October 2, 2015 the Company completed a tender offer to exchange certain options to purchase shares of its common stock, whether vested or unvested,
from eligible employees. The exchange ratio for this offer was one-to-one (one stock option exchanged for every one new stock option granted). As a result of the
tender offer, 346,004 stock options were cancelled and options to purchase the same amount of shares were granted with an exercise price of $3.60. The Company
will recognize incremental expense of $456 over the requisite service period as a result of this exchange. The purpose of this exchange was to foster retention of
our valuable employees and better align the interests of our employees and shareholders to maximize shareholder value.
F-24
On November 23, 2015, the Company granted a total of 400,000 options to certain non-employee consultants w ith an exercise price of $3.63. The options
granted to the non-employee consultants vest 50% after one year, 25% after 18 months and 25% after two years and expire on the earlier of the tenth anniversary of
the grant date or upon termination as outlined in their grant agreements pursuant to the Vince 2013 Incentive Plan. The weighted average grant date fair value for
options granted to non-employees was $1.45 per share.
Stock Options
A summary of stock option activity for both employees and non-employees for fiscal 2015 is as follows:
Outstanding at January 31, 2015
Granted
Exercised
Forfeited or expired
Outstanding at January 30, 2016
Stock Options
2,726,169
2,173,273
$
$
(26,209) $
(1,993,498) $
$
2,879,735
Weighted
Average
Exercise
Price
13.18
4.32
6.64
15.98
4.61
Weighted
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
(in thousands)
8.2 $
33,367
8.7 $
2,402
Vested and exercisable at January 30, 2016
827,553
$
5.89
6.3 $
-
Of the above outstanding shares, 1,806,901 are vested or expected to vest.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the
last trading day of fiscal 2015 and the exercise price, multiplied by the number of such in-the-money options) that would have been received by the option holders
had all options holders exercised their options on January 30, 2016. This amount changes based on the fair market value of the Company’s common stock. Total
intrinsic value of options exercised during fiscal 2015 and 2014 (based on the differences between the Company’s stock price on the respective exercise date and
the respective exercise price, multiplied by the number of respective options exercised) was $316 and $620, respectively.
The Company’s weighted average assumptions used to estimate the fair value of stock options granted on November 21, 2013 in connection with our IPO
and the options granted during fiscal 2014 and fiscal 2015 were estimated using a Black-Scholes option valuation model. Due to the limited trading history of the
Company’s common stock, the volatility and expected term assumptions used were based on averages from a peer group of publicly traded retailers. The risk-free
interest rate was based upon the U.S. Treasury five year yield curve.
Weighted-average expected volatility
Expected term (in years)
Risk-free interest rate
Expected dividend yield
Fiscal Year
2015
2014
46.0%
4.5 years
1.4%
—%
51.1%
4.5 years
1.4%
—%
The Company’s weighted average assumptions used to estimate the fair value of stock options granted on November 21, 2013 in connection with our IPO
and the options granted during fiscal 2014 were estimated using a Black-Scholes option valuation model and were as follows. Expected term of 4.5 years, expected
volatility of 51.1%, risk-free interest rate of 1.4% and expected dividend yield of 0.0%.
Based on these assumptions used, the weighted average grant date fair value for options granted to employees during fiscal 2015, 2014 and for the options
granted on November 21, 2013 in connection with our IPO was $1.75 per share, $14.13 per share and $8.82 per share, respectively.
The fair value of stock options granted in fiscal 2012 through October 2013 was determined at the grant date using a Black-Scholes option valuation model,
which requires us to make several significant assumptions including risk-free interest rate, volatility, expected term, and discount factors for shareholders in a
privately-held company. The estimated term of 6.5 years for these options was developed using a simplified method permitted by SEC Staff Accounting Bulletin
Topic 14: Share-Based
Payment
, available for companies with “plain-vanilla” options and have limited historical exercise data. Our selected volatility rate of
55.0% was estimated
F-25
using both: (i) volatility reported by companies comparable to Kellwood Company with publicly-traded stock, and (ii) calculated volatility of companies
comparable to Kellwood Company with publicl y-traded stock using historical stock prices. We applied a cumulative discount factor to the price per share of
36.25% to adjust for the lack of marketability of the shares, as well as the impact of the shares representing a minority interest in a privatel y-held company. Our
estimates were developed using market data for companies comparable to Kellwood Company and empirical studies regarding the impact on the value of private-
company shares resulting from transfer restrictions. Finally, the risk-free rate of 0.85% is based upon the U.S. Treasury five year yield curve.
At January 30, 2016 there was $5,636 of unrecognized compensation costs related to stock options granted to employees that will be recognized over a
remaining weighted average period of 2.6 years.
Restricted Stock Units
A summary of restricted stock unit activity for fiscal 2015 is as follows:
Nonvested restricted stock units at January 31, 2015
Granted
Vested
Nonvested restricted stock units at January 30, 2016
Restricted
Stock
Units
Weighted
Average
Grant Date
Fair Value
$
12,384
22,111
$
(4,963) $
$
29,532
26.24
7.27
25.20
12.22
The weighted average grant date fair value for restricted stock units granted during fiscal 2014 and for the restricted stock units granted on November 21,
2013 in connection with our IPO was $30.47 and $20.00. The total fair value of restricted stock units vested during fiscal 2015 and fiscal 2014 was $125 and $50,
respectively.
At January 30, 2016 there was $300 of unrecognized compensation costs related to restricted stock units that will be recognized over a remaining weighted
average period of 2.0 years.
Share-Based Compensation Expense
During fiscal 2015 we recognized share-based compensation expense of $1,259, including $160 of expense related to non-employees, and a related tax
benefit of $504, including $64 of tax benefit related to non-employees. During fiscal 2014 we recognized share-based compensation expense of $1,896 and a
related tax benefit of $758. During fiscal 2013, from our IPO through the end of the fiscal year, we recognized share-based compensation expense of $347 and a
related tax benefit of $139. During fiscal year 2013, from the beginning of the fiscal year through our IPO date we recognized share-based compensation expense
of $551 which was included in net loss from discontinued operations as such expense was a component of the non-Vince businesses which were separated from the
Vince business on November 27, 2013. In addition, as a result of the deferred tax valuation allowance during this period, the Company did not recognize the related
tax benefit on the share-based compensation expense.
Note 10. Stockholders’ Equity
Common
Stock:
We currently have authorized for issuance 100,000,000 shares of our Voting Common Stock, par value of $0.01 per share. As of January 30, 2016 and
January 31, 2015 we had 36,779,417 and 36,748,245 shares issued and outstanding, respectively (after giving effect to the conversion of all our issued and
outstanding non-voting common stock into common stock on a one-for-one basis and the subsequent split of our common stock on a one for 28.5177 basis, as part
of the Restructuring Transactions).
Secondary
Offering
of
Common
Stock:
In July 2014, certain selling stockholders of VHC, including affiliates of Sun Capital (the “Selling Stockholders”), sold 4,975,254 shares of VHC’s common
stock at a public offering price of $34.50 per share in a secondary public offering (the “Secondary Offering”). The total shares sold include 648,946 shares sold by
the Selling Stockholders pursuant to the exercise by the underwriters of their option to purchase additional shares. The Company did not receive any proceeds from
the Secondary Offering. Immediately following the Secondary Offering, affiliates of Sun Capital beneficially owned 54.6% of VHC’s issued and outstanding
common stock. The Company incurred approximately $571 of expenses in connection with the Secondary Offering during fiscal 2014.
F-26
Dividends:
We have not paid dividends, and our current ability to pay such dividends is restricted by the terms of our debt agreements. Our future dividend policy will
be determined on a yearly basis and will depend on earnings, financial condition, capital requirements, and certain other factors. We do not expect to declare
dividends with respect to our common stock in the foreseeable future.
Note 11. Earnings Per Share
All share information presented below and herein has been adjusted to reflect the stock split approved by VHC’s board of directors as of November 27,
2013. The fiscal year ended February 1, 2014 includes the impact of 10,000,000 shares issued by the Company on November 21, 2013.
The following is a reconciliation of weighted average basic shares to weighted average diluted shares outstanding:
Weighted-average shares—basic
Effect of dilutive equity securities
Weighted-average shares—diluted
January 30,
2016
36,770,430
758,797
37,529,227
Fiscal Year Ended
January 31,
2015
36,730,490
1,514,416
38,244,906
February 1,
2014
28,119,794
153,131
28,272,925
For the fiscal year ended January 30, 2016, 732,303 options to purchase common stock were excluded from the computation of weighted average shares for
diluted earnings per share since the related exercises prices exceeded the average market price of the Company’s common stock and such inclusion would be anti-
dilutive. For the fiscal year ended January 31, 2015, 123,959 options to purchase common stock were excluded from the computation of weighted average shares
for diluted earnings per share since the related exercises prices exceeded the average market price of the Company’s common stock and such inclusion would be
anti-dilutive. There were no antidilutive securities in the fiscal year ended February 1, 2014.
On March 29, 2016, the Company commenced a rights offering and intends to issue an additional 11,818,181 shares. See Note 17 “Subsequent Event” for
additional information.
Note 12. Income Taxes
The provision for income taxes for continuing operations consists of the following:
(in thousands)
Current:
Domestic:
Federal
State
Foreign
Total current
Deferred:
Domestic:
Federal
State
Foreign
Total deferred
Total provision for income taxes
Fiscal
2015
Fiscal
2014
Fiscal
2013
$
$
(53) $
522
—
469
2,994
(249)
—
2,745
3,214
$
$
759
344
—
1,103
20,416
2,475
—
22,891
23,994
$
—
43
—
43
6,333
905
(13)
7,225
7,268
The sources of income (loss) for continuing operations before provision for income taxes are from the United States for all years. We file U.S. federal
income tax returns and income tax returns in various state and local jurisdictions.
F-27
Current income taxes are the amounts payable under the respective tax laws and regulations on each year’s earnings. A reconciliation of the federal statutory
income tax rate to the effective tax rate is as follows:
Statutory federal rate
State taxes, net of federal benefit
Nondeductible Tax Receivable Agreement adjustment
Nondeductible interest
Nondeductible transaction costs
Valuation allowance
Return to provision adjustment
Changes in tax laws
Other
Total
Fiscal
2015
Fiscal
2014
Fiscal
2013
35.0%
6.5%
4.1%
0.0%
0.0%
(0.5)%
(2.4)%
(3.2)%
(0.8)%
38.7%
35.0%
5.7%
0.0%
0.0%
0.0%
(0.7)%
0.0%
0.0%
0.2%
40.2%
35.0%
9.5%
0.0%
18.1%
6.7%
(45.5)%
0.0%
0.0%
(0.1)%
23.7%
Deferred income tax assets and liabilities for continuing operations consisted of the following:
(in thousands)
Deferred tax assets:
Depreciation and amortization
Employee related costs
Allowance for asset valuations
Accrued expenses
Net operating losses
Tax credits
Other
Total deferred tax assets
Less: valuation allowances
Net deferred tax assets
Deferred tax liabilities:
Cancellation of debt income
Other
Total deferred tax liabilities
Net deferred tax assets
Included in:
Prepaid expenses and other current assets
Deferred income taxes and other assets
Net deferred income tax assets
January 30,
2016
January 31,
2015
$
$
$
$
$
17,071
2,163
2,551
6,088
72,465
812
457
101,607
(1,024)
100,583
(6,657)
(482)
(7,139)
$
93,444
4,164
89,280
93,444
$
$
29,935
3,503
3,172
3,933
65,111
888
90
106,632
(1,074)
105,558
(8,876)
(493)
(9,369)
96,189
4,015
92,174
96,189
As of January 30, 2016, various federal and state net operating losses were available for carryforward to offset future taxable income. Substantially all of
these net operating losses will expire between 2030 and 2036. The valuation allowance of $1,024 at January 30, 2016 and $1,074 at January 31, 2015, reflects
management’s assessment, based on available information, that it is more likely than not that a portion of the deferred tax assets will not be realized due to the
inability to generate sufficient state taxable income. Adjustments to the valuation allowance are made when there is a change in management’s assessment of the
amount of deferred tax assets that are realizable.
Net operating losses as of January 30, 2016 presented above do not include fiscal 2015, fiscal 2014 and fiscal 2013 deductions related to stock options that
exceeded expenses previously recognized for financial reporting purposes since they have not yet reduced income taxes payable. The excess deduction will reduce
income taxes payable and increase additional paid in capital by $2,732 when ultimately deducted in a future year. Net operating losses as of January 31, 2015
presented above do not include fiscal 2014 and fiscal 2013 deductions related to stock options that exceeded expenses previously recognized for financial reporting
purposes since they have not yet reduced income taxes payable. The excess deduction will reduce income taxes payable and increase additional paid in capital by
$2,675 when ultimately deducted in a future year.
F-28
As discussed in Note 2 “The IPO and Restructuring Transactions” , we completed an IPO during fiscal 2013. The completion of the IPO and Restructuring
Transactions resulted in the non-Vince businesses being separated from the Vince business. As a result, th e Company determined that the full valuation allowance
on the U.S. net deferred tax assets was no longer necessary. Since the IPO and Restructuring Transactions occurred between related parties and were considered
one integrated transaction along with the establishment of the Tax Receivable Agreement liability, the offset of the release of the valuation allowance was recorded
as an adjustment to additional paid-in capital on our Consolidated Balance Sheet at February 1, 2014 in accordance with ASC 740-20-45 -11(g). The total valuation
allowance on deferred tax assets for continuing operations decreased on a net basis by $50 in the fiscal year ended January 30, 2016 and decreased by $769 in the
fiscal year ended January 31, 2015.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:
(in thousands)
Beginning balance
Increases for tax positions in current year
Increases for tax positions in prior years
Decreases for tax positions in prior years
Settlements
Lapse in statute of limitations
Restructuring Transactions
Ending balance
$
$
Fiscal
2015
Fiscal
2014
Fiscal
2013
$
4,487
72
27
(2,459)
—
—
—
2,127
$
$
3,693
2,397
135
(1,738)
—
—
—
4,487
$
9,378
3,743
356
(4,186)
(3,022)
(102)
(2,474)
3,693
As of January 30, 2016 and January 31, 2015, unrecognized tax benefits in the amount of $2,161 (net of tax) and $2,195 (net of tax), respectively, would
impact our effective tax rate if recognized. It is reasonably possible that within the next 12 months certain temporary unrecognized tax benefits could fully reverse.
Should this occur, our unrecognized tax benefits could be reduced by up to $72.
We include accrued interest and penalties on underpayments of income taxes in our income tax provision. As of January 30, 2016 and January 31, 2015, we
did not have any interest and penalties accrued on our Consolidated Balance Sheets. Net interest and penalty provisions (benefit) of $0, $0 and $(232) were
recognized in our Consolidated Statements of Operations for the years ended January 30, 2016, January 31, 2015 and February 1, 2014, respectively. Interest is
computed on the difference between the tax position recognized net of any unrecognized tax benefits and the amount previously taken or expected to be taken in
our tax returns.
All amounts above related to unrecognized tax benefits include continuing and discontinued operations until the separation of the Vince and non-Vince
businesses on November 27, 2013, and the Vince business after such date.
With limited exceptions, we are no longer subject to examination for U.S. federal and state income tax for 2007 and prior.
Note 13. Defined Contribution Plan
We maintain the Vince Holding Corp. 401k Plan, which is a defined contribution plan covering all U.S.-based employees. Employees who meet certain
eligibility requirements may participate in this program by contributing between 1% and 100% of annual compensation, subject to IRS limitations. We will make
matching contributions in an amount equal to 50% of employee contributions up to 3% of eligible compensation. The annual expense incurred by the Company for
this defined contribution plan was $426, $344, and $232 in fiscal 2015, fiscal 2014 and fiscal 2013, respectively.
Note 14. Segment and Geographical Financial Information
We operate and manage our business by distribution channel and have identified two reportable segments, as further described below. We considered both
similar and dissimilar economic characteristics, internal reporting and management structures, as well as products, customers, and supply chain logistics to identify
the following reportable segments:
·
·
Wholesale segment—consists of our operations to distribute products to major department stores and specialty stores in the United States and select
international markets.
Direct-to-consumer segment—consists of our operations to distribute products directly to the consumer through our branded full-price specialty retail
stores, outlet stores, and e-commerce platform.
F-29
The accounting policies of our segments are consistent with those described in Note 1 “Description of Business and Summary of Significant Accounting
Policies”. Unallocated corporate expenses are comprised of selling, general, and administrative expenses attributable to corporate and administrative activities, and
other charges that are not directly attributable to our operating segments. Unallocated corporate assets are comprised of the carrying values of our goodwill and
unamortized trademark, d eferred tax assets, and other assets that will be utilized to generate revenue for both of our r eportable segments.
Our wholesale segment sells apparel to our direct-to-consumer segment at cost. The wholesale intercompany sales of $29,063, $22,595 and $16,916 have
been excluded from the net sales totals presented below for fiscal 2015, fiscal 2014, and fiscal 2013, respectively. Furthermore, as intercompany sales are sold at
cost, no intercompany profit is reflected in operating income presented below.
Summary information for our operating segments is presented below.
(in thousands)
Net Sales:
Wholesale
Direct-to-consumer
Total net sales
Income from Operations:
Wholesale
Direct-to-consumer
Subtotal
Unallocated expenses
Total income from operations
Depreciation & Amortization:
Wholesale
Direct-to-consumer
Unallocated corporate
Total depreciation & amortization
Capital Expenditures:
Wholesale
Direct-to-consumer
Unallocated corporate
Total capital expenditure
(in thousands)
Total Assets:
Wholesale
Direct-to-consumer
Unallocated corporate
Total assets
2015
Fiscal Year
2014
2013
$
$
$
$
$
$
$
$
201,182 $
101,275
302,457 $
259,418 $
80,978
340,396 $
61,571 $
7,839
69,410
(53,684)
15,726 $
2,058 $
4,498
1,794
8,350 $
1,629 $
9,442
6,520
17,591 $
100,623 $
14,556
115,179
(44,929)
70,250 $
1,962 $
2,950
355
5,267 $
2,076 $
8,117
9,506
19,699 $
229,114
59,056
288,170
81,822
10,435
92,257
(42,904)
49,353
1,204
1,581
—
2,785
1,832
8,241
—
10,073
January 30,
2016
January 31,
2015
$
$
47,757 $
35,433
280,378
363,568 $
70,635
33,793
274,220
378,648
Sales results are presented on a geographic basis below. We predominately operate within the U.S. and sell our products in 38 countries either directly to
major department and specialty stores, or through distribution relationships with international partners with exclusive rights to certain territories. Sales are
presented based on customer location. Substantially all long-lived assets, including property, plant and equipment and fixtures installed at our retailer sites, are
located in the U.S.
(in thousands)
Net Sales:
United States
Other countries
Total net sales
2015
Fiscal Year
2014
2013
$
$
273,655 $
28,802
302,457 $
310,179 $
30,217
340,396 $
265,622
22,548
288,170
F-30
Our net sales by major product category are as follows:
2015
% of Total
% of Total
Amount
2013
% of Total
Fiscal Year
2014
Amount
$ 272,338
22,685
7,434
$ 302,457
Amount
90% $ 301,076
35,417
8%
3,903
2%
100% $ 340,396
89% $
10%
1%
100% $
253,647
33,612
911
288,170
88%
12%
0%
100%
(in thousands)
Women's collection
Men's collection
Other
Note 15. Related Party Transactions
Shared Services Agreement
On November 27, 2013, Vince, LLC entered into the Shared Services Agreement with Kellwood pursuant to which Kellwood would provide certain support
services in various operational areas including, among other things, e-commerce operations, distribution, logistics, information technology, accounts payable, credit
and collections and payroll and benefits. Since the IPO, we have been working on transitioning certain back office functions performed by Kellwood under the
Shared Services Agreement. Among these functions that have transitioned to Vince are certain accounting related functions as well as benefits administration. We
have also been working on developing our own information technology infrastructure and are now in the process of implementing our own enterprise resource
planning (“ERP”) system, point-of-sale systems, e-commerce platform and supporting systems. We are also in the process of migrating our U.S. distribution system
from Kellwood to a new third party provider. Until those systems are implemented, we will continue to utilize the Kellwood information technology infrastructure,
including e-commerce platform systems, under the Shared Services Agreement.
The Shared Services Agreement may be modified or supplemented to include new services under terms and conditions to be mutually agreed upon in good
faith by the parties. The fees for all services received by Vince, LLC from Kellwood, including any new services mutually agreed upon by the parties, will be at
cost. Such costs shall be the full amount of any and all actual and direct out-of-pocket expenses (including base salary and wages but without providing for any
margin of profit or allocation of depreciation or amortization expense) incurred by the service provider or its affiliates in connection with the provision of the
services.
We may terminate any or all of the services at any time for any reason (with or without cause) upon giving Kellwood the required advance notice for
termination for that particular service. Additionally, the provision of the following services, which are services which require a term as a matter of law and services
which are based on a third-party agreement with a set term, shall terminate automatically upon the related date specified on the schedules to the Shared Services
Agreement: Building Services NY; Tax; and Compensation & Benefits. If no specific notice requirement has been provided, 90 days prior written notice shall be
required to be given. Upon the termination of certain services, Kellwood may no longer be in a position to provide certain other related services. Kellwood must
notify us within 10 days following our request to terminate any services if they will no longer be able to provide other related services. Assuming we proceed with
our request to terminate the original services, such related services shall also be terminated in connection with such termination.
We are invoiced by Kellwood monthly for these amounts and generally be required to pay within 15 business days of receiving such invoice. The payments
will be trued-up and can be disputed once each fiscal quarter. For the years ended January 30, 2016, January 31, 2015 and February 1, 2014 we recognized $9,357,
$11,436 and $13,729, respectively, of expense within the statement of operations for services provided under the Shared Services Agreement. As of January 30,
2016 and January 31, 2015, we have recorded $858 and $753, respectively in other accrued expenses to recognize amounts payable to Kellwood under the Shared
Services Agreement.
Tax Receivable Agreement
VHC entered into a Tax Receivable Agreement with the Pre-IPO Stockholders on November 27, 2013. We and our former subsidiaries generated certain tax
benefits (including NOLs and tax credits) prior to the Restructuring Transactions consummated in connection with our IPO and will generate certain section 197
intangible deductions (the “Pre-IPO Tax Benefits”), which would reduce the actual liability for taxes that we might otherwise be required to pay. The Tax
Receivable Agreement provides for payments to the Pre-IPO Stockholders in an amount equal to 85% of the aggregate reduction in taxes payable realized by us
and our subsidiaries from the utilization of the Pre-IPO Tax Benefits (the “Net Tax Benefit”).
For purposes of the Tax Receivable Agreement, the Net Tax Benefit equals (i) with respect to a taxable year, the excess, if any, of (A) our liability for taxes
using the same methods, elections, conventions and similar practices used on the relevant company return
F-31
assuming there were no Pre-IPO Tax Benefits ov er (B) our actual liability for taxes for such taxable year (the “Realized Tax Benefit”), plus (ii) for each prior
taxable year, the excess, if any, of the Realized Tax Benefit reflected on an amended schedule applicable to such prior taxable year over the Realized Tax Benefit
reflected on the original tax benefit schedule for such prior taxable year, minus (iii) for each prior taxable year, the excess, if any, of the Realized Tax Benefit
reflected on the original tax benefit schedule for such prior taxable year over the Realized Tax Benefit reflected on the amended schedule for such prior taxable
year; provided, however, that to extent any of the adjustments described in clauses (ii) and (iii) were reflected in the calculation of the tax benefit payment for any
subsequent taxable year, such adjustments shall not be taken into account in determining the Net Tax Benefit for any subsequent taxable year.
While the Tax Receivable Agreement is designed with the objective of causing our annual cash costs attributable to federal, state and local income taxes
(without regard to our continuing 15% interest in the Pre-IPO Tax Benefits) to be the same as that which we would have paid had we not had the Pre-IPO Tax
Benefits available to offset our federal, state and local taxable income, there are circumstances in which this may not be the case. In particular, the Tax Receivable
Agreement provides that any payments by us thereunder shall not be refundable. In that regard, the payment obligations under the Tax Receivable Agreement differ
from a payment of a federal income tax liability in that a tax refund would not be available to us under the Tax Receivable Agreement even if we were to incur a
net operating loss for federal income tax purposes in a future tax year. Similarly, the Pre-IPO Stockholders will not reimburse us for any payments previously made
if any tax benefits relating to such payments are subsequently disallowed, although the amount of any such tax benefits subsequently disallowed will reduce future
payments (if any) otherwise owed to such Pre-IPO Stockholders. In addition, depending on the amount and timing of our future earnings (if any) and on other
factors including the effect of any limitations imposed on our ability to use the Pre-IPO Tax Benefits, it is possible that all payments required under the Tax
Receivable Agreement could become due within a relatively short period of time following consummation of our IPO.
If we had not entered into the Tax Receivable Agreement, we would be entitled to realize the full economic benefit of the Pre-IPO Tax Benefits to the extent
allowed by federal, state and local law. The Tax Receivable Agreement is designed with the objective of causing our annual cash costs attributable to federal, state
and local income taxes (without regard to our continuing 15% interest in the Pre-IPO Tax Benefits) to be the same as we would have paid had we not had the Pre-
IPO Tax Benefits available to offset our federal, state and local taxable income. As a result, stockholders who purchased shares in the IPO are not entitled to the
economic benefit of the Pre-IPO Tax Benefits that would have been available if the Tax Receivable Agreement were not in effect, except to the extent of our
continuing 15% interest in the Pre-IPO Benefits.
Additionally, the payments we make to the Pre-IPO Stockholders under the Tax Receivable Agreement are not expected to give rise to any incidental tax
benefits to us, such as deductions or an adjustment to the basis of our assets.
An affiliate of Sun Capital may elect to terminate the Tax Receivable Agreement upon the occurrence of a Change of Control (as defined below). In
connection with any such termination, we are obligated to pay the present value (calculated at a rate per annum equal to LIBOR plus 200 basis points as of such
date) of all remaining Net Tax Benefit payments that would be required to be paid to the Pre-IPO Stockholders from such termination date, applying the valuation
assumptions set forth in the Tax Receivable Agreement (the “Early Termination Period”). “Change of control,” as defined in the Tax Receivable Agreement shall
mean an event or series of events by which (i) Vince Holding Corp. shall cease directly or indirectly to own 100% of the capital stock of Vince, LLC; (ii) any
“person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Exchange Act), other than one or more permitted investors, shall be the “beneficial
owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of capital stock having more, directly or indirectly, than 35% of the total voting power of all
outstanding capital stock of Vince Holding Corp. in the election of directors, unless at such time the permitted investors are direct or indirect “beneficial owners”
(as so defined) of capital stock of Vince Holding Corp. having a greater percentage of the total voting power of all outstanding capital stock of Vince Holding Corp.
in the election of directors than that owned by each other “person” or “group” described above; (iii) for any reason whatsoever, a majority of the board of directors
of Vince Holding Corp. shall not be continuing directors; or (iv) a “Change of Control” (or comparable term) shall occur under (x) any term loan or revolving
credit facility of Vince Holding Corp. or its subsidiaries or (y) any unsecured, senior, senior subordinated or subordinated indebtedness of Vince Holding Corp. or
its subsidiaries, if, in each case, the outstanding principal amount thereof is in excess of $15,000. We may also terminate the Tax Receivable Agreement by paying
the Early Termination Payment to the Pre-IPO Stockholders. Additionally, the Tax Receivable Agreement provides that in the event that we breach any material
obligations under the Tax Receivable Agreement by operation of law as a result of the rejection of the Tax Receivable Agreement in a case commenced under the
Bankruptcy Code, then the Early Termination Payment plus other outstanding amounts under the Tax Receivable Agreement shall become due and payable.
The Tax Receivable Agreement will terminate upon the earlier of (i) the date all such tax benefits have been utilized or expired, (ii) the last day of the tax
year including the tenth anniversary of the IPO Restructuring Transactions and (iii) the mutual agreement of the parties thereto, unless earlier terminated in
accordance with the terms thereof.
As of January 30, 2016, our obligation under the Tax Receivable Agreement was $169,913, which has a remaining term of eight years. The obligation was
originally recorded in connection with the IPO as an adjustment to additional paid-in capital on our Consolidated Balance Sheet. Approximately $29,075 is
recorded as a component of other accrued expenses and $140,838 as other liabilities on our Consolidated Balance Sheet as of January 30, 2016. During fiscal 2015,
we adjusted the obligation under the Tax Receivable Agreement in connection with the filing of our 2014 income tax returns and as a result of changes in tax laws
that
F-32
impacted the net operating loss deferred tax assets. These adjustments result ed in a net increase of $1,154 to the pre-IPO deferred tax assets and a net increase of
$981 to the liability under the Tax Receivable Agreement with the corresponding net increase accounted for as an adjustment to other expense, net on the
Consolidated St atement of Operations. During fiscal year 2014, we adjusted the obligation under the Tax Receivable Agreement in connection with the filing of
our 2013 income tax returns. The return to provision adjustment resulted in a net reduction of $818 to the pre-IP O deferred tax assets and a net reduction of $1,442
to the liability under the Tax Receivable Agreement with the corresponding net increase of $624 accounted for as an adjustment to additional paid in-capital. In
addition, we made our first tax benefit pay ment with respect to the 2013 taxable year of $3,199 including accrued interest which was paid during the fourth quarter
of fiscal 2014.
The Company had expected to make a required payment under the Tax Receivable Agreement in the fourth quarter of fiscal 2015. As a result of lower than
expected cash from operations due to weaker than projected performance, and the level of projected availability under the Company’s Revolving Credit Facility,
we concluded that we would not be able to fund the payment when due. Accordingly, on September 1, 2015, we entered into an amendment to the Tax Receivable
Agreement with Sun Cardinal, LLC, an affiliate of Sun Capital Partners, Inc., for itself and as a representative of the other stockholders parties thereto. Pursuant to
this amendment, Sun Cardinal agreed to postpone payment of the tax benefit with respect to the 2014 taxable year, currently estimated at $21,762 plus accrued
interest to September 15, 2016. The amendment to the Tax Receivable Agreement also waived the application of a default interest rate at LIBOR plus 500 basis
points per annum on the postponed payment. The interest rate on the postponed payment will remain at LIBOR plus 200 basis points per annum. The tax benefit
payment with respect to the 2015 taxable year totaling $7,313 plus accrued interest is expected to be paid in the fourth quarter of 2016.
Rights Offering Commitment Letter
On December 9, 2015 we received a Rights Offering Commitment Letter from Sun Fund V that provides the Company with an amount equal to $65,000
of cash proceeds in the event that the Company conducts a Rights Offering (the “Contribution Obligation”). Such Contribution Obligation will be reduced by any
proceeds received from the Rights Offering. The Company is required, simultaneously with the funding of the Contribution Obligation by Sun Fund V, or one or
more of its affiliates, to issue to Sun Fund V or one or more of its affiliates the applicable number of shares of the Company’s common stock at the lesser of (i) a
price per share equal to a 20% discount to the 30 day average trading price of the Company’s common stock on The New York Stock Exchange immediately prior
to the date of the Rights Offering Commitment Letter, (ii) a price per share equal to a 20% discount to the 30 day average trading price of the Company’s common
stock on The New York Stock Exchange immediately prior to the commencement of the Rights Offering and (iii) the price per share at which participants in the
Rights Offering are entitled to purchase shares of new common stock issued by the Company. Sun Fund V will receive customary terms and conditions, to be
negotiated between Sun Fund V and the Company, for providing the Contribution Obligation. If the Rights Offering has not commenced by March 8, 2016, the
Company will pay Sun Fund V an amount equal to $950 in the event that the Company completes a Rights Offering. Sun Fund V subsequently extended the
commencement deadline to March 29, 2016. Sun Fund V’s obligations terminate upon the earliest to occur of (A) the consummation of the Rights Offering
whereby the Company receives proceeds equal to or exceeding $65,000, (B) 11:59 p.m. New York City time on April 7, 2016 if the Rights Offering has not
commenced by such time, (C) 11:59 p.m. New York City time on April 30, 2016, and (D) the date Sun Fund V, or its affiliates, funds the Contribution Obligation.
The Company would be required to use a portion of proceeds from the Rights Offering or the Contribution Obligation to satisfy its current obligation with respect
to the 2014 taxable year under the Tax Receivable Agreement as amended (as discussed above), currently estimated at $21,762 plus accrued interest, and payable
on September 15, 2016. On March 29, 2016, the Company commenced the rights offering. The Rights Offering Commitment Letter was superseded by the
Investment Agreement entered into by and among the Company, Sun Cardinal, LLC and SCSF Cardinal, LLC. See Note 17 “Subsequent Event” for additional
details.
Transfer Agreement
On November 27, 2013, Kellwood and Vince Intermediate Holding, LLC entered into a transfer agreement (the “Transfer Agreement”). Pursuant to the
terms of the Transfer Agreement, the following transactions occurred:
·
·
Kellwood distributed the Vince, LLC equity interests to Vince Intermediate Holding, LLC in exchange for a $341,500 promissory note issued by Vince
Intermediate Holding, LLC (the “Kellwood Note Receivable”).
Vince Intermediate Holding, LLC immediately repaid the Kellwood Note Receivable in full using approximately $172,000 of net proceeds from the IPO
along with $169,500 of net borrowings under the new Term Loan Facility. Using the proceeds from the repayment of the Kellwood Note Receivable,
after giving effect to the contribution of $70,100 of indebtedness under the Sun Term Loan Agreements to the capital of Vince Holding Corp. by
affiliates of Sun Capital, Kellwood repaid and discharged the indebtedness outstanding under its revolving credit facility and the Sun Term Loan
Agreements, and redeemed all of its issued and outstanding 12.875% Notes. Kellwood also redeemed $38,100 aggregate principal amount of its 7.125%
Notes, at par pursuant to a tender offer. In addition, Kellwood also used such proceeds to pay certain restructuring fees to Sun Capital Management.
Kellwood also paid a debt recovery bonus of $6,000 to our Chief Executive Officer.
F-33
·
Kellwood refinanced its Wells Fargo Facility to, among other things, release Vince, LLC as a guarantor or obligor thereunder.
In accordance with the terms of the Transfer Agreement, Kellwood has agreed to indemnify us for any losses which we may suffer, sustain or become subject
to, relating to the Kellwood business or in connection with any contract contributed to us by Kellwood which is not by its terms permitted to be assigned. Kellwood
has also agreed to indemnify us for any losses associated with its failure to satisfy its obligations under the Transfer Agreement with respect to the repayment,
repurchase, discharge or refinancing of certain of its indebtedness, as described in the immediately prior paragraph (including with respect to the removal of Vince,
LLC as an obligor or guarantor under its refinanced revolving credit facility). Additionally, Vince Intermediate Holding, LLC has agreed to indemnify Kellwood
against any losses which Kellwood may suffer, sustain or become subject to relating to the Vince business. The parties also agreed, upon the request of either the
other party to, without further consideration, execute and deliver, or cause to be executed and delivered, such other instruments of conveyance, transfer, assignment
and confirmation, and shall take or cause to be taken, such further or other actions as the other party may deem necessary or desirable to carry out the intent and
purpose of the Transfer Agreement and give effect to the transactions contemplated thereby.
Kellwood Note Receivable
Vince Intermediate Holding, LLC issued the Kellwood Note Receivable in the aggregate principal amount of $341,500 to Kellwood Company, LLC on
November 27, 2013, immediately prior to the consummation of our IPO. Vince Intermediate Holding, LLC repaid the Kellwood Note Receivable on the same day,
using net proceeds from our IPO and net borrowings under the Term Loan Facility. No interest accrued under the Kellwood Note Receivable as the Kellwood Note
Receivable was repaid on the date of issuance.
Debt Recovery Bonus to Our Former Chief Executive Officer (“CEO”)
Our former CEO received a debt recovery bonus of $6,000 (which included $440 of a prior unpaid debt recovery bonus) in connection with the repayment
of certain Kellwood indebtedness, calculated as 4.4% of the related debt recovery, on November 27, 2013. Kellwood used proceeds from the repayment of the
Kellwood Note Receivable to pay this bonus to our former CEO at the closing of our IPO.
Certain Indebtedness to Affiliates of Sun Capital
We had substantial indebtedness owed to affiliates of Sun Capital after giving effect to the acquisition of Kellwood Company by affiliates of Sun Capital
Partners, Inc. in February 2008 under the Sun Promissory Notes and Sun Capital Loan Agreement (as defined in Note 7 “Long-Term Debt”). Subsequent to 2008,
Kellwood Company made borrowings under the Sun Term Loan Agreements (as defined in Note 3 “Discontinued Operations”) to fund negative cash flows of the
non-Vince business. All amounts owed by Vince Holding Corp. under these agreements were discharged as of February 1, 2014, as further discussed below.
On December 28, 2012, Sun Kellwood Finance waived all interest capitalized and accrued under the Sun Promissory notes prior to July 19, 2012.
Additionally, Sun Kellwood Finance and SCSF Finance waived all interest capitalized and accrued under the Sun Capital Loan Agreement prior to July 19, 2012.
As all parties were under the common control of affiliates of Sun Capital, both transactions resulted in capital contributions of $270,852 and $18,249 for the Sun
Promissory Notes and Sun Capital Loan Agreement, respectively. The capital contributions were recorded as adjustments to additional paid in capital on our
Consolidated Balance Sheet as of February 2, 2013. These transactions had no significant income tax consequences. The remaining principal and capitalized PIK
interest owed under these agreements of $391,434 were reported within long-term debt on the Consolidated Balance Sheet as of February 2, 2013.
On June 18, 2013, Sun Kellwood Finance and SCSF Finance assigned all title and interest in both the Sun Promissory Notes and note under our Sun Capital
Loan Agreement to Sun Cardinal, LLC. Immediately following the assignment of these notes, Sun Cardinal contributed all outstanding principal and interest due
under these notes as of June 18, 2013 to the capital of Vince Holding Corp. As all parties were under the common control of Sun Capital at such time, these
transactions were recorded in the second quarter of fiscal 2013 as increases to Vince Holding Corp.’s additional paid in capital in the amounts of $334,595 and
$72,932 for the Sun Promissory Notes and Sun Capital Loan Agreement, respectively. As a result, Vince Holding Corp. has been discharged of all obligations
under both agreements. See Note 7 “Long-Term Debt”. Immediately prior to the Restructuring Transactions, affiliates of Sun Capital contributed $38,683 of
principal under the Sun Term Loan Agreements to the capital of Kellwood Company.
On November 27, 2013, subsequent to the closing of the IPO and in connection with the Restructuring Transactions, all remaining debt obligations to
affiliates of Sun Capital under the Sun Term Loan Agreements were retained by Kellwood Company, amounting to $83,355 (including accrued interest). Kellwood
Company immediately discharged all obligations under these agreements through the application of a portion of the Kellwood Note Receivable proceeds. See Note
3 “Discontinued Operations”.
F-34
Management Services Agreement
In connection with the acquisition of Kellwood Company by affiliates of Sun Capital in 2008, Sun Capital Partners Management V, LLC, an affiliate of Sun
Capital, entered into the Management Services Agreement (the “Management Services Agreement”) with Kellwood Company. Under this agreement, Sun Capital
Management provided Kellwood Company with consulting and advisory services, including services relating to financing alternatives, financial reporting,
accounting and management information systems. In exchange, Kellwood Company reimbursed Sun Capital Management for reasonable out-of-pocket expenses
incurred in connection with providing consulting and advisory services, additional and customary and reasonable fees for management consulting services provided
in connection with corporate events, and also paid an annual management fee equal to $2,200 which was prepaid in equal quarterly installments, a portion of which
was charged to the Vince business. We reported $0, $79, and $404 for management fees to Sun Capital in other expense, net, in the Consolidated Statements of
Operations for fiscal 2015, fiscal 2014 and fiscal 2013, respectively. The remaining fees charged to the non-Vince businesses of $1,537 are included within net loss
from discontinued operations in the Consolidated Statements of Operations for fiscal 2013.
Upon the consummation of certain corporate events involving Kellwood Company or its direct or indirect subsidiaries, Kellwood Company was required to
pay Sun Capital Management a transaction fee in an amount equal to 1% of the aggregate consideration paid to or by Kellwood Company and any of its direct or
indirect subsidiaries or stockholders. We incurred no material transaction fees payable to Sun Capital Management during all periods presented on the Consolidated
Statement of Operations.
On November 27, 2013, in connection with the closing of the IPO and Restructuring Transactions, VHC was released from the terms of the Management
Services Agreement between Kellwood Company and Sun Capital Management.
Sun Capital Consulting Agreement
On November 27, 2013, we entered into an agreement with Sun Capital Management to (i) reimburse Sun Capital Management or any of its affiliates
providing consulting services under the agreement for out-of-pocket expenses incurred in providing consulting services to us and (ii) provide Sun Capital
Management with customary indemnification for any such services.
The agreement is scheduled to terminate on the tenth anniversary of our IPO (i.e. November 27, 2023). Under the consulting agreement, we have no
obligation to pay Sun Capital Management or any of its affiliates any consulting fees other than those which are approved by a majority of our directors that are not
affiliated with Sun Capital. To the extent such fees are approved in the future, we will be obligated to pay such fees in addition to reimbursing Sun Capital
Management or any of its affiliates that provide us services under the consulting agreement for all reasonable out-of-pocket fees and expenses incurred by such
party in connection with the provision of consulting services under the consulting agreement and any related matters. Reimbursement of such expenses shall not be
conditioned upon the approval of a majority of our directors that are not affiliated with Sun Capital Management, and shall be payable in addition to any fees that
such directors may approve.
Neither Sun Capital Management nor any of its affiliates are liable to us or our affiliates, security holders or creditors for (1) any liabilities arising out of,
related to, caused by, based upon or in connection with the performance of services under the consulting agreement, unless such liability is proven to have resulted
directly and primarily from the willful misconduct or gross negligence of such person or (2) pursuing any outside activities or opportunities that may conflict with
our best interests, which outside activities we consent to and approve under the consulting agreement, and which opportunities neither Sun Capital Management nor
any of its affiliates will have any duty to inform us of. In no event will the aggregate of any liabilities of Sun Capital Management or any of its affiliates exceed the
aggregate of any fees paid under the consulting agreement.
In addition, we are required to indemnify Sun Capital Management, its affiliates and any successor by operation of law against any and all liabilities,
whether or not arising out of or related to such party’s performance of services under the consulting agreement, except to the extent proven to result directly and
primarily from such person’s willful misconduct or gross negligence. We are also required to defend such parties in any lawsuits which may be brought against
such parties and advance expenses in connection therewith. In the case of affiliates of Sun Capital Management that have rights to indemnification and
advancement from affiliates of Sun Capital, we agree to be the indemnitor of first resort, to be liable for the full amounts of payments of indemnification required
by any organizational document of such entity or any agreement to which such entity is a party, and that we will not make any claims against any affiliates of Sun
Capital Partners for contribution, subrogation, exoneration or reimbursement for which they are liable under any organizational documents or agreement. Sun
Capital Management may, in its sole discretion, elect to terminate the consulting agreement at any time. We may elect to terminate the consulting agreement if
SCSF Cardinal, Sun Cardinal or any of their respective affiliates’ aggregate ownership of our equity securities falls below 30%.
During fiscal 2015, fiscal 2014 and fiscal 2013, we paid Sun Capital Management $114, $76 and $0, respectively, for reimbursement of expenses under the
Sun Capital Consulting Agreement.
F-35
Indemnification Agreements
We entered into indemnification agreements with each of our executive officers and directors on November 27, 2013. The indemnification agreements
provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted
under the DGCL.
Amended and Restated Certificate of Incorporation
Our amended and restated certificate of incorporation provides that for so long as affiliates of Sun Capital own 30% or more of our outstanding shares of
common stock, Sun Cardinal, a Sun Capital affiliate, has the right to designate a majority of our board of directors. For so long as Sun Cardinal has the right to
designate a majority of our board of directors, the directors designated by Sun Cardinal are expected to constitute a majority of each committee of our board of
directors (other than the Audit Committee), and the chairman of each of the committees (other than the Audit Committee) is expected to be a director serving on the
committee who is selected by affiliates of Sun Capital, provided that, at such time as we are not a “controlled company” under the NYSE corporate governance
standards, our committee membership will comply with all applicable requirements of those standards and a majority of our board of directors will be “independent
directors,” as defined under the rules of the NYSE, subject to any applicable phase in requirements.
Executive Officers
Mark E. Brody served as the Company’s Interim Chief Executive Officer from September 1, 2015 through October 22, 2015 when the Board approved the
appointment of Brendan L. Hoffman to serve as the Chief Executive Officer of the Company, effective immediately. Mr. Brody remained with the Company in a
non-executive capacity through a transition period which ended on November 20, 2015. Mr. Brody also served as Interim Chief Financial Officer and Treasurer of
the Company from June 2015 through September 1, 2015. Mr. Brody received $63 per month and the reimbursement of reasonable cost of transportation and
housing on a tax grossed-up basis during his employment with the Company. Mr. Brody also serves, and will continue to serve, as a member of the Board and
received no additional compensation for serving as a director of the Company.
David Stefko served as the Interim Chief Financial Officer and Treasurer of the Company from September 1, 2015 through January 14, 2016, when he was
appointed our permanent Chief Financial Officer, effective immediately. Mr. Stefko received $43 per month and the reimbursement of reasonable cost of
transportation and housing on a tax grossed-up basis during the period he served as the Interim Chief Financial Officer and Treasurer of the Company.
Both Mr. Brody and Mr. Stefko were employees of Sun Capital Partners, Inc. prior to their appointment to the positions at the Company, remained covered
by Sun Capital Partners, Inc.’s health and welfare benefit plans and continued to be eligible to receive a bonus under the Sun Capital Partners, Inc. annual bonus
plan related to their work at Sun Capital Partners, Inc. Affiliates of Sun Capital Partners, Inc. owed approximately 56% of the outstanding shares of our common
stock as of January 30, 2016. Mr. Brody has returned to his former position and is a partner in one or more investment partnerships that are affiliated with Sun
Capital Partners, Inc. that beneficially own shares of common stock of the Company. Mr. Stefko resigned from his position at Sun Capital Partners, Inc. on January
13, 2016.
Note 16. Quarterly Financial Information (unaudited)
Summarized quarterly financial results for fiscal 2015 and fiscal 2014:
(in thousands, except per share data)
Fiscal 2015:
Net sales
Gross profit
Net income (loss)
Basic earnings (loss) per share (4)
Diluted earnings (loss) per share (4)
Fiscal 2014:
Net sales
Gross profit
Net income
Basic earnings per share (4)
Diluted earnings per share (4)
First
Quarter
Second
Quarter (1)
Third
Quarter
(2)
Fourth
Quarter
(3)
$
$
$
$
$
$
59,842
30,741
2,454
0.07
0.06
First
Quarter
53,452
26,411
1,384
0.04
0.04
$
$
$
$
$
$
79,993
20,789
(5,026)
(0.14) $
(0.14) $
$ 80,859
40,005
5,893
0.16
0.16
$ 81,763
40,981
1,778
0.05
0.05
$
$
Second
Quarter (5)
Third
Quarter
Fourth
Quarter
89,326
44,014
10,501
0.29
0.27
$ 102,947
50,648
13,311
0.36
0.35
$
$
$ 94,671
45,756
10,527
0.29
$
0.28
$
F-36
(1)
(2)
(3)
(4 )
(5)
I ncludes the impact of $14,447 of pre-tax expense within cost of products sold associated with inventory write-downs primarily related to excess out of
season and current inventory and $2,861 of pre-tax expense within selling, general and administrative expenses associated with executi ve severance costs
partly offset by the favorable impact of executive stock option forfeitures.
Includes the impact of $1,986 of pre-tax income within cost of products sold associated with the favorable impact of the recovery on inventory write downs
taken in the second quarter and $164 pre-tax expense within selling, general and administrative expenses associated with executive search costs partly
offset by the favorable impact of executive stock option forfeitures.
Includes the impact of $2,161 of pre-tax income within cost of products sold associated with the favorable impact of the recovery on inventory write downs
taken in the second quarter and $323 pre-tax income within selling, general and administrative expenses associated with the favorable adjustment to
management transitions costs taken in the second quarter. Additionally, gross profit, net income (loss) and diluted earnings (loss) per share in the fourth
quarter were overstated by $530, $313 and $0.01, respectively, as a result of an immaterial error in inventory valuation during the third quarter.
The sum of the quarterly earnings per share may not equal the full-year amount as the computation of weighted-average number of shares outstanding for
each quarter and the full-year are performed independently.
Includes the impact of $571 of pre-tax expense within selling, general and administrative expenses associated with costs incurred by the Company related to
the Secondary Offering completed in July 2014.
Note 17. Subsequent Event
On March 29, 2016, the Company commenced a rights offering (the “Rights Offering”), whereby the Company distributed, at no charge, to stockholders of
record as of March 23, 2016 (the “Rights Offering Record Date”), rights to purchase new shares of the Company’s common stock at $5.50 per share. Each
stockholder as of the Rights Offering Record Date (“Rights Holders”) received one non-transferrable right for every share of common stock owned on the Rights
Offering Record Date (the “subscription right”). Rights Holders who fully exercise their subscription rights are entitled to subscribe for additional shares that
remain unsubscribed as a result of any unexercised subscription rights (the “over-subscription right”). The over-subscription right allows a Rights Holder to
subscribe for an additional number of shares equal to up to 20% of the shares of common stock for which such holder was otherwise entitled to subscribe.
Subscription rights may only be exercised for whole numbers of shares; no fractional shares of common stock will be issued in the Rights Offering. The Rights
Offering period expired on April 14, 2016 at 5:00 p.m. New York City time, prior to which payment for all subscription rights required an irrevocable funding of
cash to the transfer agent, to be held in an account for the benefit of the Company. The Investors have fully subscribed in the Rights Offering and exercised their
oversubscription right. Under the terms of the Investment Agreement, the Investors will fund the difference between the Rights Offering proceeds and $65,000 on
or about April 21, 2016, but no later than April 30, 2016, concurrently with the closing of the Rights Offering.
The Company intends to issue 11,818,181 additional shares to raise gross proceeds of $65,000. The Company intends to use a portion of the net proceeds
received from the Rights Offering to (1) repay the amount owed by us under the Tax Receivable Agreement with Sun Cardinal, for itself and as a representative of
the other stockholders party thereto, for the tax benefit with respect to the 2014 taxable year, equal to $21,762 plus accrued interest (see Note 15 “Related Party
Transactions” for additional details), and (2) repay all outstanding indebtedness under our Revolving Credit Facility. The Company intends to use the remaining net
proceeds for general corporate purposes, which may include future amounts owed by us under the Tax Receivable Agreement.
On March 15, 2016, the Company also entered into an Investment Agreement with Sun Cardinal, LLC and SCSF Cardinal, LLC, affiliates of Sun Capital
Partners, Inc., pursuant to which Sun Cardinal and SCSF Cardinal have agreed to backstop the rights offering by purchasing at the subscription price of $5.50 per
share any and all shares not subscribed through the exercise of rights, including the oversubscription. Consummation of the rights offering and the transactions
contemplated by the Investment Agreement are subject to customary closing conditions. The Investment Agreement supersedes the Rights Offering Commitment
Letter, dated December 9, 2015, from Sun Capital Partners V, L.P., which is disclosed in further detail in Note 15 “Related Party Transactions.”
F-37
SCHEDU LE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Sales Allowances
Fiscal 2015
Fiscal 2014
Fiscal 2013
Allowance for Doubtful Accounts
Fiscal 2015
Fiscal 2014
Fiscal 2013
Provision for Inventories
Fiscal 2015
Fiscal 2014
Fiscal 2013
Valuation Allowances on Deferred Income Taxes
Fiscal 2015
Fiscal 2014
Fiscal 2013
Beginning of
Period
Expenses
Charges, net
of
Reversals
Deductions
and Write-offs
net of
Recoveries
End of
Period
$
(16,098) $
(9,265)
(7,179)
(55,656) $
(54,467)
(39,171)
58,908 $
47,634
37,085
(379)
(353)
(279)
(6,464)
(3,868)
(1,263)
(1,074)
(1,843)
(64,767)
34
(168)
(249)
(16,263)
(3,719)
(3,738)
—
—
(78,855)
157
142
175
9,479
1,123
1,133
50
769
141,779 (a)
(12,846)
(16,098)
(9,265)
(188)
(379)
(353)
(13,248)
(6,464)
(3,868)
(1,024)
(1,074)
(1,843)
(a)
The reduction in the Valuation Allowance on Deferred Income Taxes recorded in Fiscal 2013 includes $127,833 that was recognized as an increase to
additional paid-in capital in Stockholders’ Equity.
F-38
EXHIBIT 10.40
April 14, 2016
Ryan Schreiber
1730 Boulevard
Westfield, NJ 07090
Dear Ryan:
I am pleased to provide this letter confirming your offer of employment with Vince, LLC (hereafter “Vince” or “the Company”), for the position of Senior Vice
President, General Counsel and Secretary, with an expected start date of November 23, 2015 on a part-time basis pursuant to the attached schedule (see
Addendum), and January 1, 2016 on a full-time basis. The terms of the employment offer are as follows:
Reporting Relationship and Primary Work Location
You will report to Vince’s Chief Executive Officer. You will be based in our New York office and will travel to the Company’s LA office and other locations as
needed.
Base Salary and Incentive Bonus
Your annual base salary will be $375,000.
You will be eligible to participate in the Company’s Annual Short-Term Incentive Plan (“STI Plan”), for Fiscal Year 2015 (February 1 – January 31). The 2015
target bonus opportunity for your position under this plan is 60% of your annual base salary, based upon annual performance targets established each fiscal year. As
you will be starting after November 1 st , 2015, your first bonus eligibility will be May of 2017. You will be eligible to participate in Short-Term and Long-Term
Incentive Plans consistent with similarly situated executives.
Long-Term Incentive Awards
Subject to approval by the Vince Board of Directors, you will receive a new hire equity grant in the form of 60,000 stock options vesting annually over a four year
period. This grant will be issued and begin vesting on the first Thursday of the month following your full-time date of hire.
The official grant agreement, which will cover the vesting schedule, expiration rules, and other terms and conditions, will be provided at the time the grant is
formally issued.
You will also be eligible to participate in the ongoing annual Long-Term Incentive Program consistent with similarly situated executives. The Company’s Board of
Directors will determine the target amount and terms (such as equity mix and vesting schedule) of the annual awards each year, based upon the Company’s
performance as well as market conditions and other factors.
Benefits
You will be entitled to participate in and receive benefits under any existing employee benefit plan or similar arrangement generally available for employees,
including medical, dental, and vision coverage, 401(k), disability and life insurance. While the Company’s policy states all full-time exempt associates are eligible
on the first of the month following 30 days of employment to receive Medical, Dental and Vision coverage, you will receive coverage beginning on the first day of
your full-time employment with Vince. You will automatically be enrolled in the
company’s 401k program on the first of the month following completion of 30 days of employment. A summary of Vince’s current benefits is enclosed.
You will accrue four (4) weeks of vacation per annum (pro-rated for the first year of employment) as well as all Company paid holidays and personal days in
accordance with the Company’s standard vacation and holiday policies. Vacation time is accrued at 6.15 hours per pay period. All vacation time to be earned
during the year is available to take as of January 1 st each year even though you actually earn it as the year proceeds.
You are eligible to receive Vince’s executive discount of 75% off apparel merchandise and 50% off licensed merchandise in retail stores and online, beginning on
your first day of employment.
In accordance with the Company’s clothing allowance policy, you will receive an allowance in the amount of $6,000 per fiscal year (pro-rated for the first year of
employment) with a full allowance of an additional $6,000 as of February 1, 2016. Your allowance will be calculated based on 50% off the wholesale price of each
item of clothing. Please note that receiving a clothing allowance is considered a taxable benefit and, as a result, the applicable income taxes associated with
receiving this benefit will be applied. The clothing allowance policy, including the amount of the allowance, is subject to change with or without notice.
You may be requested, occasionally and for reasonable periods of time, to travel for business purposes. All travel will be at the cost of the Company and will be
paid or reimbursed by the Company in accordance with the Company’s Travel & Entertainment Policy as in effect.
Severance
If your employment is terminated by the Company without “cause” (as such term is defined in the Company’s 2013 Omnibus Incentive Plan), then subject to the
execution of a satisfactory release by you, you will receive severance payments, equivalent to your then current base rate of pay, for the next twelve (12) months or
until other employment is earlier secured. If you are, as of the termination date, enrolled in the Company’s medical and dental plans, then you will continue to
receive medical and dental coverage in accordance with the Company’s plans that are then in place until the end of the salary continuation period or, at the
Company’s option, coverage under another medical and/or dental plan.
Restrictive Covenants
Notice
Period
Requirement.
Should you voluntarily resign your employment, you shall provide the Company with a sixty (60) day working notice period. During
this notice period, you agree to continue performing all of the functions and responsibilities of your position, continue to give your full time and attention to such
responsibilities, and assist the Company in preparing for your departure.
Non-Compete.
During your employment and for a period of six (6) months thereafter, you shall not directly or indirectly (i) source, manufacture, produce, design,
develop, promote, sell, license, distribute, or market anywhere in the world (the “Territory”) any contemporary apparel, accessories or related products that
compete with the company’s products, on the same floor or near our product in department stores, or comparable product in specialty stores (“Competitive
Products”) or (ii) own, manage, operate, be employed by, participate in or have any interest in any other business or enterprise engaged in the design, production,
distribution or sale of Competitive Products anywhere in the Territory; provided, however, that nothing herein shall prohibit you from being a passive owner of not
more than five percent (5%) of the outstanding stock of any class of securities of a corporation or other entity engaged in such business which is publicly traded, so
long as you have no active participation in the business of such corporation or other entity. This paragraph will not apply and will not be enforced by the Company
with respect to post-termination activity by you that occurs in California or in any other state in which this prohibition is not enforceable under applicable law.
Non-solicit,
Non-interference
. During your employment and for a period of twelve (12) months thereafter you shall not , except in furtherance of your duties
during your employment with the Company, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, (A) solicit or
induce any employee, consultant, representative or agent of the Company or any of its affiliates, to leave such employment or retention or to accept employment
with or render services to or with any other person, firm, corporation or other entity unaffiliated
2
with the Company or hire or retain any such employee, consultant, representative or agent, or take any action to materially assist or aid any other person, firm
corporation or other entity in identifying, hiring or soliciting any such employee, consultant, representative or agent, or (B) interfere, or aid or induce any other
person or entity in interfering, with the relationship between the Company or any of its affiliates and their respective customers, suppliers, vendors, joint ventures ,
distribution partners, franchisees, licensors, licensees or any other business relation of the Company or its affiliates. Any person described in subparagraph (A)
above shall be deemed covered by this paragraph while so employed or retained and for a period of six (6) months thereafter, unless such person’s employment has
been terminated by the Company.
Non-disparagement.
During your period of employment and thereafter, you shall not make any negative comments or otherwise disparage the Company or any of
its affiliates or any of the Company’s or its affiliates’ officers, directors, employees, shareholders, agents, products or business, or take any action, including
making any public statements or publishing or participating in the publication of any accounts or stories relating to any persons, entities, products or businesses
which negatively impacts or brings such person, entity, product or business into public ridicule or disrepute except if testifying truthfully under oath pursuant to
subpoena or other legal process, in which event you agree to provide the Company, as appropriate, with notice of subpoena and opportunity to respond.
Compliance with Law
This letter is intended to comply with applicable law. Without limiting the foregoing, this letter is intended to comply with the requirements of section 409A of the
Internal Revenue Code ("409A"), and, specifically, with the separation pay and short term deferral exceptions of 409A. Notwithstanding anything in the letter to
the contrary, separation pay may only be made upon a "separation from service" under 409A and only in a manner permitted by 409A. For purposes of 409A, the
right to a series of installment payments under this letter shall be treated as a right to a series of separate payments. In no event may you, directly or indirectly,
designate the calendar year of a payment. All reimbursements and in-kind benefits provided in this letter shall be made or provided in accordance with the
requirements of 409A (including, where applicable, the reimbursement rules set forth in the regulations issued under 409A). If you are a "specified employee" of a
publicly traded corporation on your termination date (as determined by the Company in accordance with 409A), to the extent required by 409A, separation pay due
under this letter will be delayed for a period of six (6) months. Any separation pay that is postponed because of 409A will be paid to you (or, if you die, your
beneficiary) within 30 days after the end of the six-month delay period.
Miscellaneous
Please be advised that this offer is contingent upon the favorable outcome of background and reference checks. Please also be advised that your employment is for
an indefinite period and is terminable at the will of either the Company or you, with or without cause at any time, subject only to such limitations as may be
imposed by law and/or the terms of this letter. This offer of employment is contingent on you not being subject to any restrictive covenants which would impact
your ability to perform the services contemplated (or you having delivered to us an effective waiver thereof). By signing below, you are confirming to us that you
are not presently subject to or otherwise bound by a non-compete, confidentiality or other restriction with any person or company with respect to any prior or
existing employment, investment or other relationship.
You will receive an orientation packet with employment paperwork and benefit plan enrollment materials. Please review closely the Employment Eligibility
Verification requirements and list of acceptable documents on the Form I-9 and bring with you the appropriate personal identification. One voided check will also
be required to set up your direct deposit account for payroll. Please bring the entire packet and requested documentation to Human Resources on your first day.
I am excited about you joining our team and look forward to working with you. Please sign a copy of this letter to acknowledge your agreement with its conditions
and return it via email to Melissa Wallace at mwallace@vince.com.
Sincerely,
3
/s/ Brendan Hoffman
Brendan Hoffman
Chief Executive Officer
/s/ Melissa Wallace
Melissa Wallace
SVP Human Resources
Accepted:
/s/ Ryan Schreiber November 12, 2015
Ryan Schreiber Date
Below are the dates your employment will commence on a part-time basis, and to be paid on a prorated basis until your full-time date of hire on January 1, 2016.
ADDENDUM
Monday, November 23 rd , 2015
Tuesday, November 24 th , 2015
Wednesday, December 2 nd , 2015
Thursday, December 3 rd , 2015
Monday, December 7 th , 2015
Tuesday, December 8 th , 2015
Thursday, December 10 th , 2015
Monday, December 14 th , 2015
4
Tuesday , December 15 th , 2015
5
VINCE, LLC
CONSULTING SERVICES AGREEMENT
EXHIBIT 10.41
THIS CONSULTING SERVICES AGREEMENT (this “ Agreement ”) dated this 23rd day of November, 2015 by and
between Vince, LLC a Delaware limited liability company (the “ Company ”), and Rea Laccone (the “ Consultant ”).
WHEREAS, in light of the Consultant’s experience and knowledge regarding the Company and industry-related matters,
the Company wishes to retain the services of the Consultant on the terms and conditions set forth herein and the Consultant has
agreed to so serve the Company and its affiliates.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises contained herein and of other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1.
2.
Consulting Period . The Company shall retain the Consultant pursuant to the terms of this Agreement, and the Consultant
shall provide the “ Services ” (as defined in Section 2 hereof) commencing on November 4, 2015 (the “ Effective Date ”)
and ending on February 3, 2018. Notwithstanding the foregoing, the Consultant or the Company may terminate the
consulting arrangement hereunder at any time and for any reason (or no reason) by providing the other party with at least
ninety (90) days’ advance written notice of such termination; provided that if such notice is provided by the Consultant, the
Company may elect to end the consulting term prior to the end of such notice period. The period of time between the
Effective Date and the termination of the Consultant’s service relationship with the Company hereunder shall be referred
to herein as the “ Consulting Period .”
Services . During the Consulting Period, the Company hereby retains the Consultant to perform the services of
merchandising of women’s and men’s apparel and handbags, assisting in fabric and factory sourcing and coordinating
design with third-party licensees, and such other similar duties, authorities and responsibilities as may reasonably be
assigned to the Consultant from time to time (the “ Services ”). The position will not be full time. The Consultant may
perform the Services at such times and in such manner as reasonably requested by the Company from time to time;
provided that, to the extent that the Company does not require the Consultant to perform the Service from a specific
location, the Consultant may perform the Services at a location of the Consultant’s choice so long as the Consultant is
available to report by telephone or in person as reasonably requested by the Company. The Consultant shall report directly
to the Chief Executive Officer of the Company. The Consultant’s performance of the Services will principally be in the
Los Angeles, California area and the Company will permit the Consultant to perform substantially all of the Services
there. Such offices within Los Angeles shall be the existing Los Angeles offices of the Company or such other premises as
may be reasonably acceptable to the Consultant. The Consultant will be provided offices and appropriate administrative
help at such location, and such members of the design staff as she designates shall also be located in the Company’s Los
Angeles offices.
3.
Consulting Fees .
(a)
(b)
(c)
(d)
(e)
(f)
Consulting Fee . During the Consulting Period, the Consultant shall be entitled to receive an annualized fee of
$2,500,000, payable in equal installments in accordance with the Company’s normal payroll practices (the “
Consulting Fee ”), prorated for any partial years of service.
Reimbursement for Business Expenses . Upon presentation of appropriate documentation, the Consultant shall
be reimbursed, in accordance with the Company’s expense reimbursement policy, for all reasonable business
expenses incurred in connection with the Consultant’s performance of the Services. In connection with any
business related travel during the Consulting Period, (i) the Consultant will be reimbursed for business class
airfare for domestic flights and first class airfare for international flights and (ii) the Consultant will be
reimbursed for overnight accommodations at the Mercer, the Lowell or the Crosby, or their equivalent hotels in
New York and elsewhere.
Bonus . The Consultant shall be entitled to an annual bonus of $1,000,000, to be paid on an annual basis no later
than February 28th of the fiscal year following the conclusion of the fiscal year to which the bonus relates,
subject to the Consulting Period continuing through the end of each such fiscal year to which the bonus relates;
provided that if the Company terminates the Consulting Period without Cause (as defined below), the Consultant
shall be entitled to a pro rata share of the annual bonus based on the number of days prior to the termination of
the Consulting Period that fall during such fiscal year, payable within thirty (30) days following the end of the
Consulting Period. The bonus with respect to the fiscal year ending on or about January 31, 2016 shall be
prorated based on the number of days following the Effective Date that fall during such fiscal year.
Equity . Upon the execution of this Agreement, the Consultant will receive a grant of options (the “ Options ”)
to acquire 200,000 shares of common stock of Vince Holding Corp., a Delaware corporation (the “ Parent ”),
pursuant to the Parent’s 2013 Incentive Plan, in the form attached hereto as Exhibit A.
Legal Fees . The Company shall reimburse the Consultant for legal fees incurred in connection with the
negotiation of this Agreement, provided that evidence of such fees shall be supplied to the Company and the
amount of such reimbursement shall be capped at $12,500.
“ Cause .” For purposes of this Agreement, “ Cause ” shall mean (i) the Consultant’s willful misconduct or gross
negligence in the performance of the Services; (ii) the Consultant’s willful failure to substantially perform the
Services or to follow the lawful directives of the Board (other than as a result of death or physical or mental
incapacity); (iii) the Consultant’s indictment for, conviction of, or pleading of guilty or nolo contendere to, a
felony or any crime involving moral turpitude; (iv) the Consultant’s performance of any material act of theft,
embezzlement, fraud, dishonesty or misappropriation of the Company’s property; or (v) the Consultant’s
2
material breach of this Agreement or any other agreement with the Company or Parent, or a material violation of
the Company’s or Parent’s code of conduct or other written policy. An act or failure to act shall be considered
“willful” only if done or omitted to be done without a good faith reasonable belief that such act or failure to act
was in the best interests of the Company. Any determination of Cause by the Company will be made by a
resolution approved by a majority of the members of the Board, provided that no such determination may be
made until the Consultant has been given written notice detailing the specific Cause event and a period of thirty
(30) days following receipt of such notice to cure such event (if susceptible to cure) to the reasonable satisfaction
of the Board. Notwithstanding anything to the contrary contained herein, the Consultant’s right to cure shall not
apply if there are habitual breaches by the Consultant.
4.
Independent Contractor Status .
(a)
(b)
The Consultant acknowledges and agrees that the Consultant’s status at all times shall be that of an independent
contractor, and that the Consultant may not, at any time, act as a representative for or on behalf of the Company
for any purpose or transaction, and may not bind or otherwise obligate the Company in any manner whatsoever
without obtaining the prior written approval of the Company therefor. Consultant shall be solely responsible for
determining the method, details and means of performing the Services. The Consultant also agrees that during
the Consulting Period, the Consultant shall not be entitled to, has no claim to, and will not receive any other
rights, fringe benefits, reimbursements, perquisites or other employee benefits from the Company for the
Services. The Consultant will be permitted to engage in other outside consulting activities, so long as such
activities do not interfere with the performance of the Services and do not violate Section 5 hereof.
The parties hereby acknowledge and agree that all consulting fees paid pursuant to Section 3 hereof shall
represent fees for services as an independent contractor, and shall therefor be paid without any deductions or
withholdings taken therefrom for taxes or for any other purpose. Consultant shall file all tax returns and reports
required to be filed by Consultant on the basis that Consultant is an independent contractor, rather than an
employee, as defined in Treasury Regulation §31.3121(d)-1(c)(2). The Consultant further acknowledges that the
Company makes no warranties as to any tax consequences regarding payment of such fees, and specifically
agrees that the determination of any tax liability or other consequences of any payment made hereunder is the
Consultant’s sole and complete responsibility and that the Consultant will pay all taxes, if any, assessed on such
payments under the applicable laws of any Federal, state, local or other jurisdiction and, to the extent not so paid,
will indemnify the Company for any taxes so assessed against the Company.
5.
Restrictive Covenants .
3
(a)
(b)
Confidential Information . During the Consulting Period, the Consultant will have access to Confidential
Information. For purposes of this Agreement, “ Confidential Information ” means all data, information, ideas,
concepts, discoveries, trade secrets, inventions (whether or not patentable or reduced to practice), innovations,
improvements, know-how, developments, techniques, methods, processes, treatments, drawings, sketches,
specifications, designs, plans, patterns, models, plans and strategies, and all other confidential or proprietary
information or trade secrets in any form or medium (whether merely remembered or embodied in a tangible or
intangible form or medium) whether now or hereafter existing, relating to or arising from the past, current or
potential business, activities and/or operations of the Company or any of its affiliates, including, without
limitation, any such information relating to or concerning finances, sales, marketing, advertising, transition,
promotions, pricing, personnel, customers, suppliers, vendors and/or competitors. The Consultant agrees that the
Consultant shall not, directly or indirectly, use, make available, sell, disclose or otherwise communicate to any
person, other than in the course of the Consultant’s assigned duties and for the benefit of the Company, either
during the Consulting Period or at any time thereafter, any Confidential Information or other confidential or
proprietary information received from third parties subject to a duty on the Company’s and its subsidiaries’ and
affiliates’ part to maintain the confidentiality of such information, and to use such information only for certain
limited purposes, in each case, which shall have been obtained by the Consultant during the Consulting Period
(or at any other time during which the Consultant provided any services to the Company or any
predecessor). The foregoing shall not apply to information that (i) was known to the public prior to its
disclosure to the Consultant; (ii) becomes generally known to the public subsequent to disclosure to the
Consultant through no wrongful act of the Consultant or any representative of the Consultant; or (iii) the
Consultant is required to disclose by applicable law, regulation or legal process (provided that the Consultant
provides the Company with prior notice of the contemplated disclosure and cooperates with the Company at its
expense in seeking a protective order or other appropriate protection of such information).
Nonsolicitation; Noninterference . During the Consulting Period and for a period of one (1) year thereafter, the
Consultant agrees that the Consultant shall not, except in the furtherance of the Consultant’s duties hereunder,
directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, solicit, aid
or induce any employee, representative or agent of the Company or any of its subsidiaries or affiliates to leave
such employment or retention or to accept employment with or render services to or with any other person, firm,
corporation or other entity unaffiliated with the Company, or hire or retain any such employee, representative or
agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in
identifying, hiring or soliciting any such employee, representative or agent. Any person described in this Section
5(b) shall be deemed covered by this Section while so employed or retained and for a period of six (6) months
thereafter.
4
(c)
Nondisparagement . Both during the Consulting Period and at all times thereafter, regardless of the reason for
termination, the Consultant agrees not to make negative comments or otherwise disparage the Company or its
officers, directors, employees, shareholders, members, agents or products other than in the good faith
performance of the Consultant’s duties to the Company during the Consulting Period. The foregoing shall not
be violated by truthful statements in response to legal process, required governmental testimony or filings, or
administrative or arbitral proceedings (including, without limitation, depositions in connection with such
proceedings).
(d)
Inventions .
(1)
The
and
that
agrees
Consultant
acknowledges
all
ideas, methods, inventions, discoveries, improvements, work products, developments, software, know-
how, processes, techniques, methods, works of authorship and other work product, whether patentable
or unpatentable, (A) that are reduced to practice, created, invented, designed, developed, contributed
to, or improved with the use of any Company resources and/or within the scope of the Consultant’s
work with the Company or that relate to the business, operations or actual or demonstrably anticipated
research or development of the Company, and that are made or conceived by the Consultant, solely or
jointly with others, during the Consulting Period, or (B) suggested by any work that the Consultant
performs in connection with the Company, either while performing the Consultant’s duties with the
Company or on the Consultant’s own time, but only insofar as the Inventions are related to the
Consultant’s service provided to the Company, shall belong exclusively to the Company (or its
designee), whether or not patent or other applications for intellectual property protection are filed
thereon (the “ Inventions ”). The Consultant will keep full and complete written records (the “
Records ”), in the manner prescribed by the Company, of all Inventions, and will promptly disclose all
Inventions completely and in writing to the Company. The Records shall be the sole and exclusive
property of the Company, and the Consultant will surrender them upon the termination of the
Consulting Period, or upon the Company’s request. The Consultant will assign to the Company the
Inventions and all patents or other intellectual property rights that may issue thereon in any and all
countries, whether during or subsequent to the Consulting Period, together with the right to file, in the
Consultant’s name or in the name of the Company (or its designee), applications for patents and
equivalent rights (the “ Applications ”). The Consultant will, at any time during and subsequent to the
Consulting Period, make such applications, sign such papers, take all rightful oaths, and perform all
other acts as may be requested from time to time by the Company to perfect, record, enforce, protect,
patent or register the Company’s rights in the Inventions, all without additional compensation to the
Consultant from the Company. The Consultant will also execute assignments to the Company (or its
designee) of the Applications, and give the Company and its attorneys all reasonable
5
assistance (including the giving of testimony) to obtain the Inventions for the Company’s benefit, all
without additional compensation to the Consultant from the Company, but entirely at the Company’s
expense.
In
be
(2)
the
will
deemed
addition,
Inventions
Work
for Hire, as such term is defined under the copyright laws of the United States, on behalf of the
Company and the Consultant agrees that the Company will be the sole owner of the Inventions, and all
underlying rights therein, in all media now known or hereinafter devised, throughout the universe and
in perpetuity without any further obligations to the Consultant. If the Inventions, or any portion
thereof, are deemed not to be Work for Hire, or the rights in such Inventions do not otherwise
automatically vest in the Company, the Consultant hereby irrevocably conveys, transfers and assigns
to the Company, all rights, in all media now known or hereinafter devised, throughout the universe
and in perpetuity, in and to the Inventions, including, without limitation, all of the Consultant’s right,
title and interest in the copyrights (and all renewals, revivals and extensions thereof) to the Inventions,
including, without limitation, all rights of any kind or any nature now or hereafter recognized,
including, without limitation, the unrestricted right to make modifications, adaptations and revisions to
the Inventions, to exploit and allow others to exploit the Inventions and all rights to sue at law or in
equity for any infringement, or other unauthorized use or conduct in derogation of the Inventions,
known or unknown, prior to the date hereof, including, without limitation, the right to receive all
proceeds and damages therefrom. In addition, the Consultant hereby waives any so-called “moral
rights” with respect to the Inventions. To the extent that the Consultant has any rights in the results
and proceeds of the Consultant’s service to the Company that cannot be assigned in the manner
described herein, the Consultant agrees to unconditionally waive the enforcement of such rights. The
Consultant hereby waives any and all currently existing and future monetary rights in and to the
Inventions and all patents and other registrations for intellectual property that may issue thereon,
including, without limitation, any rights that would otherwise accrue to the Consultant’s benefit by
virtue of the Consultant being an employee of or other service provider to the Company.
(e)
(f)
Enforcement . If it is determined by a court of competent jurisdiction in any state that any restriction in this
Section 5 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is
the intention of the parties that such restriction may be modified or amended by the court to render it enforceable
to the maximum extent permitted by the laws of that state.
Remedies . The Consultant acknowledges and agrees that the Company’s remedies at law for a breach or
threatened breach of any of the provisions of this Section 5 would be inadequate and, in recognition of this fact,
the Consultant agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law,
the Company, without posting any bond, shall be entitled to obtain equitable relief
6
in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any
other equitable remedy which may then be available.
(g)
Forfeiture . In the event of a final judgment by a court of competent jurisdiction that the Consultant has
breached any of the provisions of this Section 5 , the Consultant shall forfeit the right to receive any further
benefits under this Agreement (including, without limitation, any unpaid Consulting Fees).
Governing Law; Dispute Resolution . This Agreement, the rights and obligations of the parties hereto, and all claims or
disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without
regard to the choice of law provisions thereof. Each of the parties agrees that any dispute between the parties shall be
resolved only in the courts of the State of California or the United States District Court for the Central District of
California and the appellate courts having jurisdiction of appeals in such courts. In that context, and without limiting the
generality of the foregoing, each of the parties hereto irrevocably and unconditionally (a) submits in any proceeding
relating to this Agreement or the Consultant’s services with the Company or any affiliate, or for the recognition and
enforcement of any judgment in respect thereof (a “ Proceeding ”), to the exclusive jurisdiction of the courts of the State of
California, the court of the United States of America for the Central District of California, and appellate courts having
jurisdiction of appeals from any of the foregoing, and agrees that all claims in respect of any such Proceeding shall be
heard and determined in such California State court or, to the extent permitted by law, in such federal court, (b) consents
that any such Proceeding may and shall be brought in such courts and waives any objection that the Consultant or the
Company may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such
Proceeding was brought in an inconvenient court and agrees not to plead or claim the same, (c) agrees that service of
process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such party at the Consultant’s or the Company’s address as
provided in Section 9 hereof, and (d) agrees that nothing in this Agreement shall affect the right to effect service of process
in any other manner permitted by the laws of the State of California. The parties acknowledge and agree that in connection
with any dispute hereunder, each party shall pay all of its own costs and expenses, including, without limitation, its own
legal fees and expenses; provided, however, that if either the Consultant or the Company or its affiliates prevail on all
material issues involved in such dispute, the non-prevailing party shall reimburse the prevailing party for all costs
(including reasonable attorneys’ fees) incurred in connection with such dispute.
Code Section 409A . The intent of the parties is that payments and benefits under this Agreement comply with or be
exempt from Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively
“ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in
compliance therewith or exempt therefrom. Consultant agrees and acknowledges that the Company makes no
representations with respect to the application of Code Section 409A and other tax consequences to any payments
hereunder and, by entering into this
6.
7.
7
Agreement, Consultant agrees to accept the potential application of Code Section 409A and the other tax consequences of
any payment made hereunder.
8.
9.
Assignment . This Agreement is personal to each of the parties hereto. Except as provided in this Section 8 , no party may
assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party
hereto. The Company may assign this Agreement to any successor to all or substantially all of the business and/or assets
of the Company. As used in this Agreement, “ Company ” shall mean the Company and any successor to its business
and/or assets, which assumes and agrees to perform the duties and obligations of the Company under this Agreement by
operation of law or otherwise.
Notices . For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered by hand, (b) on the date of
transmission, if delivered by confirmed facsimile or electronic mail, (c) on the first business day following the date of
deposit, if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date
delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Consultant:
At the address (or to the facsimile number) shown in the books and records of the
Company.
with a copy to (which shall not constitute notice to the Consultant)
Morrison & Foerster LLP
707 Wilshire Boulevard
Los Angeles, CA 90017-3543
Attention: Henry Fields
If to the Company:
8
Vince, LLC
500 Fifth Avenue
New York, NY 10110
Attention: Senior Vice President, Human Resources
Facsimile:
Email:
with a copy to (which shall not constitute notice to the Company)
Kirkland & Ellis LLP
300 North LaSalle
Chicago, Illinois 60654
Attention: Douglas C. Gessner, P.C.
10.
11.
12.
13.
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
Severability . To the extent that any provision of this Agreement shall be invalid or unenforceable, it shall be considered
deleted herefrom and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full
force and effect.
Survival . The provisions of Sections 5 and 6 hereof shall survive any termination of the Consulting Period or this
Agreement.
Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original
but all of which together shall constitute one and the same instrument.
Miscellaneous . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Consultant and such officer or director as may be designated by the
Board of Managers of the Company. The Company shall use commercially reasonable efforts to consult with the
Consultant before issuing any press releases or other public statements regarding the Consultant’s role as a consultant and
participation in the equity of the Company. No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This
Agreement represents the entire agreement and understanding between the parties hereto with respect to the subject matter
hereof, supersedes any and all other agreements, verbal or otherwise, between the parties hereto concerning such subject
matter, and no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in this Agreement; provided that in the event that
the Consultant is or becomes a party to any other agreement with the Company or any of its
9
affiliates providing for restrictive covenants similar to Sections 5 and 6 , the provisions of such agreement shall also apply
pursuant to its terms.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.
VINCE, LLC
By: /s/ Brendan Hoffman
Name: Brendan Hoffman
Title: Chief Executive Officer
CONSULTANT
/s/ Rea Laccone
Rea Laccone
Consulting
Services
Agreement
Signature
Page
VINCE, LLC
CONSULTING SERVICES AGREEMENT
EXHIBIT 10.42
THIS CONSULTING SERVICES AGREEMENT (this “ Agreement ”) dated this 23rd day of November, 2015 by and
between Vince, LLC a Delaware limited liability company (the “ Company ”), and Christopher LaPolice (the “ Consultant ”).
WHEREAS, in light of the Consultant’s experience and knowledge regarding the Company and industry-related matters,
the Company wishes to retain the services of the Consultant on the terms and conditions set forth herein and the Consultant has
agreed to so serve the Company and its affiliates.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises contained herein and of other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1.
2.
Consulting Period . The Company shall retain the Consultant pursuant to the terms of this Agreement, and the Consultant
shall provide the “ Services ” (as defined in Section 2 hereof) commencing on November 4, 2015 (the “ Effective Date ”)
and ending on February 3, 2018. Notwithstanding the foregoing, the Consultant or the Company may terminate the
consulting arrangement hereunder at any time and for any reason (or no reason) by providing the other party with at least
ninety (90) days’ advance written notice of such termination; provided that if such notice is provided by the Consultant, the
Company may elect to end the consulting term prior to the end of such notice period. The period of time between the
Effective Date and the termination of the Consultant’s service relationship with the Company hereunder shall be referred
to herein as the “ Consulting Period .”
Services . During the Consulting Period, the Company hereby retains the Consultant to perform the services of designing
and merchandising of women’s and men’s apparel and handbags, assisting in fabric and factory sourcing and coordinating
design with third-party licensees, and such other similar duties, authorities and responsibilities as may reasonably be
assigned to the Consultant from time to time (the “ Services ”). The position will not be full time. The Consultant may
perform the Services at such times and in such manner as reasonably requested by the Company from time to time;
provided that, to the extent that the Company does not require the Consultant to perform the Service from a specific
location, the Consultant may perform the Services at a location of the Consultant’s choice so long as the Consultant is
available to report by telephone or in person as reasonably requested by the Company. The Consultant shall report directly
to the Chief Executive Officer of the Company. The Consultant’s performance of the Services will principally be in the
New York, NY and Los Angeles, California area.
3.
Consulting Fees .
(a)
Consulting Fee . During the Consulting Period, the Consultant shall be entitled to receive an annualized fee of
$1,125,000, payable in equal installments in accordance with the Company’s normal payroll practices (the “
Consulting Fee ”), prorated for any partial years of service.
(b)
(c)
(d)
(e)
(f)
Reimbursement for Business Expenses . Upon presentation of appropriate documentation, the Consultant shall
be reimbursed, in accordance with the Company’s expense reimbursement policy, for all reasonable business
expenses incurred in connection with the Consultant’s performance of the Services. In connection with any
business related travel during the Consulting Period, the Consultant will be reimbursed for business class airfare
for domestic flights and first class airfare for international flights.
Bonus . The Consultant shall be entitled to an annual bonus of $1,125,000, to be paid on an annual basis no later
than February 28th of the fiscal year following the conclusion of the fiscal year to which the bonus relates,
subject to the Consulting Period continuing through the end of each such fiscal year to which the bonus relates;
provided that if the Company terminates the Consulting Period without Cause (as defined below), the Consultant
shall be entitled to a pro rata share of the annual bonus based on the number of days prior to the termination of
the Consulting Period that fall during such fiscal year, payable within thirty (30) days following the end of the
Consulting Period. The bonus with respect to the fiscal year ending on or about January 31, 2016 shall be
prorated based on the number of days following the Effective Date that fall during such fiscal year.
Equity . Upon the execution of this Agreement, the Consultant will receive a grant of options (the “ Options ”)
to acquire 150,000 shares of common stock of Vince Holding Corp., a Delaware corporation (the “ Parent ”),
pursuant to the Parent’s 2013 Incentive Plan, in the form attached hereto as Exhibit A.
Legal Fees . The Company shall reimburse the Consultant for legal fees incurred in connection with the
negotiation of this Agreement, provided that evidence of such fees shall be supplied to the Company and the
amount of such reimbursement shall be capped at $2,500.
“ Cause .” For purposes of this Agreement, “ Cause ” shall mean (i) the Consultant’s willful misconduct or gross
negligence in the performance of the Services; (ii) the Consultant’s willful failure to substantially perform the
Services or to follow the lawful directives of the Board (other than as a result of death or physical or mental
incapacity); (iii) the Consultant’s indictment for, conviction of, or pleading of guilty or nolo contendere to, a
felony or any crime involving moral turpitude; (iv) the Consultant’s performance of any material act of theft,
embezzlement, fraud, dishonesty or misappropriation of the Company’s property; or (v) the Consultant’s
material breach of this Agreement or any other agreement with the Company or Parent, or a material violation of
the Company’s or Parent’s code of conduct or other written policy. An act or failure to act shall be considered
“willful” only if done or omitted to be done without a good faith reasonable belief that such act or failure to act
was in the best interests of the Company. Any determination of Cause by the Company will be made by a
resolution approved by a majority of the members of the Board, provided that no such determination may be
made until the Consultant has been given written notice detailing the specific Cause event and a period of thirty
(30) days following receipt of such notice to cure such event (if
2
susceptible to cure) to the reasonable satisfaction of the Board. Notwithstanding anything to the contrary
contained herein, the Consultant’s right to cure shall not apply if there are habitual breaches by the Consultant.
4.
Independent Contractor Status .
(a)
(b)
The Consultant acknowledges and agrees that the Consultant’s status at all times shall be that of an independent
contractor, and that the Consultant may not, at any time, act as a representative for or on behalf of the Company
for any purpose or transaction, and may not bind or otherwise obligate the Company in any manner whatsoever
without obtaining the prior written approval of the Company therefor. Consultant shall be solely responsible for
determining the method, details and means of performing the Services. The Consultant also agrees that during
the Consulting Period, the Consultant shall not be entitled to, has no claim to, and will not receive any other
rights, fringe benefits, reimbursements, perquisites or other employee benefits from the Company for the
Services. The Consultant will be permitted to engage in other outside consulting activities, so long as such
activities do not interfere with the performance of the Services and do not violate Section 5 hereof.
The parties hereby acknowledge and agree that all consulting fees paid pursuant to Section 3 hereof shall
represent fees for services as an independent contractor, and shall therefor be paid without any deductions or
withholdings taken therefrom for taxes or for any other purpose. Consultant shall file all tax returns and reports
required to be filed by Consultant on the basis that Consultant is an independent contractor, rather than an
employee, as defined in Treasury Regulation §31.3121(d)-1(c)(2). The Consultant further acknowledges that the
Company makes no warranties as to any tax consequences regarding payment of such fees, and specifically
agrees that the determination of any tax liability or other consequences of any payment made hereunder is the
Consultant’s sole and complete responsibility and that the Consultant will pay all taxes, if any, assessed on such
payments under the applicable laws of any Federal, state, local or other jurisdiction and, to the extent not so paid,
will indemnify the Company for any taxes so assessed against the Company.
5.
Restrictive Covenants .
(a)
Confidential Information . During the Consulting Period, the Consultant will have access to Confidential
Information. For purposes of this Agreement, “ Confidential Information ” means all data, information, ideas,
concepts, discoveries, trade secrets, inventions (whether or not patentable or reduced to practice), innovations,
improvements, know-how, developments, techniques, methods, processes, treatments, drawings, sketches,
specifications, designs, plans, patterns, models, plans and strategies, and all other confidential or proprietary
information or trade secrets in any form or medium (whether merely remembered or embodied in a tangible or
intangible form or medium) whether now or hereafter existing, relating to or arising from the past, current or
potential business, activities and/or operations
3
of the Company or any of its affiliates, including, without limitation, any such information relating to or
concerning finances, sales, marketing, advertising, transition, promotions, pricing, personnel, customers,
suppliers, vendors and/or competitors. The Consultant agrees that the Consultant shall not, directly or indirectly,
use, make available, sell, disclose or otherwise communicate to any person, other than in the course of the
Consultant’s assigned duties and for the benefit of the Company, either during the Consulting Period or at any
time thereafter, any Confidential Information or other confidential or proprietary information received from third
parties subject to a duty on the Company’s and its subsidiaries’ and affiliates’ part to maintain the confidentiality
of such information, and to use such information only for certain limited purposes, in each case, which shall
have been obtained by the Consultant during the Consulting Period (or at any other time during which the
Consultant provided any services to the Company or any predecessor). The foregoing shall not apply to
information that (i) was known to the public prior to its disclosure to the Consultant; (ii) becomes generally
known to the public subsequent to disclosure to the Consultant through no wrongful act of the Consultant or any
representative of the Consultant; or (iii) the Consultant is required to disclose by applicable law, regulation or
legal process (provided that the Consultant provides the Company with prior notice of the contemplated
disclosure and cooperates with the Company at its expense in seeking a protective order or other appropriate
protection of such information).
Nonsolicitation; Noninterference . During the Consulting Period and for a period of one (1) year thereafter, the
Consultant agrees that the Consultant shall not, except in the furtherance of the Consultant’s duties hereunder,
directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, solicit, aid
or induce any employee, representative or agent of the Company or any of its subsidiaries or affiliates to leave
such employment or retention or to accept employment with or render services to or with any other person, firm,
corporation or other entity unaffiliated with the Company, or hire or retain any such employee, representative or
agent, or take any action to materially assist or aid any other person, firm, corporation or other entity in
identifying, hiring or soliciting any such employee, representative or agent. Any person described in this Section
5(b) shall be deemed covered by this Section while so employed or retained and for a period of six (6) months
thereafter.
Nondisparagement . Both during the Consulting Period and at all times thereafter, regardless of the reason for
termination, the Consultant agrees not to make negative comments or otherwise disparage the Company or its
officers, directors, employees, shareholders, members, agents or products other than in the good faith
performance of the Consultant’s duties to the Company during the Consulting Period. The foregoing shall not
be violated by truthful statements in response to legal process, required governmental testimony or filings, or
administrative or arbitral proceedings (including, without limitation, depositions in connection with such
proceedings).
(b)
(c)
(d)
Inventions .
4
(1)
The
and
that
agrees
Consultant
acknowledges
all
ideas, methods, inventions, discoveries, improvements, work products, developments, software, know-
how, processes, techniques, methods, works of authorship and other work product, whether patentable
or unpatentable, (A) that are reduced to practice, created, invented, designed, developed, contributed
to, or improved with the use of any Company resources and/or within the scope of the Consultant’s
work with the Company or that relate to the business, operations or actual or demonstrably anticipated
research or development of the Company, and that are made or conceived by the Consultant, solely or
jointly with others, during the Consulting Period, or (B) suggested by any work that the Consultant
performs in connection with the Company, either while performing the Consultant’s duties with the
Company or on the Consultant’s own time, but only insofar as the Inventions are related to the
Consultant’s service provided to the Company, shall belong exclusively to the Company (or its
designee), whether or not patent or other applications for intellectual property protection are filed
thereon (the “ Inventions ”). The Consultant will keep full and complete written records (the “
Records ”), in the manner prescribed by the Company, of all Inventions, and will promptly disclose all
Inventions completely and in writing to the Company. The Records shall be the sole and exclusive
property of the Company, and the Consultant will surrender them upon the termination of the
Consulting Period, or upon the Company’s request. The Consultant will assign to the Company the
Inventions and all patents or other intellectual property rights that may issue thereon in any and all
countries, whether during or subsequent to the Consulting Period, together with the right to file, in the
Consultant’s name or in the name of the Company (or its designee), applications for patents and
equivalent rights (the “ Applications ”). The Consultant will, at any time during and subsequent to the
Consulting Period, make such applications, sign such papers, take all rightful oaths, and perform all
other acts as may be requested from time to time by the Company to perfect, record, enforce, protect,
patent or register the Company’s rights in the Inventions, all without additional compensation to the
Consultant from the Company. The Consultant will also execute assignments to the Company (or its
designee) of the Applications, and give the Company and its attorneys all reasonable assistance
(including the giving of testimony) to obtain the Inventions for the Company’s benefit, all without
additional compensation to the Consultant from the Company, but entirely at the Company’s expense.
In
(2)
the
addition,
Inventions
Work
for Hire, as such term is defined under the copyright laws of the United States, on behalf of the
Company and the Consultant agrees that the Company will be the sole owner of the Inventions, and all
underlying rights therein, in all media now known or hereinafter devised, throughout the universe and
in perpetuity without any further obligations to the Consultant. If the Inventions, or any portion
thereof, are deemed not to be Work for Hire, or the rights in such Inventions do not otherwise
automatically vest in the
deemed
will
be
5
Company, the Consultant hereby irrevocably conveys, transfers and assigns to the Company, all
rights, in all media now known or hereinafter devised, throughout the universe and in perpetuity, in
and to the Inventions, including, without limitation, all of the Consultant’s right, title and interest in
the copyrights (and all renewals, revivals and extensions thereof) to the Inventions, including, without
limitation, all rights of any kind or any nature now or hereafter recognized, including, without
limitation, the unrestricted right to make modifications, adaptations and revisions to the Inventions, to
exploit and allow others to exploit the Inventions and all rights to sue at law or in equity for any
infringement, or other unauthorized use or conduct in derogation of the Inventions, known or
unknown, prior to the date hereof, including, without limitation, the right to receive all proceeds and
damages therefrom. In addition, the Consultant hereby waives any so-called “moral rights” with
respect to the Inventions. To the extent that the Consultant has any rights in the results and proceeds
of the Consultant’s service to the Company that cannot be assigned in the manner described herein,
the Consultant agrees to unconditionally waive the enforcement of such rights. The Consultant hereby
waives any and all currently existing and future monetary rights in and to the Inventions and all
patents and other registrations for intellectual property that may issue thereon, including, without
limitation, any rights that would otherwise accrue to the Consultant’s benefit by virtue of the
Consultant being an employee of or other service provider to the Company.
(e)
(f)
(g)
Enforcement . If it is determined by a court of competent jurisdiction in any state that any restriction in this
Section 5 is excessive in duration or scope or is unreasonable or unenforceable under the laws of that state, it is
the intention of the parties that such restriction may be modified or amended by the court to render it enforceable
to the maximum extent permitted by the laws of that state.
Remedies . The Consultant acknowledges and agrees that the Company’s remedies at law for a breach or
threatened breach of any of the provisions of this Section 5 would be inadequate and, in recognition of this fact,
the Consultant agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law,
the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy
which may then be available.
Forfeiture . In the event of a final judgment by a court of competent jurisdiction that the Consultant has
breached any of the provisions of this Section 5 , the Consultant shall forfeit the right to receive any further
benefits under this Agreement (including, without limitation, any unpaid Consulting Fees).
6.
Governing Law; Dispute Resolution . This Agreement, the rights and obligations of the parties hereto, and all claims or
disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of California, without
regard to the choice of law provisions thereof. Each of the parties agrees that any dispute between the
6
parties shall be resolved only in the courts of the State of California or the United States District Court for the Central
District of California and the appellate courts having jurisdiction of appeals in such courts. In that context, and without
limiting the generality of the foregoing, each of the parties hereto irrevocably and unconditionally (a) submits in any
proceeding relating to this Agreement or the Consultant’s services with the Company or any affiliate, or for the recognition
and enforcement of any judgment in respect thereof (a “ Proceeding ”), to the exclusive jurisdiction of the courts of the
State of California, the court of the United States of America for the Central District of California, and appellate courts
having jurisdiction of appeals from any of the foregoing, and agrees that all claims in respect of any such Proceeding shall
be heard and determined in such California State court or, to the extent permitted by law, in such federal court, (b)
consents that any such Proceeding may and shall be brought in such courts and waives any objection that the Consultant or
the Company may now or thereafter have to the venue or jurisdiction of any such Proceeding in any such court or that such
Proceeding was brought in an inconvenient court and agrees not to plead or claim the same, (c) agrees that service of
process in any such Proceeding may be effected by mailing a copy of such process by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to such party at the Consultant’s or the Company’s address as
provided in Section 9 hereof, and (d) agrees that nothing in this Agreement shall affect the right to effect service of process
in any other manner permitted by the laws of the State of California. The parties acknowledge and agree that in connection
with any dispute hereunder, each party shall pay all of its own costs and expenses, including, without limitation, its own
legal fees and expenses; provided, however, that if either the Consultant or the Company or its affiliates prevail on all
material issues involved in such dispute, the non-prevailing party shall reimburse the prevailing party for all costs
(including reasonable attorneys’ fees) incurred in connection with such dispute.
Code Section 409A . The intent of the parties is that payments and benefits under this Agreement comply with or be
exempt from Internal Revenue Code Section 409A and the regulations and guidance promulgated thereunder (collectively
“ Code Section 409A ”) and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in
compliance therewith or exempt therefrom. Consultant agrees and acknowledges that the Company makes no
representations with respect to the application of Code Section 409A and other tax consequences to any payments
hereunder and, by entering into this Agreement, Consultant agrees to accept the potential application of Code Section
409A and the other tax consequences of any payment made hereunder.
Assignment . This Agreement is personal to each of the parties hereto. Except as provided in this Section 8 , no party may
assign or delegate any rights or obligations hereunder without first obtaining the written consent of the other party
hereto. The Company may assign this Agreement to any successor to all or substantially all of the business and/or assets
of the Company. As used in this Agreement, “ Company ” shall mean the Company and any successor to its business
and/or assets, which assumes and agrees to perform the duties and obligations of the Company under this Agreement by
operation of law or otherwise.
7.
8.
7
9.
Notices . For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered by hand, (b) on the date of
transmission, if delivered by confirmed facsimile or electronic mail, (c) on the first business day following the date of
deposit, if delivered by guaranteed overnight delivery service, or (d) on the fourth business day following the date
delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Consultant:
At the address (or to the facsimile number) shown in the books and records of the
Company.
with a copy to (which shall not constitute notice to the Consultant)
Morrison & Foerster LLP
707 Wilshire Boulevard
Los Angeles, CA 90017-3543
Attention: Henry Fields
Morrison & Foerster LLP
If to the Company:
Vince, LLC
500 Fifth Avenue
New York, NY 10110
Attention: Senior Vice President, Human Resources
Facsimile:
Email:
with a copy to (which shall not constitute notice to the Company)
Kirkland & Ellis LLP
300 North LaSalle
Chicago, Illinois 60654
Attention: Douglas C. Gessner, P.C.
or to such other address as either party may have furnished to the other in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
10.
Severability . To the extent that any provision of this Agreement shall be invalid or unenforceable, it shall be considered
deleted herefrom and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full
force and effect.
8
11.
12.
13.
Survival . The provisions of Sections 5 and 6 hereof shall survive any termination of the Consulting Period or this
Agreement.
Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed to be an original
but all of which together shall constitute one and the same instrument.
Miscellaneous . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by the Consultant and such officer or director as may be designated by the
Board of Managers of the Company. The Company shall use commercially reasonable efforts to consult with the
Consultant before issuing any press releases or other public statements regarding the Consultant’s role as a consultant and
participation in the equity of the Company. No waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. This
Agreement represents the entire agreement and understanding between the parties hereto with respect to the subject matter
hereof, supersedes any and all other agreements, verbal or otherwise, between the parties hereto concerning such subject
matter, and no agreements or representations, oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set forth in this Agreement; provided that in the event that
the Consultant is or becomes a party to any other agreement with the Company or any of its affiliates providing for
restrictive covenants similar to Sections 5 and 6 , the provisions of such agreement shall also apply pursuant to its terms.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
IN WITNESS WHEREOF, the parties have executed this Agreement on the date first written above.
VINCE, LLC
By: /s/ Brendan Hoffman
Name: Brendan Hoffman
Title: Chief Executive Officer
CONSULTANT
/s/ Christopher LaPolice
Christopher LaPolice
Consulting
Services
Agreement
Signature
Page
SUN CAPITAL PARTNERS V, L.P.
5200 Town Center Circle
Suite 600
Boca Raton, FL 33486
December 9, 2015
EXHIBIT 10.43
Vince Holding Corp.
500 5 th Avenue – 20 th Floor
New York, New York 10110
Ladies and Gentlemen:
Sun Capital Partners V, L.P. (" Sun ") understands that Vince Holding Corp (the " Company ") may commence a
rights offering (the " Rights Offering "), pursuant to which the holders of common stock, par value $0.01 per share (the " Common
Stock "), of the Company will be granted rights to purchase new shares of Common Stock (the " New Common Stock ").
Sun agrees that it shall contribute or otherwise fund (or cause to be contributed or otherwise funded) to the
Company, at the closing of the Rights Offering, in accordance with the terms and subject to the conditions set forth in this letter
agreement, and directly or indirectly through one or more Sun Affiliates (including without limitation Sun Cardinal, LLC) or other
sources of funds, an amount in cash in immediately available funds equal to (i) $65,000,000 minus (ii) the aggregate proceeds to the
Company from the Rights Offering (the " Contribution Obligation ") . The Company will, simultaneously with the funding of the
Contribution Obligation by Sun or one or more Sun Affiliates, issue to Sun or one or more Sun Affiliates, as designated in writing by
Sun, the applicable number of shares of Common Stock at the Purchase Price. The funding of the Contribution Obligation by Sun,
and the issuance of the shares of Common Stock by the Company, will be made pursuant to an investment agreement (the "
Investment Agreement ") in customary form, and containing the applicable terms and conditions set forth in this letter agreement, to
be negotiated in good faith between Sun and the Company. This letter agreement relates to the obligation of Sun to provide
financing to the Company as set forth above and is not a guaranty of collection or the performance of any other obligations of the
Company, Sun or any other Person. Sun's obligations under this letter agreement, including the obligation of Sun to fund the
Contribution Obligation, are subject to the Company using the proceeds it receives from Sun or Sun Affiliates pursuant to this letter
agreement and from the Rights Offering to pay the amount owed under the Tax Receivable Agreement dated as of November 27,
2013, to which the Company is a party, for the taxable year ended January 31, 2015.
As consideration for the commitment of Sun set forth in this letter agreement, the Company agrees that, if the
Rights Offering has not commenced on or before March 8, 2016, it shall pay Sun an amount equal to $950,000 upon the earlier to
occur of (i) the completion of the Rights Offering and (ii) the funding of the Contribution Obligation by Sun. The Rights Offering
will be deemed to commence on the date that the rights to purchase New Common Stock are distributed to the Company's
stockholders.
Notwithstanding anything contained herein to the contrary, (i) under no circumstances shall Sun be liable or
obligated for any amount in excess of the Contribution Obligation or any obligation or liability of the Company or its subsidiaries in
connection with this letter agreement, (ii) under no circumstances shall any prior, current or future partners, members, stockholders,
directors,
Page 2
officers, managers, employees or agents (" Related Parties ") of either Sun or any of Sun Affiliates be liable or obligated for any
amount pursuant to this letter agreement or have any liability or obligation to any Person in connection with this letter agreement,
and (iii) effective upon the earliest to occur of (A) the consummation of the Rights Offering pursuant to which the Company receives
proceeds equal to or exceeding $65,000,000, (B) 11:59 p.m. New York City time on April 7, 2016 if the Rights Offering has not
commenced by such time, (C) 11:59 p.m. New York City time on April 30, 2016, and (D) the date Sun or Sun Affiliates contribute
or otherwise fund (or cause to be contributed or otherwise funded) to the Company an aggregate amount equal to the Contribution
Obligation, all obligations of Sun under this letter agreement shall terminate automatically and none of Sun, Sun Affiliates, or any of
their respective Related Parties shall have any liability or obligation to any Person in connection with this letter agreement, whether
based upon contract, tort or any other claim or legal theory.
In addition to the foregoing, in the event that the Company or any of its Affiliates (i) asserts in any litigation or
other proceeding that any of the limitations on Sun's liability herein are illegal, invalid or unenforceable in whole or in part, (ii)
asserts any theory of liability against Sun, Sun Affiliates, or any of their respective Related Parties with respect to the transactions
contemplated hereunder, other than Sun's Contribution Obligation under the express provisions of this letter agreement, and under
the limited circumstances specified in this letter agreement, (iii) seeks as a remedy anything other than specifically enforcing the
terms of this letter agreement to require Sun to fulfill the Contribution Obligation pursuant to this letter agreement or (iv) requires
Sun to contribute or otherwise fund any amounts in excess of the Contribution Obligation, then (A) Sun's obligations under this letter
agreement shall terminate ab
initio
and be null and void, (B) if Sun or Sun Affiliates have previously made any payments under this
letter agreement, Sun or such Sun Affiliates shall be entitled to recover such payments and (C) none of Sun, Sun Affiliates or any of
their respective Related Parties shall have any liability or obligation to any Person in connection with this letter agreement, whether
based upon contract, tort or any other claim or legal theory. The foregoing sentence shall survive any termination of this letter
agreement.
Sun represents and warrants that it is a Cayman Islands exempted limited partnership with, as of the date hereof,
available capital in excess of the Contribution Obligation, and that it will continue to maintain available capital in excess of the
Contribution Obligation from the date hereof through the earlier to occur of the funding of the Contribution Obligation or the
termination of this letter agreement . Except for the representation and warranty of Sun in the immediately preceding sentence and
the covenants and agreements of Sun set forth herein, none of Sun, Sun Affiliates or any of their respective Related Parties (other
than the Company) makes, or has made, any representations, warranties, covenants or agreements relating to this letter agreement or
in connection with the transactions contemplated by the Agreement, and the Company is not relying on any representations,
warranties, covenants or agreements.
whether based upon contract, tort or any other claim or legal theory.
In no event will Sun's aggregate liability pursuant to this letter agreement exceed the Contribution Obligation ,
This letter agreement is solely for the benefit of the Company and is not intended to confer any benefits on, or
create any rights in favor of, any other Person. Nothing set forth herein contains or gives, or shall be construed to contain or to give,
any Person other than the Company and Sun any remedies under or by reason of, or any rights to enforce or cause the Company to
enforce, the commitments set forth herein , whether based upon contract, tort or any other claim or legal theory .
Page 3
Notwithstanding anything to the contrary contained herein, the Company, in accepting the commitment under
this letter agreement, agrees and acknowledges (i) the liability and obligations of Sun hereunder shall not exceed the Contribution
Obligation, and (ii) no Sun Affiliates or any of their respective Related Parties shall have any obligation or liability to any Person
relating to, arising out of or in connection with this letter agreement or the Agreement, whether based upon contract, tort or any other
claim or legal theory. Sun's obligation, if any, to contribute or otherwise fund (or cause to be contributed or otherwise funded) to the
Company an amount determined pursuant to the second paragraph hereof, up to, but in no case exceeding, the Contribution
Obligation shall be the sole and exclusive remedy of the Company and all of its Affiliates against Sun, Sun Affiliates, and their
respective Related Parties in respect of this letter agreement, and the Company, on behalf of itself and its respective Affiliates,
hereby waives all other rights and remedies that it may have against Sun, Sun Affiliates, and its and their respective Related Parties,
whether sounding in contract or tort, or whether at law or in equity, or otherwise, relating to this letter agreement. The Company
may not assign its rights or obligations under this letter agreement .
When used in this letter agreement, the following terms have the meanings set forth below:
" Affiliate " of any particular Person, including without limitation Sun, means any other Person controlling,
controlled by, or under common control with such particular Person, where "control" means the possession, directly or indirectly, of
the power to direct the management and policies of a Person whether through the ownership of voting securities, contract, or
otherwise.
" Person " means and includes an individual, a partnership, a joint venture, a limited liability company, a
corporation or trust, an unincorporated organization, a group, or a government or other department or agency thereof, or any other
entity.
" Purchase Price " means the least of (i) a price per share equal to a 20% discount to the 30 day average trading
price of the Common Stock on The New York Stock Exchange immediately prior to the date of this letter agreement, (ii) a price per
share equal to a 20% discount to the 30 day average trading price of the Common Stock on The New York Stock Exchange
immediately prior to the commencement of the Rights Offering and (iii) the price per share at which participants in the Rights
Offering are entitled to purchase shares of New Common Stock.
" Sun Affiliate " means any other Person controlling, controlled by, or under common control with Sun, where
"control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether
through the ownership of voting securities, contract, or otherwise.
All issues and questions concerning the construction, validity, interpretation and enforceability of this letter
agreement, and all claims and disputes arising hereunder or in connection herewith or therewith, whether purporting to be sound in
contract or tort, or at law or in equity, shall be governed by, and construed in accordance with, the laws of the State of Delaware,
without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. The parties hereto
hereby agree and consent to be subject to the exclusive jurisdiction of the Chancery Court of the State of Delaware or, to the extent
such court declines jurisdiction, first to any federal court, or second, to any state court, each located in Wilmington, Delaware, and
hereby waive the right to assert the lack of personal or subject matter jurisdiction or
Page 4
improper venue in connection with any such suit, action or other proceeding. In furtherance of the foregoing, each of the parties
hereto (i) waives the defense of inconvenient forum, (ii) agrees not to commence any suit, action or other proceeding arising out of
this letter agreement other than in any such court and (iii) agrees that a final judgment in any such suit, action or other proceeding
shall be conclusive and may be enforced in other jurisdictions by suit or judgment or in any other manner provided by law. Service
of process with respect thereto may be made upon any party hereto by mailing a copy thereof by registered or certified mail, postage
prepaid, to such party at its address set forth above; provided that service of process may be accomplished in any other manner
permitted by applicable law.
This letter agreement reflects the entire understanding of the parties with respect to the subject matter hereof and
shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof. This letter agreement may not
be amended or otherwise modified without the prior written consent of Sun and the Company.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
LITIGATION, ACTION, PROCEEDING, CROSS-CLAIM, OR COUNTERCLAIM IN ANY COURT (WHETHER BASED ON
CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF, RELATING TO OR IN CONNECTION WITH (I) THIS LETTER
AGREEMENT OR THE VALIDITY, PERFORMANCE, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF
OR (II) THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, AUTHORIZATION, EXECUTION, DELIVERY,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED ELSEWHERE IN THIS LETTER
AGREEMENT, THE LIABILITY OF SUN UNDER THIS LETTER AGREEMENT SHALL BE LIMITED TO DAMAGES
ACTUALLY INCURRED, AND SUN SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL,
EXEMPLARY OR PUNITIVE DAMAGES OR LOSSES, INCLUDING LOST PROFITS AND REVENUE. THE COMPANY
AGREES THAT IT WILL NOT SEEK PUNITIVE DAMAGES AS TO ANY MATTER UNDER, RELATING TO OR ARISING
OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS LETTER AGREEMENT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Si ncerely,
Agreed and accepted:
VINCE HOLDING CORP.
_ /s/ Brendan Hoffman __________
By:
Name: _Brendan Hoffman ____________
Title:
_ Chief Executive Officer _______
SUN CAPITAL PARTNERS V, L.P.
By: Sun Capital Advisors V, L.P.
Its: General Partner
By: Sun Capital Partners V, Ltd.
Its: General Partner
By: _ /s/ Marc J. Leder ________________
Name: _ Marc J. Leder ________________
Title: _ Co-Chief Executive Officer ______
Signature
Page
EXHIBIT 10.44
April 14, 2016
David Stefko
4001 N. Ocean Blvd., #1002
Boca Raton, FL 33431
Dear David,
I am pleased to provide this letter confirming your offer of employment with Vince, LLC (hereafter “Vince” or “the Company”), for the position of Chief
Financial Officer, with a start date of January 14 th , 2016. The terms of the employment offer are as follows:
Reporting Relationship and Primary Work Location
You will report to Vince’s Chief Executive Officer. You will be based in our New York office and will travel to the Company’s LA office and other locations as
needed.
Base Salary, Signing Bonus and Incentive Bonus
Your annual base salary will be $625,000. You will receive a signing bonus of $50,000, subject to applicable taxes and withholdings, (to cover tax related matters
as it relates to your expected 2015 bonus from SCP) to be paid within 30 days after your start date.
You will be eligible to participate in the Company’s discretionary Annual Short-Term Incentive Plan (“STI Plan”), for Fiscal Year 2016 (February 1 – January 31).
The 2016 (and ongoing annual STI) target bonus opportunity for your position under this plan is 60% of your annual base salary, based upon annual performance
targets established each fiscal year.
Long-Term Incentive Awards
You will receive a new hire equity grant in the form of 225,000 stock options. The equity grant will be issued on January 14 th , 2016, vesting annually over a four
year period.
The official grant agreement, which will cover the vesting schedule, expiration rules, and other terms and conditions, will be provided at the time the grant is
formally issued.
You will also be eligible to participate in the ongoing annual Long-Term Incentive Program. The Company’s Board of Directors will determine the target amount
and terms (such as equity mix and vesting schedule) of the annual awards each year, based upon the Company’s performance as well as market conditions and
other factors.
Benefits
You will be entitled to participate in and receive benefits under any existing employee benefit plan or similar arrangement generally available for employees,
including medical, dental, and vision coverage, 401(k), disability and life insurance. Medical, Dental and Vision coverage begin on your first day of employment
with Vince. You will automatically be enrolled in the company’s 401k program on your first day of employment with Vince. A summary of Vince’s current
benefits was sent to you under separate cover on December 21, 2015.
The Company will reimburse you for a reasonable amount each year for rent, utilities, transportation to and from airports, and your homes in Ohio and Florida. The
Company will have final approval on the apartment and furnishings that you select.
You will accrue four (4) wee ks of vacation per annum (pro-rated for the first year of employment) as well as all C ompany paid holidays and personal days in
accordance with the Company’s standard vacation and holiday policies. Vacation time is accrued at 6.15 hours per pay period. All vacation time to be earned
during the year is available to take as of January 1 st each year even though you actually earn it as the year proceeds.
You are eligible to receive Vince’s executive discount of 75% off apparel merchandise and 50% off licensed merchandise in retail stores and online, beginning on
your first day of employment. These amounts are subject to change at any time.
In accordance with the Company’s clothing allowance policy, you will receive an allowance in the amount of $6,000 per fiscal year with a full allowance of $6,000
to be issued on or around February 1, 2016. Your allowance will be calculated based on 75% off the retail price of each item of clothing. Please note that receiving
a clothing allowance is considered a taxable benefit and, as a result, the applicable income taxes associated with receiving this benefit will be applied. The clothing
allowance policy, including the amount of the allowance, is subject to change with or without notice.
You may be requested, occasionally and for reasonable periods of time, to travel for business purposes. All travel will be at the cost of the Company and will be
paid or reimbursed by the Company in accordance with the Company’s Travel & Entertainment Policy as in effect.
Indemnification; D&O Insurance
Both during and after the Employment Term, regardless of the reason for termination, the Company hereby agrees to indemnify the Executive and hold the
Executive harmless to the maximum extent permitted by the Company’s organizational documents against and in respect of any and all actions, suits, proceedings,
investigations, claims, demands, judgments, costs, expenses (including reasonable attorney’s fees), losses, and damages resulting from the Executive’s good faith
performance of the Executive’s duties and obligations with the Company hereunder. The Company shall cover the Executive under directors’ and officers’ liability
insurance both during and, while potential liability exists, after the term of this Agreement in the same amount and to the same extent as the Company covers its
other active officers and directors. The foregoing obligations shall survive the termination of the Executive’s employment with the Company.
Severance
If your employment is terminated by the Company without “cause” (as such term is defined in the Company’s stock option plan), then subject to the execution of a
satisfactory release by you, you will receive severance payments, equivalent to your then current base rate of pay, for the next twelve (12) months or until other
employment is earlier secured. If you secure other employment during this twelve month period, you have an obligation to notify Vince upon your date of hire. If
your base compensation is greater than that of Vince, your severance will end. If your base compensation is less than that of Vince, we will compensate you for the
difference for the remainder of the severance period.
In addition, if you are, as of the termination date, enrolled in the Company’s medical and dental plans and you make a timely election of continued health benefit
coverage under the Consolidated Omnibus Budget Reconciliation Act (“ COBRA ”), the Company will continue to pay the employer portion of the associated
monthly premiums during the Severance Period, and you will be responsible to pay the associated employee portion of the monthly premium as directed by the
Company in order to be covered by COBRA. Effective the first day of the month following the last date of the Company COBRA subsidy period, you will become
responsible to pay 100% of the COBRA premium to continue healthcare insurance for the remainder of the applicable COBRA period.
Restrictive Covenants
Notice
Period
Requirement.
Should you voluntarily resign your employment, you shall provide the Company with a sixty (60) day working notice period. During
this notice period, you agree to continue performing all of the functions and responsibilities of your position, continue to give your full time and attention to such
responsibilities, and assist the Company in preparing for your departure.
2
Non-Compete.
During your employment and for a period of six (6) months thereafter, you shall not directly or indirectly (i) source, manufacture, produce, design,
develop, promote, sell, license, distribute, or market anywhere in the world (the “Territory”) any contemporary apparel, accessories or related products
(“Competitive Products”) or (ii) own, manage, operate, be employed by, participate in or have any interest in any other business or enterprise engaged in the
design, production, distribution or sale of Competitive Products anywhere in the Territory; provided, however, that nothing herein shall prohibit you from being a
passive owner of not more than five percent (5%) of the outstanding stock of any class of securities of a corporation or other entity engaged in such business which
is publicly traded, so long as you have no active participation in the business of such corporation or other entity. This paragraph will not apply and will not be
enforced by the Company with respect to post-termination activity by you that occurs in California or in any other state in which this prohibition is not enforceable
under applicable law. Sun Capital is excluded from this non-compete.
Non-solicit,
Non-interference
. During your employment and for a period of six (6) months thereafter you shall not , except in furtherance of your duties during
your employment with the Company, directly or indirectly, individually or on behalf of any other person, firm, corporation or other entity, (A) solicit or induce any
employee, consultant, representative or agent of the Company or any of its affiliates, to leave such employment or retention or to accept employment with or render
services to or with any other person, firm, corporation or other entity unaffiliated with the Company or hire or retain any such employee, consultant, representative
or agent, or take any action to materially assist or aid any other person, firm corporation or other entity in identifying, hiring or soliciting any such employee,
consultant, representative or agent, or (B) interfere, or aid or induce any other person or entity in interfering, with the relationship between the Company or any of
its affiliates and their respective customers, suppliers, vendors, joint ventures, distribution partners, franchisees, licensors, licensees or any other business relation of
the Company or its affiliates. Any person described in subparagraph (A) above shall be deemed covered by this paragraph while so employed or retained and for a
period of twelve (12) months thereafter, unless such person’s employment has been terminated by the Company.
Non-disparagement.
During your period of employment and thereafter, you shall not make any negative comments or otherwise disparage the Company or any of
its affiliates or any of the Company’s or its affiliates’ officers, directors, employees, shareholders, agents, products or business, or take any action, including
making any public statements or publishing or participating in the publication of any accounts or stories relating to any persons, entities, products or businesses
which negatively impacts or brings such person, entity, product or business into public ridicule or disrepute except if testifying truthfully under oath pursuant to
subpoena or other legal process, in which event you agree to provide the Company, as appropriate, with notice of subpoena and opportunity to respond.
Compliance with Law
This letter is intended to comply with applicable law. Without limiting the foregoing, this letter is intended to comply with the requirements of section 409A of the
Internal Revenue Code ("409A"), and, specifically, with the separation pay and short term deferral exceptions of 409A. Notwithstanding anything in the letter to
the contrary, separation pay may only be made upon a "separation from service" under 409A and only in a manner permitted by 409A. For purposes of 409A, the
right to a series of installment payments under this letter shall be treated as a right to a series of separate payments. In no event may you, directly or indirectly,
designate the calendar year of a payment. All reimbursements and in-kind benefits provided in this letter shall be made or provided in accordance with the
requirements of 409A (including, where applicable, the reimbursement rules set forth in the regulations issued under 409A). If you are a "specified employee" of a
publicly traded corporation on your termination date (as determined by the Company in accordance with 409A), to the extent required by 409A, separation pay due
under this letter will be delayed for a period of six (6) months. Any separation pay that is postponed because of 409A will be paid to you (or, if you die, your
beneficiary) within 30 days after the end of the six-month delay period.
Miscellaneous
Please be advised that this offer is contingent upon the favorable outcome of background and reference checks. Please also be advised that your employment is for
an indefinite period and is terminable at the will of either the Company or you, with or without cause at any time, subject only to such limitations as may be
imposed by law and/or the terms
3
of this letter. This offer of employment is contingent on you not being subject to any restrictive covenants which would impact your ability to perform the services
contemplated (or you having delivered to us an effective waiver thereof). By signing below, you are confirming to us that you are not presently subject to or
otherwise bound by a non-compete, confidentiality or other restriction with any person or company with respect to any prior or existing employment, investment or
other relationship.
You will receive an orientation packet with employment paperwork and benefit plan enrollment materials. Please review closely the Employment Eligibility
Verification requirements and list of acceptable documents on the Form I-9 and bring with you the appropriate personal identification. One voided check will also
be required to set up your direct deposit account for payroll. Please bring the entire packet and requested documentation to Human Resources on your first day.
I am excited about you joining our team and look forward to working with you. Please sign a copy of this letter to acknowledge your agreement with its conditions
and return it via email to Melissa Wallace at mwallace@vince.com.
Sincerely,
/s/ Brendan Hoffman
Brendan Hoffman
Chief Executive Officer
/s/ Melissa Wallace
Melissa Wallace
SVP Human Resources
Accepted:
/s/ David Stefko January 12, 2016
David Stefko Date
4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-192500) of Vince Holding Corp. of our report dated April
14, 2016 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
New York, New York
April 14, 2016
CEO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(15 U.S.C. SECTION 1350)
Exhibit 31.1
I, Brendan Hoffman, certify that:
1. I have reviewed this annual report on Form 10-K of Vince Holding Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
/s/ Brendan Hoffman
Brendan Hoffman
Chief Executive Officer
(principal executive officer)
April 14, 2016
CFO CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(15 U.S.C. SECTION 1350)
Exhibit 31.2
I, David Stefko, certify that:
1. I have reviewed this annual report on Form 10-K of Vince Holding Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
/s/ David Stefko
David Stefko
Chief Financial Officer
(principal financial and accounting officer)
April 14, 2016
CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Exhibit 32.1
In connection with the Annual Report of Vince Holding Corp. (the “Company”), on Form 10-K for the year ended January 30, 2016 as filed with the Securities and
Exchange Commission (the “Report”), Brendan Hoffman, Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. § 1350), that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company at the dates and
for the periods indicated in the Report.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
/s/ Brendan Hoffman
Brendan Hoffman
Chief Executive Officer
(principal executive officer)
April 14, 2016
CERTIFICATIONS OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
Exhibit 32.2
In connection with the Annual Report of Vince Holding Corp. (the “Company”), on Form 10-K for the year ended January 30, 2016 as filed with the Securities and
Exchange Commission (the “Report”), David Stefko, Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. § 1350), that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company at the dates and
for the periods indicated in the Report.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.
/s/ David Stefko
David Stefko
Chief Financial Officer
(principal financial and accounting officer)
April 14, 2016