UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended April 29, 2017
 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission File Number: 0-11736
 
ASCENA RETAIL GROUP, INC .
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0641353
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
933 MacArthur Boulevard, Mahwah, New Jersey
 
07430
(Address of principal executive offices)
 
(Zip Code)
 
(551) 777-6700
(Registrant's telephone number, including area code)
 
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 ý No ¨
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 ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
 
Smaller reporting company ¨
 
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
The Registrant had 195,038,861 shares of common stock outstanding as of June 5, 2017 .






INDEX
 
PART I.  FINANCIAL INFORMATION (Unaudited)
 
 
 
 
 
 
 
 
Page
Item 1.
Condensed Financial Statements:
 
 
 
 
 
Condensed Consolidated Balance Sheets
 
Condensed Consolidated Statements of Operations
 
Condensed Consolidated Statements of Comprehensive (Loss) Income
 
Condensed Consolidated Statements of Cash Flows
 
Notes to Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 6.
Exhibits
 
 
 
Signatures
 




ASCENA RETAIL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
April 29,
2017
 
July 30,
2016
 
(millions, except per share data)
(unaudited)
ASSETS
Current assets:
 

 
 

Cash and cash equivalents
$
300.1

 
$
371.8

Inventories
713.9

 
649.3

Prepaid expenses and other current assets
167.3

 
218.9

Total current assets
1,181.3

 
1,240.0

Property and equipment, net
1,495.0

 
1,630.1

Goodwill
683.0

 
1,279.3

Other intangible assets, net
537.1

 
1,268.7

Other assets
97.9

 
88.2

Total assets
$
3,994.3

 
$
5,506.3

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 

 
 

Accounts payable
$
429.1

 
$
429.4

Accrued expenses and other current liabilities
340.9

 
420.3

Deferred income
127.9

 
110.0

Current portion of long-term debt
—

 
54.0

Total current liabilities
897.9

 
1,013.7

Long-term debt, less current portion
1,607.6

 
1,594.5

Lease-related liabilities
357.6

 
387.1

Deferred income taxes
101.0

 
442.2

Other non-current liabilities
197.4

 
205.5

Total liabilities
3,161.5

 
3,643.0

 
 
 
 
Commitments and contingencies (Note 14)


 


 
 
 
 
Equity:
 

 
 

Common stock, par value $0.01 per share; 195.0 million and 194.2 million shares issued and outstanding as of April 29, 2017 and July 30, 2016, respectively
1.9

 
1.9

Additional paid-in capital
1,069.7

 
1,050.3

Retained (deficit) earnings
(223.0
)
 
828.8

Accumulated other comprehensive loss
(15.8
)
 
(17.7
)
Total equity
832.8

 
1,863.3

Total liabilities and equity
$
3,994.3

 
$
5,506.3










See accompanying notes.

3


ASCENA RETAIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions, except per share data)
(unaudited)
Net sales
$
1,565.1

 
$
1,669.3

 
$
4,991.7

 
$
5,183.1

Cost of goods sold
(616.7
)
 
(652.6
)
 
(2,083.5
)
 
(2,295.7
)
Gross margin
948.4

 
1,016.7

 
2,908.2

 
2,887.4

 
 
 
 
 
 
 
 
Other operating expenses:
 
 
 
 
 

 
 

Buying, distribution and occupancy expenses
(313.4
)
 
(325.3
)
 
(954.1
)
 
(958.2
)
Selling, general and administrative expenses
(506.3
)
 
(535.7
)
 
(1,568.8
)
 
(1,571.9
)
Acquisition and integration expenses
(3.8
)
 
(8.4
)
 
(31.6
)
 
(66.9
)
Restructuring and other related charges
(15.9
)
 
—

 
(48.0
)
 
—

Impairment of goodwill
(596.3
)
 
—

 
(596.3
)
 
—

Impairment of other intangible assets
(728.1
)
 
—

 
(728.1
)
 
—

Depreciation and amortization expense
(96.4
)
 
(89.9
)
 
(286.6
)
 
(261.8
)
Total other operating expenses
(2,260.2
)
 
(959.3
)
 
(4,213.5
)
 
(2,858.8
)
Operating (loss) income
(1,311.8
)
 
57.4

 
(1,305.3
)
 
28.6

 
 
 
 
 
 
 
 
Interest expense
(25.8
)
 
(27.4
)
 
(76.1
)
 
(75.7
)
Interest income and other (expense) income, net
(0.2
)
 
0.9

 
0.1

 
0.7

Gain on extinguishment of debt
—

 
—

 
—

 
0.8

(Loss) income before benefit (provision) for income taxes
(1,337.8
)
 
30.9

 
(1,381.3
)
 
(45.6
)
Benefit (provision) for income taxes
307.1

 
(15.9
)
 
329.8

 
19.9

Net (loss) income
$
(1,030.7
)
 
$
15.0

 
$
(1,051.5
)
 
$
(25.7
)
 
 
 
 
 
 
 
 
Net (loss) income per common share:
 
 
 
 
 

 
 

Basic
$
(5.29
)
 
$
0.08

 
$
(5.40
)
 
$
(0.13
)
Diluted
$
(5.29
)
 
$
0.08

 
$
(5.40
)
 
$
(0.13
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
195.0

 
194.0

 
194.7

 
191.5

Diluted
195.0

 
195.0

 
194.7

 
191.5


 















See accompanying notes.

4


ASCENA RETAIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
(unaudited)
Net (loss) income
$
(1,030.7
)
 
$
15.0

 
$
(1,051.5
)
 
$
(25.7
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Net actuarial loss on defined benefit plan, net of income tax benefit of $0.4 million
—

 
—

 
(0.7
)
 
—

Foreign currency translation adjustment
(2.2
)
 
5.0

 
(1.9
)
 
2.2

Total other comprehensive (loss) income before reclassification
(2.2
)
 
5.0

 
(2.6
)
 
2.2

Reclassification of settlement charges for ANN 's pension plan, net of income tax benefit of $2.9 million
—

 
—

 
4.5

 
—

Total comprehensive (loss) income
$
(1,032.9
)
 
$
20.0

 
$
(1,049.6
)
 
$
(23.5
)

 
 






































See accompanying notes.

5


ASCENA RETAIL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
(millions)
(unaudited)
Cash flows from operating activities:
 
Net loss
$
(1,051.5
)
 
$
(25.7
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

Depreciation and amortization expense
286.6

 
261.8

Deferred income tax benefit
(343.0
)
 
(13.4
)
Deferred rent and other occupancy costs
(48.1
)
 
(51.7
)
Gain on extinguishment of debt
—

 
(0.8
)
Amortization of acquisition-related inventory write-up
—

 
126.9

Stock-based compensation expense
19.9

 
19.3

Impairment of goodwill
596.3

 
—

Impairment of other intangible assets
728.1

 
—

Impairment of retail store assets
16.3

 
9.7

Non-cash interest expense
9.1

 
8.6

Other non-cash expense (income), net
6.2

 
(7.7
)
Changes in operating assets and liabilities:
 

 
 

Inventories
(64.6
)
 
21.5

Accounts payable, accrued liabilities and income tax liabilities
(35.4
)
 
(230.7
)
Deferred income
21.4

 
16.6

Lease-related liabilities
24.3

 
34.3

Other balance sheet changes, net
29.3

 
(5.3
)
Net cash provided by operating activities
194.9

 
163.4

 
 
 
 
Cash flows from investing activities:
 

 
 

Cash paid for the acquisition of ANN INC., net of cash acquired (Note 4)
—

 
(1,494.6
)
Capital expenditures
(207.3
)
 
(268.8
)
Acquisition of intangible asset
(11.3
)
 
—

Purchase of investments
—

 
(0.9
)
Proceeds from sales and maturities of investments
0.8

 
26.5

Net cash used in investing activities
(217.8
)
 
(1,737.8
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Proceeds from term loan, net of original issue discount
—

 
1,764.0

Redemptions and repayments of term loan
(122.5
)
 
(66.1
)
Proceeds from revolver borrowings
1,075.9

 
1,371.5

Repayments of revolver borrowings
(1,003.4
)
 
(1,438.0
)
Payment of deferred financing costs
—

 
(42.4
)
Purchases and retirements of common stock
—

 
(18.6
)
Proceeds from stock options exercised and employee stock purchases
1.2

 
9.4

Net cash (used in) provided by financing activities
(48.8
)
 
1,579.8

 
 
 
 
Net (decrease) increase in cash and cash equivalents
(71.7
)
 
5.4

Cash and cash equivalents at beginning of period
371.8

 
240.6

 
 
 
 
Cash and cash equivalents at end of period
$
300.1

 
$
246.0



See accompanying notes.

6


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Description of Business
 
ascena retail group, inc., a Delaware corporation (“ascena” or the “Company”), is a leading national specialty retailer of apparel for women and tween girls. On August 21, 2015, the Company acquired ANN INC. (" ANN "), a retailer of women’s apparel, shoes and accessories sold primarily under the Ann Taylor and LOFT brands (the " ANN Acquisition"). The Company operates, through its 100% owned subsidiaries, ecommerce operations and over 4,800 stores throughout the United States, Canada and Puerto Rico. The Company had annual revenues for the fiscal year ended July 30, 2016 of approximately $7.0 billion . The Company and its subsidiaries are collectively referred to herein as the “Company,” “ascena,” “we,” “us,” “our” and “ourselves,” unless the context indicates otherwise.

In connection with the Change for Growth program, as more fully described in Note 8, effective October 2016, the Company reorganized into four operating segments: Premium Fashion , Value Fashion , Plus Fashion and Kids Fashion . All of our segments sell fashion merchandise to the women's and girls' apparel market across a wide range of ages, sizes and demographics. Our segments consist of specialty retail, outlet and ecommerce as well as licensed franchises in international territories at our Kids Fashion segment. Our Premium Fashion segment consists of our Ann Taylor and LOFT brands; our Value Fashion segment consists of our maurices and dressbarn brands; our Plus Fashion segment consists of our Lane Bryant and Catherines brands; and our Kids Fashion segment consists of our Justice brand. For a more detailed description of each brand's products and markets in which they serve, see Part I, Item 1 "Business" in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016 (the "Fiscal 2016 10-K").

The Company's brands had the following store counts as of April 29, 2017 : Ann Taylor 325 stores; LOFT 674 stores; maurices 1,012 stores; dressbarn 791 stores; Lane Bryant 767 stores; Catherines 363 stores; and Justice 918 stores.

2. Basis of Presentation
 
Interim Financial Statements
 
These interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and are unaudited. In the opinion of management, however, such condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the condensed consolidated financial condition, results of operations, comprehensive (loss) income and cash flows of the Company for the interim periods presented. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted from this report as permitted by the SEC’s rules and regulations. However, the Company believes that the disclosures herein are adequate to ensure that the information is fairly presented.
 
The condensed consolidated balance sheet data as of July 30, 2016 is derived from the audited consolidated financial statements included in the Company’s Fiscal 2016 10-K, which should be read in conjunction with these interim financial statements. Reference is made to the Fiscal 2016 10-K for a complete set of financial statements.
 
Fiscal Period
 
The Company utilizes a 52-53 week fiscal year ending on the last Saturday in July. Fiscal year 2017 will end on July 29, 2017 and will be a 52-week period (“Fiscal 2017”). Fiscal year 2016 ended on July 30, 2016 and was a 53-week period (“Fiscal 2016”). The three months ended April 29, 2017 and the three months ended April 23, 2016 are both 13-week periods. The nine months ended April 29, 2017 and the nine months ended April 23, 2016 are both 39-week periods.

Prior year results for the three and nine month periods ending April 23, 2016 for our Premium Fashion segment include one-week reporting lags, which resulted from different reporting calendars between ANN INC. and ascena. Prior year three month results for our Premium Fashion segment represent the period from January 31, 2016 to April 30, 2016 and prior year nine month results for our Premium Fashion segment represent the period from August 22, 2015 to April 30, 2016. The effect of these one-week reporting period differences is not material to the condensed consolidated financial statements for either the three or nine months ended April 23, 2016 . As of the end of Fiscal 2016, our Premium Fashion segment is on the same fiscal calendar as the rest of the Company's operating segments.

7


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3. Recently Issued Accounting Standards
 
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, “Simplifying the Test for Goodwill Impairment.” The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company elected to early adopt this guidance for its Fiscal 2017 interim goodwill assessment conducted during the third quarter of Fiscal 2017. See Note 7 for a discussion of the Company's goodwill and other indefinite-lived intangible assets and a discussion of the results of the interim assessment, including related impairment charges.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The guidance simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements and the classification in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016 and interim periods therein, with early adoption permitted. Currently, the accounting for income taxes requires excess tax benefits and shortfalls to be recorded within equity as an adjustment to paid-in-capital whereas the new standard requires it to be recorded within the provision for income taxes in the condensed consolidated statements of operations in the period they are realized. The impact of this change will depend on changes in the Company's stock price and the timing of the exercise of stock options and the vesting of restricted stock units, so the full effect of the standard is not able to be quantified; however the recognition of these changes within the condensed consolidated statements of operations will likely result in increased volatility of our provision for income taxes and earnings. In addition, the guidance will change the classification of excess tax benefits and shortfalls from a financing activity to an operating activity within the Company's condensed consolidated statements of cash flows. The Company anticipates applying this change on a retrospective basis. There were no excess tax benefits in the statements of cash flows for the nine months ended April 29, 2017 and April 23, 2016. The other amendments of the standard are not expected to have a material impact on the Company's condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases." The guidance requires the lessee to recognize the assets and liabilities for the rights and obligations created by leases with terms of 12 months or more. The guidance is effective for fiscal years beginning after December 15, 2018 and interim periods therein, with early adoption permitted. Adoption of the standard requires a modified retrospective approach where the guidance is applied to the earliest comparative period presented. The Company is currently evaluating the guidance and its impact on the Company's condensed consolidated financial statements, but expects that it will result in a significant increase to its long-term assets and liabilities. The Company is also in the process of identifying changes to its business processes, systems and controls to support adoption of the new standard in Fiscal 2020.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in FASB Accounting Standards Codification ("ASC"), "Revenue Recognition (Topic 605)." The guidance requires that an entity recognize revenue in a way that depicts the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. The guidance, which was deferred in July 2015, is effective for annual reporting periods beginning after December 15, 2017 and interim periods therein. The guidance may be applied retrospectively to each period presented or with the cumulative effect recognized as of the initial date of application. The Company is in the process of an assessment of its material revenue streams including sales generated within either the retail store or ecommerce channels and sold through point of sales ("POS") terminals, shipping and fulfillment, credit card revenues, gift cards and loyalty programs. Upon completion of that assessment, the Company will evaluate the impact of adopting the new standard on the Company's condensed consolidated financial statements.

4. Acquisition of ANN INC.

On August 21, 2015, the Company acquired 100% of the outstanding common stock of ANN for an aggregate purchase price of approximately $2.1 billion . The purchase price consisted of approximately $1.75 billion in cash and the issuance of 31.2 million shares of the Company's common stock valued at approximately $345 million , based on the Company's stock price on the date of the acquisition. The cash portion of the purchase price was funded with borrowings under a $1.8 billion seven -year, variable-rate term loan described in Note 9. The acquisition is intended to diversify our portfolio of brands that serve the needs of women of different ages, sizes and demographics.


8


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company expensed $20.5 million of transaction costs for the nine months ended April 23, 2016 , which are included within Acquisition and integration expenses in the condensed consolidated statements of operations. In addition, the Company expensed $126.9 million during the nine months ended April 23, 2016 , related to the amortization of the write-up of ANN 's inventory to its fair value which is included within Cost of goods sold in the condensed consolidated statements of operations.

There were no measurement-period adjustments recorded during Fiscal 2017 and the allocation of the purchase price was finalized at the end of the first quarter of Fiscal 2017. The following table summarizes the final allocation of fair values of the identifiable assets acquired and liabilities assumed in the ANN Acquisition.
 
Final Purchase Price Allocation
 
(millions)
Cash and cash equivalents
$
257.6

Inventories
398.3

Prepaid expenses and other current assets
118.5

Property and equipment
453.3

Goodwill (a)
959.6

Other intangible assets:
 
   Trade names (a)
815.0

   Customer relationships
51.5

   Favorable leases
38.4

Other assets
3.5

Total assets acquired
3,095.7

 
 
Accounts payable
155.6

Accrued expenses and other current liabilities
209.0

Deferred income
46.0

Lease-related liabilities
175.0

Deferred income taxes
374.1

Other non-current liabilities
38.8

Total liabilities assumed
998.5

 
 
Total net assets acquired
$
2,097.2

________
(a) Refer to Note 7 for a discussion of impairment charges recorded during the third quarter of Fiscal 2017.

The following pro forma information has been prepared as if the ANN Acquisition and the issuance of stock and debt to finance the acquisition had occurred as of the beginning of Fiscal 2015:
 
Three Months Ended
 
Nine Months Ended
 
April 23,
2016
 
April 23,
2016
 
(millions, except per share data)
 
(unaudited)
Pro forma net sales
$
1,669.9

 
$
5,306.5

Pro forma net income
$
13.0

 
$
56.4

Pro forma net income per common share:
 
 
 
    Basic
$
0.07

 
$
0.29

    Diluted
$
0.07

 
$
0.29


The Fiscal 2016 pro forma amounts reflect the historical operational results for ascena as well as those of ANN for the three-week stub period preceding the close of the transaction on August 21, 2015. The pro forma amounts also reflect the effect of pro forma adjustments of $(2.0) million and $82.1 million , net of taxes, for the three and nine months ended April 23, 2016 , respectively. These adjustments primarily reflect transaction costs and the amortization of the fair value adjustment to inventory, which are included in the reported results and are excluded from the Fiscal 2016 pro forma amounts due to their non-recurring nature.


9


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The pro forma weighted-average number of common shares outstanding for each period assumes that 31.2 million shares of ascena common stock issued in connection with the acquisition had been issued as of the beginning of Fiscal 2015. The pro forma weighted-average number of diluted shares outstanding for the nine months ended April 23, 2016 includes the potential dilutive shares of 1.3 million , which are excluded from the reported weighted-average diluted shares outstanding due to the net loss reported for the period. The weighted-average numbers of diluted shares for other periods were not adjusted as the pro forma amounts were the same as the reported amounts.

The pro forma financial information is not indicative of the operational results that would have been obtained had the transactions actually occurred as of that date, nor is it necessarily indicative of the Company’s future operational results.

5. Inventories
 
Inventories substantially consist of finished goods merchandise. Inventory by segment is set forth below:
 
April 29,
2017
 
July 30,
2016
 
(millions)
Premium Fashion
$
224.1

 
$
198.6

Value Fashion
217.2

 
188.8

Plus Fashion
197.9

 
154.4

Kids Fashion
74.7

 
107.5

    Total inventories
$
713.9

 
$
649.3

 

6. Retail Store Asset Impairments

The charges below reduced the net carrying value of certain long-lived assets to their estimated fair value, which was determined based on discounted expected cash flows. These impairment charges were primarily related to the lower-than-expected operating performance of certain retail stores, and represented normal recurring store closures common within the retail industry. Impairment losses for retail store-related assets and finite-lived intangible assets are included as a component of Selling, general and administrative expenses in the condensed consolidated statements of operations for all periods.

Impairment charges related to retail store assets by segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Premium Fashion
$
—

 
$
—

 
$
0.7

 
$
—

Value Fashion
2.1

 
1.8

 
5.4

 
6.5

Plus Fashion (a)
0.6

 
0.4

 
3.2

 
1.3

Kids Fashion
1.9

 
0.2

 
3.0

 
1.9

    Total impairment charges
$
4.6

 
$
2.4

 
$
12.3

 
$
9.7

________
(a) The Company incurred additional store impairment charges of $4.0 million for the Plus Fashion segment in connection with the Change for Growth program which are considered to be outside the Company’s typical quarterly real-estate review, and are included within Restructuring and other related charges for the three and nine months ended April 29, 2017, as more fully described in Note 8.


10


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

7. Goodwill and Other Intangible Assets

Goodwill

The following schedule details the changes in goodwill for each reportable segment:
 
 
Premium Fashion (a)
 
Value Fashion (b)
 
Plus Fashion (c)
 
Kids Fashion
 
Total
 
 
(millions)
Balance at July 30, 2016
 
$
733.9

 
$
200.7

 
$
175.3

 
$
169.4

 
$
1,279.3

Impairment losses
 
(428.9
)
 
(107.2
)
 
(60.2
)
 
—

 
(596.3
)
Balance at April 29, 2017
 
$
305.0

 
$
93.5

 
$
115.1

 
$
169.4

 
$
683.0

_______
  (a) Represents the accumulated impairment loss as of April 29, 2017 at the ANN reporting unit.
  (b) Represents the accumulated impairment loss as of April 29, 2017 at the maurices reporting unit.
  (c) Represents impairment charges at the Lane Bryant reporting unit. The accumulated impairment loss as of April 29, 2017 was $321.9 million at the Lane Bryant reporting unit.

Other Intangible Assets

Other intangible assets consist of the following:

 
April 29, 2017
 
July 30, 2016
Description
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Intangible assets subject to amortization (a) :
(millions)
  Proprietary technology
$
5.3

 
$
(5.3
)
 
$
—

 
$
5.3

 
$
(5.3
)
 
$
—

  Customer relationships
54.2

 
(29.3
)
 
24.9

 
54.2

 
(19.9
)
 
34.3

  Favorable leases
38.2

 
(12.5
)
 
25.7

 
38.2

 
(7.1
)
 
31.1

  Trade names
5.3

 
(5.3
)
 
—

 
5.3

 
(5.3
)
 
—

      Total intangible assets subject to amortization
103.0

 
(52.4
)
 
50.6

 
103.0

 
(37.6
)
 
65.4

Intangible assets not subject to amortization :
 
 
 

 
 

 
 
 
 

 
 

  Brands and trade names (b)
475.6

 
—

 
475.6

 
1,192.4

 
—

 
1,192.4

  Franchise rights
10.9

 
—

 
10.9

 
10.9

 
—

 
10.9

  Total intangible assets not subject to amortization
486.5

 
—

 
486.5

 
1,203.3

 
—

 
1,203.3

       Total intangible assets
$
589.5

 
$
(52.4
)
 
$
537.1

 
$
1,306.3

 
$
(37.6
)
 
$
1,268.7

________
(a)  There were no finite-lived intangible asset impairment losses recorded for any of the periods presented.
(b) The Company recorded impairment charges related to trade names during the three and nine months ended April 29, 2017, as discussed by reporting unit below.


Goodwill and Other Indefinite-lived Intangible Asset Impairment Assessment

Fiscal 2017 Interim Impairment Assessment

The third quarter of Fiscal 2017 marked the continuation of the challenging market environment in which the company competes. Lower than expected comparable sales for the third quarter, along with a reduced comparable sales outlook for the fourth quarter led the Company to significantly reduce its level of forecasted earnings for Fiscal 2017. The Company concluded that these factors,

11


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

as well as the decline in the Company's stock price, represented impairment indicators which required the Company to test its goodwill and indefinite lived intangible assets for impairment during the third quarter of Fiscal 2017 (the "Interim Test").

As a result, Company performed its Interim Test of goodwill and indefinite-lived intangible assets using a quantitative approach on the last day of its third fiscal quarter. The Interim Test was determined with the assistance of an independent valuation firm using two valuation approaches, including the income approach (discounted cash flow method ("DCF")) and market approach (guideline public company method). The Company believes that the income approach (Level 3 measurement) is the most reliable indication of value as it captures forecasted revenues and earnings for the reporting units in the projection period that the market approach may not directly incorporate. Therefore, a greater weighting was applied to the income approach than the market approach. The weighing of the fair values by valuation approach (income approach vs. market approach) were consistent across all reporting units. For all reporting units the income approach was weighted 85% and the market approach 15% . Under the market approach, the Company estimated a fair value based on comparable companies' market multiples of revenues and earnings before interest, taxes, depreciation and amortization, factored in a control premium, and used the market approach as a comparison of respective fair values. The estimated fair value determined under the market approach validated our estimate of fair value determined under the income approach. Finally, the Company’s publicly traded market capitalization was reconciled to the sum of the fair value of the reporting units, taking into account subsequent changes in the Company's stock price reflecting information known as of, but made public subsequent to, the date of the Interim Test.

The projections used in the Interim Test reflect lower assumptions across certain key areas versus prior plans as a result of lower-than-expected performance and a sustained challenging retail environment. In particular, sales growth assumptions were significantly lowered to reflect the shortfall in actual results versus those previously projected, reflecting the uncertainty of future comparable sales given the sector's dynamic change. The lower sales outlook resulted in a significant reduction in fair market value comparisons to the prior valuation included in our Fiscal 2016 10-K. Based on the results of the impairment assessment, the fair value of our Catherines reporting unit substantially exceeded its carrying value and was not at risk of impairment, while our Justice reporting unit only exceeded its carrying value by 8% .

The changes in key assumptions and the resulting reduction in projected future cash flows included in the Interim Test resulted in a decrease in the fair values of our ANN , maurices and Lane Bryant reporting units such that their fair values were less than their carrying values. As a result, the Company recognized impairment losses to write down the carrying values of its trade name intangible assets to their fair values as follows: $210.0 million of our Ann Taylor trade name, $356.3 million of our LOFT trade name and $161.8 million of our Lane Bryant trade name. The fair value of the trade names was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trade name (Level 3 measurement). In addition, the Company recognized the following goodwill impairment charges: a loss of $428.9 million at the ANN reporting unit, $107.2 million at the maurices reporting unit and $60.2 million at the Lane Bryant reporting unit to write down the carrying values of the reporting units to their fair values. These impairment losses have been disclosed separately on the face of the accompanying condensed consolidated statements of operations.

As a result of these impairment charges, the Company recorded an income tax benefit of $306.8 million for the three and nine months ended April 29, 2017. The income tax benefit was calculated by applying a statutory rate of approximately 38% to the $728.1 million of impairment of other intangible assets and $69.8 million of the goodwill impairment charge (using the pro rata method) at maurices as it was treated as an asset purchase when it was acquired and is deductible. The remaining $526.5 million of impairment of goodwill was treated as non-deductible for income tax purposes and was a significant factor in reducing the Company's effective income tax rate for the three and nine months ended April 29, 2017.

8. Restructuring and Other Related Charges

In October 2016, the Company initiated a transformation plan with the objective of supporting sustainable long-term growth and increasing shareholder value (the "Change for Growth" program). The Change for Growth program is expected to (i) refine the Company's operating model to increase its focus on key customer segments, (ii) reduce the time to bring product to market, (iii) reduce working capital requirements and (iv) enhance the Company's ability to serve customers on any purchasing platform, all while better leveraging the Company's shared service platform. The Company's new operating model is designed to focus on enhancing customer-facing capabilities while eliminating organizational overlap.

During the first quarter of Fiscal 2017, as part of refining the operating model, the Company eliminated a number of executive positions and made organizational changes resulting in the creation of the Premium Fashion , Value Fashion , Plus Fashion and Kids Fashion operating segments. The Company's new operating model is designed to allow its operating segments to focus on enhancing customer-facing capabilities while reducing duplicative overhead. During the second quarter of Fiscal 2017, the

12


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Company announced further consolidation of certain support functions into its shared service group, including Human Resources, Real Estate, Non-Merchandise Procurement and Asset Protection.

Most recently, the Company has completed a review of its store fleet with the goal of reducing the number of marginally profitable stores, through rent reductions or closures to be identified, in an effort to increase the overall profitability of the remaining store footprint, and convert sales from these stores into more profitable ecommerce sales or shift sales to nearby store locations ("Fleet Optimization"). As a result, the Company considers charges associated with this assessment to be outside its typical quarterly real-estate review. Towards the end of the third quarter, the Company actioned a limited number of stores by sending notice under the lease and recorded a cash expense for early-termination payments and non-cash asset impairment charges to write down the underlying assets of those stores to fair value based on the discounted cash flows which are included within the table below. The Company expects to finalize plans with respect to additional stores during the fourth quarter of Fiscal 2017 and into Fiscal 2018.

The Company may incur significant additional charges and capital expenditures in future periods as it more fully defines incremental Change for Growth program initiatives, and moves into the execution phases of associated projects; however the benefits of such initiatives and related charges and required capital expenditures are not quantifiable at this time. Actions associated with the Change for Growth program are currently expected to continue through Fiscal 2020.

As a result of the Change for Growth program, the Company incurred the following charges, which are included within Restructuring and other related charges, for all periods presented:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Cash restructuring charges:
 
 
 
 
 
 
 
   Severance and benefit costs (a)
$
(0.3
)
 
$
—

 
$
20.0

 
$
—

   Lease termination and store closure costs
1.3

 
—

 
1.3

 
—

   Other related charges (b)
10.9

 
—

 
22.7

 
—

      Total cash charges
11.9

 
—

 
44.0

 
—

 
 
 
 
 
 
 
 
Non-cash charges:
 
 
 
 
 
 
 
    Impairment of assets
4.0

 
—

 
4.0

 
—

       Total non-cash charges
4.0

 
—

 
4.0

 
—

 
 
 
 
 
 
 
 
Total restructuring and other related charges
$
15.9

 
$
—

 
$
48.0

 
$
—

_______
(a) During the third quarter of Fiscal 2017, certain segments recorded adjustments to true up estimates of benefit-related costs to reflect amounts actually paid.
(b) Other related charges consist of professional fees incurred in connection with the identification and implementation of transformation initiatives associated with the Change for Growth program.

A summary of activity for the nine months ended April 29, 2017 in the restructuring-related liabilities associated with the Change for Growth program, which is included within Accrued expenses and other current liabilities, is as follows:
 
Severance and benefit costs
 
Lease termination and store closure costs

 
Other related charges
 
Total
 
(millions)
Balance at July 30, 2016
$
—

 
$
—

 
$
—

 
$
—

   Additions charged to expense
20.0

 
1.3

 
22.7

 
44.0

   Cash payments
(8.8
)
 
(1.3
)
 
(21.4
)
 
(31.5
)
Balance at April 29, 2017
$
11.2

 
$
—

 
$
1.3

 
$
12.5


13


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. Debt
Debt consists of the following:
April 29,
2017
 
July 30,
2016
 
(millions)
   Revolving credit facility
$
72.5

 
$
—

         Less: unamortized debt issuance costs (a)
(4.7
)
 
(5.8
)
 
67.8

 
(5.8
)
 


 


   Term loan
1,596.5

 
1,719.0

         Less: unamortized original issue discount (b)
(26.4
)
 
(30.1
)
                   unamortized debt issuance costs (b)
(30.3
)
 
(34.6
)
 
1,539.8

 
1,654.3

 


 


    Less: current portion
—

 
(54.0
)
Total long-term debt
$
1,607.6

 
$
1,594.5

_______

(a) The unamortized debt issuance costs are amortized on a straight-line basis over the life of the amended revolving credit agreement.
(b) The original issue discount and debt issuance costs for the term loan are amortized over the life of the term loan using the interest rate method based on an imputed interest rate of approximately 6.3% .

Amended Revolving Credit Agreement
The Company's amended revolving credit agreement (the “Amended Revolving Credit Agreement”) provides aggregate revolving commitments up to $600 million , with an optional increase of up to $200 million and expires in August 2020. There are no mandatory reductions in aggregate revolving commitments throughout the term of the Amended Revolving Credit Agreement. However, borrowing availability under the Amended Revolving Credit Agreement (the "Availability") is limited by the amount of eligible cash, inventory and receivables as defined in the Amended Revolving Credit Agreement.

The Amended Revolving Credit Agreement may be used for the issuance of letters of credit, to fund working capital requirements and capital expenditures, and for general corporate purposes. The Amended Revolving Credit Agreement includes a $350 million letter of credit sub-limit, of which $100 million can be used for standby letters of credit, and a $30 million swing loan sub-limit.

Throughout the term of the Amended Revolving Credit Agreement, the Company can elect to borrow either Alternative Base Rate Borrowings ("ABR Borrowings") or Eurodollar Borrowings. Eurodollar Borrowings bear interest at a variable rate using the LIBOR for such Interest Period plus an applicable margin ranging from 125 basis points to 150 basis points based on the Company’s average availability during the previous fiscal quarter. ABR Borrowings bear interest at a variable rate determined using a base rate equal to the greatest of (i) prime rate, (ii) federal funds rate plus 50 basis points , or (iii) one-month LIBOR plus 100 basis points ; plus an applicable margin ranging from 25 basis points to 50 basis points based on the average availability during the previous fiscal quarter. As of April 29, 2017 , borrowings under the Amended Revolving Credit Agreement consisted of $70.0 million of Eurodollar borrowings at a rate of 2.25% and $2.5 million of ABR borrowings at a rate of 4.25% .

Under the terms of the Amended Revolving Credit Agreement, the unutilized commitment fee ranges from 20 basis points to 25 basis points per annum based on the Company's average utilization during the previous fiscal quarter.

As of April 29, 2017 , after taking into account the $72.5 million of revolving debt outstanding and the $31.3 million in outstanding letters of credit, the Company had $448.8 million of availability under the Amended Revolving Credit Agreement.

Term Loan

In connection with the ANN Acquisition, the Company entered into a $1.8 billion variable-rate term loan (the "Term Loan"), which was issued at a 2% discount and provides for an additional term facility of $200 million . The Company is also eligible to borrow an unlimited amount, as long as the Company maintains a minimum senior secured leverage ratio as defined in the Term Loan (the "Senior Secured Leverage Ratio") among other factors.

14


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


The Term Loan matures on August 21, 2022 and requires quarterly repayments of $4.5 million during the first half of Fiscal 2017 and $22.5 million thereafter, with a remaining balloon payment of approximately $1.2 billion required at maturity. For the nine months ended April 29, 2017 , the Company made repayments totaling $122.5 million , which were applied to the future quarterly scheduled payments such that the Company is not required to make its next quarterly payment until May 2018. The Company is also required to make mandatory prepayments in connection with certain prepayment events, including (i) commencing with the fiscal year ending July 29, 2017 if the Company has excess cash flow, as defined in the Term Loan, for any fiscal year and the Senior Secured Leverage Ratio for such fiscal year exceeds certain predetermined limits and (ii) from Net Proceeds, as defined in the Term Loan, of asset dispositions and certain casualty events that are greater than $25 million in the aggregate in any fiscal year and not reinvested (or committed to be reinvested) within one year , in each case subject to certain conditions and exceptions. The Company has the right to prepay the Term Loan in any amount and at any time with no prepayment penalties.

At the time of initial borrowings and renewal periods throughout the term of the Term Loan, the Company may elect to borrow either ABR Borrowings or Eurodollar Borrowings. Eurodollar Borrowings bear interest at a variable rate using LIBOR (subject to a 75 basis points floor) plus an applicable margin of 450 basis points . ABR Borrowings bear interest at a variable rate determined using a base rate (subject to a floor of 175 basis points ) equal to the greatest of (i) prime rate, (ii) federal funds rate plus 50 basis points , or (iii) LIBOR plus 100 basis points , plus an applicable margin of 350 basis points . As of April 29, 2017 , borrowings under the Term Loan consisted entirely of Eurodollar Borrowings at a rate of 5.50% .

During the second quarter of Fiscal 2016, the Company repurchased $65.0 million of the outstanding principal balance of the Term Loan at an aggregate cost of $61.6 million through open market transactions, resulting in a $0.8 million pre-tax gain, net of the proportional write-off of unamortized original discount and debt issuance costs of $2.6 million . Such net gain has been recorded as Gain on extinguishment of debt in the condensed consolidated statements of operations.

Restrictions under the Term Loan and the Amended Revolving Credit Agreement (collectively the "Borrowing Agreements")
 
Under the Amended Revolving Credit Agreement, the Company is required to maintain a fixed charge coverage ratio, as defined in the Amended Revolving Credit Agreement, of at least 1.00 any time in which the Company is in a covenant period, as defined in the Amended Revolving Credit Agreement (the "Covenant Period"). Such Covenant Period is in effect if Availability is less than the greater of (a) 10% of the Credit Limit (the lesser of total Revolving Commitments and the Borrowing Base) and (b) $45 million for three consecutive business days and ends when Availability is greater than these thresholds for 30 consecutive days. The Covenant Period was not in effect as of April 29, 2017 .

The Borrowing Agreements contain customary negative covenants, subject to negotiated exceptions, on (i) liens and guarantees, (ii) investments, (iii) indebtedness, (iv) significant corporate changes including mergers and acquisitions, (v) dispositions and (vi) restricted payments, cash dividends, stock repurchases and certain other restrictive agreements. The Borrowing Agreements also contain customary events of default, such as payment defaults, cross-defaults to certain material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants related to the operation of the Company’s business, in each case subject to customary grace periods.

The Company's Amended Revolving Credit Agreement allows us to make restricted payments, including dividends and share repurchases subject to the Company satisfying certain conditions set forth in the Company's Amended Revolving Credit Agreement, notably that at the time of and immediately after giving effect to the restricted payment, (i) there is no default or event of default and (ii) Availability is not less than 20% of the aggregate revolving commitments. The Company's Term Loan allows us to make restricted payments, including dividends and share repurchases up to a predetermined dollar amount. The dollar amount limitation is waived upon the satisfaction of certain conditions under the Term Loan, notably that at the time of and immediately after giving effect to such restricted payment, (i) there is no default or event of default and (ii) the total leverage ratio, as defined in the Term Loan agreement, is below predetermined limits. Dividends are payable when declared by our Board of Directors.

The Company’s obligations under the Borrowing Agreements are guaranteed by certain of its domestic subsidiaries (the “Subsidiary Guarantors”). As collateral under the Borrowing Agreements and the guarantees thereof, the Company and the Subsidiary Guarantors have granted to the administrative agents for the benefit of the lenders a first priority lien on substantially all of their tangible and intangible assets, including, without limitation, certain domestic inventory and certain material real estate.


15


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Maturities of Debt
The Company's debt matures as follows:
Fiscal Year
 
Amount
 
 
(millions)
2017
 
$
—

2018
 
21.5

2019
 
90.0

2020
 
90.0

2021
 
162.5

Thereafter
 
1,305.0

Total maturities
 
$
1,669.0


10. Fair Value Measurements
 
Fair value is 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. In evaluating the fair value measurement techniques for recording certain financial assets and liabilities, there is a three-level valuation hierarchy under which financial assets and liabilities are designated. The determination of the applicable level within the hierarchy of a particular financial asset or liability depends on the lowest level of inputs used that are significant to the fair value measurement as of the measurement date as follows:

Level 1
Quoted prices for identical instruments in active markets;

Level 2
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are recently traded (not active); and
Level 3
Instruments with little, if any, market activity are valued using significant unobservable inputs or valuation techniques.

As of April 29, 2017 and July 30, 2016, the Company believes that the carrying values of cash and cash equivalents, available-for-sale investments, accounts and other receivables and accounts payable approximates their estimated fair values due to the short maturities of these financial instruments. As the Company’s revolving credit facility is variable rate, the Company believes that there is no significant difference between the estimated fair value and the carrying value as of April 29, 2017 and July 30, 2016. The fair value of the Term Loan was determined to be $1.453 billion as of April 29, 2017 and $1.683 billion as of July 30, 2016 based on quoted market prices from recent transactions, which are considered Level 2 inputs within the fair value hierarchy.

The Company’s non-financial instruments, which primarily consist of goodwill, other intangible assets and property and equipment, are not required to be measured at fair values on a recurring basis and are reported at their carrying values. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be recoverable (and at least annually for goodwill and other indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to (and recorded at) fair values. For further discussion of the determination of the fair value of non-financial assets including the Company's goodwill and other intangible assets during the third quarter of Fiscal 2017, see Notes 6, 7 and 8.


16


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. Equity
 
Nine Months Ended
Summary of Changes in Equity :
April 29,
2017
 
April 23,
2016
 
(millions)
  Balance at beginning of period
$
1,863.3

 
$
1,518.1

     Net loss
(1,051.5
)
 
(25.7
)
     Common stock issued in connection with the ANN  Acquisition (Note 4)
—

 
344.9

     Total comprehensive income
1.9

 
2.2

     Common stock issued and equity grants made pursuant to stock-based compensation plans
19.4

 
30.0

     Purchases and retirements of common stock
—

 
(18.6
)
     Other
(0.3
)
 
—

  Balance at end of period
$
832.8

 
$
1,850.9


Common Stock Repurchase Program

In December 2015, the Company’s Board of Directors authorized a $200 million share repurchase program (the “2016 Stock Repurchase Program”). Under the 2016 Stock Repurchase Program, purchases of shares of common stock may be made at the Company’s discretion from time to time, subject to overall business and market conditions. Currently, share repurchases in excess of $100 million are subject to certain restrictions under the terms of the Company's Borrowing Agreements, as more fully described in Note 9. Repurchased shares are retired and treated as authorized but unissued. The excess of repurchase price over the par value of common stock for the repurchased shares is charged entirely to retained earnings.

There were no repurchases of common stock by the Company during the nine months ended April 29, 2017 . The remaining availability under the 2016 Stock Repurchase Program was approximately $181.4 million at April 29, 2017 .

Net (Loss) Income per Common Share
 
Basic net (loss) income per common share is computed by dividing the net (loss) income applicable to common shares after preferred dividend requirements, if any, by the weighted-average number of common shares outstanding during the period. Diluted net income per common share adjusts basic net income per common share for the effects of outstanding stock options, restricted stock, restricted stock units and any other potentially dilutive financial instruments, only in the periods in which such effect is dilutive under the treasury stock method. Potentially dilutive instruments are not included in the computation of net loss per share as the impact of those items would be anti-dilutive due to the net loss incurred for the period.
 
The weighted-average number of common shares outstanding used to calculate basic net (loss) income per common share is reconciled to those shares used in calculating diluted net (loss) income per common share as follows:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Basic
195.0

 
194.0

 
194.7

 
191.5

Dilutive effect of stock options and restricted stock units (a)
—

 
1.0

 
—

 
—

       Diluted shares
195.0

 
195.0

 
194.7

 
191.5

 
(a) There was no dilutive effect of stock options, restricted stock and restricted stock units for the three and nine months ended April 29, 2017 and the nine months ended April 23, 2016 as the impact of these items was anti-dilutive because of the Company's net loss incurred during those periods.
Options to purchase shares of common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive, and therefore not included in the computation of diluted net (loss) income per common share. In addition, the Company has outstanding restricted stock units that are issuable only upon the achievement of certain service conditions. Any performance or market-based restricted stock units outstanding are included in the computation of diluted shares only to the extent the underlying performance or market conditions (a) are satisfied prior to the end of the reporting period or (b) would be satisfied if the end of the reporting period was the end of the related contingency period, and the result would be

17


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

dilutive under the treasury stock method. Potentially dilutive instruments are not included in the computation of net loss per share for the three and nine months ended April 29, 2017 and the nine months ended April 23, 2016 as the impact of those items would have been anti-dilutive due to the net loss incurred for those periods. For the three and nine months ended April 29, 2017 and April 23, 2016 , 20.1 million and 17.6 million shares, respectively, of anti-dilutive options and/or restricted stock units were excluded from the diluted share calculations.

12. Stock-based Compensation
 
As of April 29, 2017 , there were approximately 16.7 million shares remaining under the 2016 Omnibus Incentive Plan available for future grants. The Company issues new shares of common stock when stock option awards are exercised and restricted stock units vest.  

Impact on Results
 
A summary of the total compensation expense and associated income tax benefit recognized related to stock-based compensation arrangements is as follows:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Compensation expense
$
6.4

 
$
7.0

 
$
19.9

 
$
19.3

Income tax benefit
$
(2.4
)
 
$
(2.7
)
 
$
(7.5
)
 
$
(7.4
)

Stock Options
 
The Company’s weighted-average assumptions used to estimate the fair value of stock options granted during the periods presented were as follows:
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
Expected term (years)
3.0

 
3.1

Expected volatility
37.4
%
 
35.3
%
Risk-free interest rate
1.3
%
 
1.5
%
Expected dividend yield
—
%
 
—
%
Weighted-average grant date fair value
$
1.94

 
$
4.17

 

18


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

A summary of the stock option activity under all plans during the nine months ended April 29, 2017 is as follows:
 
Number of
Shares
 
Weighted-
Average
Exercise Price
 
Weighted-
Average
Remaining
Contractual
Terms
 
Aggregate
Intrinsic
Value  (a)
 
(thousands)
 
 

 
(years)
 
(millions)
Options outstanding – July 30, 2016
14,813.4

 
$
14.33

 
4.8
 
$
0.9

Granted
6,053.8

 
5.54

 
 
 
 
Exercised
(13.6
)
 
8.03

 
 
 
 
Canceled/Forfeited
(3,805.2
)
 
12.50

 
 
 
 
Options outstanding – April 29, 2017
17,048.4

 
$
11.62

 
4.8
 
$
—

 
 
 
 
 
 
 
 
Options vested and expected to vest at April 29, 2017   (b)
16,659.8

 
$
11.74

 
4.7
 
$
—

Options exercisable at April 29, 2017
8,752.4

 
$
14.34

 
3.7
 
$
—

_______
(a)  
The intrinsic value is the amount by which the market price at the end of the period of the underlying share of stock exceeds the exercise price of the stock option.
(b)  
The number of options expected to vest takes into consideration estimated expected forfeitures.

As of April 29, 2017 , there was $17.9 million of total unrecognized compensation cost related to non-vested options, which is expected to be recognized over a remaining weighted-average vesting period of 1.8 years. The total intrinsic value of options exercised during the nine months ended April 29, 2017 was de minimus and during the nine months ended April 23, 2016 was approximately $7.3 million . The amounts exercised during the three months ended April 29, 2017 and April 23, 2016 , respectively, were de minimus. The total grant date fair value of options that vested during the nine months ended April 29, 2017 was approximately $13.2 million and during the nine months ended April 23, 2016 was approximately $13.5 million . Of these amounts, $0.1 million was vested during the three months ended April 29, 2017 and $0.3 million was vested during the three months ended April 23, 2016 .

Restricted Equity Awards
 
A summary of restricted equity awards activity during the nine months ended April 29, 2017 is as follows:
 
Service-based
Restricted Equity Awards
 
Number of
Shares
 
Weighted-
Average
Grant Date
Fair Value
Per Share
 
(thousands)
 
 
Nonvested at July 30, 2016
2,258.8

 
$
13.62

Granted
2,300.6

 
5.59

Vested
(647.9
)
 
13.03

Cancelled/Forfeited
(812.1
)
 
10.89

Nonvested at April 29, 2017
3,099.4

 
$
8.49

 
As of April 29, 2017 , there was $13.6 million of total unrecognized compensation cost related to the service-based Restricted Equity Awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.3 years .

13. Employee Benefit Plans

Long-Term Incentive Plan

During Fiscal 2016, the Company created a long-term incentive program ("LTIP") for vice presidents and above under the 2016 Omnibus Incentive Plan. The LTIP entitles the holder to either a cash payment, or a stock payment for certain officers at the

19


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Company's option, equal to a predetermined target amount earned at the end of a performance period and is subject to (a) the grantee’s continuing employment and (b) the Company’s achievement of certain performance goals over a one, two or three-year performance period. Compensation expense for the LTIP is recognized over the related performance periods based on the expected achievement of the performance goals.

The Company recognized $9.1 million in compensation expense for the nine months ended April 29, 2017 and $16.8 million for the nine months ended April 23, 2016 , which was recorded within Selling, general and administrative expenses in the condensed consolidated financial statements. Of these amounts, $2.7 million was recognized during the three months ended April 29, 2017 and $6.7 million was recognized during the three months ended April 23, 2016 . As of April 29, 2017 , there was $32.7 million of expected unrecognized compensation cost related to the LTIP, which is expected to be recognized over a remaining weighted-average vesting period of 1.9 years . As of April 29, 2017 , the liability for LTIP Awards was $18.8 million , of which $3.0 million was classified within Accrued expenses and other current liabilities and $15.8 million was classified within Other non-current liabilities in the condensed consolidated balance sheets. In addition, the Company paid $10.4 million to settle such liabilities during the nine months ended April 29, 2017 . No amounts were paid during the three months ended April 29, 2017 .

Defined Benefit Plan

In connection with the ANN Acquisition, the Company assumed ANN 's pension plan which was frozen and for which the accumulated benefit obligation exceeded the plan's assets by approximately $12 million as of July 30, 2016. In Fiscal 2016, the Company made a decision to terminate the plan whereby, under the terms of liquidation, some participants elected to receive lump-sum payments while the others elected to remain in the plan. During the first quarter of Fiscal 2017, lump sum payments were made to its participants, and during the second quarter of Fiscal 2017 the remaining obligation was transferred to a third-party and settled through a non-participating annuity contract. As of the end of the second quarter of Fiscal 2017, the trust was fully liquidated. During the nine months ended April 29, 2017 , the accumulated actuarial loss of $7.4 million (less an income tax benefit of $2.9 million ) was reclassified from Accumulated other comprehensive loss to Acquisition and integration expenses. For the nine months ended April 29, 2017 , the Company expensed $8.0 million reflecting settlement charges and professional fees, which is included within Acquisition and integration expenses in the condensed consolidated statement of operations.

14. Commitments and Contingencies

Legal Matters

Justice Pricing Litigation

The Company is a defendant in a number of class action lawsuits that allege that Justice ’s promotional practices violated state comparative pricing laws in connection with advertisements promoting a 40% discount. The plaintiffs further allege false advertising, violation of state consumer protection statutes, breach of contract, breach of express warranty and unfair benefit to  Justice . The plaintiffs seek to stop Justice ’s allegedly unlawful practice and obtain damages for Justice ’s customers in the named states. They also seek interest and legal fees.

In July 2015, an agreement was reached with the plaintiffs in the Rougvie case to settle the lawsuits on a class basis with all Justice customers who made purchases between January 1, 2012 and February 28, 2015 for approximately $51 million , including payments to members of the class, payment of legal fees and expenses of settlement administration. As a result, the Company established a reserve for approximately $51 million during Fiscal 2015. 

The proposed Settlement Agreement was filed with the United States District Court for the Eastern District of Pennsylvania for preliminary approval on September 24, 2015 and received preliminary approval by the court on October 27, 2015. The Company paid approximately $51 million representing the agreed settlement amount into an escrow account on November 16, 2015. Formal notice of settlement was sent to the class members on December 1, 2015. The final approval hearing was held on May 20, 2016, and on July 29, 2016, the Court granted the parties’ joint motion for final approval of settlement and dismissed the case with prejudice. In reaching this conclusion, the Court rejected virtually all of the objections to the settlement that had been raised, but did reduce the amount of attorneys’ fees to be paid to plaintiffs’ counsel, which will not affect the total amount of the settlement. The Court’s decision was appealed to the United States Court of Appeals for the Third Circuit. After a court-ordered mediation session held on March 24, 2017, the appeals were withdrawn and dismissed with prejudice. The Settlement Agreement is now final and non-appealable, and it resolves all claims in all of the outstanding class actions on behalf of customers who made purchases

20


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

between January 1, 2012 and February 28, 2015.

Potential claims related to purchases made in 2010 and 2011 have been raised and it is possible that individual class members who excluded themselves from the settlement may seek to pursue their own individual or class claims not subject to the broader settlement. The Company believes it has strong defenses to any such claims and is prepared to defend against them. The Company believes that the liability associated with any such claims would not be material. If the matters described herein do not occur and the pricing lawsuits are not finally resolved, the ultimate resolution of these matters may or may not result in an additional material loss, which cannot be reasonably estimated at this time.

Reference is made to the Fiscal 2016 10-K which includes a description of the lawsuits comprising the Justice pricing litigation and should be read in conjunction with the foregoing update.

Steven Linares v. ANN INC.

On December 29, 2015, plaintiff, Steven Linares, a former ANN sales associate, filed a class action complaint on behalf of all sales leads, sales associates and stock associates working in California from December 29, 2011 through the present, in Los Angeles County Superior Court. Plaintiff alleges on behalf of the class that ANN did not properly provide overtime pay, minimum wage pay, meal and rest breaks, and waiting time pay, among other claims under the California Business and Professions Code and California Labor Code.

At mediation, the parties agreed to settle all claims in the suit for a total of $3.5 million to settle both the pending claims and other wage-and-hour claims that could have been brought as part of the lawsuit (including claims for penalties under the Private Attorneys’ General Act). The Company believes that such amount reflects a liability that is both probable and reasonably estimable, thus a reserve for approximately $3.5 million was established in the first quarter of Fiscal 2017. The parties executed a formal Joint Stipulation for Class Action Settlement and Release, dated February 6, 2017. The Joint Stipulation for Class Action Settlement and Release was preliminarily approved by the Court on April 25, 2017. The final approval hearing is scheduled for August 7, 2017.

Other litigation

The Company is involved in routine litigation arising in the normal course of business. In the opinion of management, such litigation is not expected to have a material adverse effect on the Company’s condensed consolidated financial statements.

15. Segment Information
 
Historically, the Company organized its businesses into six reportable segments following a brand-focused approach: ANN , Justice , Lane Bryant , maurices , dressbarn and Catherines . In connection with the Change for Growth program, the Company shifted from a brand-based focus to a customer-based focus in order to reduce organizational overlap and maximize operational efficiencies. In connection therewith, effective October 2016, the Company reorganized its businesses into four operating segments: Premium Fashion , Value Fashion , Plus Fashion and Kids Fashion . Each segment is led by a segment manager who is directly accountable for that segment's financial performance and maintains regular contact with the Company's Chief Executive Officer, who functions as the chief operating decision maker (the "CODM"), responsible for reviewing the operating activities, financial results, forecasts and business plans of the segment. Accordingly, the Company's CODM evaluates performance and allocates resources at the segment level. The four  operating segments are as follows:
•
Premium Fashion segment – consists primarily of the specialty retail, outlet and ecommerce operations of the Ann Taylor and LOFT brands.
•
Value Fashion segment – consists of the specialty retail, outlet and ecommerce operations of the maurices and dressbarn brands.
•
Plus Fashion segment – consists of the specialty retail, outlet and ecommerce operations of the Lane Bryant and Catherines brands.
•
Kids Fashion segment – consists of the specialty retail, outlet, ecommerce and licensing operations of the Justice brand.
The accounting policies of the Company’s operating segments are consistent with those described in the Fiscal 2016 10-K. All intercompany revenues are eliminated in consolidation. Corporate overhead expenses are allocated to the segments based upon

21


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

specific usage or other reasonable allocation methods. Certain expenses including acquisition and integration expenses, restructuring and other related charges, and impairment charges of goodwill and other intangible assets have not been allocated to the segments, which is consistent with the CODM's evaluation of the segments.
Due to changes in the Company's operating segments discussed above, segment information for the three and nine months ended April 23, 2016 has been recast to conform to the current period's presentation. These changes related entirely to combining the previously reported brand-based segment information into the new customer-based operating model and had no impact on total net sales, total operating income or total depreciation and amortization expense.

Net sales, operating (loss) income and depreciation and amortization expense for each operating segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Net sales:
 

 
 

 
 
 
 
Premium Fashion   (a)
$
535.8

 
$
575.1

 
$
1,723.2

 
$
1,713.8

Value Fashion
485.1

 
510.9

 
1,470.8

 
1,554.2

Plus Fashion
328.6

 
354.4

 
993.6

 
1,053.3

Kids Fashion
215.6

 
228.9

 
804.1

 
861.8

Total net sales
$
1,565.1

 
$
1,669.3

 
$
4,991.7

 
$
5,183.1

 
 
 
 
 
 
 
 
Operating income (loss):
 

 
 

 
  

 
 
Premium Fashion   (a) (b)
$
22.2

 
$
21.5

 
$
88.5

 
$
(32.4
)
Value Fashion
23.1

 
35.9

 
15.4

 
69.6

Plus Fashion
10.3

 
17.2

 
6.5

 
13.7

Kids Fashion
(23.3
)
 
(8.8
)
 
(11.7
)
 
44.6

Unallocated acquisition and integration expenses
(3.8
)
 
(8.4
)
 
(31.6
)
 
(66.9
)
Unallocated restructuring and other related charges (c)
(15.9
)
 
—

 
(48.0
)
 
—

Unallocated impairment of goodwill    (Note 7)
(596.3
)
 
—

 
(596.3
)
 
—

Unallocated impairment of other intangible assets   (Note 7)
(728.1
)
 
—

 
(728.1
)
 
—

Total operating (loss) income
$
(1,311.8
)
 
$
57.4

 
$
(1,305.3
)
 
$
28.6

 
 
 
 
 
 
 
 
Depreciation and amortization expense:
 

 
 

 
  

 
 
Premium Fashion (a)
$
32.5

 
$
33.6

 
$
101.5

 
$
94.1

Value Fashion
28.4

 
25.8

 
81.8

 
76.6

Plus Fashion
17.6

 
12.6

 
50.4

 
38.4

Kids Fashion
17.9

 
17.9

 
52.9

 
52.7

Total depreciation and amortization expense
$
96.4

 
$
89.9

 
$
286.6

 
$
261.8

_______
(a)  
The results of the Premium Fashion segment are included within the Company's condensed consolidated results of operations for the three months ended April 23, 2016 from January 31, 2016 to April 30, 2016 and for nine months ended April 23, 2016 for the post-acquisition period from August 22, 2015 to April 30, 2016.
(b)  
The results of the Premium Fashion segment for the nine months ended April 23, 2016 include approximately $127 million of non-cash purchase accounting expense related to the amortization of the write-up of inventory to fair market value.    


22


ASCENA RETAIL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(c) Restructuring and other related charges are as follows:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Cash related charges (i) :
 

 
 

 
 
 
 
   Restructuring charges:
 
 
 
 
 
 
 
 Premium Fashion
$
0.5

 
$
—

 
$
1.7

 
$
—

 Value Fashion
(0.3
)
 
—

 
4.7

 
—

 Plus Fashion
1.9

 
—

 
8.2

 
—

 Kids Fashion
(0.1
)
 
—

 
2.0

 
—

      Corporate
(1.0
)
 
—

 
4.7

 
—

   Other related charges
10.9

 
—

 
22.7

 
—

 
11.9

 
—

 
44.0

 
—

Non-cash charges (i) :
 
 
 
 
 
 
 
   Impairment of assets:
 
 
 
 
 
 
 
 Plus Fashion
4.0

 
—

 
4.0

 
—

 
4.0

 
—

 
4.0

 
—

Total restructuring and other related charges
$
15.9

 
$
—


$
48.0

 
$
—

 
(i) The charges incurred under the Company's Change for Growth program are more fully described in Note 8.

16. Additional Financial Information
 
Nine Months Ended
Cash Interest and Taxes:   
April 29,
2017
 
April 23,
2016
 
(millions)
Cash paid for interest
$
82.0

 
$
49.9

Cash paid for income taxes
$
10.7

 
$
20.1


Non-cash Transactions
  
In connection with the ANN Acquisition, during the nine months ended April 23, 2016 as more fully described in Note 4, the Company issued 31.2 million shares of common stock valued at approximately $345 million , based on the Company's stock price on the date of the acquisition. Non-cash investing activities include accrued purchases of fixed assets in the amount of $18.4 million as of April 29, 2017 and $43.0 million as of April 23, 2016 .


23


Item 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Forward-Looking Statements
 
Various statements in this Form 10-Q, in future filings by us with the Securities and Exchange Commission (the "SEC"), in our press releases and in oral statements made from time to time by us or on our behalf constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are indicated by words or phrases such as "anticipate," "estimate," "expect," "project," "we believe," "is or remains optimistic," "currently envisions" and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from the future results, performance or achievements expressed in or implied by such forward-looking statements.
 
These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. A detailed discussion of risk factors that have the potential to cause our actual results to differ materially from our expectations is included in our Annual Report on Form 10-K for the fiscal year ended July 30, 2016 (the "Fiscal 2016 10-K"). There are no material changes to such risk factors, nor are there any identifiable previously undisclosed risks as set forth in Part II, Item 1A — "Risk Factors" of this Form 10-Q. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW
 
Our Business

ascena retail group, inc., a Delaware corporation (“ascena” or the “Company”), is a leading national specialty retailer of apparel for women and tween girls. On August 21, 2015, the Company acquired ANN INC. (" ANN "), a retailer of women’s apparel, shoes and accessories sold primarily under the Ann Taylor and LOFT brands (the " ANN Acquisition"). The results of ANN are represented by our Premium Fashion segment. The Company had annual revenue for the fiscal year ended July 30, 2016 of approximately $7.0 billion . The Company and its subsidiaries are collectively referred to herein as the “Company,” “ascena,” “we,” “us,” “our” and “ourselves,” unless the context indicates otherwise.

General Business Conditions
Our performance is subject to macroeconomic conditions and their impact on levels and patterns of consumer spending. Some of the factors that could negatively impact discretionary consumer spending include general economic conditions, high unemployment, lower wage levels, reductions in net worth, higher energy and other prices, increasing interest rates and low consumer confidence.
In addition, consumer spending habits continue to shift on an accelerated pace towards an increasing preference to purchase merchandise digitally as opposed to in traditional brick-and-mortar retail stores. These factors could have a material negative effect on our business, operational results, financial condition and cash flows.

During our third quarter of Fiscal 2017, the U.S. economy continued to show signs of recovery. However, improved employment and wage growth have not translated into higher spending in nondurable goods, as consumer spending continues to shift towards experiences, services, health care and durable goods such as home improvements. Brick-and-mortar retailers, particularly those in the specialty retail sector, continued to face intense competition and channel disruption which accelerated during the third quarter. As a result, store traffic remained relatively weak and inconsistent during the quarter. Since store sales still comprise a majority of our sales mix, store traffic declines pressured comparable sales which, in turn, resulted in a more promotional operating environment. We expect negative store traffic trends to continue during the remainder of Fiscal 2017, and into Fiscal 2018. Accordingly, (i) we recorded an impairment charge as described under the section Goodwill and Other Indefinite-lived Intangible Assets Impairment Charges and (ii) we have responded to the continued trends by scaling back overall spending levels and we continue to refine our operating model to ensure we remain competitive in our rapidly evolving sector as described under the section Change for Growth Program .


24


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Goodwill and Other Indefinite-lived Intangible Asset Impairment Charges
As a result of the aforementioned negative business conditions which accelerated during the third quarter of Fiscal 2017, the Company performed an interim assessment of its goodwill and other intangible assets and recorded non-cash impairment charges to write down the carrying values of its trade name intangible assets to their fair values as follows: $210.0 million of our Ann Taylor trade name, $356.3 million of our LOFT trade name and $161.8 million of our Lane Bryant trade name. In addition, the Company recognized the following goodwill impairment charges: a loss of $428.9 million at the ANN reporting unit, $107.2 million at the maurices reporting unit and $60.2 million at the Lane Bryant reporting unit to write down the carrying values of the reporting units to their fair values. These impairment charges are more fully described in Note 7 to the accompanying unaudited condensed consolidated financial statements.

Change for Growth Program
As more fully described in Notes 8 and 15 to the accompanying unaudited condensed consolidated financial statements, in October 2016, the Company initiated a transformation plan with the objective of supporting sustainable long-term growth and increasing shareholder value (the "Change for Growth" program). During Fiscal 2017, the Company (i) refined their operating model by the eliminating a number of executive positions and making organizational changes resulting in the creation of the Premium Fashion , Value Fashion , Plus Fashion and Kids Fashion operating segments, (ii) further consolidated certain support functions into its shared service group, including Human Resources, Real Estate, Non-Merchandise Procurement, and Asset Protection, and (iii) completed a review of its store fleet with the goal of reducing the number of marginally profitable stores, through rent reductions or closures to be identified, in an effort to increase the overall profitability of the remaining store footprint and convert sales from these stores into more profitable ecommerce sales or shift sales to nearby store locations ("Fleet Optimization"). Charges incurred as a result of these actions are described within the section Results of Operations.

The Company realized approximately $30 million in cost savings, including $25 million in Selling, general and administrative expenses ("SG&A") and $5 million in Buying, distribution and occupancy ("BD&O") during the nine months ended April 29, 2017 related to Change for Growth program actions identified and in process as of the end of the third quarter of Fiscal 2017. The Company also expects to realize additional cost savings related to these actions of approximately $20 to $30 million for the remainder of Fiscal 2017. Subsequent to Fiscal 2017, the Company expects to realize an additional $200 to $240 million in cost savings though Fiscal 2020, bringing the total expected annual cost savings from these actions to a range of $250 to $300 million. These savings are expected to be achieved through (i) operating expense reductions in the areas of professional services, travel and facilities management, among others, (ii) refinement of our operating model to eliminate duplicative overhead, and to increase utilization of our shared services functions, (iii) platform enabling reduced product costs and information technology efficiencies and (iv) Fleet Optimization. These savings are expected to be realized in our operating segment results generally in proportion to their sales.

The Company may incur significant additional charges and capital expenditures in future periods as it more fully defines incremental Change for Growth program initiatives, and moves into the execution phases of associated projects; however the benefits of such initiatives and related charges and required capital expenditures are not quantifiable at this time. Actions associated with the Change for Growth program are currently expected to continue through Fiscal 2020.

Integration of ANN
During Fiscal 2017, the Company (i) completed the integration of its Premium Fashion segment’s ecommerce operations into its Greencastle fulfillment center, (ii) negotiated favorable contracts with vendors and (iii) realized cost reductions from sourcing merchandise through third-party buying agents. As a result of these initiatives, the Company has realized cost savings of approximately $75 million for the nine months ended April 29, 2017 , with approximately $45 million in freight and product cost savings related to the Company's ongoing supply chain integration, and cost of goods sold initiative at its Premium Fashion segment, approximately $10 million in BD&O synergies related to the consolidation its Premium Fashion segment brands into the Company's ecommerce fulfillment center and approximately $20 million in SG&A synergies primarily related to the elimination of redundant leadership and non-merchandise procurement savings. We expect to realize additional synergies of approximately $20 million during the remainder of Fiscal 2017, approximately $65 million in Fiscal 2018 and approximately $10 million in Fiscal 2019. Annual synergies and cost savings related to ANN integration, including amounts achieved from Fiscal 2016 through Fiscal 2019, are expected to approximate $235 million.


25


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Private Label and Co-branded Credit Card Programs

Our brands also offer various credit card programs to eligible customers in the U.S. The Company continues to focus on growing these credit card programs through effective marketing and point-of-sale discounts and believes it represents an area of operational growth for future periods. In January 2017, the Company's Value Fashion segment replaced its previous private label credit card arrangement with a new arrangement offered under an agreement with Capital One, National Association ("Capital One"). Accordingly, Capital One will offer private label credit cards to new and existing customers (the “Program”) at our Value Fashion segment.  Under the Program, Capital One is responsible for the servicing of the accounts and the Company and Capital One will share in the net risk-adjusted revenue of the portfolio. The Company is not responsible for write-offs of uncollectible accounts in excess of finance revenues in any month. Revenues from this program are accounted for on a net basis less program expenses, and included within Net sales in the accompanying condensed consolidated financial statements. The Company recognized approximately $15 million of revenue under the Program during the three and nine months ended April 29, 2017 and expects to continue to recognize incremental revenue from this new arrangement through the second quarter of Fiscal 2018.
Distribution and Fulfillment
During the third quarter of Fiscal 2017, the Company’s distribution center in Riverside, California became operational. The distribution center is expected to serve as the West Coast receiving and distribution hub for the Company's merchandise coming from Asia. This distribution center is expected to further reduce our per-unit processing costs, and contributed to the freight cost savings discussed above.

Seasonality of Business  
Our individual segments are typically affected by seasonal sales trends primarily resulting from the timing of holiday and back-to-school shopping periods. In particular, sales at our Kids Fashion segment tend to be significantly higher during the fall season, which occurs during the first and second quarters of our fiscal year, as this includes the back-to-school period and the December holiday season. Our Plus Fashion segment tends to experience higher sales during the spring season, which include the Easter and Mother's Day holidays. Our Premium Fashion and Value Fashion segments have relatively balanced sales across the Fall and Spring seasons. As a result, our operational results and cash flows may fluctuate materially in any quarterly period depending on, among other things, increases or decreases in comparable store sales, adverse weather conditions, shifts in the timing of certain holidays and changes in merchandise mix. 

Summary of Financial Performance

Third Quarter Summary and Key Developments
Operating highlights for the third quarter are as follows: 
•
Comparable sales decreased by 8% and were down at all four segments primarily due to declines in store traffic and pricing challenges, caused by increased levels of promotions;
•
Gross margin, in terms of dollars, decreased primarily as a result of the decrease in comparable sales. Gross margin rate decreased by 30 basis points to 60.6% from 60.9% in the year-ago period, as improved performance at our Premium Fashion and Plus Fashion segments was more than offset by higher markdown levels at our Value Fashion and Kids Fashion segments;
•
Operating loss was $1.312 billion compared to income of $57.4 million in the year-ago period mainly due to the impairment of goodwill and other intangible assets, lower comparable sales and higher Restructuring and other related charges, offset in part by operating expense reductions associated with the Change for Growth transformation program and integration activities; and
•
Net loss per diluted share was $5.29 , compared to net income per diluted share of $0.08 in the year-ago period.
Liquidity highlights for the nine -month period ended April 29, 2017 are as follows:
•
Cash provided by operations was $194.9 million compared to $163.4 million in the year-ago period;
•
Capital expenditures were $207.3 million compared to $268.8 million in the year-ago period, which also had cash usage of $1.495 billion , net of cash acquired, for the ANN Acquisition; and
•
Term loan repayments totaled $122.5 million , and net borrowings under our revolving credit agreement totaled $72.5 million.

26


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Transactions Affecting Comparability of Results of Operations and Financial Condition
The comparability of the Company's operational results for the periods presented herein has been affected by certain transactions. A summary of the effect of these items on pretax income for each applicable period presented is noted below:
 
Three Months Ended
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
April 29,
2017
 
April 23,
2016
 
(millions)
Acquisition and integration expenses (a)
$
(3.8
)
 
$
(8.4
)
 
$
(31.6
)
 
$
(66.9
)
Restructuring and other related charges (b)
(15.9
)
 
—

 
(48.0
)
 
—

Impairment of goodwill and other intangible assets (c)
(1,324.4
)
 
—

 
(1,324.4
)
 
—

Non-cash inventory expense associated with the purchase accounting write-up of ANN 's inventory to fair market value
—

 
—

 
—

 
(126.9
)
                    

(a) Fiscal 2017 primarily represented settlement charges and professional fees related to a pension plan acquired in the ANN Acquisition and severance and retention costs associated with the post-acquisition integration of ANN 's operations. Fiscal 2016 primarily represented costs related to the acquisition and integration of ANN .
(b) Fiscal 2017 primarily represented severance, charges related to the Fleet Optimization and professional fees incurred in connection with the identification and implementation of the transformation initiatives associated with the Change for Growth program.
(c) Represents the impact of non-cash impairments of goodwill and other intangible assets by segment as follows: $428.9 million of goodwill and $566.3 million of other intangible assets at the Premium Fashion segment, $107.2 million of goodwill at the Value Fashion segment and $60.2 million of goodwill and $161.8 million of other intangible assets at the Plus Fashion segment.

The preceding discussion highlights, as necessary, the significant changes in operating results arising from these items and transactions. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should individually consider the types of events and transactions that have affected operating trends.


27


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


RESULTS OF OPERATIONS

Three Months Ended April 29, 2017 compared to Three Months Ended April 23, 2016
 
The following table summarizes operating results for certain financial statement line items:
 
Three Months Ended
 
 
 
April 29,
2017
 
April 23,
2016
 
$ Change
 
% Change
 
(millions, except per share data)
 
 
 
 

Net sales
$
1,565.1

 
$
1,669.3

 
$
(104.2
)
 
(6.2
)%
 
 
 
 
 
 
 
 
Cost of goods sold
(616.7
)
 
(652.6
)
 
35.9

 
5.5
 %
Cost of goods sold as % of net sales
39.4
 %
 
39.1
%
 
 

 
 

Gross margin
948.4

 
1,016.7

 
(68.3
)
 
(6.7
)%
Gross margin as % of net sales
60.6
 %
 
60.9
%
 
 

 
 

Other operating expenses:
 

 
 

 
 

 
 

Buying, distribution and occupancy expenses
(313.4
)
 
(325.3
)
 
11.9

 
3.7
 %
BD&O expenses as % of net sales
20.0
 %
 
19.5
%
 
 

 
 

Selling, general and administrative expenses
(506.3
)
 
(535.7
)
 
29.4

 
5.5
 %
SG&A expenses as % of net sales
32.3
 %
 
32.1
%
 
 

 
 

Acquisition and integration expenses
(3.8
)
 
(8.4
)
 
4.6

 
54.8
 %
Restructuring and other related charges
(15.9
)
 
—

 
(15.9
)
 
NM

Impairment of goodwill
(596.3
)
 
—

 
(596.3
)
 
NM

Impairment of other intangible assets
(728.1
)
 
—

 
(728.1
)
 
NM

Depreciation and amortization expense
(96.4
)
 
(89.9
)
 
(6.5
)
 
(7.2
)%
Total other operating expenses
(2,260.2
)
 
(959.3
)
 
(1,300.9
)
 
NM

Operating (loss) income
(1,311.8
)
 
57.4

 
(1,369.2
)
 
NM

Operating (loss) income as % of net sales
(83.8
)%
 
3.4
%
 
 

 
 

Interest expense
(25.8
)
 
(27.4
)
 
1.6

 
5.8
 %
Interest income and other (expense) income, net
(0.2
)
 
0.9

 
(1.1
)
 
NM

(Loss) income before benefit (provision) for income taxes
(1,337.8
)
 
30.9

 
(1,368.7
)
 
NM

Benefit (provision) for income taxes
307.1

 
(15.9
)
 
323.0

 
NM

Effective tax rate (a)
23.0
 %
 
51.5
%
 
 

 
 

Net (loss) income
$
(1,030.7
)
 
$
15.0

 
$
(1,045.7
)
 
NM

 
 
 
 
 
 
 
 
Net (loss) income per common share:
 

 
 

 
 

 
 

Basic
$
(5.29
)
 
$
0.08

 
$
(5.37
)
 
NM

Diluted
$
(5.29
)
 
$
0.08

 
$
(5.37
)
 
NM

_______
(a) Effective tax rate is calculated by dividing the Benefit (provision) for income taxes by (Loss) income before provision for income taxes.
(NM) Not meaningful.

Net Sales. Total Company net sales decreased by $104.2 million , or 6.2% , to $1.565 billion for the three months ended April 29, 2017 from $1.669 billion in the year-ago period. Net sales were down across all of our operating segments caused primarily by an 8% comparable sales decline that resulted from reduced store traffic and a highly promotional selling environment; non-comparable sales increased by $18.4 million , or 63% , to $47.4 million from $29.0 million as discussed on a segment basis below; and wholesale, licensing and other revenues increased by $12.0 million , or 41% , to $41.0 million from $29.0 million .


28


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Net sales data for our four operating segments is presented below:
 
Three Months Ended
 
 
 
April 29,
2017
 
April 23,
2016
 
$ Change
 
% Change
 
(millions)
 
 
 
 

Net sales:
 

 
 

 
 

 
 

Premium Fashion
$
535.8

 
$
575.1

 
$
(39.3
)
 
(6.8
)%
Value Fashion
485.1

 
510.9

 
(25.8
)
 
(5.0
)%
Plus Fashion
328.6

 
354.4

 
(25.8
)
 
(7.3
)%
Kids Fashion
215.6

 
228.9

 
(13.3
)
 
(5.8
)%
Total net sales
$
1,565.1

 
$
1,669.3

 
$
(104.2
)
 
(6.2
)%
 
 
 
 
 
 
 
 
Comparable sales (a)
 

 
 

 
 

 
(8
)%
_______
(a) Comparable sales represent combined store comparable sales and ecommerce sales. Store comparable sales generally refers to the growth of sales in only stores open in the current period and comparative calendar period in the prior year (including stores relocated within the same shopping center and stores with minor square footage additions). Stores that close during the fiscal year are excluded from store comparable sales beginning with the fiscal month the store actually closes. Ecommerce sales refer to growth of sales from the Company's ecommerce channel in the current period and comparative calendar period in the prior year. Due to customer cross-channel behavior, the Company reports a single, consolidated comparable sales metric, inclusive of store and ecommerce channels.

Premium Fashion net sales performance primarily reflected:

•
a decrease of 7% in comparable sales at Ann Taylor and a decrease of 6% in comparable sales at LOFT during the three months ended April 29, 2017 ; and
•
15 net store closures at Ann Taylor and 6 net store closures at LOFT in the last twelve months.

Value Fashion net sales performance primarily reflected:
 
•
a decrease of $32.0 million , or 12% , in comparable sales at maurices and a decrease of $19.2 million , or 8% , in comparable sales at dressbarn during the three months ended April 29, 2017 ;
•
an increase of $12.9 million in non-comparable sales due to 33 net store openings at maurices in the last twelve months, offset in part by 31 net store closures at dressbarn in the last twelve months; and
•
an increase of $12.5 million in other revenues primarily due to the segment's new credit card Program.

Plus Fashion net sales performance primarily reflected:
 
•
a decrease of $30.2 million , or 11% , in comparable sales at Lane Bryant and a decrease of $4.3 million , or 6% in comparable sales at Catherines during the three months ended April 29, 2017 ; and
•
an increase of $8.8 million in non-comparable sales primarily due to 4 net store openings at Lane Bryant in the last twelve months, offset in part by the 10 net store closures at Catherines in the last twelve months.

Kids Fashion net sales performance primarily reflected:
 
•
a decrease of $12.0 million , or 6% , in comparable sales at Justice during the three months ended April 29, 2017 ;
•
an increase of $2.0 million in non-comparable sales; and
•
a decrease of $3.3 million in wholesale, licensing operations and other revenues.

Gross Margin. Gross margin, in terms of dollars decreased primarily as a result of the decrease in comparable sales. Gross margin rate, which represents the difference between net sales and cost of goods sold, expressed as a percentage of net sales, decreased by 30 basis points from the year-ago period to 60.6% for the three months ended April 29, 2017 . The decrease was primarily due to the highly promotional selling environment, and higher markdown levels required to maintain appropriate inventory levels. Improved performance at our Premium Fashion and Plus Fashion segments partially offset the aforementioned declines. On a

29


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


consolidated basis, gross margin benefited in part from the realization of approximately $15 million in combined integration synergies and cost savings related to the Company's ongoing supply chain integration and the cost of goods sold initiative at its Premium Fashion segment.

Gross margin as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among brands, changes in the mix of products sold, the timing and level of promotional activities and fluctuations in material costs. These factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from period to period.

Gross margin rate highlights on a segment basis are as follows:

•
Premium Fashion gross margin rate performance improved by approximately 160 basis points reflecting improvement at both Ann Taylor and LOFT . Both brands benefited from realization of freight cost synergies related to the Company's ongoing supply chain integration, and the segment's cost of goods sold initiative.
•
Value Fashion gross margin rate performance declined approximately 160 basis points as a result of a higher level of promotional selling across the segment and increased markdown requirements, partially offset by improved economics related to the segment’s new credit card program.
•
Plus Fashion gross margin rate performance improved by approximately 70 basis points reflecting improvement at Lane Bryant mainly due to more effective inventory management.
•
Kids Fashion gross margin rate performance declined approximately 400 basis points as a result of a higher level of promotional selling, along with increased markdowns needed to clear two non-performing fashion deliveries.

Buying, Distribution and Occupancy ("BD&O") Expenses consist of store occupancy and utility costs (excluding depreciation) and all costs associated with the buying and distribution functions.
 
BD&O expenses decreased by $11.9 million , or 3.7% , to $313.4 million for the three months ended April 29, 2017 from $325.3 million in the year-ago period. The decrease in BD&O expenses was primarily due to lower occupancy expenses associated with Fleet Optimization on a reduced store count, lower performance-based compensation, approximately $5 million in transformation initiatives, and approximately $5 million in synergies related to the ANN Acquisition associated with the consolidation of the Premium Fashion segment brands into the Company's ecommerce fulfillment center. BD&O expenses as a percentage of net sales increased by 50 basis points to 20.0% for the three months ended April 29, 2017 from 19.5% in the year-ago period, primarily due to the de-leveraging effect of lower comparable sales.

Selling, General and Administrative ("SG&A") Expenses consist of compensation and benefit-related costs for sales and store operations personnel, administrative personnel and other employees not associated with the functions described above under BD&O expenses. SG&A expenses also include advertising and marketing costs, information technology and communication costs, supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.

SG&A expenses decreased by $29.4 million , or 5.5% , to $506.3 million for the three months ended April 29, 2017 from $535.7 million in the year-ago period. The decrease in SG&A expenses was primarily due to lower store variable expenses associated with store closures and lower sales volume, operating expense reductions, lower performance-based compensation and approximately $20 million in synergies and transformation initiatives, primarily due to the elimination of redundant leadership and non-merchandise procurement savings. SG&A expenses as a percentage of net sales increased by 20 basis points to 32.3% for the three months ended April 29, 2017 from 32.1% in the year-ago period, primarily due to the de-leveraging effect of lower comparable sales.

Depreciation and Amortization Expense increased by $6.5 million , or 7.2% , to $96.4 million for the three months ended April 29, 2017 from $89.9 million in the year-ago period. The increase was primarily due to the Company's ecommerce platform investment which was placed in service in the third quarter of Fiscal 2016 and investments in our distribution network primarily to integrate the operations of ANN .

Operating (Loss) Income. Operating loss was $1.312 billion for the three months ended April 29, 2017 compared to operating income of $57.4 million in the year-ago period primarily due to the impairment of goodwill and other intangible assets, as well as a decrease in the operating results discussed on a segment basis below. The operating results also reflected a $15.9 million increase in Restructuring and other related charges, which was offset in part by lower Acquisition and integration expenses.

30


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


 
Operating results for our four operating segments are presented below:
 
 
Three Months Ended
 
 
 
April 29,
2017
 
April 23,
2016
 
$ Change
 
% Change
 
(millions)
 
 
 
 
Operating income (loss):
 

 
 

 
 

 
 

Premium Fashion
$
22.2

 
$
21.5

 
$
0.7

 
3.3
 %
Value Fashion
23.1

 
35.9

 
(12.8
)
 
(35.7
)%
Plus Fashion
10.3

 
17.2

 
(6.9
)
 
(40.1
)%
Kids Fashion
(23.3
)
 
(8.8
)
 
(14.5
)
 
NM

Unallocated acquisition and integration expenses
(3.8
)
 
(8.4
)
 
4.6

 
54.8
 %
Unallocated restructuring and other related charges
(15.9
)
 
—

 
(15.9
)
 
NM

     Unallocated impairment of goodwill
(596.3
)
 
—

 
(596.3
)
 
NM

     Unallocated impairment of other intangible assets
(728.1
)
 
—

 
(728.1
)
 
NM

Total operating (loss) income
$
(1,311.8
)
 
$
57.4

 
$
(1,369.2
)
 
NM

  _______
(NM) Not meaningful.

Premium Fashion operating results increased by $0.7 million as an improvement in gross margin rate and decreases in operating expenses were mostly offset by the impact of lower comparable sales. Operating expense reductions were primarily driven by lower performance-based compensation, synergies savings associated with the transition into the Company's ecommerce fulfillment center, and a decrease in administrative payroll costs mainly associated with the Change for Growth program and integration-related activities.
Value Fashion operating results decreased by $12.8 million as a result of the decreases in comparable sales and gross margin rate, both discussed above, offset in part by decreases in operating expenses. Operating expense reductions were primarily driven by lower performance-based compensation, reduced marketing expenses and a decrease in administrative payroll costs mainly associated with the Change for Growth program.
Plus Fashion operating results decreased by $6.9 million as a result of a decrease in comparable sales offset in part by an improvement in gross margin rate and decreases in operating expenses. Operating expense reductions were primarily driven by a decrease in administrative payroll costs mainly associated with the Change for Growth program and reduced marketing expenses.

Kids Fashion operating results decreased by $14.5 million as a result of a decrease in comparable sales and gross margin rate, discussed above, offset in part by a decrease in operating expenses. Operating expense reductions were primarily driven by lower performance-based compensation.

Unallocated Acquisition and Integration Expenses of $3.8 million for the three months ended April 29, 2017 included $0.2 million of severance and retention-related expenses and $3.6 million of costs associated with the post-acquisition integration of ANN 's operations. The $8.4 million in the year-ago period represents costs related to the ANN Acquisition consisting of $0.8 million of legal, consulting and investment-banking related transaction costs, $3.0 million of severance and retention-related expenses and $4.6 million of integration costs primarily to combine the operations and infrastructure of the ANN business into the Company's.

Unallocated Restructuring and Other Related Charges of $15.9 million for the three months ended April 29, 2017 primarily included $5.3 million for charges related to the previously disclosed Fleet Optimization and $10.9 million for professional fees incurred in connection with the identification and implementation of the transformation initiatives associated with the Change for Growth program.

Unallocated impairment of goodwill reflects the write down of the carrying values of the reporting units to their fair values and are included in our operating segments as follows: $428.9 million at our Premium Fashion segment, $107.2 at our Value Fashion segment and $60.2 million at our Plus Fashion segment.


31


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Unallocated impairment of other intangible assets reflects the write down of the Company's trade name intangible assets to their fair values as follows: $210.0 million of our Ann Taylor trade name, $356.3 million of our LOFT trade name and $161.8 million of our Lane Bryant trade name.

Interest Expense decreased by $1.6 million , or 5.8% , to $25.8 million for the three months ended April 29, 2017 from $ 27.4 million in the year-ago period. The decrease was mainly the result of the principal redemptions and repayments of the term loan.

Benefit (Provision) for Income Taxes represents federal, foreign, state and local income taxes. The Company records income taxes based on the estimated effective tax rate for the year. For the three months ended April 29, 2017 , the Company recorded a benefit of $307.1 million on a pre-tax loss of $1.338 billion primarily due to the impairment of other intangible assets, for an effective tax rate of 23.0% . The expected annual tax rate computing the benefit is lower than the statutory federal and state tax rate primarily as $526.5 million of the impairment of goodwill is non-deductible for income tax purposes. In the year ago period, the Company recorded a provision of $15.9 million on a pre-tax income of $30.9 million for a 51.5% effective tax rate. The expected annual tax rate for the year-ago period is higher than the statutory federal and state tax rate primarily due to the impact of permanent items on a relatively low level of pretax income and the impact of the earnings mix on the overall state effective rate. 

Net (Loss) Income. Net loss was $1.031 billion for the three months ended April 29, 2017 compared to net income of $15.0 million in the year-ago period. The decrease in net results was primarily due to the impairment of goodwill and other intangible assets, as well as lower operating results, offset in part by the benefit for income taxes, as discussed above.

Net (Loss) Income per Diluted Common Share. Net loss per diluted common share was $5.29 for the three months ended April 29, 2017 , compared to net income per diluted common share of $0.08 in the year-ago period, primarily as a result of the net loss in the current period, as discussed above.

32


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Nine Months Ended April 29, 2017 compared to Nine Months Ended April 23, 2016
 
The following table summarizes operating results for certain financial statement line items:
 
Nine Months Ended
 
 
 
April 29,
2017
 
April 23,
2016
 
$ Change
 
% Change
 
(millions, except per share data)
 
 
 
 

Net sales
$
4,991.7

 
$
5,183.1

 
$
(191.4
)
 
(3.7
)%
 
 
 
 
 
 
 
 
Cost of goods sold
(2,083.5
)
 
(2,295.7
)
 
212.2

 
9.2
 %
Cost of goods sold as % of net sales
41.7
 %
 
44.3
%
 
 

 
 

Gross margin
2,908.2

 
2,887.4

 
20.8

 
0.7
 %
Gross margin as % of net sales
58.3
 %
 
55.7
%
 
 

 
 

Other operating expenses:
 
 
 
 
 

 
 

Buying, distribution and occupancy expenses
(954.1
)
 
(958.2
)
 
4.1

 
0.4
 %
BD&O expenses as % of net sales
19.1
 %
 
18.5
%
 
 

 
 

Selling, general and administrative expenses
(1,568.8
)
 
(1,571.9
)
 
3.1

 
0.2
 %
SG&A expenses as % of net sales
31.4
 %
 
30.3
%
 
 

 
 

Acquisition and integration expenses
(31.6
)
 
(66.9
)
 
35.3

 
52.8
 %
Restructuring and other related charges
(48.0
)
 
—

 
(48.0
)
 
NM

Impairment of goodwill
(596.3
)
 
—

 
(596.3
)
 
NM

Impairment of other intangible assets
(728.1
)
 
—

 
(728.1
)
 
NM

Depreciation and amortization expense
(286.6
)
 
(261.8
)
 
(24.8
)
 
(9.5
)%
Total other operating expenses
(4,213.5
)
 
(2,858.8
)
 
(1,354.7
)
 
NM

Operating (loss) income
(1,305.3
)
 
28.6

 
(1,333.9
)
 
NM

Operating (loss) income as % of net sales
(26.1
)%
 
0.6
%
 
 

 
 

Interest expense
(76.1
)
 
(75.7
)
 
(0.4
)
 
(0.5
)%
Interest income and other income, net
0.1

 
0.7

 
(0.6
)
 
(85.7
)%
Gain on extinguishment of debt
—

 
0.8

 
(0.8
)
 
NM

Loss before benefit for income taxes
(1,381.3
)
 
(45.6
)
 
(1,335.7
)
 
NM

Benefit for income taxes
329.8

 
19.9

 
309.9

 
NM

Effective tax rate (b)
23.9
 %
 
43.6
%
 
 

 
 

Net loss
$
(1,051.5
)
 
$
(25.7
)
 
$
(1,025.8
)
 
NM

 
 
 
 
 
 
 
 
Net loss per common share:
 
 
 
 
 

 
 

Basic
$
(5.40
)
 
$
(0.13
)
 
$
(5.27
)
 
NM

Diluted
$
(5.40
)
 
$
(0.13
)
 
$
(5.27
)
 
NM

_______
(a) For our Premium Fashion segment, the Fiscal 2017 period reflected a 39-week period and the Fiscal 2016 period reflected the 36-week post-acquisition period.
(b) Effective tax rate is calculated by dividing the Benefit for income taxes by the Loss before benefit for income taxes.
(NM) Not meaningful.

Net Sales. Total Company net sales decreased by $191.4 million , or 3.7% , to $4.992 billion for the nine months ended April 29, 2017 from $5.183 billion in the year-ago period. Net sales for the Premium Fashion segment increased by $9.4 million primarily as the nine-month period in Fiscal 2017 reflected a 39-week period whereas the year-ago period reflected the 36-week post-acquisition period, which was offset in part by a comparable sales decrease of 6% . Net sales were down across all of our other operating segments caused primarily by a 6% comparable sales decline that resulted from reduced store traffic and a highly promotional selling environment; non-comparable sales decreased by $9.6 million , or 8.3% , to $105.8 million from $115.4 million as discussed on a segment basis below; and wholesale, licensing and other revenues decreased by $1.1 million , or 1.0% , to $108.5 million from $109.6 million .



33


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Net sales data for our four operating segments is presented below:
 
Nine Months Ended
 
 
 
April 29,
2017
 
April 23,
2016
 
$ Change
 
% Change
 
(millions)
 
 
 
 

Net sales:
 

 
 

 
 

 
 

Premium Fashion
$
1,723.2

 
$
1,713.8

 
$
9.4

 
0.5
 %
Value Fashion
1,470.8

 
1,554.2

 
(83.4
)
 
(5.4
)%
Plus Fashion
993.6

 
1,053.3

 
(59.7
)
 
(5.7
)%
Kids Fashion
804.1

 
861.8

 
(57.7
)
 
(6.7
)%
Total net sales
$
4,991.7

 
$
5,183.1

 
$
(191.4
)
 
(3.7
)%
 
 
 
 
 
 
 
 
Comparable sales (a)
 

 
 

 
 

 
(6
)%
_______
(a) Comparable sales represent combined store comparable sales and ecommerce sales. Store comparable sales generally refers to the growth of sales in only stores open in the current period and comparative calendar period in the prior year (including stores relocated within the same shopping center and stores with minor square footage additions). Stores that close during the fiscal year are excluded from store comparable sales beginning with the fiscal month the store actually closes. Ecommerce sales refer to growth of sales from the Company's ecommerce channel in the current period and comparative calendar period in the prior year. Due to customer cross-channel behavior, the Company reports a single, consolidated comparable sales metric, inclusive of store and ecommerce channels.

Premium Fashion net sales performance primarily reflected:

•
a 39-week period in the first quarter of Fiscal 2017 compared to the 36-week post-acquisition period in the first quarter of Fiscal 2016;
•
a decrease of 9% in comparable sales at Ann Taylor and a decrease of 4% in comparable sales at LOFT ; and
•
15 net store closures at Ann Taylor and 6 net store closures at LOFT in the last twelve months.

Value Fashion net sales performance primarily reflected:
 
•
a decrease of $70.1 million , or 9% , in comparable sales at maurices and a decrease of $38.1 million , or 6% , in comparable sales at dressbarn during the nine months ended April 29, 2017 ;
•
an increase of $13.4 million in non-comparable sales due to 33 net store openings at maurices in the last twelve months, offset in part by 31 net store closures at dressbarn in the last twelve months; and
•
an increase of $11.4 million in other revenues primarily due to the segment's new credit card Program.

Plus Fashion net sales performance primarily reflected:
 
•
a decrease of $51.9 million , or 7% , in comparable sales at Lane Bryant and a decrease of $11.7 million , or 5% , in comparable sales at Catherines during the nine months ended April 29, 2017 ;
•
an increase of $6.2 million in non-comparable sales primarily due to 4 net store openings at Lane Bryant in the last twelve months, offset in part by 10 net store closures at Catherines in the last twelve months; and
•
a decrease of $2.3 million in other revenues.

Kids Fashion net sales performance primarily reflected:
 
•
a decrease of $18.3 million , or 2% , in comparable sales at Justice during the nine months ended April 29, 2017 ;
•
a decrease of $29.2 million in non-comparable sales caused by 20 net store closures in the last twelve months as well as the shift of a peak back to school week from the first week of the fiscal year to the last week of the fiscal year due to the 53 rd week recognized at the end of Fiscal 2016; and
•
a decrease of $10.2 million in wholesale, licensing operations and other revenues.


34


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Gross Margin. Gross margin rate, which represents the difference between net sales and cost of goods sold, expressed as a percentage of net sales, increased by 260 basis points from the year-ago period to 58.3% for the nine months ended April 29, 2017 . The increase was mainly due to an approximate $127 million non-cash purchase accounting expense related to the amortization of the write-up of inventory to fair market value recorded during the nine months ended April 23, 2016 in our Premium Fashion segment. Excluding the prior year impact of the inventory amortization, gross margin rate increased by 10 basis points to 58.3% from 58.2%, primarily due to improved performance at our Premium Fashion and Plus Fashion segments, offset in part by the impact of the highly promotional selling environment and higher markdown levels required to maintain appropriate inventory levels. On a consolidated basis, gross margin benefited from the realization of approximately $45 million in combined integration synergies and cost savings related to the Company's ongoing supply chain integration and the cost of goods sold initiative at its Premium Fashion segment.

Gross margin as a percentage of net sales is dependent upon a variety of factors, including changes in the relative sales mix among brands, changes in the mix of products sold, the timing and level of promotional activities and fluctuations in material costs. These factors, among others, may cause cost of goods sold as a percentage of net revenues to fluctuate from period to period.

Gross margin rate highlights on a segment basis are as follows:

•
Premium Fashion gross margin rate performance improved due to an approximate $127 million non-cash purchase accounting expense related to the amortization of the write-up of inventory recorded during the nine months ended April 23, 2016 discussed above. Excluding the prior year impact of the inventory amortization, gross margin rate performance improved by approximately 220 basis points reflecting significant improvement at both Ann Taylor and LOFT . Both brands benefited from realization of freight cost synergies related to the Company's ongoing supply chain integration, and the segment's cost of goods sold initiative.
•
Value Fashion gross margin rate performance declined approximately 120 basis points as a result of a higher level of promotional selling across the segment and increased markdown requirements to maintain appropriate inventory levels on lower than expected customer demand.
•
Plus Fashion gross margin rate performance improved by approximately 130 basis points reflecting improvement at both Lane Bryant and Catherines mainly due to more effective inventory management.
•
Kids Fashion gross margin rate performance declined approximately 330 basis points as a result of a higher level of promotional selling, along with increased markdowns needed to clear two non-performing fashion deliveries.

Buying, Distribution and Occupancy ("BD&O") Expenses consist of store occupancy and utility costs (excluding depreciation) and all costs associated with the buying and distribution functions.
 
BD&O expenses decreased by $4.1 million , or 0.4% , to $954.1 million for the nine months ended April 29, 2017 from $958.2 million in the year-ago period. BD&O expenses for the Premium Fashion segment increased by $11.0 million primarily as the results reflected a 39-week period in Fiscal 2017 compared to the 36-week post-acquisition period in Fiscal 2016. For our other segments, BD&O expenses decreased by $15.1 million primarily due to lower occupancy expenses on a reduced store count and lower performance-based compensation. On a consolidated basis, BD&O expenses also included approximately $5 million in transformation initiatives and approximately $10 million of synergies related to the ANN Acquisition associated with the consolidation of the Premium Fashion segment brands into the Company's ecommerce fulfillment center. BD&O expenses as a percentage of net sales increased by 60 basis points to 19.1% for the nine months ended April 29, 2017 from 18.5% in the year-ago period, primarily due to the de-leveraging effect of lower comparable sales.

Selling, General and Administrative ("SG&A") Expenses consist of compensation and benefit-related costs for sales and store operations personnel, administrative personnel and other employees not associated with the functions described above under BD&O expenses. SG&A expenses also include advertising and marketing costs, information technology and communication costs, supplies for our stores and administrative facilities, insurance costs, legal costs and costs related to other administrative services.

SG&A expenses decreased by $3.1 million , or 0.2% , to $1.569 billion for the nine months ended April 29, 2017 from $1.572 billion in the year-ago period. SG&A expenses for the Premium Fashion segment increased by $31.6 million primarily as the results reflected a 39-week period in Fiscal 2017 compared to the 36-week post-acquisition period in Fiscal 2016. For our other segments, SG&A expenses decreased by $34.7 million primarily due to store closures and lower sales volume, operating expense reductions and a decrease in administrative payroll costs mainly associated with the Change for Growth program and lower

35


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


performance-based compensation. On a consolidated basis, SG&A expenses also included approximately $45 million in synergies and transformation initiatives, primarily due to the elimination of redundant leadership and non-merchandise procurement savings. SG&A expenses as a percentage of net sales increased by 110 basis points to 31.4% for the nine months ended April 29, 2017 from 30.3% in the year-ago period, primarily due to the de-leveraging effect of lower comparable sales.

Depreciation and Amortization Expense increased by $24.8 million , or 9.5% , to $286.6 million for the nine months ended April 29, 2017 from $261.8 million in the year-ago period. Depreciation and amortization expense for the Premium Fashion segment increased by $7.4 million primarily as the results reflected a 39-week period in Fiscal 2017 compared to the 36-week post-acquisition period in Fiscal 2016. For our other segments, depreciation and amortization expense increased by $17.4 million primarily due to the Company's ecommerce platform investment which was placed in service in the third quarter of Fiscal 2016 and investments in our distribution network primarily to integrate the operations of ANN .

Operating (Loss) Income. Operating loss was $1.305 billion for the nine months ended April 29, 2017 compared to operating income of $28.6 million in the year-ago period primarily due to the impairment of goodwill and other intangible assets, as well as the decrease in operating results discussed on a segment basis below. The operating results also reflected lower non-cash purchase accounting expenses of approximately $120 million recorded by our Premium Fashion segment in Fiscal 2016.

Operating results for our four operating segments are presented below:
 
 
Nine Months Ended
 
 
 
April 29,
2017
 
April 23,
2016
 
$ Change
 
% Change
 
(millions)
 
 
 
 
Operating income (loss):
 

 
 

 
 

 
 

Premium Fashion
$
88.5

 
$
(32.4
)
 
$
120.9

 
NM

Value Fashion
15.4

 
69.6

 
(54.2
)
 
(77.9
)%
Plus Fashion
6.5

 
13.7

 
(7.2
)
 
(52.6
)%
Kids Fashion
(11.7
)
 
44.6

 
(56.3
)
 
NM

Unallocated acquisition and integration expenses
(31.6
)
 
(66.9
)
 
35.3

 
52.8
 %
Unallocated restructuring and other related charges
(48.0
)
 
—

 
(48.0
)
 
NM

     Unallocated impairment of goodwill
(596.3
)
 
—

 
(596.3
)
 
NM

     Unallocated impairment of other intangible assets
(728.1
)
 
—

 
(728.1
)
 
NM

Total operating (loss) income
$
(1,305.3
)
 
$
28.6

 
$
(1,333.9
)
 
NM

  _______
(NM) Not meaningful.

Premium Fashion operating results increased by $120.9 million as a result of lower non-cash purchase accounting expenses of approximately $120 million due primarily to the write-up of inventory to fair market value recorded in the year-ago period. The operating results for the nine months ended April 29, 2017 reflected a 39-week period and the nine months ended April 23, 2016 reflected the 36-week post-acquisition period. The operating results for the nine months ended April 29, 2017 reflected a decrease in comparable sales, partially offset by an improvement in gross margin rate, both discussed above. Operating expenses for the nine months ended April 29, 2017 reflected lower performance-based compensation, synergies savings associated with the transition into the Company's ecommerce fulfillment center, lower occupancy expenses and a decrease in administrative payroll costs mainly associated with the Change for Growth program as well as integration-related activities.
Value Fashion operating results decreased by $54.2 million as a result of the decreases in comparable sales and gross margin rate, both discussed above, as well as an increase in depreciation expense, offset in part by decreases in operating expenses. Operating expense reductions were driven by lower performance-based compensation, lower store variable expenses resulting from the decrease in sales volume, and a decrease in administrative payroll costs mainly associated with the Change for Growth program, partially offset by incremental marketing investments.
Plus Fashion operating results decreased by $7.2 million as a result of the decrease in comparable sales, as discussed above, and an increase in depreciation expense. These items were offset in part by an improvement in gross margin rate and decreased operating expenses. Operating expense reductions were driven by lower occupancy expenses, reduced marketing expenses, and a decrease in administrative payroll costs mainly associated with the Change for Growth program.

36


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)



Kids Fashion operating results decreased by $56.3 million as a result of the decline in gross margin rate, the decrease in comparable sales, and the shift of the peak back-to-school week, discussed above, offset in part by a decrease in operating expenses. The shift of the peak back-to-school week negatively impacted results by approximately $10 million. Operating expense reductions were driven by lower occupancy expenses and lower performance-based compensation.

Unallocated Acquisition and Integration Expenses of $31.6 million for the nine months ended April 29, 2017 included $8.0 million of settlement charges and professional fees related to the termination of the pension plan acquired in the ANN Acquisition, $10.7 million of severance and retention costs and $12.9 million of other costs associated with the post-acquisition integration of ANN 's operations. The $66.9 million in the year-ago period represents costs related to the ANN Acquisition consisting of $21.3 million of legal, consulting and investment-banking related transaction costs, $33.7 million of severance and retention-related expenses and $11.9 million of integration costs primarily to combine the operations and infrastructure of the ANN business into the Company's.

Unallocated Restructuring and Other Related Charges of $48.0 million for the nine months ended April 29, 2017 included $20.0 million of severance and other related expenses, $5.3 million for charges related to the previously disclosed Fleet Optimization and $22.7 million for professional fees incurred in connection with the identification and implementation of the transformation initiatives associated with the Change for Growth program.

Unallocated impairment of goodwill reflects the write down of the carrying values of the reporting units to their fair values and are included in our operating segments as follows: $428.9 million at our Premium Fashion segment, $107.2 at our Value Fashion segment and $60.2 million at our Plus Fashion segment.

Unallocated impairment of other intangible assets reflects the write down of the Company's trade name intangible assets to their fair values as follows: $210.0 million of our Ann Taylor trade name, $356.3 million of our LOFT trade name and $161.8 million of our Lane Bryant trade name.

Interest Expense increased by $0.4 million , or 0.5% , to $76.1 million for the nine months ended April 29, 2017 from $75.7 million in the year-ago period. The increase was mainly the result of an additional three weeks of interest expense on the term loan for the nine months ended April 29, 2017 due to the timing of the ANN Acquisition, offset in part by the impact of the principal redemptions and repayments of the term loan.

Gain on Extinguishment of Debt. During the year-ago period, the Company repurchased $65.0 million of the outstanding principal balance of the term loan at an aggregate cost of $61.6 million through open market transactions, resulting in a $0.8 million pre-tax gain, net of the proportional write-off of unamortized original discount and debt issuance costs of $2.6 million.

Benefit for Income Taxes represents federal, foreign, state and local income taxes. The Company records income taxes based on the estimated effective tax rate for the year. Income tax benefit increased by $309.9 million , to $329.8 million for the nine months ended April 29, 2017 from $19.9 million , primarily due to the impairment of other intangible assets. The effective tax rate was 23.9% for the nine months ended April 29, 2017 and the effective tax rate was 43.6% in the year-ago period. The expected annual tax rate computing the benefit is lower than the statutory federal and state tax rate primarily as $526.5 million of the impairment of goodwill is non-deductible for income tax purposes. The expected annual tax rate for the year-ago period is higher than the statutory federal and state tax rate primarily due to the impact of permanent items on a relatively low level of pretax income and the impact of the earnings mix on the overall state effective rate. 
 
Net Loss increased by $1.026 billion to $1.052 billion for the nine months ended April 29, 2017 from $25.7 million in the year-ago period, primarily due to the impairment of goodwill and other intangible assets, as well as lower operating results, as discussed above.

Net Loss per Diluted Common Share increased by $5.27 to $5.40 per share for the nine months ended April 29, 2017 from $0.13 per share in the year-ago period, primarily as a result of an increase in net loss, as discussed above.

37


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


FINANCIAL CONDITION AND LIQUIDITY

Cash Flows
 
The table below summarizes our cash flows and is presented as follows:
 
Nine Months Ended
 
April 29,
2017
 
April 23,
2016
 
(millions)
Net cash provided by operating activities
$
194.9

 
$
163.4

Net cash used in investing activities
(217.8
)
 
(1,737.8
)
Net cash (used in) provided by financing activities
(48.8
)
 
1,579.8

Net (decrease) increase in cash and cash equivalents
$
(71.7
)
 
$
5.4


Net cash provided by operating activities . Net cash provided by operations was $194.9 million for the nine months ended April 29, 2017 , compared to net cash provided by operations of $163.4 million in the year-ago period. Cash provided by operations was higher during Fiscal 2017 as there were certain non-recurring payments made during the year-ago period, including an escrow payment of approximately $51 million for the proposed Justice pricing litigation settlement, payment of approximately $44 million to a former Justice executive and payment of approximately $95 million in employee-related obligations assumed in the ANN Acquisition. These items were mostly offset by lower net income before non-cash expenses (such as depreciation and amortization expense, the amortization of the acquisition-related inventory write-up and goodwill and other intangible asset impairment charges) as well as timing differences of other working capital payments in the current period.

Net cash used in investing activities . Net cash used in investing activities for the nine months ended April 29, 2017 was $217.8 million , consisting primarily of capital expenditures of $207.3 million and the purchase of an intangible asset of $11.3 million . Net cash used in investing activities in the year-ago period was $1.738 billion , consisting primarily of $1.495 billion of cash paid in the ANN Acquisition and $268.8 million of capital expenditures, offset in part by $25.6 million of net proceeds from the sale of investments.

Net cash (used in) provided by financing activities . Net cash used in financing activities was $48.8 million for the nine months ended April 29, 2017 , consisting primarily of $122.5 million of principal repayments of our term loan debt, offset in part by net borrowings of debt under our amended revolving credit agreement of $72.5 million. Net cash provided by financing activities in the year-ago period was $1.580 billion , consisting primarily of $1.8 billion of borrowing under our term loan and $9.4 million of proceeds relating to our stock-based compensation plans, offset in part by net repayments of debt under our amended revolving credit agreement of $66.5 million , $66.1 million of redemptions of our term loan debt and $42.4 million of payments made for deferred financing costs related to the borrowing arrangements entered into as a result of the ANN Acquisition.

Capital Spending
 
Capital expenditures during the nine months ended April 29, 2017 were $207.3 million , which included both routine spending in connection with our retail store network, construction and renovation of our existing portfolio of retail stores as well as spending for non-routine capital investments including our omni-channel platform, fit-out of our Riverside, California distribution center, integration activity related to the ANN Acquisition and initiatives identified with Change for Growth program. For a detailed discussion of our significant non-routine capital investments, see Part II, Item 7 as specified in the Capital Spending section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Fiscal 2016 10-K. 

The Company continually assesses its capital forecast and priority of projects. During the first quarter of Fiscal 2017, the Company lowered its full year outlook of planned store openings and, as a result, lowered its full year capital spending outlook for Fiscal 2017 to its current expected range of $235 million to $260 million. Our capital requirements are expected to be funded primarily with available cash and cash equivalents, operating cash flows and, to the extent necessary, borrowings under the Company’s Amended Revolving Credit Agreement which is discussed below.


38


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Liquidity
 
Our primary sources of liquidity are the cash flow generated from our operations, remaining availability under our Amended Revolving Credit Agreement (as defined below) after taking into account outstanding borrowings, letters of credit and the collateral limitation and available cash and cash equivalents. These sources of liquidity are used to fund our ongoing cash requirements, including working capital requirements, retail store expansion, construction and renovation of stores, any future dividend requirements, investment in technological and supply chain infrastructure, acquisitions, debt servicing requirements, stock repurchases, contingent liabilities (including uncertain tax positions), and other corporate activities. Management believes that our existing sources of liquidity will be sufficient to support our operating needs, capital requirements and any debt service requirements for the foreseeable future.
 
As of April 29, 2017 , the Company had Cash and cash equivalents of $300.1 million . Approximately $251 million, or 84%, of our available cash and cash equivalents was held overseas by our foreign subsidiaries. As such, for the Company to have access to those cash and cash equivalents in the U.S, we would incur a current U.S. tax liability of between 15% and 20% of any such cash repatriated. A U.S. tax liability has been previously provided for in the provision for income taxes for the portion that is not permanently reinvested and is currently classified within Deferred income taxes on the accompanying unaudited condensed consolidated balance sheets. We continue to assess options for use of our overseas cash and cash equivalents.
 
As of April 29, 2017 , after taking into account the $72.5 million of revolving debt outstanding and the $31.3 million in outstanding letters of credit, the Company had $448.8 million of availability under the Amended Revolving Credit Agreement.

Debt

For a detailed description of the terms and restrictions under the amended revolving credit agreement ("Amended Revolving Credit Agreement") and the $1.8 billion seven-year term loan (the "Term Loan"), see Note 9 to the accompanying unaudited condensed consolidated financial statements. 

Amended Revolving Credit Agreement

We believe that our Amended Revolving Credit Agreement is adequately diversified with no undue concentrations in any one financial institution. Upon the closing of the Amended Revolving Credit Agreement, there were seven financial institutions participating in the Amended Revolving Credit Facility, with no one participant maintaining a maximum commitment percentage in excess of 25%. Management has no reason at this time to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Amended Revolving Credit Agreement in the event of our election to draw funds in the foreseeable future. The Company was in compliance with all financial covenants contained in the Amended Revolving Credit Agreement as of April 29, 2017 . The Company believes the Amended Revolving Credit Agreement will provide sufficient liquidity to continue to support the Company’s operating needs and capital requirements for the foreseeable future.

Term Loan

For the nine months ended April 29, 2017 , the Company repaid a total of $122.5 million, which was applied to future quarterly scheduled payments such that the Company is not required to make its next quarterly payment until May 2018. We may from time to time seek to repay or purchase our outstanding debt through open market transactions, privately negotiated transactions or otherwise depending on prevailing market conditions and our liquidity requirements, subject to any restrictions under our debt arrangements, among other factors.

The Company expects to incur cash interest expense of approximately $22 million on the Term Loan during the remainder of Fiscal 2017 based on the outstanding balance and interest rates in effect as of April 29, 2017 . Such interest and principal payments are expected to be funded with our cash flows from operations.


39


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Common Stock Repurchase Program

There were no purchases of common stock by the Company during the nine months ended April 29, 2017 under its repurchase program. For a complete description of the Company's 2016 Stock Repurchase Program, see Note 11 to the accompanying unaudited condensed consolidated financial statements.

We may from time to time continue to repurchase additional shares depending on prevailing market conditions and our liquidity requirements, subject to any restrictions under our debt agreements, among other factors.

Contractual and Other Obligations
 
Firm Commitments

The following table summarizes certain of the Company's aggregate contractual obligations as of April 29, 2017 and the estimated timing and effect that such obligations are expected to have on the Company's liquidity and cash flows in future periods. The Company expects to fund the firm commitments with operating cash flow generated in the normal course of business and, if necessary, availability under its Amended Revolving Credit Agreement.
 
 
Payments Due by Period
Contractual Obligations
 
Remainder of Fiscal
2017
 
Fiscal 2018-
2019
 
Fiscal 2020-
2021
 
Fiscal 2022
and
Thereafter
 
Total
 
 
(millions)
Long-term debt
 
$
—

 
$
111.5

 
$
252.5

 
$
1,305.0

 
$
1,669.0

Interest payments on long-term debt
 
22.4

 
174.9

 
156.4

 
76.0

 
429.7

Total
 
$
22.4

 
$
286.4

 
$
408.9

 
$
1,381.0

 
$
2,098.7

 
The following is a description of the Company's material, firmly committed contractual obligations as of April 29, 2017 :
 
•
Long-term debt represents contractual payments of outstanding borrowings under our borrowing agreements as of April 29, 2017 .

•
Interest payments on long-term debt represent interest payments related to our borrowing agreements. Interest payments on our Amended Revolving Credit Agreement, if any, were calculated based on the outstanding balance and the interest rates in effect as of April 29, 2017 , as if the borrowings remain outstanding until mandatory repayment is required at expiration in August 2020. Interest payments on our Term Loan were calculated based on the interest rates in effect as of April 29, 2017 and the estimated outstanding balance, giving effect to the contractual payments in future periods.
 
Off-Balance Sheet Arrangements
 
There have been no material changes during the period covered by this report to the off-balance sheet arrangements specified in the contractual and other obligations section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Fiscal 2016 10-K.

CRITICAL ACCOUNTING POLICIES
 
The Company’s significant accounting policies are described in Notes 3 and 4 to the audited consolidated financial statements included in the Fiscal 2016 10-K. For a detailed discussion of the Company's critical accounting policies, see the “Critical Accounting Policies” section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Fiscal 2016 10-K. Other than below, there have been no material changes to the Company’s critical accounting policies since July 30, 2016. Below is an update regarding the Company’s goodwill and other intangible assets.

40


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


Goodwill and Other Indefinite-lived Intangible Asset Impairment Assessment
As described in Note 3 to the accompanying unaudited condensed consolidated financial statements, the Company elected to early adopt "ASU" 2017-04, which removes Step 2 of the goodwill impairment test requiring a hypothetical purchase price allocation. Under the new guidance, the Company evaluates assets for potential impairment, and then determines goodwill impairment by comparing the reporting unit's fair value to its carrying value. Goodwill impairment loss is recognized in an amount equal to the excess of the reporting unit's carrying value over its fair value, up to the amount of goodwill allocated to the reporting unit.
To assist management in the process of determining goodwill impairment, the Company reviews and considers an appraisal from an independent valuation firm. Estimates of fair value are determined using discounted cash flows and market comparisons. These approaches use significant estimates and assumptions, including projected future cash flows (including timing of those cash flows), discount rates reflecting the risks inherent in future cash flows, perpetual growth rates and determination of appropriate market comparables. Estimating the fair value is judgmental in nature, which could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge.

Historically, the Company organized its businesses into six reportable segments following a brand-focused approach: ANN , Justice , Lane Bryant , maurices , dressbarn and Catherines . In October 2016, the Company reorganized its businesses into four operating segments: Premium Fashion ( ANN ), Value Fashion ( maurices and dressbarn ), Plus Fashion ( Lane Bryant and Catherines ) and Kids Fashion ( Justice ). The Company's segment managers currently review discrete information for the Justice , Lane Bryant , maurices , dressbarn and Catherines brands. Discrete information for operating income (loss) does not exist for the Ann Taylor and LOFT brands in the Premium Fashion segment. As a result, the reporting units identified for the purposes of assessing goodwill for Fiscal 2017 are ANN , Justice , Lane Bryant , maurices , dressbarn and Catherines which is consistent with the reporting units for Fiscal 2016 when each segment was a separate reporting unit. No reporting units were combined for impairment testing.

Fiscal 2017 Interim Impairment Assessment

The third quarter of Fiscal 2017 marked the continuation of the challenging market environment in which the Company competes. Lower than expected comparable sales for the third quarter, along with a reduced comparable sales outlook for the fourth quarter led the Company to significantly reduce its level of forecasted earnings. The Company concluded that these factors, as well as the decline in the Company's stock price, represented impairment indicators which required the Company to test its goodwill and indefinite lived intangible assets for impairment during the third quarter of Fiscal 2017 (the "Interim Test").

As a result of a significantly lower forecasted revenue assumptions over the projection period, partially offset by the impact of estimated cost reductions resulting from the Change for Growth Program (refer to the Overview section of this MD&A for a detailed discussion), the Company recognized an impairment loss of $728.1 million to write down the carrying values of its trade name intangible assets to their fair values as follows: $210.0 million of our Ann Taylor trade name, $356.3 million of our LOFT trade name, and $161.8 million of our Lane Bryant trade name. The fair value of the trade names was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trade name (Level 3 measurement). In addition, the Company recognized a goodwill impairment charge of $596.3 million as follows: a goodwill impairment charge of $428.9 million at the ANN reporting unit, $107.2 million at the maurices reporting and $60.2 million at the Lane Bryant reporting unit to write down the carrying values of the reporting units (based on the revised carrying value after deducting the trade name impairments discussed above) to their fair values. The results of the Interim Test were also used to support our annual impairment test of the first day of the fourth quarter of Fiscal 2017.

Significant assumptions underlying the discounted cash flows included: a weighted average cost of capital ("WACC") of 11.0% to 15.0% which was determined from relevant market comparisons and adjusted for specific risks; operating income margin of mid-to-high single digits and a terminal growth rate of 2%. Changes in these assumptions could have a significant impact on the valuation model. As an example, the impact of a hypothetical change in each of the significant assumptions is described below. In quantifying the impact, we changed only the specific assumption and held all other assumptions constant. A hypothetical 1% change in WACC rate would increase/decrease the fair value by approximately $60 million at ANN , $30 million at maurices and $15 million at Lane Bryant . A hypothetical 1% change in the operating income percentages in all periods would increase/decrease the fair value by approximately $120 million at ANN , $60 million at maurices and $45 million at Lane Bryant . Finally, a hypothetical 1% change in the terminal growth rate would increase/decrease the fair value by approximately $40 million at ANN ,

41


ASCENA RETAIL GROUP, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS – (Continued)


$20 million at maurices and $10 million at Lane Bryant . Any changes in fair value resulting from changes in the assumptions discussed above would increase/decrease the impairment charges of the respective goodwill and trade name.

Additionally, if we continue to experience sustained periods of unexpected declines or shifts in consumer spending, or fail to realize the anticipated cost savings associated from the Change for Growth Program, it could adversely impact the long-term assumptions used in our Interim Test. Such trends may also have a negative impact on some of the other key assumptions used in the Interim Test, including anticipated gross margin and operating income margin as well as the weighted average cost of capital rate. These assumptions are highly judgmental and subject to change. Such changes, if material, may require us to incur additional impairment charges for goodwill and/or other indefinite-lived intangible assets in future periods, including our other reporting units that exceeded or substantially exceeded their respective carrying values. In that regard, our Justice reporting unit currently only exceeded its carrying value by 8%. The fair value of our Catherines reporting unit substantially exceeded its carrying value and was not at risk of impairment as of our Interim Test.

RECENTLY ISSUED ACCOUNTING PROUNCEMENTS
 
See Note 3 to the accompanying unaudited condensed consolidated financial statements for a description of certain recently issued or proposed accounting standards which may impact our financial statements in future periods.

Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
For a discussion of our exposure to, and management of our market risks, see Part II, Item 7 as specified in the Market Risk Management section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Fiscal 2016 10-K.

Item 4 - CONTROLS AND PROCEDURES
 
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
 
The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13(a)-15(e) and 15(d)-15(e) of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of April 29, 2017 . There has been no change in the Company’s internal control over financial reporting during the quarter ended April 29, 2017 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


42


Part II - OTHER INFORMATION

Item 1 – LEGAL PROCEEDINGS
 
See Note 14 to the accompanying unaudited condensed consolidated financial statements for a description of the Company's legal proceedings.

Item 1A – Risk Factors
 
There are many risks and uncertainties that can affect our future business, financial performance or share price. In addition to the other information set forth in this report, you should review and consider the information regarding certain factors which could materially affect our business, financial condition or future results set forth under Part I, Item 1A “Risk Factors” in our Fiscal 2016 10-K. There have been no material changes during the quarter ended April 29, 2017 to the Risk Factors set forth in Part I, Item 1A of the Fiscal 2016 10-K.

Item 2 –UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities
 
The following table provides information about the Company’s repurchases of common stock during the fiscal quarter ended April 29, 2017 .
Period
 
Total
Number of
Shares
Purchased
 
Average
Price Paid
per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs  (a)
Month # 1 (January 29, 2017 – February 25, 2017)
 
—

 
$
—

 
—

 
$ 181 million
Month # 2 (February 26, 2017 – April 1, 2017)
 
—

 
$
—

 
—

 
$ 181 million
Month # 3 (April 2, 2017 – April 29, 2017)
 
—

 
$
—

 
—

 
$ 181 million
________
(a)    In December 2015, the Company’s Board of Directors authorized a $200 million share repurchase program (the “2016 Stock Repurchase Program”). Under the 2016 Stock Repurchase Program, purchases of shares of common stock may be made at the Company’s discretion from time to time, subject to overall business and market conditions. Currently, share repurchases in excess of $100 million are subject to certain restrictions under the terms of the Company's borrowing agreements, as more fully described in Note 9 to the accompanying unaudited condensed consolidated financial statements. Purchases will be made at prevailing market prices, through open market purchases or in privately negotiated transactions and will be subject to applicable SEC rules.


43


Item 6 - EXHIBITS
Exhibit
 
Description
 
 
 
10.1
 
Amended and Restated Credit Card Program Agreement by and between Ascena Retail Group, Inc. and Capital One, National Association dated as of April 28, 2017

 
 
 
10.2
 
Amendment and Restatement of the Company’s Executive Severance Plan effective as of March 2, 2016.**
 
 
 
10.3
 
Amendment No. 1 to the Company’s Executive Severance Plan effective as of December 7, 2016.**
 
 
 
31.1
 
Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
 
31.2
 
Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
 
 
32.1
 
Certification of David Jaffe pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 
 
32.2
 
Certification of Robb Giammatteo pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 
 
 
101.INS
 
XBRL Instance Document†
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document†
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document†
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document†
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document†
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document†

* This certification accompanies each report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
** Indicates a management contract, or compensatory plan or agreement.
 
† Pursuant to Rule 402 of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.



44


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ASCENA RETAIL GROUP, INC.
 
 
Date: June 8, 2017
BY: /s/ David Jaffe
 
David Jaffe, Chairman of the Board,
 
President and Chief Executive Officer
 
(Principal Executive Officer)
 
 
Date: June 8, 2017
BY: /s/ Robb Giammatteo
 
Robb Giammatteo
 
Executive Vice President and Chief Financial Officer
 
(Principal Financial Officer)
 







45

EXECUTION COPY

 

Amended and Restated
CREDIT CARD PROGRAM AGREEMENT
by and between
Ascena Retail Group, Inc.
and
Capital One, National Association
dated as of
April 28, 2017




1




TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS
5
1.1
Generally.    5
1.2
Miscellaneous.    16
ARTICLE 2 ESTABLISHMENT OF THE PROGRAM
16
2.1
Generally.    16
2.2
Credit Program.    16
2.3
Account Terms.    17
2.4
Exclusivity.    17
2.5
Non-Solicitation.    17
2.6
Amendment and Restatement.    17
ARTICLE 3 PROGRAM MANAGEMENT
18
3.1
Program Objectives.    18
3.2
Program Managers; Other Program Management Resources.    18
3.3
Operating Committee.    19
3.4
Program Executives.    20
3.5
Program Changes.    20
3.6
Dispute Resolution Procedure.    20
3.7
Firewalls.    21
ARTICLE 4 PROGRAM OPERATION
22
4.1
Ownership of Accounts.    22
4.2
Certain Company Responsibilities.    22
4.3
Certain Bank Responsibilities.    23
4.4
Operating Procedures.    24
4.5
Materials Developed and Used in Connection with the Program.    25
4.6
Applications for Credit Under the Program.    25
4.7
Credit Underwriting and Risk Management.    26
4.8
Servicing of Accounts by Bank.    26
4.9
In-Store Payments.    27
4.10
Chargebacks.    27
4.11
Collections.    28
4.12
Systems.    28
4.13
Program Website.    28
4.14
Bank Reports and Notices.    29
4.15
Sarbanes-Oxley Compliance.    29
4.16
Sales Taxes and Related Record Retention.    29
4.17
Reciprocal Access and Audit Rights.    29
4.18
Insider Fraud Prevention.    29
ARTICLE 5 MARKETING OF THE PROGRAM
30
5.1
Company Responsibility to Market the Program.    30
5.2
Bank’s Responsibility to Market the Program.    31
5.3
Communications with Cardholders.    31
5.4
Protection Programs and Enhancement Products.    33
ARTICLE 6 CARDHOLDER AND CUSTOMER INFORMATION
33
6.1
Customer Information.    33
6.2
Cardholder Data.    33

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6.3
Customer Data.    33
6.4
Data Security.    33
ARTICLE 7 MERCHANT SERVICES
33
7.1
Honoring Credit Cards.    33
7.2
Transmittal and Authorization of Charge Transaction Data.    33
7.3
Settlement Procedures.    34
7.4
Returns of Goods and/or Services.    34
ARTICLE 8 PROGRAM ECONOMICS
34
8.1
Monthly Statement of Bank.    34
8.2
Compensation.    34
ARTICLE 9 LICENSING OF TRADEMARKS; INTELLECTUAL PROPERTY
34
9.1
The Company Licensed Marks.    34
9.2
The Bank Licensed Marks.    36
9.3
Ownership of Intellectual Property.    38
ARTICLE 10 REPRESENTATIONS, WARRANTIES AND COVENANTS
38
10.1
General Representations and Warranties of Company.    38
10.2
General Representations and Warranties of Bank.    41
10.3
General Covenants of Company.    43
10.4
General Covenants of Bank.    44
ARTICLE 11 CONFIDENTIALITY
45
11.1
General Confidentiality.    45
11.2
Use and Disclosure of Confidential Information.    47
11.3
Unauthorized Use or Disclosure of Confidential Information.    47
11.4
Return or Destruction of Confidential Information.    48
ARTICLE 12
48
ARTICLE 13 EVENTS OF DEFAULT; RIGHTS AND REMEDIES
48
ARTICLE 14 TERM/TERMINATION
48
ARTICLE 15 EFFECTS OF TERMINATION
48
ARTICLE 16 INDEMNIFICATION
49
16.1
Company Indemnification of Bank.    49
16.2
Bank’s Indemnification of Company.    50
16.3
Procedures.    51
16.4
Notice and Additional Rights and Limitations.    52
ARTICLE 17 MISCELLANEOUS
53
17.1
Precautionary Security Interest.    53
17.2
Securitization; Participation.    53
17.3
No Consequential Damages.    53
17.4
Assignment.    53
17.5
Sale or Transfer of Accounts.    54
17.6
Subcontracting.    54
17.7
Amendment.    54
17.8
Non-Waiver.    54
17.9
Severability.    54
17.10
Governing Law.    54

2



17.11
Captions.    55
17.12
Notices.    55
17.13
Further Assurances.    55
17.14
No Joint Venture.    56
17.15
Press Releases.    56
17.16
No Set-Off.    56
17.17
Third Parties.    56
17.18
Force Majeure.    56
17.19
Entire Agreement.    57
17.20
Binding Effect; Effectiveness.    57
17.21
Counterparts/Facsimiles/PDF E-Mails.    57
17.22
Arbitration.    57
17.23
Survival.    58


3




This Amended and Restated Private Label Credit Card Program Agreement is made as of the 28th of April, 2017 (“ Effective Date ”), by and between Ascena Retail Group, Inc., a Delaware corporation with its principal offices at 933 MacArthur Blvd., Mahwah, N.J. 07430 (“ Company ”), and Capital One, National Association, a national banking association with its principal offices at 1680 Capital One Drive, McLean, V.A. 22102 (“ Bank ”).
WITNESSETH :
WHEREAS, Bank establishes programs to extend credit via private label and co-branded credit cards to qualified customers for the purchase of goods and services;
WHEREAS, Company subsidiaries engage in retail apparel sales under the Company Marks;
WHEREAS, Company has requested that Bank establish the Program pursuant to which Bank shall, pursuant to the terms of this Agreement, offer Private Label Credit Cards that shall be accepted by Company Channels;
WHEREAS, the Parties acknowledge that they intend for Bank to issue Credit Cards as set forth in Schedule D ;
WHEREAS, the Parties have entered into that certain Credit Card Program Agreement dated as of August 29, 2014 (such date, the “ Original Effective Date ”; such agreement, together with all Schedules and Exhibits thereto, and as modified, altered, supplemented, amended and/or restated from time to time prior to the date hereof, the “ Original Program Agreement ,” including pursuant to (i) that certain letter agreement dated as of November 26, 2014 by and between Company and Bank (the “ First Letter Agreement ”), (ii) that certain letter agreement dated as of April 14, 2015 by and between Company and Bank (the “ Second Letter Agreement ”), (iii) the First Amendment thereto dated as of June 24, 2016 by and between Company and Bank (the “ First Amendment ”), (iv) the Second Amendment thereto dated as of July 29, 2016 by and between Company and Bank (the “ Second Amendment ”), (v) the Third Amendment thereto dated as of August 26, 2016 by and between Company and Bank (the “ Third Amendment ”), (vi) the Fourth Amendment thereto dated as of September 1, 2016 by and between Company and Bank (the “ Fourth Amendment ”), (vii) the Fifth Amendment thereto dated as of September 9, 2016 by and between Company and Bank (the “ Fifth Amendment ”), (viii) the Sixth Amendment thereto dated as of September 16, 2016 by and between Company and Bank (the “ Sixth Amendment ”), (ix) the Seventh Amendment thereto dated as of September 23, 2016 by and between Company and Bank (the “ Seventh Amendment ”), (x) the Eighth Amendment thereto dated as of September 30, 2016 by and between Company and Bank (the “ Eighth Amendment ”), (xi) that certain Accession Agreement dated as of October 18, 2016 by and among Company, Tween Brands, Inc. and Bank (the “ First Accession Agreement ”) and (xii) that certain Accession Agreement dated as of October 18, 2016 by and among Company, The Dressbarn, Inc., Maurices Incorporated and Bank (the “ Second Accession Agreement ” and together with the First Letter Agreement, the Second Letter Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment and the First Accession Agreement, collectively the “ Amendments ”));
WHEREAS, the Parties wish for purposes of convenience to amend and restate the Original Program Agreement by reorganizing the provisions thereof and incorporating therein the changes made thereto pursuant to the Amendments; and

4



WHEREAS, the Parties agree that the goodwill associated with the Company Marks contemplated for use hereunder is of substantial value that is dependent upon the maintenance of high quality services and appropriate use of the marks pursuant to this Agreement.
NOW, THEREFORE, in consideration of the terms, conditions and mutual covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Company and Bank agree as follows:
ARTICLE 1

DEFINITIONS
1.1
Generally.
Additional defined terms are set forth in Schedule 1.1 . The following terms shall have the following meanings when used in this Agreement:
“ AAA ” has the meaning set forth in Section 17.22(c).
“ ABL Agreement ” means that certain Amended and Restated Credit Agreement dated as of January 3, 2011, among Ascena Retail Group, Inc., the Borrowing Subsidiaries party thereto, the other Loan Parties party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, as amended and restated as of March 13, 2013 (and as further amended, restated, amended and restated, supplemented or otherwise modified from time to time).
“ Accession Agreement ” has the meaning set forth in Schedule 1.1 .     
“ Account ” means a Private Label Account as set forth in this Agreement and includes Purchased Accounts.
“ Account Documentation ” means, with respect to an Account, any and all documentation relating to that Account, including all Credit Card Applications, Credit Card Agreements, Credit Cards, Billing Statements related to such Accounts, checks or other forms of payment with respect to an Account, credit bureau reports (to the extent not prohibited from transfer by Applicable Law or contract), adverse action notices, change in terms notices, other notices, correspondence, memoranda, documents, stubs, instruments, certificates, agreements, magnetic tapes, disks, hard copy formats or other computer-readable data transmissions, any microfilm, electronic or other copy of any of the foregoing, and any other written, electronic or other records or materials of whatever form or nature, whether tangible or intangible, including information relating or pertaining to any of the foregoing to the extent related to the Program; provided that Account Documentation shall not include Retail Entity register tapes and electronic journals, invoices, sales or shipping slips, delivery and other receipts or other indicia of the sale of Goods and/or Services.
“ Account Terms ” means the New Account Terms or Purchased Account Terms, as applicable, as such may be amended from time to time in accordance with this Agreement.
“ Affected Party ” has the meaning set forth in Schedule 6.4 .
“ Affiliate ” means, with respect to any Person, each Person that Controls, is Controlled by or is under common Control with, such Person.

5



“ Agreement ” means this Amended and Restated Credit Card Program Agreement, together with all of its Schedules and exhibits, and, if modified, altered, supplemented, amended and/or restated, as the same may be so modified, altered, supplemented, amended and/or restated from time to time.
“ Amendments ” has the meaning set forth in the recitals hereto.
“ Applicable Law ” has the meaning set forth in Schedule 1.1 .     
“ Applicant ” means an individual who has submitted a Credit Card Application who desires a Credit Card under the Program.
“ Bank ” has the meaning set forth in the preamble.
“ Bank Event of Default ” means the occurrence of any one or more of the events listed in Schedule 13.2 , or in Schedule 13.1 with respect to Bank.
“ Bank Indemnified Parties ” has the meaning set forth in Section 16.1.    
“ Bank Licensed Marks ” means the trademarks, tradenames, service marks, logos and other proprietary designations of Bank listed on Schedule A and licensed to Company under Section 9.2.
“ Bank Marks ” has the meaning set forth in Schedule 9.3 .
“ Bank Matters ” has the meaning set forth in Section 3.6(d).
“ Bankruptcy Code ” means Title 11 of the United States Code, as amended, or any other applicable state or federal bankruptcy, insolvency, moratorium or other similar law and all laws relating thereto.
“ Bankruptcy Event ” has the meaning set forth in Schedule 13.4 .
“ Billing Cycle ” means the interval of time between regular periodic Billing Dates for an Account.
“ Billing Date ” means, for any Account, the last day of each regular period when the Account is billed.
“ Billing Statement ” means a summary of Account credit and debit transactions for a Billing Cycle, including a statement with only past-due account information and/or an Account with a zero Cardholder Indebtedness at a Billing Date, but where such Account had transaction activity since the last Billing Date, whether in print or electronic form.
“ Business Day ” means any day, other than a Saturday, Sunday or legal holiday, on which Company and Bank both are open for business.
“ Cardholder ” means any individual who resides in the United States and who has been issued a Credit Card within the United States.
“ Cardholder Data ” means all Personally Identifiable Information about a Cardholder or Applicant received by or on behalf of Bank in connection with the Cardholder’s application for, or that is necessary to affect a transaction arising out of the use of, a Credit Card or Account or otherwise obtained by or on behalf of Bank, including Charge Transaction Data and data obtained in connection with enrollment in any Value Proposition or portion thereof only to the extent available to Cardholders in their capacity as Cardholders and excluding item specific Transaction information collected about Cardholders and all other Transaction and experience information collected by Company or its Affiliates with regard to each purchase made by a Customer using

6



a Credit Card, other than information required under Applicable Law to be displayed on Billing Statements or for resolution of Cardholder disputes. For clarity, tokens issued in replacement of Credit Card information are not Cardholder Data.
“ Cardholder Indebtedness ” means all amounts charged and owing by Cardholders with respect to an Account, including principal balances and finance charges whether billed or accrued, billed late fees and other similar billed fees, less the amount of any payments received, any credit balances owed to Cardholders, including any credits associated with returns of Goods and/or Services and similar credits and adjustments.
“ Cardholder List ” means any list in electronic form that identifies or provides a means of differentiating Cardholders, including any such electronic listing that includes the names, addresses, email addresses (as available), telephone numbers or social security numbers of any or all Cardholders.
“ Change in Control ” means, with respect to a Party, that any Person (acting alone or with Affiliates) acquires Control of such Party, other than when any transaction contemplated by this definition is consummated by such Party with a Person that, immediately prior to the consummation of such transaction and thereafter, directly or indirectly, is an Affiliate of such Party.
“ Charge Transaction Data ” means the Transaction information with regard to each purchase of Goods and/or Services charged to an Account and each return of such Goods and/or Services or other adjustment for credit to an Account that is necessary for Bank to process the Transaction and/or populate a Billing Statement with information, excluding item-specific Transaction information collected about Cardholders and all other Transaction and experience information collected by Company or its Affiliates with regard to each purchase made by a Customer using a Credit Card.
“ Claim ” has the meaning set forth in Schedule 4.16 .
“ Claimant ” has the meaning set forth in Schedule 4.16 .
“ Closing Date ” has the meaning set forth in Schedule 1.1 .          
“ Collections Policies ” has the meaning set forth in Section 4.11(a).
“ Combination Mark ” has the meaning set forth in Schedule 9.3 .
“ Company ” has the meaning set forth in the preamble.
“ Company Cash Balance ” has the meaning set forth in Schedule 13.4 .
“ Company Channels ” means those certain sales channels operating under a Company Licensed Mark through which Company’s Affiliates sell their Goods and/or Services during the Term, including (as applicable): (i) Stores, (ii) all websites and other electronic sales media ( e.g. , mobile applications) operated by or on behalf of Company or its Affiliates under a Company Licensed Mark; (iii) any Retail Entity catalog, if any, offering Goods and/or Services; and (iv) to the extent applicable, any Licensee location operating within any of the foregoing.
“ Company Event of Default ” means the occurrence of any one or more of the events listed in Schedule 13.3 , or in Schedule 13.1 with respect to Company.
“ Company Indemnified Parties ” has the meaning set forth in Section 16.2.

7



“ Company Licensed Marks ” means the trademarks, tradenames, service marks, logos and other proprietary designations of Company or its Affiliates listed on Schedule C and licensed to Bank by Company or its Affiliates under Section 9.1.
“ Company Marks ” means the trademarks, tradenames, service marks, logos, and other proprietary designations of Company listed on Schedule B .
“ Company Matters ” has the meaning set forth in Section 3.6(c).         
“ Confidential Information ” has the meaning set forth in Section 11.1(a).
“ Consumer Credit Product ” has the meaning set forth in Schedule 2.4 .          
“ Control ” with regard to an entity, means the beneficial, equitable or legal ownership, either directly or indirectly, of fifty percent (50%) or more of the capital stock (or other ownership interest, if not a corporation) of such entity having voting rights, or effective control of the management or policies of such entity (through contract, board representation or otherwise) regardless of the percentage of ownership.
“ Conversion Date ” has the meaning set forth in Schedule 1.1 .             
“ Conversion Plan ” has the meaning set forth in Schedule 2.1 .
“ Credits ” has the meaning set forth in Schedule 4.16 .
“ Credit Card ” means a Private Label Credit Card.
“ Credit Card Agreement ” means each form of credit card agreement between Bank and a Cardholder, including credit card agreements assigned to Bank pursuant to any Purchase Agreement, governing the use of an Account, together with any amendments, modifications or supplements which now or hereafter may be made to such Credit Card Agreement (and any replacement of such agreement).
“ Credit Card Application ” means the credit application which must be completed and submitted by individuals who wish to become Cardholders.
“ Cross-Shopping ” shall mean the acceptance of a Private Label Credit Card issued under this Agreement by a Retail Entity operating under a Company Licensed Mark different from the one appearing on the front of such Private Label Credit Card.
“ Customer ” shall mean any Person who makes purchases of Goods and/or Services at a Retail Entity or is otherwise identified by Company as a shopper in Company Channels.
“ Customer Data ” shall mean all Personally Identifiable Information regarding a Customer, that is obtained by Company or its Affiliates in connection with the Customer making a purchase of Goods and/or Services, enrolling for a Value Proposition or otherwise accessing Company Channels, including all transaction and experience information collected by Company or its Affiliates with regard to each purchase made by a Customer, including the item-specific transaction information collected by Company or its Affiliates about Cardholders through the use of a Credit Card or in connection with the Program.
“ Designated Retailer ” shall mean each of the entities identified on Schedule 3.7(a) , as amended from time to time as provided therein.

8



“ Designated Subcontractor ” shall mean a Subcontractor who provides services in relation to the Program and has or could reasonably have access to Cardholder Data or Customer Data.
“ Development Agreement ” has the meaning set forth in Schedule 9.3 .
“ Disclosing Party ” has the meaning set forth in Section 11.1(d).
“ Dispute ” has the meaning set forth in Section 3.6(a).
“ EBT ” has the meaning set forth in Schedule 13.4 .
“ Effective Date ” has the meaning set forth in the preamble.
“ Eighth Amendment ” has the meaning set forth in the recitals hereto.
“ Electronic Product ” has the meaning set forth in Schedule 2.4 .
“ Enhancement Products ” has the meaning set forth in Schedule 5.4 .
“ Existing Issuer ” means Comenity Bank or Comenity Capital Bank, as applicable.
“ Existing Issuer Agreements ” has the meaning set forth in Schedule 12.1 .
“ Existing Issuer Portfolio ” has the meaning set forth in Schedule 12.1 .                 
“ Existing Receivables ” has the meaning set forth in Schedule 15.2 .
“ Fifth Amendment ” has the meaning set forth in the recitals hereto.
“ First Accession Agreement ” has the meaning set forth in the recitals hereto.
“ First Amendment ” has the meaning set forth in the recitals hereto.
“ First Letter Agreement ” has the meaning set forth in the recitals hereto.
“ Force Majeure Event ” has the meaning set forth in Section 17.18.
“ Fourth Amendment ” has the meaning set forth in the recitals hereto.
“ GAAP ” means United States generally accepted accounting principles, consistently applied.
“ Goods and/or Services ” means the products and services, including closed-loop prepaid cards, sold by or through Company Channels.
“ Governmental Authority ” means any federal, state, or local domestic, foreign, or supranational governmental or regulatory authority, agency, court, tribunal, commission, or other governmental or regulatory entity, including the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Trade Commission and NACHA (for purposes of Automated Clearing House transfers between Parties).
“ Holdback Amount ” has the meaning set forth in Schedule 13.4 .
“ Initial Term ” has the meaning set forth in Schedule 14.1 .

9



“ In-Store Payment ” means any payment on an Account made in a Store by a Cardholder or a Person acting on behalf of a Cardholder.
“ Indemnified Party ” has the meaning set forth in Section 16.3(a).
“ Indemnifying Party ” has the meaning set forth in Section 16.3(a).
“ Inserts ” has the meaning set forth in Section 5.3(b).
“ Insider Fraud ” means, as applicable, any fraudulent activity of any employee or agent of Company or Bank, or any Affiliate, or Subcontractor of Company or Bank that is (i) identified and traceable back to such employee having access to any Cardholder Data or Customer Data (including a Party’s systems that have Cardholder Data or Customer Data) or any Transaction involving a Credit Card, (ii) fraud that is enabled through the provision of servicing activities by such employee by or on behalf of Bank or Company (such as processing Credit Card Applications or Transaction) on any Account and (iii) fraudulent activity involving Cardholder Data or Customer Data or any other data that was undertaken in the course of performing servicing by or on behalf of Bank or Company, in each case that originated within Company or Bank or any Affiliate or Subcontractor of Company or Bank, even if a specific employee cannot be identified.
“ Instant Credit ” means a Credit Card Application procedure for a Private Label Credit Card whereby the Credit Card Application information is communicated to Bank by Company either (i) verbally at the POS at the time of a transaction; or (ii) systemically during the order entry process.
“ Intellectual Property ” means, on a worldwide basis, other than with respect to Company Licensed Marks, Bank Licensed Marks, Cardholder Data or Customer Data, any and all: (i) rights associated with works of authorship, including copyrights; (ii) trademarks and service marks and the goodwill associated therewith; (iii) trade secret rights; (iv) patents, designs, algorithms and other industrial property rights; (v) other intellectual and industrial property rights of every kind and nature, however designated, whether arising by operation of law, contract, license or otherwise; and (vi) applications, registrations, renewals, extensions, continuations, divisions or reissues thereof now or hereafter in force (including any rights in any of the foregoing).
“ Jurisdictions ” has the meaning set forth in Schedule 4.16 .
“ Justice Closing Date ” has the meaning set forth in Schedule 1.1 .                 
“ Justice Conversion Date ” has the meaning set forth in Schedule 1.1 .                 
“ Justice Extension ” has the meaning set forth in Schedule 1.1 .                 
“ Justice Portfolio ” means the Portfolio operated under the Tween Brands, Inc.’s “Justice” brand, and to the extent expanded to include “Brothers”, “Brothers” brand, including, as applicable, the Existing Issuer Portfolio operated under the “Justice” brand.
“ Key Employees ” has the meaning set forth in Section 2.5.
“ Key Program Management Resources ” has the meaning set forth in Section 3.2(b).
“ Knowledge ” means, with respect to (i) Company, the actual knowledge of its Program Manager and Program Executive and (ii) Bank, the actual knowledge of its Program Manager and Program Executive, in each case after and assuming due inquiry.

10



“ Launch Plan ” has the meaning set forth in Schedule 2.1 .
“ Licensee (s)” means any Person(s) authorized by Company or a Company Affiliate to operate in and sell Goods and/or Services from Company Channels or under the Company Licensed Marks.
“ Losses ” has the meaning set forth in Section 16.1.
“ NDA ” has the meaning set forth in Schedule 1.1 .                 
“ Net Sales ” has the meaning as used by Company in its publicly filed quarterly and annual disclosures.
“ New Account Terms ” has the meaning set forth in Schedule 2.3 .
“ New Mark ” has the meaning set forth in Sections 9.1(b), 9.2(b) and/or Schedule 9.3 , as applicable.
“ Nominated Purchaser ” has the meaning set forth in Schedule 15.2 .
“ Operating Committee ” has the meaning set forth in Section 3.3(a).
“ Operating Procedures ” means the Operating Procedures attached at Schedule 4.4 , as amended from time to time in accordance with this Agreement.
“ Original Effective Date ” has the meaning set forth in the recitals hereto.
“ Original Program Agreement ” has the meaning set forth in the recitals hereto.
“ Other Conversion Dates ” has the meaning set forth in Schedule 2.1 .
“ Party ” means Company or Bank, as the circumstances warrant, and “ Parties ” means both Company and Bank.
“ Pending Claim ” has the meaning set forth in Schedule 4.16 .
“ Person ” means and includes any individual, partnership, joint venture, corporation, company, bank, trust, unincorporated organization, government or any department, agency or instrumentality thereof, and for purposes of the definition of “Change in Control”, the term shall include any group that is deemed to act together under Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended.
“ Personally Identifiable Information ” means any information that: (i) alone, or in combination with other personal or identifying information, relates to a specific, identifiable individual or can be used to identify an individual; (ii) is “nonpublic personal information” as defined in the GLBA; or (iii) any other personally identifiable consumer information that is subject to privacy protections under Applicable Law.
“ Portfolio ” means the group of Accounts and Cardholder Indebtedness associated with each Company Licensed Mark.
“ Portfolio Purchase Date ” has the meaning set forth in Schedule 15.2 .         
“ POS ” means the physical point of sale of Goods and/or Services.
“ Private Label Account ” means an open-end revolving consumer credit account subject to the Program accessed via a Private Label Credit Card, including Purchased Accounts.

11



“ Private Label Credit Card ” means the consumer credit card and/or associated card number, as appropriate in the context in which the term is used, issued under the Program that bears a Company Licensed Mark, settles directly between Company or its Affiliates and Bank, and may be used only to finance purchases of Goods and/or Services.
“ Program ” means the consumer credit card program established by Company and Bank and made available to Cardholders, including the origination of new Accounts by Bank, the extension of credit on Accounts, billings, collections, customer service, accounting between the Parties and all other aspects of the customized credit plan specified herein and in Credit Card Agreements.
“ Program Assets ” means the Accounts (including Accounts charged off during the Term in which Bank retains an ownership interest), Account Documentation, Cardholder List, Cardholder Data and all Cardholder Indebtedness (in each case, whether held by Bank, Company or a Subcontractor).
“ Program Conversion Date ” has the meaning set forth in Schedule 1.1 .         
“ Program Executives ” has the meaning set forth in Schedule 1.1 .         
“ Program Expense ” has the meaning set forth in Schedule 1.1 .                
“ Program Manager ” has the meaning set forth in Section 3.2(a).
“ Program Materials ” has the meaning set forth in Section 4.5(a).
“ Program Privacy Policy Notice ” shall mean the privacy policy notice and associated disclosures to be provided by Bank to Cardholders in connection with the Program, the initial form of which is attached hereto as Schedule 6.2(b) hereto.
“ Program Website ” has the meaning set forth in Section 4.13(a).
“ Program Year ” shall mean each consecutive twelve (12) month period commencing on the Program Conversion Date.
“ Protection Programs ” has the meaning set forth in Schedule 5.4 .
“ Purchase Agreement ” has the meaning set forth in Schedule 1.1 .             
“ Purchase Notice ” has the meaning set forth in Schedule 15.2 .
“ Purchase Option ” has the meaning set forth in Schedule 15.2 .
“ Purchased Account Terms ” has the meaning set forth in Schedule 2.3 .             
“ Purchased Accounts ” has the meaning set forth in Schedule 1.1 .             
“ Qualified Customers ” means Customers of a Retail Entity that Company or such Retail Entity determines are available to be solicited for a Credit Card Application under the Program.
“ Receiving Party ” has the meaning set forth in Section 11.1(d).
“ Refunds ” has the meaning set forth in Schedule 4.16 .

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“ Renewal Term ” has the meaning set forth in Schedule 14.1 .
“ Restricted Party ” has the meaning set forth in Section 2.5.
“ Retail Entity ” means any Affiliate of Company that operates a Company Channel.
“ Risk Management Policies ” has the meaning set forth in Section 4.7(a).
“ SEC ” means the U.S. Securities and Exchange Commission.
“ Second Amendment ” has the meaning set forth in the recitals hereto.
“ Second Letter Agreement ” has the meaning set forth in the recitals hereto.
“ Second Look Program ” has the meaning set forth in Schedule 2.4 .
“ Separate Expenses ” has the meaning set forth in Schedule 1.1 .             
“ Series I ” has the meaning set forth in Schedule 14.1 .    
“ Series II ” has the meaning set forth in Schedule 14.1 .    
“ Series II Initial Term ” has the meaning set forth in Schedule 14.1 .    
“ Series II Renewal Term ” has the meaning set forth in Schedule 14.1 .    
“ Seventh Amendment ” has the meaning set forth in the recitals hereto.
“ Similarly Situated ” has the meaning set forth in Schedule 1.1 .                 
“ Sixth Amendment ” has the meaning set forth in the recitals hereto.
“ SLA ” has the meaning set forth in Schedule 4.8(a) .
“ SLA Failure ” has the meaning set forth in Schedule 4.8(a) .
“ SLA Termination Event ” has the meaning set forth in Schedule 4.8(a) .
“ Solicitation Materials ” means documentation, materials, artwork, copy, trademarks (excluding the Company Licensed Marks and the Bank Licensed Marks), copyrights and any protectable items, in any format or media (including television and radio), used to promote or identify the Program to Cardholders and potential Cardholders, including direct mail solicitation materials and coupons.
“ Solvent ” as to a Person, means (i) the present fair salable value of such Person’s assets is in excess of the total amount of its liabilities, (ii) such Person is presently able generally to pay its debts as they become due, and (iii) such Person does not have unreasonably small capital to carry on such Person’s business as theretofore operated and all business in which such Person is about to engage. The phrase “present fair salable value” of a Person’s assets is intended to mean that value which can be obtained if the assets are sold within a reasonable time in arm’s-length transactions in an existing and not theoretical market.
“ SOX Laws ” has the meaning set forth in Schedule 4.15 .

13



“ Store ” means a physical location operating under a Company Licensed Mark for which Private Label Credit Cards are offered under this Agreement.
“ Subcontractor ” means a third party, including any authorized agent, vendor, consultant, or outsourced service provider, or any Affiliates of such third party, utilized by a Party to perform any obligations or services of such Party under this Agreement.
“ Subset ” has the meaning set forth in Schedule 1.1 .                 
“ Term ” means, collectively, the Initial Term, each Renewal Term, the Series II Initial Term and each Series II Renewal Term.
“ Termination Period ” has the meaning set forth in Schedule 1.1 .                 
“ Termination Date ” has the meaning set forth in Schedule 4.16 .
“ Third Amendment ” has the meaning set forth in the recitals hereto.                
“ Trademark Style Guide ” means the written guidelines of a Party governing the manner of usage of the Company Licensed Marks or Bank Licensed Marks, as applicable.
“ Transaction ” means any purchase of Goods and/or Services through a Company Channel, including from a Licensee, using an Account, or a return or cancellation of the same.
“ United States ” means the fifty states of the United States and the District of Columbia (expressly excluding for purposes of Credit Card solicitation and issuance but not Credit Card acceptance the Commonwealth of Puerto Rico, and any territory or possession of the United States or any political subdivision thereof).
“ USPTO ” means the United States Patent and Trademark Office.
“ Value Proposition ” means any Cardholder loyalty program offered in connection with the Program pursuant to the terms of this Agreement.
“ Web Application ” means a web-based new Account application procedure made available by Bank in connection with the Program.
1.2
Miscellaneous .
As used herein,
(a)
all references to a plural form shall include the singular form (and vice versa),
(b)
unless otherwise specified, all references to days, months or years shall be deemed to be preceded by the word “calendar,”
(c)
all references to “herein,” “hereunder,” “hereinabove” or like words shall refer to this Agreement as a whole and not to any particular section, subsection or clause contained in this Agreement,
(d)
all references to “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation,”

14



(e)
all references to Applicable Law or agreements shall mean such Applicable Law or agreements as amended and in effect
(f)
where specific language is used to clarify or illustrate by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict the construction of the general statement which is being clarified or illustrated,
(g)
the construction of this Agreement shall not take into consideration the Party who drafted or whose representative drafted any portion of this Agreement, and no canon of construction shall be applied against a Party on the basis that such Party was the drafter, and
(h)
unless the context otherwise requires or unless otherwise provided herein, all references in this Agreement to a particular agreement, instrument, or document also shall refer to all schedules or exhibits, renewals, extensions, modifications, amendments and restatements of such agreement, instrument, or document.
ARTICLE 2     

ESTABLISHMENT OF THE PROGRAM
2.1
Generally .
See Schedule 2.1 .
2.2
Credit Program .
(a)
See Schedule 2.2 .
(b)
Company shall, and shall cause its Affiliates to, actively, prominently and frequently promote the Program in each Company Channel, as appropriate for such Company Channel and in consultation with Bank.
2.3
Account Terms .
(a)
See Schedule 2.3 .
(b)
Each Party may propose changes to the Account Terms in accordance with the procedures set forth in Sections 3.5 and 3.6; provided , however , that implementation of such changes to the Account Terms shall be made by Bank on Bank’s systems. Bank shall utilize its commercially reasonable efforts to implement such Account Term changes within one hundred twenty (120) days from the final determination pursuant to Sections 3.5 and 3.6.
2.4
Exclusivity .
See Schedule 2.4 .
2.5
Non-Solicitation .
During the Term and for a period of one (1) year thereafter, a Party and its Affiliates (the “ Restricted Party ”) shall not directly solicit, induce, recruit or encourage any of the employees of the other Party or its Affiliates who have the business title of Vice-President or above, with whom the Restricted Party shall have had any direct contact or whose work shall have become known to the Restricted Party, as the case may be, through

15



his or her involvement in the Program (such employees, “ Key Employees ”), to leave their employment, or take away such employees, or attempt to solicit, induce, recruit, encourage, take away or hire Key Employees, for the Restricted Party; provided, however , that such restrictions shall not apply to any Key Employee (a) who contacts the Restricted Party in response to a bona fide public advertisement for employment placed by the Restricted Party and not specifically targeted at employees of the other party, (b) who has been terminated, subject to applicable restrictions set out in the termination arrangement of such person, or (c) who contacts the Restricted Party directly or through referrals made by a placement service which was directed by the Restricted Party not to specifically target employees of the other Party.
2.6
Amendment and Restatement .
Effective as of the Effective Date, this Agreement hereby amends and restates the Original Program Agreement in its entirety.
ARTICLE 3     

PROGRAM MANAGEMENT
3.1
Program Objectives .
In performing its responsibilities with respect to the management and administration of the Program, each Party shall be guided by the following Program objectives:
(a)
To enhance the retail and credit experience of Customers;
(b)
To increase retail sales of Company;
(c)
To maximize Program economics while optimizing product value; and
(d)
To manage the Program in accordance with safe and sound banking practices.
3.2
Program Managers; Other Program Management Resources .
(a)
Company and Bank shall each appoint one Program manager (each, a “ Program Manager ”). The Program Managers shall have substantial experience with retail credit card programs. The Program Managers shall exercise day-to-day operational oversight of the Program and coordinate the interactions between Company and Bank. Company and Bank shall endeavor to provide stability and continuity in the Program Manager positions. The initial Program Managers for Company and Bank are set forth on Schedule 3.2(a) . Each Party may change its Program Manager from time to time upon notice to the other Party, subject to Section 3.2(b). Unless otherwise set forth in this Agreement, the Program Managers shall be authorized to give any consent and/or approval under this Agreement on behalf of their respective Parties, but shall not have authority to amend this Agreement. The appointment of any Program Manager by Bank is subject to the prior approval of Company. Company shall have the right to request replacement of a Bank Program Manager in the event that such Bank Program Manager’s performance is unsatisfactory in the reasonable judgment of Company, including with regard to Bank Program Manager’s responsiveness and fit with Company culture, and Bank shall replace such Bank Program Manager if Bank determines in its reasonable judgment that the performance of such Bank Program Manager is unsatisfactory. Without limiting the foregoing, Company shall raise any concerns it has

16



about the Bank Program Manager with Bank, and Company and Bank shall consult in good faith to address such concerns.
(b)
Bank shall make available to the Program the resources identified on Schedule 3.2(b) (collectively, the “ Key Program Management Resources ”). Bank shall endeavor to provide stability and continuity in its Key Program Management Resources. Company shall have the opportunity to meet candidates that Bank has selected to serve as Key Program Management Resources. Bank shall consider in good faith any comments or concerns raised by Company with respect to Key Program Management Resources Company in its decision whether to designate or replace Key Program Management Resources in connection with the Program, including with regard to their responsiveness and fit with Company culture.
(c)
The Parties shall work in good faith to establish by mutual agreement appropriate protocols to the extent reasonably necessary to facilitate the management of the Program.
3.3
Operating Committee .
(a)
The Parties hereby establish an Operating Committee (the “ Operating Committee ”), which shall act and be governed by the provisions of this Section 3.3. The Operating Committee shall provide strategic guidance with respect to certain aspects of the Program as set forth in this Section 3.3 by majority vote, subject to the process set forth at Sections 3.5 and 3.6.
(b)
The Operating Committee shall consist of six (6) members, three (3) to be designated by Company and three (3) to be designated by Bank, but Company and Bank each shall be entitled to one (1) vote in connection with any decision of the Operating Committee regardless of the number of members present for either Party. Either Party may substitute one of its members upon reasonable prior notice. As this Operating Committee is integral to Program governance, the Parties designated its members within sixty (60) days following the Original Effective Date, and its members shall be comprised of executive-level representation of the following divisions of each Party: Operations, Marketing, and Finance. For clarity, the Bank Program Manager may also be one of the three (3) members designated by Bank.
(c)
On a quarterly basis, the Operating Committee shall meet to discuss the strategic direction and performance of the Program and Bank’s performance with respect to the SLAs. The Operating Committee shall monitor and review Program activities, the financial performance of the Program, key portfolio performance data, activities of competitive programs, including terms, features and functionality of such credit card programs, performance of Key Program Management Resources, and market trends.
(d)
On an annual basis, the Operating Committee shall meet for a planning session to review the Program’s business plan for the upcoming year, discuss Program changes, establish Program priorities and identify opportunities to share and implement best practices on behalf of the Program.
(e)
The Operating Committee also shall meet promptly upon the request of either Party. Either Party may propose changes to the Program in connection with maintaining a competitive Program from a Cardholder perspective in accordance with the procedures set forth in Sections 3.5 and 3.6.

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3.4
Program Executives .
On an annual basis, the Program Executives shall meet for a planning session to review the Program’s business plan for the upcoming year, discuss Program changes, establish Program priorities and identify opportunities to share and implement best practices on behalf of the Program.
3.5
Program Changes .
Except as otherwise provided herein, changes to the Program, its operation or servicing shall be approved by the Operating Committee, and either Party may propose such changes, including to Program policies, in writing from time to time in accordance with the procedures set forth in this Section 3.5. After a Party proposes a change, the Operating Committee shall have a minimum of thirty (30) days to review, meet and discuss the proposed change. If the Operating Committee is unable to agree, they may determine to continue the Program unchanged or either Party may invoke the dispute resolution process set forth in Section 3.6; provided , however , in all cases, Bank may implement a change required by Applicable Law if the effective date of such change is prior to the completion of the dispute resolution process set forth in Section 3.6, subject to the standards set forth in Sections 3.6(d) and 4.5(b), and Schedule 4.4(b) , 4.7 , 4.12 and 6.2 , for implementation of changes required by Applicable Law.
3.6
Dispute Resolution Procedure .
(a)
In the event of any controversy or claim directly or indirectly arising out of or relating to this Agreement (each, a “ Dispute ”), the Program Managers and other appropriate personnel of each Party shall, in good faith, first attempt to resolve the Dispute, including for proposed changes to the Program in accordance with Section 3.5. If such efforts are unsuccessful, the Program Managers shall refer the Dispute to the Operating Committee. The Operating Committee shall, in good faith, then meet within ten (10) Business Days of such referral and attempt to resolve the Dispute. If the Dispute remains unresolved for twenty (20) Business Days after such referral, the Operating Committee shall refer the Dispute to the Program Executives. The Program Executives shall promptly meet to review and discuss the Dispute and shall use commercially reasonable efforts to resolve § Disputes involving compliance with Applicable Law, Risk Management Policies or risk-related matters within fifteen (15) days after receiving notice thereof, and § any other Dispute within thirty (30) days after receiving notice thereof.
(b)
In the event the Program Executives are unable to resolve the Dispute within the time frames set forth in Section 3.6(a) after receiving notice of such escalation, then, § if the matter is a Company Matter or a Bank Matter, the Dispute shall be resolved as set forth in Section 3.6(c) or 3.6(d) at the end of such period, and § if the matter is not a Company Matter or a Bank Matter, the Dispute shall remain open and the then-current practice shall continue until the Parties mutually agree otherwise; provided , however , that for a Dispute involving Applicable Law that is not resolved within the time frames set forth in Section 3.6(a), Bank shall, upon the request of Company, evaluate the possibility of addressing the issue with the relevant Government Authority, but shall have no obligation to do so before resolving the Dispute as a Bank Matter.
(c)
Company shall have ultimate decision-making authority with respect to unresolved Disputes with respect to the matters in Schedule 3.6(c) (“ Company Matters ”), subject in each case to prior review through the processes set forth in this Section 3.6 and to Bank’s

18



rights with respect to compliance of the Program with Applicable Law, including as set forth in Section 3.6(d) and as noted in Schedule 3.6(c) .
(d)
Bank shall have ultimate decision-making authority with respect to unresolved Disputes with respect to the matters in Schedule 3.6(d) (“ Bank Matters ”), subject to prior review through the processes set forth in this Section 3.6; provided , however , that any changes made pursuant to this Section 3.6 shall be implemented by Bank in a manner reasonably consistent across all of Bank’s Similarly Situated credit card portfolios; and provided , further , that, with respect to Program changes required for compliance with Applicable Law, Bank shall consider alternative methods for achieving compliance, including those proposed by Company, and to the extent practicable and commercially reasonable taking into account relative costs to Bank and Company, select the method that is least burdensome to Company and involves the least impact to Company systems, in-Store processes and Customers.
(e)
Notwithstanding anything herein, neither this Section 3.6 nor Section 17.22 shall affect a Party’s right to terminate this Agreement pursuant to Schedule 14.2 or 14.3 and neither Party shall have an obligation to utilize the dispute resolution procedures set forth in Section 3.6(a), 3.6(b) or 17.22 in connection with a Dispute involving Company Licensed Marks, Bank Licensed Marks or Intellectual Property. Nothing in this Section 3.6 or Section 17.22 shall be construed to prevent any Party from seeking from a court a temporary restraining order or other temporary or preliminary relief pending final resolution of a Dispute.
3.7
Firewalls .
(a)
Except as otherwise approved by Company in writing, the Key Program Management Resources shall not provide any services to or support for any co-branded or private label credit card program that is or may be offered by Bank on behalf of or in association with any Designated Retailer set forth in Schedule 3.7(a) during the period when such Key Program Management Resource is providing services or support to the Program and for a period of twelve (12) months after such Key Program Management Resource ceases to be actively involved in the Program.
(b)
See Schedule 3.7(b) .

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ARTICLE 4     

PROGRAM OPERATION
4.1
Ownership of Accounts .
(a)
Subject to Company’s option to purchase the Program Assets under Schedule 15.2 , Bank shall be the sole and exclusive owner of the Accounts and Account Documentation, and shall have all rights, powers, and privileges with respect thereto as such owner; provided that Bank shall exercise such rights consistent with its obligations under this Agreement. All Transactions in connection with the Accounts and the Cardholder Indebtedness shall create the relationship of debtor and creditor between the Cardholder and Bank, respectively. Company acknowledges and agrees that § it has no right, title or interest (except for its right, title and interest in the Company Licensed Marks and its option to purchase the Program Assets under Schedule 15.2 ) in or to, any of the Accounts or the Account Documentation related to such Accounts or any proceeds of the foregoing, and § Bank extends credit directly to Cardholders.
(b)
Except as expressly provided herein, Bank shall be entitled to § receive all payments made by Cardholders on Accounts, and § retain for its account all Cardholder Indebtedness and such other fees and income authorized by the Credit Card Agreements and collected by Bank with respect to the Accounts and the Cardholder Indebtedness.
4.2
Certain Company Responsibilities .Without limitation of Company’s other obligations under this Agreement, Company agrees, in each case in accordance with the terms and conditions of this Agreement:
(a)
To implement its obligations under the Conversion Plan and Launch Plan.
(b)
To actively, prominently and frequently promote the Program and encourage the establishment and use of Accounts at Company Channels in the United States, in each case as appropriate for the respective Company Channel and in consultation with Bank.
(c)
To integrate training with respect to the Program into Company’s schedule and materials for the training of Store personnel.
(d)
To comply with the terms of the Program Privacy Policy Notice and all Cardholder opt-outs.
(e)
To maintain an advertisement that promotes the Program on the home page of each website Company Channel and contains an embedded, direct link (with no intermediate links other than a splash page approved by the Operating Committee) to the Program Website.
(f)
To review any Account Documentation that is prepared by Bank for distribution to Applicants or Cardholders.
(g)
To distribute to Stores in the United States Credit Card Applications, Cardholder Agreements, Program Privacy Policy Notices and required legal disclosures (approved by Bank) incorporated in the foregoing.

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(h)
Subject to the U.S. dollar denomination requirements in Section (i) of Schedule 2.4 , to accept the Credit Cards in payment for Transactions at all Company Channels in the United States, and at Company’s option, in Canada.
(i)
To process In-Store Payments and transmit the proceeds to Bank in accordance with the Operating Procedures.
(j)
To maintain adequate computer and communications systems and other equipment and facilities necessary or appropriate in connection with the Program.
(k)
To provide Bank, upon its request, a list of all Licensees with respect to each Company Licensed Mark covered by this Agreement.
(l)
To establish and maintain effective controls to confirm compliance with the terms of this Agreement by its Affiliates and Subcontractors.
(m)
To follow written guidance from Bank with regard to compliance of the Program with Applicable Law as specifically provided in this Agreement.
4.3
Certain Bank Responsibilities .Without limitation of Bank’s other obligations under this Agreement, Bank agrees, in each case in accordance with the terms and conditions of this Agreement:
(a)
To implement its obligations under the Conversion Plan and Launch Plan.
(b)
To review and process Credit Card Applications and to provide real time, immediate decisioning and extension of credit to approved Customers for real time purchases by such Customers in accordance with the Risk Management Policies and this Agreement.
(c)
To issue Credit Cards, extend credit on Accounts and fund Cardholder Indebtedness in accordance with the Risk Management Policies and Applicable Law.
(d)
To provide the Key Program Management Resources.
(e)
To prepare Account Documentation relating to an Account and distribute an adequate supply of Credit Card Applications, Cardholder Agreements, Program Privacy Policy Notices and required legal disclosures incorporated in the foregoing to the Stores in the United States.
(f)
To comply with the terms of the Cardholder Agreements, the Program Privacy Policy Notice and all Cardholder opt-outs.
(g)
To authorize or deny requests for authorization of Transactions.
(h)
To fund all Cardholder Indebtedness under the Private Label Accounts.
(i)
To settle Transactions to Company in accordance with Section 7.3.
(j)
To process remittances from Cardholders.
(k)
To prepare, process and mail (including by e-mail) Billing Statements and Applicant and Cardholder correspondence, and, subject to Section 5.3(b), mail Inserts provided by Company.

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(l)
To maintain adequate computer and communications systems and other equipment and facilities necessary or appropriate for servicing the Accounts.
(m)
To provide appropriate field support and training for Retail Entity sales associates as reasonably requested by the Company or a Retail Entity and reasonably agreed to by Bank. All expenses incurred by Bank in connection with such field support and training shall be treated as a Program Expense.
(n)
To ensure that the Account Documentation created or furnished by Bank (excluding any materials or artwork provided by Company) and used in connection with the Program comply with Applicable Law.
(o)
To provide such support services as are necessary to ensure that Bank can operate the Program in accordance with the requirements applicable to Bank hereunder.
(p)
To establish and maintain effective controls to confirm compliance with the terms of this Agreement by its Affiliates and Subcontractors.
(q)
To monitor and notify Company of Applicable Law and changes therein that require or limit Company actions in relation to the Program.
(r)
To operate the Program in compliance with Applicable Law.
4.4
Operating Procedures .
(a)
Bank and Company each shall comply in all material respects with the Operating Procedures, and the Parties acknowledge and agree that, other than Bank’s obligation to confirm that the Operating Procedures comply with Applicable Law, for purposes of this Agreement, material compliance with the Operating Procedures shall be the Parties’ standard of care for compliance with the Operating Procedures.
(b)
See Schedule 4.4(b) .
4.5
Materials Developed and Used in Connection with the Program .
(a)
Bank shall be responsible for the content of all Credit Card Applications, Cardholder Agreements, Program Privacy Policy Notices and required legal disclosures used in connection with the Program; provided that Company shall have the right to review and approve the foregoing for design, format and use of the Company Licensed Marks. Company shall be responsible for the content, design and format of all Solicitation Materials, Credit Cards (both front and back), and advertising copy and scripts; provided that all content shall be consistent with Risk Management Policies governed by Section 4.7 and Collections Policies governed by Section 4.11, and Bank shall have the right to review and approve the foregoing to ensure that all documents and materials referenced in this Section 4.5 (the “ Program Materials ”) comply with Applicable Law.
(b)
Prior to the Program Conversion Date, the Parties shall review and approve all Program Materials in accordance with Section 4.5(a). Company shall provide Bank an opportunity to review any new Program Materials and any changes to existing Program Materials for compliance with Applicable Law and Bank shall review and approve such documents and materials within five (5) Business Days from receipt by Bank; provided , however , that

22



Company shall not use such new or revised Program Materials until affirmatively approved by Bank. Upon request of Bank, Company shall provide an opportunity for Bank review regardless of whether or not Bank has previously approved such Program Material. Prior to Company exercising any other remedies available under this Agreement, any failure of Bank to comply with the second sentence of this Section 4.5(b) shall be promptly reviewed by the Operating Committee and subject to escalation in accordance with Section 3.6.
(c)
Company Licensed Marks shall appear prominently on the face of the Credit Cards. The face of the Credit Cards shall not bear Bank’s Licensed Marks or Bank’s name. Subject to Applicable Law, Bank’s name but no other trademarks or service marks of Bank or any third party may appear on the back of the Private Label Credit Cards.
4.6
Applications for Credit Under the Program .
(a)
Applicants who wish to apply for an Account under the Program must submit a completed Credit Card Application on a form or in an electronic format provided by or approved by Bank, and Bank shall approve or deny the request for credit based solely upon the Risk Management Policies. In the case of in-store Credit Card Applications, the Retail Entities shall (i) provide a copy of the Credit Card Agreement to the Applicant, and (ii) follow any applicable Operating Procedures. When facilitating any other method of application, Company shall use commercially reasonable efforts to ensure that Company Channels follow all applicable Operating Procedures. The Credit Card Application shall be submitted to Bank by the Applicant or submitted by the Retail Entities on behalf of the Applicant, as required in the Operating Procedures.
(b)
If Bank approves a Credit Card Application, Bank will issue a Credit Card to the Applicant to access an individual line of credit in an amount determined by Bank. For Instant Credit, Bank will issue an account number which may be utilized by the Cardholder for purchases of Goods and/or Services at the time of approval and prior to the issuance of the Credit Card.
(c)
Bank shall make available the forms of Credit Card Applications specified in the Operating Procedures. Company shall provide such forms to Applicants, including any required disclosures as determined by Bank, in each case in accordance with the Operating Procedures.
4.7
Credit Underwriting and Risk Management .
(a)
The Parties shall each comply with their respective obligations according to the risk management policies, procedures and practices for the Program including policies, procedures and practices for Account origination, Transaction authorization, credit line assignment and management (including line increases and over-limit decisions), Account closures, payment crediting, anti-money laundering, identity theft, charge-offs and fraud management, and Collections Policies (collectively, “ Risk Management Policies ”), all of which shall comply with Applicable Law.
(b)
Bank shall periodically review the performance of the Program with Company as requested by Company, and shall provide Company with reasonable access to model output and modeling support including cardholder attrition models, prospect-marketing models and other tools designed to improve Program performance and evaluate the Risk Management

23



Policies and changes thereto; provided , however , that notwithstanding the foregoing, under no circumstances shall Bank be required to provide any proprietary information or scoring models of any kind.
(c)
See Schedule 4.7 .
4.8
Servicing of Accounts by Bank .
(a)
Bank shall, directly or through an Affiliate or a Subcontractor, be responsible for (i) customer service, except to the extent specifically allocated to Company hereunder, (ii) administration of the Accounts in accordance with the terms of the Account Documentation and this Agreement, (iii) performing its obligations under this Agreement in accordance with the SLAs as set forth in Schedule 4.8(a) , and (iv) providing as reasonably determined by Bank, trained personnel as are necessary or appropriate for servicing the Accounts. Bank shall consult with Company regarding the management of the customer service function and shall provide Company reasonable access to enable review of and provision of input regarding customer service activities as provided in Section A.vi of Schedule 4.8(a) and the Operating Procedures. Bank shall consider Company’s input in good faith, and shall use commercially reasonable efforts to incorporate such input to the extent permitted by Applicable Law.
(b)
See Schedule 4.8 .
(c)
A “SLA Failure” and a “SLA Termination Event” will be determined in accordance with Schedule 4.8(a) .
(d)
Customer service shall be Retail Entity-branded to the extent practicable and subject to Applicable Law; provided , however , that Bank shall have the right to take whatever steps and make such disclosures necessary to ensure that Bank is understood by the Cardholders to be the creditor on the Accounts.
(e)
Notwithstanding any arrangement whereby Bank provides services set forth herein through an Affiliate, Subcontractor or other third party, Bank shall remain obligated and liable to Company for the provision of such services without diminution of such obligation or liability by virtue of such arrangement.
4.9
In-Store Payments .
Company is hereby authorized to receive payments on Accounts in Stores in the United States. The Parties shall process In-Store Payments in accordance with the Operating Procedures. Bank has the sole right to receive and retain all payments made with respect to all Accounts and to pursue collection of all amounts outstanding, unless a Transaction is charged back to Company pursuant to the provisions of Section 4.10 (in which event Company and not Bank shall have the right to pursue such collection).

4.10
Chargebacks .
Transactions on Accounts shall be subject to chargeback solely as provided in the Operating Procedures. With respect to any amounts to be charged back, Bank will offset such amount as part of the Transaction settlement to be paid to Company, to the extent the balance thereof is sufficient, or, if such balance is not sufficient, Company shall pay to Bank in immediately available funds for the full or any partial amount of

24



such chargeback. Upon payment in full of the related amount by Company to Bank, or off-setting, as the case may be, Bank shall transfer to Company, without any representation, warranty, or recourse, all of Bank’s right to payments of such amounts charged back in connection with such Transaction. Bank will cooperate with Company in any efforts by Company to collect the chargeback amount. Bank will provide Company reasonable supporting documentation relating to any chargeback. Bank may reduce the amount owed by a Cardholder on any Transaction subject to chargeback, but the related chargeback shall then be equal to the reduced (or net) amount owed by the Cardholder.
4.11
Collections .
(a)
Bank shall be solely responsible for and shall handle all stages of collections of Accounts in accordance with Bank policies, procedures and practices for the Program with respect to collections, account closures, charge-offs, recoveries, contact strategies (including dialer intensity and frequency) and similar matters (the “ Collections Policies ”). In connection with the Conversion Plan and Launch Plan activities, Bank shall discuss the Collections Policies with Company and shall consider in good faith Company suggestions for improvements and modifications to the Collections Policies. Company may propose changes to the Collections Policies from time to time in accordance with the procedures set forth in Sections 3.5 and 3.6. Company hereby authorizes Bank, or any of its employees or Subcontractors, to endorse “Capital One, National Association” upon all or any checks, drafts, money orders, or other evidence of payment, made payable to Company or a Retail Entity and intended as payment on an Account, that may come into Bank’s possession from Cardholders and to credit said payment against the appropriate Cardholder’s Account.
(b)
See Schedule 4.11(b) .
4.12
Systems .
See Schedule 4.12 .     
4.13
Program Website .
(a)
Bank shall maintain one or more websites for Cardholders and potential Cardholders branded with the Company Licensed Marks (“ Program Website ”) in accordance with the Operating Procedures and shall be responsible for the security thereof. The Program Website shall be accessible by means of links from such website pages of Company’s Retail Entities as Company shall determine from time to time and shall: § require authorization to access the secure portions of the website; and § contain or otherwise be associated with only such material and links as Company shall determine in its discretion, subject to Applicable Law. Bank shall ensure that a link to the Program Privacy Policy Notice is posted on the Program Website. The features and functionality of the Program Website shall be as set forth in the Operating Procedures.
(b)
Bank represents and warrants that, to integrate and maintain the Web Application, to ensure access to the Bank’s designated website, and to reduce technical errors, Bank will use commercially reasonable efforts to ensure that Bank’s software providing the Web Application will function, and continue to function, in a sound technical manner. Bank shall appropriately monitor the Web Application and the Program Website to ensure proper functioning. In the event Bank changes or otherwise modifies the website address for the Program Website, Bank will provide at least thirty (30) days prior written notice and

25



Company will either update or modify its website thereto, as directed by Bank, and shall be reimbursed for the cost thereof as a Program Expense. In providing a link to the Web Application on one or more of the Retail Entities’ websites, if appropriate, the applicable Retail Entity shall make it clear and conspicuous that the Customer is leaving the Retail Entity’s website and is being directed to Bank’s website for the exclusive purpose of accessing Bank’s website. Company agrees that, in connection with the Web Application, Company and its Retail Entities will use Bank’s name, or any logo, statements, or any other information that is related to Bank, only as directed by Bank, or as previously approved by Bank in writing. Without limiting the generality of the scope of required approvals, but by way of example, Company shall seek Bank’s approval, not to be unreasonably withheld, not only with respect to content, but also with respect to any typestyle, color or abbreviations used in connection with the Web Application.
4.14
Bank Reports and Notices .
As long as this Agreement remains in effect, Bank shall deliver to Company the reports listed in the Operating Procedures, in addition to any other reports expressly required under this Agreement. Additions to such reports or changes to the timing of the delivery of such reports shall be subject to Operating Committee approval. Bank agrees to review reasonable requests from Company and provide ad hoc data support and analysis reasonably requested by Company as it relates to the Program.
4.15
Sarbanes-Oxley Compliance .
See Schedule 4.15 .     
4.16
Sales Taxes and Related Record Retention .
Company shall pay when due any sales taxes related to the sale of Goods and/or Services. The procedures to address claims for tax refunds and credits related to charged off receivables are set forth as Schedule 4.16 of this Agreement.
4.17
Reciprocal Access and Audit Rights.
See Schedule 4.17 .
4.18
Insider Fraud Prevention .
(a)
Unless prohibited by Applicable Law, Company shall report to Bank any instances of known or suspected Insider Fraud, within three (3) Business Days after it has detected known Insider Fraud or substantiated suspected Insider Fraud. Company shall provide all assistance reasonably requested by Bank for its review of any actual or potential Insider Fraud activity, and make available to Bank such data, records, systems, processes, and other information, including employment records to the extent permitted by Applicable Law, as Bank believes in good faith to be necessary or relevant to Bank’s investigation of the incident and to permit Bank to submit suspicious activity reports pursuant to Bank’s regulatory obligations.
(b)
In the event a Bank investigation confirms Insider Fraud, unless prohibited by Applicable Law, Bank shall notify Company of the nature of the Insider Fraud, including the manner in which the Insider Fraud occurs, and take appropriate remedial measures as determined by Bank in its reasonable discretion.

26



ARTICLE 5     

MARKETING OF THE PROGRAM
5.1
Company Responsibility to Market the Program .
(a)
Company shall be primarily responsible for marketing the Program and shall cause its Retail Entities to actively, prominently and frequently market the Program in Company Channels to promote its growth and viability. Company shall make all marketing decisions in its discretion, including the design of the Program, product and any Value Proposition features, card and collateral design, addition of marketing channels and other details of the Program, subject to Bank’s rights set forth in Section 3.6 and Section 4.5.
(b)
Company’s Program Marketing obligations shall include the following for each of Company’s Retail Entity brands:
(i)
Subject to Section 3.6 and Section 4.5, Company shall from time to time solicit Qualified Customers to participate in the Program;
(ii)
Establish an annual plan to invest the Fixed Marketing Fund (as defined in Schedule 8.1 ) in credit marketing related activities that are targeted to achieve a minimum retail margin and/or credit-income return on investment, such as those focused on Customer groups (e.g., new Customers, reactivated Customers);
(iii)
Integrate credit marketing with its core marketing communication strategy; and
(iv)
Establish an overall annual credit marketing plan which shall consider in good faith input from Bank.
(c)
See Schedule 5.1 .
(d)
Bank shall use commercially reasonable efforts to systematically support such Value Proposition without charge to the Program if such support can be implemented on Bank’s then-existing systems. The costs of System changes to support the Value Proposition shall be governed by Schedule 4.12 . Upon request by Company, and to the extent available, Bank shall provide Company with certain system functionality tied to the Accounts to support the Value Proposition, for matters such as recording the accumulation of loyalty points, tracking, lookup/reporting and redemption where a coupon is part of the Billing Statement. Any out-of-pocket expenses incurred by Bank in connection with such activity shall be deemed Program Expenses.
(e)
Subject to Section 3.6, Company may, in its discretion, offer other ancillary benefits or incentives to Cardholders or Customers from time to time.
5.2
Bank’s Responsibility to Market the Program .
(a)
Bank shall, in accordance with the terms of this Agreement, promote the Program, and use commercially reasonable efforts to improve Program performance, and the use of Credit Cards to purchase Goods and/or Services, in all cases in compliance with Applicable Law and Bank’s or its Affiliate’s agreements with third parties. In connection with such efforts, as reasonably requested by Company, Bank shall § conduct marketing research and other

27



related marketing efforts on behalf of Company based upon the customer databases and customer database analysis tools maintained by or on behalf of Bank and its Affiliates and Subcontractors, including aggregate transaction and experience data across Bank’s credit card portfolios (with any third party costs funded by the Fixed Marketing Fund (as defined in Section 1.e. of Schedule 8.1 )); § make suggestions regarding available systems technology to improve effectiveness of the Value Proposition and enhance sales, provided that any additional costs associated with implementing any changes to systems technology shall be Program Expenses; and § provide results of Bank’s modeling and market research, in each case to the extent permitted by Applicable Law and contractual obligations of Bank and its Affiliates; provided , however , that notwithstanding the foregoing, under no circumstances shall Bank be required to provide any proprietary information or scoring models of any kind.
(b)
At Company’s option, Bank shall work with Company’s Retail Entities, in good faith, to identify marketing opportunities within Bank’s franchise to promote the Goods and/or Services of the applicable Retail Entities, and offer joint marketing opportunities with Bank’s other non-competing products and services. The Parties shall execute any such marketing campaigns upon terms and conditions mutually agreed upon by the Parties.
5.3
Communications with Cardholders .
(a)
Bank Communication . Bank may communicate with Cardholders, through statement inserts, statement messages or otherwise, including, to the extent reasonably available, the use of bangtails, as reasonably necessary to service the Accounts or as required by Applicable Law. Notwithstanding anything to the contrary in this Section 5.3, any such communication by Bank that is required by Applicable Law shall take precedence over any or all communications provided by Company.
(b)
Company Inserts . Subject to Applicable Law, Section 5.3(a) and Bank’s system specifications, Company shall have the exclusive right to communicate with Cardholders through use of inserts, fillers and other means made available by Bank (collectively, “ Inserts ”), including Inserts selectively targeted for particular classes of Cardholders, in any and all Billing Statements (including print and electronic Billing Statements). Notwithstanding the foregoing, any Insert required by Applicable Law shall take precedence over any Company Inserts and shall be the responsibility of Bank. Company shall be responsible for the content and “look and feel” of, and the cost of preparing and printing any Inserts, excluding Inserts required by Applicable Law, and the increased cost of postage caused by such Insert shall be treated as a Program Expense.
(c)
Billing Statement Messages . Subject to Applicable Law, Section 5.3(a) and Bank’s systems specifications, Company shall have the exclusive right to use Billing Statement messages and Billing Statement envelope messages in each Billing Cycle to communicate with Cardholders. Notwithstanding the foregoing, the following messages shall take precedence over any Company messages: § any message required by Applicable Law, and § collection and/or customer service messages. Company shall be responsible for preparing the content of all Billing Statement messages, excluding those set forth in clauses (i) and (ii) which shall be Bank’s responsibility.
(d)
Other Communications . Subject to Applicable Law including Cardholder opt-out rights, Section 5.3(a) and Bank’s systems specifications, Company shall have the exclusive right

28



to communicate with Cardholders through direct mail (including through catalogs, invitations, newsletters, and postcards), e-mail, telephone messaging, text messaging, and any other communication channel that Company deems appropriate. Company may communicate with Cardholders through these channels about any aspect of the Program, including any Value Proposition, and any other subject matter, in Company’s discretion, subject to Applicable Law.
(e)
Substance of Communications . Subject to Applicable Law, Company may use the methods of Cardholder communication described in this Section 5.3 to promote the Program, Goods and/or Services, and any other products or services in Company’s discretion.
(f)
Bank Review . For the avoidance of doubt, all Company communications pursuant to this Section 5.3 related to the Program shall be deemed Program Materials and subject to Bank review as set forth in Section 4.5(a). Company communications to its customer base which may include Cardholders ( i.e. not just specifically targeted to Cardholders) that do not mention the Credit Cards or the Program shall not be Program Materials and shall not be subject to Bank review.
5.4
Protection Programs and Enhancement Products .
See Schedule 5.4 .     
ARTICLE 6     

CARDHOLDER AND CUSTOMER INFORMATION
6.1
Customer Information .
See Schedule 6.1 .     
6.2
Cardholder Data .
See Schedule 6.2 .     
6.3
Customer Data .
See Schedule 6.3 .     
6.4
Data Security .
See Schedule 6.4 .     
ARTICLE 7     

MERCHANT SERVICES
7.1
Honoring Credit Cards .
(a)
Company agrees that Company’s Retail Entities will honor any Credit Card and/or Account properly issued and authorized by Bank under the Program at the Company Channels to which Credit Cards and/or Accounts relate inside the United States and, at Company’s option, in Canada in accordance with Schedule 2.4 .

29



(b)
The Parties shall support Cross-Shopping to the extent provided in the Operating Procedures and supported by Bank’s systems. Bank represents that its systems can accept Cross-Shopping Transactions to the extent that the relevant Company Channel is able to transmit such Transactions to Bank in the same format as Transactions that are not Cross-Shopping Transactions.
7.2
Transmittal and Authorization of Charge Transaction Data .
(a)
The Retail Entities shall electronically transmit all Charge Transaction Data to Bank in accordance with the Operating Procedures.
(b)
Bank shall authorize or decline Transactions on a real time basis, including Transactions involving split-tender ( i.e. , a portion of the total transaction amount is billed to a Credit Card and the remainder is paid through one or more other forms of payment).
7.3
Settlement Procedures .
Bank will settle Transactions charged to Private Label Accounts as set forth in the Operating Procedures, without discount.
7.4
Returns of Goods and/or Services .
If a Cardholder purchases Goods and/or Services on an Account and a Retail Entity processes a return of such Goods and/or Services in accordance with the return policy of such Retail Entity or makes another adjustment such as a price reduction, the relevant Retail Entity shall provide a credit to such Cardholder’s Account. The relevant Retail Entity will transmit the relevant information in the Charge Transaction Data for inclusion in the daily settlement process.
ARTICLE 8     

PROGRAM ECONOMICS
8.1
Monthly Statement of Bank .
(a)
See Schedule 8.1 .
(b)
Bank may include in the monthly statement any other amounts owed between the Parties as explicitly provided for herein or as otherwise agreed by the Parties in writing with line item specificity, which amounts may be netted.
8.2
Compensation .
See Schedule 8.2 .     
ARTICLE 9     

LICENSING OF TRADEMARKS; INTELLECTUAL PROPERTY
9.1
The Company Licensed Marks .
(a)
Grant of License to Use the Company Licensed Marks . Company and its Affiliates hereby grant to Bank a non-exclusive, royalty-free, non-transferable, non-sublicensable (except

30



as specified in this Section 9.1) right and license to use the Company Licensed Marks in the United States solely in connection with the creation, establishment, marketing and administration of, and the provision of services related to, the Program, all pursuant to, and in accordance with, this Agreement and any applicable Trademark Style Guide. Those services shall include the issuance and reissuance of Credit Cards, the provision of Billing Statements and other correspondence relating to Accounts, the extension of credit to Cardholders, and the advertisement or promotion of the Program. All use of the Company Licensed Marks shall be approved by Company. The license hereby granted is solely for the use of Bank and may be used as necessary to permit the exercise by Bank of any of its rights under this Agreement to delegate obligations to Affiliate(s) and/or Subcontractors. Bank may sublicense the use of Company Licensed Marks to any Affiliate or Subcontractor performing the following Bank obligations under this Agreement solely as necessary to perform such obligations: production of plastics, statements and other Cardholder correspondence and collections; provided that such Affiliate or Subcontractor agrees to comply with all of the standards specified herein and the limitations on the use of the Company Licensed Marks contained in this Section. Except for the rights granted to Bank in the preceding sentence, the license granted hereby may not be sublicensed without the prior written approval of Company.
(b)
New Marks . If Company or its Affiliates adopt a trademark, trade name, service mark logo or other proprietary mark which is used by Company or its Affiliates in connection with the Program but which is not listed on Schedule C (a “ New Mark ”), Company, upon written notice to Bank, may add such New Mark to Schedule C . If Bank requests that Company add a New Mark to Schedule C and license its use hereunder, Company may do so in its sole discretion, and any New Mark requested by Bank and agreed by Company shall be added to Schedule C by amendment of this Agreement.
(c)
Termination of License . The license granted in this Section with respect to any Company Licensed Mark shall terminate six (6) months after the later of § the Portfolio Purchase Date related to such Company Licensed Mark or § termination of this Agreement with respect to the relevant Portfolio. Upon such termination of this license, as provided in this Section 9.1(c), all rights of Bank to use the Company Licensed Mark(s) shall terminate, the goodwill connected therewith shall remain the property of Company and its Affiliates, and Bank shall: (A) discontinue immediately all use of the Company Licensed Mark(s), or any of them, and any colorable imitation thereof; and (B) delete the Company Licensed Mark(s) from or, at Bank’s option, destroy all unused Credit Cards, Account Documentation, periodic statements, materials, displays, advertising and sales literature and any other items bearing any of the Company Licensed Mark(s). During the six (6) month period referenced above, Bank may use the Company Licensed Mark(s) in accordance with this Agreement only as necessary to effect the relevant transition associated with clause (i) or (ii). Notwithstanding the foregoing, Bank shall be expressly permitted to continue to use Company Licensed Marks after termination of the aforementioned license provided such use constitutes nominative fair use under the Lanham Act (15 U.S.C. §1501 et seq .) or common law.
(d)
Ownership of the Company Licensed Marks . Bank acknowledges that § the Company Licensed Marks, all rights therein, and the goodwill associated therewith, are, and shall remain, the exclusive property of Company and its Affiliates, § it shall take no action which will adversely affect Company and its Affiliates’ exclusive ownership of the Company

31



Licensed Marks, or the goodwill associated with the Company Licensed Marks (it being understood that the collection of Accounts, adverse action letters, and changes in terms of Accounts as required by Applicable Law do not adversely affect goodwill, if done in accordance with the terms of this Agreement), and § any and all goodwill arising from use of the Company Licensed Marks by Bank shall inure to the benefit of Company and its Affiliates. Nothing herein shall give Bank any proprietary interest in or to the Company Licensed Marks, except the right to use the Company Licensed Marks in accordance with this Agreement, and Bank shall not contest Company’s or its Affiliates’ title in and to the Company Licensed Marks.
(e)
Infringement by Third Parties . Bank shall notify Company, in writing, in the event that it has Knowledge of any infringing use of any of the Company Licensed Marks by any third party. If any of the Company Licensed Marks is infringed, Company alone has the right, in its sole discretion, to take whatever action it deems necessary to prevent such infringing use; provided , however , that if Company fails to take reasonable steps to prevent infringement of the Company Licensed Marks and such infringement has or is reasonably expected to have an adverse effect upon the Program or the rights of Bank hereunder, Bank may request that Company take action necessary to alleviate such adverse impact. Consideration of the Bank’s request is at the Company’s sole discretion. Bank shall reasonably cooperate with and assist Company, at Company expense, in the prosecution of those actions that Company determines, in its sole discretion, are necessary or desirable to prevent the infringing use of any of the Company Licensed Marks.
9.2
The Bank Licensed Marks .
(a)
Grant of License to Use the Bank Licensed Marks . Bank hereby grants to each Retail Entity that signs an Accession Agreement a non-exclusive, royalty-free, non-transferable, non-sublicensable (except as specified in this Section 9.2) right and license to use the Bank Licensed Marks in the United States solely in connection with the creation, establishment, marketing and administration of, and the provision of services related to, the Program, all pursuant to, and in accordance with, this Agreement and any applicable Trademark Style Guide. Those services shall include the solicitation of Cardholders and the advertisement or promotion of the Program. All use of the Bank Licensed Marks shall be approved by Bank. The license hereby granted is solely for the use of such Retail Entity and may be used as necessary to permit the exercise by Company of any of its rights under this Agreement to delegate obligations to Affiliate(s) and/or Subcontractors. Such Retail Entity may sublicense the use of Bank Licensed Marks to any Affiliate or Subcontractor performing Company’s obligations under this Agreement; provided that such Affiliate or Subcontractor agrees to comply with all of the standards specified herein and the limitations on the use of the Bank Licensed Marks contained in this Section. Except for the rights granted to each Retail Entity in the preceding sentence, the license granted hereby may not be sublicensed without the prior written approval of Bank.
(b)
New Marks . If Bank adopts a trademark, trade name, service mark logo or other proprietary mark which is used by Bank in connection with its extension of bank card credit to customers but which is not listed on Schedule A hereto (a “ New Mark ”), Company may request that Bank add such New Mark to Schedule A hereto and license its use hereunder. Bank may do so in its sole discretion, and such New Mark shall be added to Schedule A by amendment of this Agreement. The foregoing notwithstanding, it is understood and agreed that Bank

32



shall not be required to add a New Mark to Schedule A if such New Mark was developed by Bank primarily for another charge, credit or debit program.
(c)
Termination of License . The license granted in this Section shall terminate six (6) months after the later of § the final Portfolio Purchase Date or § termination of this Agreement. Upon such termination of this license, as provided in this Section 9.2(c), all rights of the relevant Retail Entity to use the Bank Licensed Marks shall terminate, the goodwill connected therewith shall remain the property of Bank, and the relevant Retail Entity shall: (A) discontinue immediately all use of the Bank Licensed Marks, or any of them, and any colorable imitation thereof; and (B) at Company option, delete the Bank Licensed Marks from or destroy all unused Credit Card Applications, Account Documentation, periodic statements, materials, displays, advertising and sales literature and any other items bearing any of the Bank Licensed Marks. During the six (6) month period referenced above, the relevant Retail Entity may use the Bank Licensed Marks in accordance with this Agreement only as necessary to effect the relevant transition associated with clause (i) or (ii). Notwithstanding the foregoing, Company shall be expressly permitted to continue to use Bank Licensed Marks after termination of the aforementioned license provided such use constitutes nominative fair use under the Lanham Act (15 U.S.C. §1501 et seq .) or common law.
(d)
Ownership of the Bank Licensed Marks . Company acknowledges that § the Bank Licensed Marks, all rights therein, and the goodwill associated therewith, are, and shall remain, the exclusive property of Bank, § it shall take no action which will adversely affect Bank’s exclusive ownership of the Bank Licensed Marks or the goodwill associated with the Bank Licensed Marks, and § any and all goodwill arising from use of the Bank Licensed Marks by the Retail Entities shall inure to the benefit of Bank. Nothing herein shall give Company any proprietary interest in or to the Bank Licensed Marks, except the right to use the Bank Licensed Marks in accordance with this Agreement, and Company shall not contest Bank’s title in and to the Bank Licensed Marks.
(e)
Infringement by Third Parties . Company shall notify Bank, in writing, in the event that it has Knowledge of any infringing use of any of the Bank Licensed Marks by any third party. If any of the Bank Licensed Marks is infringed, Bank alone has the right, in its sole discretion, to take whatever action it deems necessary to prevent such infringing use; provided , however , that if Bank fails to take reasonable steps to prevent infringement of the Bank Licensed Marks and such infringement has or is reasonably expected to have an adverse effect upon the Program or the rights of Company hereunder, Company may request that Bank take action necessary to alleviate such adverse impact. Consideration of the Company’s request is at the Bank’s sole discretion. Company shall reasonably cooperate with and assist Bank, at Bank’s expense, in the prosecution of those actions that Bank determines, in its sole discretion, are necessary or desirable to prevent the infringing use of any of the Bank Licensed Marks.
9.3
Ownership of Intellectual Property .
(a)
Ownership of Intellectual Property . Each Party shall continue to own all of its Intellectual Property that existed as of the Original Effective Date. Each Party shall own all right, title and interest in the Intellectual Property that it develops independently of the other party during the Term.

33



(b)
See Schedule 9.3 .
ARTICLE 10     

REPRESENTATIONS, WARRANTIES AND COVENANTS
10.1
General Representations and Warranties of Company .
To induce Bank to establish and administer the Program, Company on behalf of itself and each Retail Entity to the extent specified below hereby makes the following representations and warranties to Bank as of the Original Effective Date, and each and all of which (except with respect to the representations and warranties in Section 10.1(c)(v), which are made solely as of the Original Effective Date and the Justice Closing Date, if the Justice Closing Date is the first Closing Date, and Section 10.1(g) (No Litigation), which is made solely as of the Original Effective Date, the Justice Conversion Date, and each Closing Date), shall be deemed to be restated and remade on each day during the Term.
(a)
Corporate Existence . Company and each Retail Entity § is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation; § is duly licensed or qualified to do business as a corporation and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted or proposed to be conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary to perform its obligations required hereunder except to the extent that its non-compliance would not have a material and adverse effect on Company’s ability to perform its obligations hereunder; and § has all necessary licenses, permits, consents or approvals from or by, and has made all necessary notices to, all Governmental Authorities having jurisdiction, to the extent required for Company’s or a Retail Entity’s current ownership, lease or conduct and operation and to perform its obligations under this Agreement, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to provide such notices would not have a material and adverse effect on Company’s or a Retail Entity’s ability to perform its obligations required hereunder.
(b)
Capacity; Authorization; Validity . Company has all necessary corporate power and authority to § execute and enter into this Agreement, and § perform, or cause to be performed, the obligations required of Company and each Retail Entity under this Agreement and the other documents, instruments and agreements executed by Company or a Retail Entity pursuant hereto. The execution and delivery by Company of this Agreement and all documents, instruments and agreements executed and delivered by Company or a Retail Entity pursuant hereto, and the consummation by Company of the transactions specified herein have been duly and validly authorized and approved by all necessary corporate action of Company. This Agreement (A) has been duly executed and delivered by Company, (B) constitutes the valid and legally binding obligation of Company, and (C) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).
(c)
Conflicts; Defaults; Etc . The execution, delivery and performance of this Agreement by Company and the Accession Agreement by each Retail Entity, its compliance with the terms hereof and thereof, and its consummation of the transactions specified herein and

34



therein with respect to each Conversion Date as applicable, and the closing of each Purchase Agreement will not § conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any material contract, instrument or agreement, including the Existing Issuer Agreements, to which Company or the Retail Entity, as applicable, is a party or by which it is bound except for conflicts, breaches and defaults which would not have a material and adverse effect upon Company’s or the Retail Entity’s, as applicable, ability to perform its obligations under this Agreement; § conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document(s), of Company or the Retail Entity, as applicable; § violate any Applicable Law, or conflict with or require any consent or approval under any judgment, order, writ, decree, permit or license, to which Company or the Retail Entity, as applicable, is a party or by which it is bound or affected, except to the extent that such violation or the failure to obtain such consent or approval would not have a material and adverse effect upon Company’s or the Retail Entity’s, as applicable, ability to perform its obligations under this Agreement or the Accession Agreement; § require the consent or approval of any other party to any contract, instrument or commitment to which Company or the Retail Entity, as applicable, is a party or by which it is bound, except to the extent that the failure to obtain such consent or approval would not have a material and adverse effect upon Company’s or the Retail Entity’s, as applicable, ability to perform its obligations under this Agreement or the Accession Agreement; or § to the Knowledge of Company after consultation with counsel, require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any regulatory authority by Company, except to the extent that the failure to obtain such consent or approval would not have a material and adverse effect upon Company or the Retail Entity, as applicable, the Program, the Accounts, the Cardholder Indebtedness or Company’s or the Retail Entity’s, as applicable, ability to perform its obligations under this Agreement.
(d)
Solvency . Company and each Retail Entity is Solvent.
(e)
No Default . Neither Company nor, to the best of its Knowledge, any of its Affiliates is in default with respect to any contract, agreement, lease, or other instrument to which it is a party or by which it is bound, except for defaults which would not have a material and adverse effect upon Company’s ability to perform its obligations under this Agreement, nor has Company received any notice of default under any such contract, agreement, lease or other instrument which default or notice of default would materially and adversely affect the performance by Company of its obligations under this Agreement.
(f)
Books and Records . All of Company’s and, to the best of its Knowledge, its Affiliates’ records, files and books of account relating to the Program are in all material respects complete and correct and are maintained in accordance with Applicable Law.
(g)
No Litigation . No action, claim or any litigation, proceeding, arbitration, investigation or controversy is pending or, to the best of Company’s Knowledge, threatened against Company or its Affiliates, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government, or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators which, if adversely determined, could have a material and adverse effect on Company’s ability to perform its obligations under this Agreement.

35



(h)
Company Licensed Marks . Company or an Affiliate of Company is the owner of the Company Licensed Marks and Company has the right, power and authority to license to Bank and authorized designees the use of the Company Licensed Marks in connection with the Program, and the use of the Company Licensed Marks by said licensees in a manner approved (or deemed approved) by Company shall not § violate any Applicable Law or § infringe upon the right(s) of any third party.
(i)
Portfolio Purchase . Company has the full right and authority, subject to the terms of the respective Existing Issuer Agreements, to permit Bank to purchase each Existing Issuer Portfolio as contemplated pursuant to the terms of this Agreement. Nothing in any Existing Issuer Agreement provides the Existing Issuer the right to refuse to consummate the sale to Bank of the respective Existing Issuer Portfolio following the expiration or termination of such Existing Issuer Agreement, provided that Company and Bank each has performed its respective obligations under this Agreement with respect to the purchase by Bank of each Existing Issuer Portfolio.
(j)
ABL Agreement . Company has obtained all necessary consents or approvals required under the ABL Agreement to enter into this Agreement.
10.2
General Representations and Warranties of Bank .
To induce Company to enter into this Agreement and participate in the Program, Bank hereby makes the following representations and warranties to Company as of the Original Effective Date, and each and all of which (except with respect to the representations and warranties in Section 10.2(g) (No Litigation), which are made solely as of the Original Effective Date, the Justice Conversion Date, and each Closing Date and except with respect to the representations and warranties in Section 10.2(c)(v), which are made solely as of the Original Effective Date and the Justice Closing Date, if the Justice Closing Date is the first Closing Date), shall be deemed to be restated and remade on each day during the Term.
(a)
Corporate Existence . Bank § is a national banking association duly organized, validly existing, and in good standing under the laws of the United States with its home office as indicated in the first paragraph of this Agreement; § is duly licensed or qualified to do business as a banking corporation and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted or proposed to be conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary to perform its obligations hereunder except to the extent that its non-compliance would not have a material and adverse effect on Bank’s ability to perform its obligations hereunder; and § has all necessary licenses, permits, consents, or approvals from or by, and has made all necessary notices to, all Governmental Authorities having jurisdiction, to the extent required for Bank’s current ownership, lease or conduct and operation and to perform its obligations under this Agreement, except to the extent that the failure to obtain such licenses, permits, consents, or approvals or to provide such notices would not have a material and adverse effect on Bank’s ability to perform its obligations under this Agreement.
(b)
Capacity; Authorization; Validity . Bank has all necessary power and authority to § execute and enter into this Agreement, and § perform all of the obligations required of Bank under this Agreement and the other documents, instruments and agreements executed by Bank pursuant hereto. The execution and delivery by Bank of this Agreement and all documents, instruments and agreements executed and delivered by Bank pursuant hereto, and the

36



consummation by Bank of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate action of Bank. This Agreement (A) has been duly executed and delivered by Bank, (B) constitutes the valid and legally binding obligation of Bank, and (C) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and financial institutions in particular and by general equity principles including those respecting the availability of specific performance).
(c)
Conflicts; Defaults; Etc . The execution, delivery and performance of this Agreement and the Accession Agreement for each Retail Entity by Bank, its compliance with the terms hereof and thereof, and the consummation of the transactions specified herein and therein with respect to each Conversion Date, and the closing of each Purchase Agreement will not § conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any material contract, instrument or agreement to which Bank is a party or by which it is bound, except for conflicts, breaches and defaults which would not have a material and adverse effect upon Bank’s ability to perform its obligations under this Agreement; § conflict with or violate the articles of incorporation or by-laws, or any other equivalent organizational document(s) of Bank; § violate any Applicable Law, or conflict with or require any consent or approval under any judgment, order, writ, decree, permit or license, to which Bank is a party or by which it is bound or affected, except to the extent that such violation or the failure to obtain such consent or approval would not have a material and adverse effect upon Bank’s ability to perform its obligations under this Agreement or the Accession Agreement; § require the consent or approval of any other party to any contract, instrument or commitment to which Bank is a party or by which it is bound, except to the extent that the failure to obtain such consent or approval would not have a material and adverse effect upon Bank’s ability to perform its obligations under this Agreement or the Accession Agreement; or § to the Knowledge of Bank after consultation with counsel require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any regulatory authority by Bank, except to the extent that the failure to obtain such consent or approval would not have a material and adverse effect upon the Program, the Accounts, the Cardholder Indebtedness or Bank’s ability to perform its obligations under this Agreement.
(d)
Solvency . Bank is Solvent.
(e)
No Default . Neither Bank nor, to the best of its Knowledge, any of its Affiliates is in default with respect to any contract, agreement, lease, or other instrument to which it is a party or by which it is bound, except for defaults which would not have a material and adverse effect upon Bank, the Program, Accounts, Cardholder Indebtedness or Bank’s ability to perform its obligations under this Agreement, nor has Bank received any notice of default under any such contract, agreement, lease or other instrument which default or notice of default would materially and adversely affect the performance by Bank of its obligations under this Agreement.
(f)
Books and Records . All of Bank’s and, to the best of its Knowledge, its Affiliates’ records, files and books of account relating to the Program are in all material respects complete and correct and are maintained in accordance with Applicable Law.

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(g)
No Litigation . No action, claim, or any litigation, proceeding, arbitration, investigation or controversy is pending or, to the best of Bank’s Knowledge, threatened against Bank or its Affiliates, at law, in equity or otherwise, before any court, board, commission, agency or instrumentality of any federal, state, or local government or of any agency or subdivision thereof or before any arbitrator or panel of arbitrators which, if adversely determined, could have a material and adverse effect on Bank’s ability to perform its obligations under this Agreement. Bank, further, is not the subject of any action by a regulatory authority; and is not subject to any agreement, orders or directives with any regulatory authority with respect to its operations affecting Accounts, Cardholder Indebtedness and the Program, any other aspect of Bank’s business that relates to the Program or the ability of Bank to consummate the transactions specified herein or perform its obligations hereunder.
(h)
FDIC Insurance . Bank is FDIC-insured, and to the best of Bank’s Knowledge, no proceeding is contemplated to revoke such insurance.
(i)
Bank Licensed Marks . Bank or an Affiliate of Bank is the owner of the Bank Licensed Marks and Bank has the right, power and authority to license to Company and authorized designees the use of the Bank Licensed Marks in connection with the Program, and the use of the Bank Licensed Marks by said licensees in a manner approved (or deemed approved) by Bank shall not § violate any Applicable Law or § infringe upon the right(s) of any third party.
10.3
General Covenants of Company .
Company makes the following covenants to Bank, each and all of which shall survive the execution and delivery of this Agreement:
(a)
Maintenance of Existence and Conduct of Business . Company shall preserve and keep in full force and effect its corporate existence other than in the event of a Change in Control or merger or consolidation in which Company is not the surviving entity.
(b)
Litigation . Company promptly shall notify Bank in writing if it receives written notice of any litigation that, if adversely determined, would have a material and adverse effect on the Program, the Accounts in the aggregate or Company’s ability to perform its obligations hereunder.
(c)
Enforcement of Rights . Except as otherwise specified herein, Company shall use commercially reasonable efforts to enforce its rights against third parties to the extent that a failure to enforce such rights could reasonably be expected to materially and adversely affect the Program, the Accounts in the aggregate or Company’s ability to perform its obligations hereunder.
(d)
Compliance . Subject to Section 4.3(q), Company and each Retail Entity shall at all times during the Term comply in all material respects with Applicable Law affecting obligations under this Agreement.
(e)
Books and Records . Company and each Retail Entity shall keep adequate records and books of account with respect to all Transactions and the Value Proposition, in each case in which proper entries are made in accordance with GAAP, which books and records shall be complete and accurate in all material respects.

38



(f)
Affiliate/Subcontractor Compliance . Company shall, to the extent necessary, cause its Affiliates and Subcontractors to comply with the terms of this Agreement.
(g)
Insurance . See Schedule 10.3(g) .         
(h)
The carrying by Company of the insurance required herein shall in no way be interpreted as relieving Company of any other obligations it may have under this Agreement. Company shall, at all times during the Term, provide a certificate of insurance at all times naming Bank as additional insured or loss payee, except with respect to Company’s cyber-insurance policy. The limits in this Agreement shall be those stipulated or those carried by Company.
(i)
Rebranding . See Schedule 10.3(i) .     
(j)
Future Representations Approvals . See Schedule 10.3(j) .
10.4
General Covenants of Bank .
Bank makes the following covenants to Company, each and all of which shall survive the execution and delivery of this Agreement:
(a)
Maintenance of Existence and Conduct of Business . Bank shall preserve and keep in full force and effect its corporate existence other than in the event of a Change in Control or merger or consolidation in which Bank is not the surviving entity.
(b)
Litigation . Bank promptly shall notify Company in writing if it receives written notice of any litigation that, if adversely determined, would have a material and adverse effect on the Program, the Accounts in the aggregate or Bank’s ability to perform its obligations hereunder.
(c)
Enforcement of Rights . Except as otherwise specified herein, Bank shall use commercially reasonable efforts to enforce its rights against third parties to the extent that a failure to enforce such rights could reasonably be expected to materially and adversely affect the Program, the Accounts in the aggregate or Bank’s ability to perform its obligations hereunder.
(d)
Compliance . Bank shall at all times during the Term comply in all material respects with Applicable Law, the Risk Management Policies and the Collections Policies. Bank shall at all times during the Term maintain its national bank charter and FDIC insurance.
(e)
Books and Records . Bank shall keep adequate records and books of account in with respect to the Program, in which proper entries are made in accordance with GAAP, which records and books of account shall be complete and accurate all material respects.
(f)
Affiliate/Subcontractor Compliance . Bank shall, to the extent necessary, cause its Affiliates and Subcontractors to comply with the terms of this Agreement.
(g)
Future Representations Approvals . See Schedule 10.4(g) .

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ARTICLE 11     

CONFIDENTIALITY
11.1
General Confidentiality .
(a)
For purposes of this Agreement, “ Confidential Information ” means all of the following: § information that is provided by or on behalf of either Company or Bank to the other Party or its Subcontractors in connection with the Program; or § information about Company or Bank or their Affiliates, or their respective businesses or employees, that is otherwise obtained by the other party in connection with the Program, in each case including: (A) information concerning marketing plans, objectives and financial results; (B) information regarding business systems, methods, processes, financing data, programs and products; (C) information unrelated to the Program obtained by Company or Bank in connection with this Agreement, including by accessing or being present at the business location of the other party; (D) proprietary technical information, including source code; and (E) information about Credit Card usage and Program performance that does not contain Personally Identifiable Information of Cardholders, which shall solely be the Confidential Information of Company. Confidential Information shall include Cardholder Data and Customer Data, but the use, disclosure and return/destruction of such information shall be governed by ARTICLE 6.
(b)
The restrictions on disclosure of Confidential Information under this ARTICLE 11 shall not apply to, with respect to Company or Bank, information that: § is already rightfully known to such Party at the time it obtains Confidential Information from the other Party; § is or becomes generally available to the public other than as a result of disclosure in breach of this Agreement or any other confidentiality obligations; § is lawfully received on a non-confidential basis from a third party authorized to disclose such information without restriction and without breach of this Agreement; § is contained in, or is capable of being discovered through examination of publicly available records or products; § is required to be disclosed by Applicable Law ( provided that, except for any disclosure required by the SEC or pursuant to applicable stock exchange rules or regulations, the Party subject to such Applicable Law shall notify the other Party of any such use or requirement prior to disclosure of any Confidential Information obtained from the other Party in order to afford such other Party an opportunity to seek a protective order to prevent or limit disclosure of the Confidential Information to third parties and shall disclose Confidential Information of the other party only to the extent required by such Applicable Law; and provided , further , that if a Party intends to file this Agreement or any other documents related to the Program as an exhibit to any report or other filing with the SEC, such Party shall file with an application requesting confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934); or § is developed by Company or Bank without the use of any proprietary, non-public information provided by the other Party under this Agreement. Nothing herein shall be construed to permit the Receiving Party (as defined below) to disclose to any third party any Confidential Information that the Receiving Party is required to keep confidential under Applicable Law.
(c)
The terms and conditions of this Agreement shall be the Confidential Information of both Company and Bank. Company may, with the prior written consent of Bank (such consent not to be unreasonably withheld) only disclose as required under the ABL Agreement a redacted copy of the Agreement with JPMorgan Chase Bank, N.A. (and Bank acknowledges

40



that JPMorgan Chase Bank, N.A. or Company may share such redacted copy with other parties as provided under the ABL Agreement) if such Agreement is redacted in a manner substantially similar to (and in any event, no more than) the redactions reflected in the Private Label Credit Card Program Agreement publicly released by Kohl’s Department Stores, Inc. as Exhibit 10.1 of the Form 10-Q filing with the Securities and Exchange Commission for the quarter ended July 31, 2010, provided that no element of the process hereunder for settling transactions for the purchases of goods or services or receipt of payments (or returns/credits/exchanges for payments) in stores is redacted.
(d)
If Company or Bank receive Confidential Information of the other Party (“ Receiving Party ”), the Receiving Party shall do the following with respect to the Confidential information of the other Party (“ Disclosing Party ”): § keep the Confidential Information of the Disclosing Party secure and confidential; § treat all Confidential Information of the Disclosing Party with the same degree of care as it accords its own Confidential Information, but in no event less than a reasonable degree of care; and § implement and maintain commercially reasonable physical, electronic, administrative and procedural security measures, including commercially reasonable authentication, access controls, virus protection and intrusion detection practices and procedures.
11.2
Use and Disclosure of Confidential Information .
(a)
Each Receiving Party shall use and disclose the Confidential Information of the Disclosing Party only for the purpose of performing its obligations or enforcing its rights with respect to the Program and this Agreement or as otherwise expressly permitted by this Agreement, and shall not accumulate in any way or make use of such Confidential Information for any other purpose.
(b)
Each Receiving Party shall: § limit access to the Disclosing Party’s Confidential Information to those employees and Subcontractors who have a reasonable need to access such Confidential Information in connection with the Program; and § ensure that any Person with access to the Disclosing Party’s Confidential Information agrees to be bound by contractual commitments of confidentiality or professional obligations at least as protective of Confidential Information as the provisions of this ARTICLE 11 and maintains the existence of this Agreement and the nature of their obligations hereunder strictly confidential.
(c)
Bank shall use all Confidential Information of Company, including Company marketing plans, marketing campaign results, and reports, solely for the benefit of the Program and Company.
(d)
Information about Program strategy (including marketing strategy, acquisition strategy and use of technology or systems) shall not be shared with Bank employees who manage or have the ability to influence decisions or develop strategies for the Bank credit card portfolios of Designated Retailers.
11.3
Unauthorized Use or Disclosure of Confidential Information .
Each Receiving Party agrees that any unauthorized use or disclosure of Confidential Information of the Disclosing Party might cause immediate and irreparable harm to the Disclosing Party for which money damages might not constitute an adequate remedy. In that event, the Receiving Party agrees that injunctive

41



relief may be warranted in addition to any other remedies the Disclosing Party may have. In addition, the Receiving Party agrees promptly to advise the Disclosing Party by telephone and in writing pursuant to Section 17.12, each pursuant to the principles outlined in Section (b) of Schedule 6.4 , of any security breach that may have compromised any Confidential Information, or any unauthorized misappropriation, disclosure or use by any Person of the Confidential Information of the Disclosing Party which may come to its attention, and to take all steps at its own expense reasonably requested by the Disclosing Party to limit, stop or otherwise remedy such misappropriation, disclosure or use.
11.4
Return or Destruction of Confidential Information .
Upon the termination or expiration of this Agreement, the Receiving Party shall comply with the Disclosing Party’s reasonable instructions regarding the disposition of the Disclosing Party’s Confidential Information, which may include the return or destruction of any and all the Disclosing Party’s Confidential Information (including any electronic or paper copies, reproductions, extracts or summaries thereof); provided , however , the Receiving Party in possession of tangible property containing the Disclosing Party’s Confidential Information may retain, subject to the terms of this Agreement, § such Confidential Information as may be present in backup systems from which it cannot reasonably be deleted, and § one archived copy of such Confidential Information which may be used solely for regulatory purposes and may not be used for any other purpose. Such compliance shall be certified in writing, including a statement that no copies of Confidential Information have been kept, except as provided herein.

ARTICLE 12     
See Schedules 12.1 – 12.4 .

ARTICLE 13     

EVENTS OF DEFAULT; RIGHTS AND REMEDIES
See Schedules 13.1 – 13.4 .

ARTICLE 14     

TERM/TERMINATION
See Schedules 14.1 – 14.5 .

ARTICLE 15     

EFFECTS OF TERMINATION
See Schedule 15.1 – 15.3 .


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ARTICLE 16     

INDEMNIFICATION
16.1
Company Indemnification of Bank .
From and after the Original Effective Date, Company shall indemnify and hold harmless Bank, its Affiliates, their respective officers, directors, employees, agents, Subcontractors and representatives and any Person claiming by or through any of them (collectively, the “ Bank Indemnified Parties ”) from and against and in respect of any and all losses, liabilities, damages, costs and expenses of whatever nature, including reasonable attorneys’ fees and expenses (collectively, “ Losses ”) relating to third-party claims, which are caused or incurred by, result from, arise out of or relate to:
(a)
Company’s or any of its Affiliates’ or Subcontractors’ gross negligence, recklessness or willful misconduct (including acts and omissions) relating to the Program;
(b)
any breach by Company or any of its Affiliates or Subcontractors, or their respective officers, directors, employees or agents of any of the terms, conditions, covenants, representations, or warranties contained in this Agreement;
(c)
Company’s failure to satisfy any of its obligations or liabilities to third parties, including Customers and any Existing Issuer;
(d)
any actions or omissions by Bank or any of its Affiliates or Subcontractors taken or not taken at Company’s written request or direction pursuant to this Agreement except where Bank or any of its Affiliates or Subcontractors would have been otherwise required to take such action (or refrain from acting) absent the request or direction of Company;
(e)
fraudulent acts by Company, its Affiliates and Subcontractors, or their respective officers, directors employees or agents;
(f)
Company’s or any of its Affiliates’ or Subcontractors’ failure to comply with Applicable Law unless such failure was the result of (i) any action taken or not taken by Company or any of its Affiliates or Subcontractors at the written request or direction of Bank or (ii) Bank’s breach of its obligations under Section 4.3(q);
(g)
Company Inserts or Billing Statement messages;
(h)
allegations by a third party that the use of the Company Licensed Marks or any materials or documents provided by Company (other than any Account Documentation provided by Company after Bank’s legal review and approval, unless such allegations are as a result of subsequent modification to such Account Documentation by Company) constitutes: § libel, slander, and/or defamation; § infringement of intellectual property, including trademark infringement or dilution, or copyright infringement; § unfair competition or misappropriation of another’s ideas or trade secret; § invasion of rights of privacy or rights of publicity; or § breach of contract or tortious interference;
(i)
allegations by a third party that the use of the Company systems or anything provided by Company under this Agreement constitutes infringement, misappropriation or violation of the Intellectual Property of such third party, unless such allegations arise out of a

43



modification or combination thereof by Bank that is not reasonably contemplated by the Parties;
(j)
Company’s offering or sales of Goods and/or Services; or
(k)
the operation of a Second Look Program by a Person other than Bank.
16.2
Bank’s Indemnification of Company .
From and after the Original Effective Date, Bank shall indemnify and hold harmless Company, its Affiliates, their respective officers, directors, employees, agent, Subcontractors and representatives and any Person claiming by or through any of them (collectively, the “ Company Indemnified Parties ”) from and against and in respect of any and all Losses relating to third-party claims, which are caused or incurred by, result from, arise out of or relate to:
(a)
Bank’s or any of its Affiliates’ or Subcontractors’ gross negligence, recklessness or willful misconduct (including acts and omissions) relating to the Program;
(b)
any breach by Bank or any of its Affiliates or Subcontractors, or their respective officers, directors, employees or agents of any of the terms, conditions, covenants, representations, or warranties contained in this Agreement, or any Credit Card Agreement;
(c)
Bank’s failure to satisfy any of its obligations or liabilities to third parties, including Cardholders and any Existing Issuer;
(d)
any actions or omissions by Company or any of its Affiliates or Subcontractors taken or not taken at Bank’s written request or direction pursuant to this Agreement, except where Company or any of its Affiliates or Subcontractors would have been otherwise required to take such action (or refrain from acting) absent the request or direction of Bank;
(e)
fraudulent acts by Bank, its Affiliates, or Subcontractors or their respective officers, directors employees or agents;
(f)
any Account Documentation used by Company after Bank’s legal review and approval that fails to comply with Applicable Law unless such failure to comply is as a result of subsequent modification to such Account Documentation by Company;
(g)
Bank’s or any of its Affiliates’ or Subcontractors’ failure to comply with Applicable Law, the Risk Management Policies, or the Collections Policies unless such failure was the result of any action taken or not taken by Bank or any of its Affiliates or Subcontractors at the specific written request or direction of Company;
(h)
Bank’s Inserts or Billing Statement messages;
(i)
allegations by a third party that the use of the Bank Licensed Marks or any materials or documents provided by Bank constitutes: § libel, slander, and/or defamation; § infringement of intellectual property, including trademark infringement or dilution, or copyright infringement, § unfair competition or misappropriation of another’s ideas or trade secret; § invasion of rights of privacy or rights of publicity; or § breach of contract or tortious interference; or

44



(j)
allegations by a third party that the use of the Bank systems or anything provided by Bank under this Agreement constitutes infringement, misappropriation or violation of the Intellectual Property of such third party, unless such allegations arise out of a modification or combination thereof by Company that is not reasonably contemplated by the Parties.
16.3
Procedures.
(a)
In case any claim is made, or any suit or action is commenced, against a Bank Indemnified Party or Company Indemnified Party, the Party in respect of which indemnification may be sought under this ARTICLE 16 (including for the benefit of its officers, directors, employees, agents or representatives or any Person claiming by or through any of them) (the “ Indemnified Party ”) shall promptly give the other party (the “ Indemnifying Party ”) notice thereof and the Indemnifying Party shall be entitled to participate in the defense thereof and, with prior written notice to the Indemnified Party given not later than twenty (20) days after the delivery of the applicable notice, to assume, at the Indemnifying Party’s expense, the defense thereof, with counsel reasonably satisfactory to such Indemnified Party. After notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party will not be liable to such Indemnified Party under this Section for any attorneys’ fees or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation.
(b)
The Indemnified Party shall have the right to employ its own counsel if the Indemnifying Party elects to assume such defense, but the fees and expenses of such counsel shall be at the Indemnified Party’s expense, unless § the employment of such counsel has been authorized in writing by the Indemnifying Party, § the Indemnifying Party has not employed counsel to take charge of the defense within twenty (20) days after delivery of the applicable notice or, having elected to assume such defense, thereafter ceases its defense of such action, or § the Indemnified Party has reasonably concluded that there may be defenses available to it which are different from or additional to those available to the Indemnifying Party (in which case the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnified Party), in any of which event attorneys’ fees and expenses shall be borne by the Indemnifying Party.
(c)
The Indemnifying Party shall promptly notify the Indemnified Party if the Indemnifying Party desires not to assume, or participate in the defense of, any such claim, suit or action.
(d)
The Indemnified Party or Indemnifying Party may at any time notify the other of its intention to settle or compromise any claim, suit or action against the Indemnified Party in respect of which payments may be sought by the Indemnified Party hereunder, and § the Indemnifying Party may settle or compromise any such claim, suit or action solely for the payment of money damages, but shall not agree to any other settlement or compromise without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld, and § the Indemnified Party may settle or compromise any such claim, suit or action solely for an amount not exceeding one thousand dollars ($1,000), but shall not settle or compromise any other matter without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld.
(e)
Notwithstanding any provision contained in this Section 16.3 to the contrary, the Indemnifying Party shall not knowingly take any position or action in any pending litigation

45



that would be reasonably likely to be adverse to the Indemnified Party without the Indemnified Party’s express prior written consent.
16.4
Notice and Additional Rights and Limitations.
(a)
If an Indemnified Party fails to give prompt notice of any claim being made or any suit or action being commenced in respect of which indemnification under this ARTICLE 16 may be sought, such failure shall not limit the liability of the Indemnifying Party; provided , however , that this provision shall not be deemed to limit the Indemnifying Party’s rights to recover for any loss, cost or expense which it can establish resulted from such failure to give prompt notice.
(b)
This ARTICLE 16 shall govern the obligations of the Parties with respect to the subject matter hereof but shall not be deemed to limit the rights which any party might otherwise have at law or in equity.
ARTICLE 17     

MISCELLANEOUS
17.1
Precautionary Security Interest.
Company and Bank agree that this Agreement contemplates the extension of credit by Bank to Cardholders. However, as a precaution in the event that any Person asserts that Article 9 of the Uniform Commercial Code applies or may apply to the transactions contemplated hereby, and to secure Company’s payment of and performance of all obligations of Company to Bank, Company hereby grants to Bank a first priority present and continuing security interest in and to the following, whether now existing or hereafter created or acquired, together with the proceeds thereof: all Accounts, all Cardholder Indebtedness, and all Charge Transaction Data. In addition, Company agrees to take any reasonable action requested by Bank, at Bank’s expense, to establish the first lien and perfected status of such security interest, and appoints Bank as Company’s attorney-in-fact to take any such action on Company behalf; provided that Bank shall be responsible for preparing any such documentation.
17.2
Securitization; Participation .
Bank shall not sell, securitize, pledge or participate the Cardholder Indebtedness unless such sale, exchange, securitization, pledge or participation does not affect Company’s rights or Bank’s ability to satisfy its obligations hereunder, including by requiring consent or approval of any third party for Bank to reacquire all right, title and interest in and to such Cardholder Indebtedness and release any lien thereon, or otherwise encumber or impair in any way any of Company’s rights hereunder to purchase the Program Assets.
17.3
No Consequential Damages .
EXCEPT FOR DAMAGES ARISING OR RESULTING FROM WILLFUL MISCONDUCT, FRAUD OR GROSS NEGLIGENCE, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR ANY OTHER LEGAL OR EQUITABLE PRINCIPLES, OR FOR ANY LOSS OF PROFITS OR REVENUE, REGARDLESS OF WHETHER SUCH PARTY KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATIONS SHALL

46



NOT APPLY TO CLAIMS FOR BREACH OF THE OBLIGATIONS OF CONFIDENTIALITY (WHICH INCLUDES MISUSE OF CUSTOMER DATA AND CARDHOLDER DATA), INDEMNIFICATION OR INFRINGEMENT OF THE BANK LICENSED MARKS OR COMPANY LICENSED MARKS.
17.4
Assignment .
Except as provided in this ARTICLE 17, neither Party shall assign this Agreement or any of its rights hereunder without the prior written consent of the other Party; provided, however, that either Party may, without the consent of the other Party, assign this Agreement in whole or in part to an Affiliate in the United States of such Party. The assigning Party shall provide the other Party with at least sixty (60) days prior written notice of the proposed assignment and if requested by the non-assigning Party, provide an appropriate guarantee covering all of the obligations of the assigning Party under this Agreement.
17.5
Sale or Transfer of Accounts .
Except as provided in Schedule 12.3 and ARTICLE 17, Bank shall not sell or transfer the Accounts in whole or in part. Bank will not transfer the Accounts or the Cardholder Indebtedness to an entity that is treated as a “variable interest entity” within the meaning of FASB Codification ASC 810 – Consolidation.
17.6
Subcontracting .
See Schedule 17.6 .
17.7
Amendment .
Except as provided herein, this Agreement may not be amended except by a written instrument signed by Bank and Company.
17.8
Non-Waiver .
No waiver of the provisions hereto shall be effective unless in writing and signed by the Party to be charged with such waiver. No waiver shall be deemed to be a continuing waiver in respect of any subsequent breach or default either of similar or different nature unless expressly so stated in writing. No failure or delay on the part of either Party in exercising any power or right under this Agreement shall be deemed to be a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right.
17.9
Severability .
If any of the provisions or parts of the Agreement are determined to be illegal, invalid or unenforceable in any respect under any applicable statute or rule of law, such provisions or parts shall be deemed omitted without affecting any other provisions or parts of the Agreement which shall remain in full force and effect, unless the declaration of the illegality, invalidity or unenforceability of such provision or provisions substantially frustrates the continued performance by, or entitlement to benefits of, either Party, in which case this Agreement may be terminated by the affected Party, without penalty.
17.10
Governing Law .
This Agreement and all rights and obligations hereunder, including matters of construction, validity and performance, shall be governed by and construed in accordance with the laws of the State of New York, without regard to internal principles of conflict of laws, and applicable federal law.

47



17.11
Captions .
The table of contents and various captions of the articles and sections of this Agreement are for convenient reference only and are not intended as a summary of such articles or sections and do not affect, limit, modify or construe the contents thereof.
17.12
Notices .
Any notice, approval, acceptance or consent required or permitted under this Agreement shall be in writing to the other Party and shall be deemed to have been duly given when delivered in person or, if sent by United States registered or certified mail, with postage prepaid, or by a nationally recognized overnight delivery service, when received, addressed as follows:
If to Company:         Ascena Retail Group, Inc.
933 MacArthur Blvd.
Mahwah, N.J. 07430
Attn: President

With copies to:         Ascena Retail Group, Inc.
(which copies shall not constitute notice)    933 MacArthur Blvd.
Mahwah, N.J. 07430
Attn: General Counsel

If to Bank:         Capital One Services, LLC
77 W. Wacker Drive
Chicago, IL 60601
Attn: Vice President Client Development

With copies to:        Capital One
(which copies shall not constitute notice)    8000 Towers Crescent Drive
Vienna, VA 22182
Attn: Chief Counsel, Transactions

Morrison & Foerster LLP
2000 Pennsylvania Avenue, NW
Suite 6000
Washington, DC 20006
Attn: Panagiotis Bayz

17.13
Further Assurances .
Company and Bank agree to produce or execute such other documents or agreements as may be reasonably necessary or desirable for the execution and implementation of this Agreement and the consummation of the transactions specified herein and to take all such further action as the other Party may reasonably request in order to give evidence to the consummation of the transactions specified herein.
17.14
No Joint Venture .
Nothing contained in this Agreement shall be deemed or construed by the Parties or any third party to create a partnership, joint venture or of any association between Company and Bank, and no act of either Party

48



shall be deemed to create any such relationship. Company and Bank each agree to such further actions as the other Party may request to evidence and affirm the non-existence of any such relationship.
17.15
Press Releases .
Except for any notice which is required by Applicable Law or stock exchange rules (which shall be subject to Section 11.1(b)), neither Party may issue any press releases, announcements, or similar materials of a public or promotional nature regarding the subject matter of this Agreement without first obtaining the other Party’s written permission, which may be withheld in such Party’s sole discretion.
17.16
No Set-Off .
Company and Bank agree that each Party has waived any right to set-off, combine, consolidate or otherwise appropriate and apply § any assets of the other Party held by the Party or § any indebtedness or other liabilities at any time owing by the Party to the other Party, as the case may be, against or on account of any obligations owed by the other Party under this Agreement, except as expressly set forth herein.
17.17
Third Parties .
There are no third-party beneficiaries to this Agreement except that the Bank Indemnified Parties and Company Indemnified Parties are intended third party beneficiaries of ARTICLE 16. Except as provided in the preceding sentence, the Parties do not intend § the benefits of this Agreement to inure to any third party; or § any rights, claims or causes of action against a Party to be created in favor of any Person other than the other Party.
17.18
Force Majeure .
If performance of any service or obligation under this Agreement is prevented, restricted, delayed or interfered with by reason of labor disputes, strikes, acts of God, floods, lightning, severe weather, shortages of materials, rationing, utility or communication failures, earthquakes, war, revolution, civil commotion, acts of public enemies, blockade, embargo or any law, order, proclamation, regulation, ordinance, demand or requirement having legal effect of any government or any judicial authority or representative of any such government, or any other act whatsoever, whether similar or dissimilar to those referred to in this clause, which are beyond the reasonable control of a Party and could not have been prevented by reasonable precautions (each, a “ Force Majeure Event ”), then such Party shall be excused from such performance to the extent of and during the period of such Force Majeure Event. A Party excused from performance pursuant to this Section shall exercise all reasonable efforts to continue to perform its obligations hereunder, including by implementing its disaster recovery and business continuity plan as provided in Schedule 4.8 , and shall thereafter continue with reasonable due diligence and good faith to remedy its inability to so perform except that nothing herein shall obligate either Party to settle a strike or other labor dispute when it does not wish to do so.
17.19
Entire Agreement .
This Agreement, together with the First Accession Agreement, the Second Accession Agreement and the Schedules and exhibits hereto which are expressly incorporated herein by reference, supersedes any other agreement, whether written or oral, that may have been made or entered into by Company and Bank (or by any officer or employee of either of such Parties) relating to the matters specified herein, and constitutes the entire agreement by the Parties related to the matters specified herein or therein.
17.20
Binding Effect; Effectiveness .

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This Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective successors and permitted assigns. This Agreement is the product of negotiation by the Parties having the assistance of counsel and other advisers. It is the intention of the Parties that this Agreement not be construed more strictly with regard to one Party than with regard to the other Party.
17.21
Counterparts/Facsimiles/PDF E-Mails .
This Agreement may be executed in any number of counterparts, all of which together shall constitute one and the same instrument, but in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. Any facsimile or PDF e-mailed version of an executed counterpart shall be deemed an original.
17.22
Arbitration .
(a)
Scope of Arbitration . Except as provided in Section 3.6(e), any dispute, controversy or claim of any and every kind or type, whether based on contract, tort, statute, regulations or otherwise, arising out of, in connection with or relating in any way to this Agreement, the relationship of the Parties, the obligations of the Parties or the operations carried out under this Agreement, including any dispute as to the existence, validity, construction, interpretation, negotiation, performance, non-performance, breach, termination or enforceability of this Agreement, that cannot be resolved through the dispute resolution procedures set forth in Section 3.6 may, by mutual agreement of the Parties, be resolved through final and binding arbitration.
(b)
Arbitration Notice . If a dispute has not been resolved following the completion of the dispute resolution procedures set forth in Section 3.6, then either Party may, with the consent of the other Party, initiate arbitration proceedings in accordance with this Section 17.22.
(c)
Administration of Arbitration . The arbitration is to be administered by the American Arbitration Association (the “ AAA ”) and is to be conducted in accordance with the Commercial Arbitration Rules of the AAA. Such arbitration shall be conducted in New York, New York.
(d)
Arbitration Expenses . Each Party shall pay for one-half of the arbitration expenses, including arbitrator fees and expenses, except that the Party initiating a claim for arbitration shall be responsible for paying the filing fees associated with initiating such claim. Each Party shall be responsible for paying its own attorney and expert fees and costs; provided , however , that if the arbitrators determine that one Party is the prevailing Party in such arbitration, the arbitrators may, as a part of its award, require the non-prevailing Party to pay the costs and fees (including, the arbitration filing fees and reasonable attorney’s fees and expert fees) incurred by the prevailing Party.
(e)
Appointment of Arbitrators . The arbitration is to be held before a panel of three (3) arbitrators, and the Parties will use commercially reasonable efforts to ensure that each of the arbitrators have at least ten (10) years of experience in the credit card industry (if such dispute relates to the credit card aspects of this Agreement) or in the applicable industry if the dispute is not specific to the credit card industry. No later than fifteen (15) Business Days after the notice of arbitration is received, each Party shall select an arbitrator and request the two selected arbitrators to select a third neutral arbitrator within five (5) Business Days, who shall serve as the presiding arbitrator. Unless otherwise agreed to by the Parties,

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the two arbitrators selected by the Parties must have no direct or indirect financial interest in the dispute or any direct or indirect financial interest in or dependence upon either of the Parties (other than his or her fees and expenses for serving on the panel), and the third, presiding arbitrator selected by the two Party-selected arbitrators must qualify as a neutral arbitrator as defined in the Commercial Arbitration Rules and/or Code of Ethics of the AAA. Before beginning the hearings, the three arbitrators must each take an oath of impartiality. Any arbitration proceedings shall be concluded within ninety (90) days of the appointment of the arbitrators.
(f)
Enforcement; Authority of Arbitrators . Judgment on any award rendered by the arbitrators may be entered in any court of competent jurisdiction, however, the arbitrators have no authority to award punitive damages unless otherwise allowable pursuant to this Agreement or any other damages not measured by the prevailing Party’s actual damages (unless liquidated damages are specified in this Agreement), and may not, in any event, make any ruling, finding or award that does not conform to the provisions of this Agreement.
17.23
Survival .
Upon the termination of this Agreement, the Parties shall have the rights and remedies described herein. Upon such termination, all obligations of the Parties under this Agreement shall cease, except that the obligations of the Parties pursuant to ARTICLE 1 (Definitions), Schedule 4.17 (Reciprocal Access Rights) (for one (1) year following expiration or termination of this Agreement for financial accounting and reconciliation and for three (3) years following expiration or termination of this Agreement for audit rights of a Governmental Authority), ARTICLE 6 (Cardholder and Customer Information), ARTICLE 9 (Licensing of Trademarks; Intellectual Property), ARTICLE 10 (Representations and Warranties), ARTICLE 11 (Confidentiality), ARTICLE 15 (Effects of Termination), ARTICLE 16 (Indemnification), ARTICLE 17 (Miscellaneous), including references to survival of specific obligations therein, and any other provision hereof that by its terms applies following the expiration or termination hereof, including any payment obligation which arises prior to expiration or termination hereof, shall survive the expiration or termination of this Agreement.

[SIGNATURE PAGE FOLLOWS]


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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be duly executed as of the date first above written.
ASCENA RETAIL GROUP, INC.

By: /s/ David Jaffe
Name: David Jaffe
Title: President and Chief Executive Officer

CAPITAL ONE, NATIONAL ASSOCIATION

By: /s/ Jennifer A. Glaspie
Name: Jennifer A. Glaspie




ASCENA RETAIL GROUP, INC.
EXECUTIVE SEVERANCE PLAN
Amended and Restated Effective as of March 2, 2016
INTRODUCTION
The purpose of the Plan is to enable the Company to offer certain protections to a select group of management or highly compensated employees (as determined in accordance with Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA) if their employment with the Employer is terminated under the circumstances described herein. The Plan was initially adopted effective as of March 3, 2010, was subsequently amended and restated effective as of September 23, 2014 and as of December 9, 2015, and is subsequently amended and restated in the form herein effective as of March 2, 2016.
The Plan shall apply to Eligible Employees employed by an Employer on or after the Restatement Date and shall not apply to Participants who terminated employment with an Employer prior to the Restatement Date.
Unless otherwise expressly provided in the Plan or unless otherwise agreed to in writing between the Company or an Affiliate and a Participant on or after the date hereof, Participants covered by the Plan shall not be eligible to participate in any other severance or termination plan, policy or practice of the Employer that would otherwise apply under the circumstances described herein. The Plan is intended to be a “top-hat” pension benefit plan within the meaning of U.S. Department of Labor Regulation Section 2520.104-23. This document shall constitute both the plan document and summary booklet and shall be distributed to Participants in this form. Capitalized terms and phrases used herein shall have the meanings ascribed thereto in Article I.
ARTICLE I
DEFINITIONS
For purposes of the Plan, capitalized terms and phrases used herein shall have the meanings ascribed in this Article.
1.1    “ Affiliate ” shall mean (a) any subsidiary corporation of the Company within the meaning of Section 424(f) of the Code, (b) any corporation, trade or business (including, without limitation, a partnership or limited liability company) which is directly or indirectly controlled 50% or more (whether by ownership of stock, assets or an equivalent ownership interest or voting interest) by the Company, or (c) any other entity which is designated as an Affiliate by the Board or the Committee.
1.2    “ Base Salary ” shall mean a Participant’s annual base compensation rate for services paid by the Employer to the Participant at the time immediately prior to the Participant’s




termination of employment, as reflected in the Employer’s payroll records or, if higher, the Participant’s annual base compensation rate immediately prior to a Change in Control. Base Salary shall not include commissions, bonuses, overtime pay, incentive compensation, benefits paid under any qualified plan, any group medical, dental or other welfare benefit plan, non-cash compensation or any other additional compensation, but shall include amounts reduced pursuant to a Participant’s salary reduction agreement under Section 125, 132(f)(4) or 401(k) of the Code, if any, or a nonqualified elective deferred compensation arrangement, if any, to the extent that in each such case the reduction is to base salary.
1.3      “ Board ” shall mean the Board of Directors of the Company.
1.4      “ Bonus ” shall mean the higher of (a) a Participant’s average of the most recent three (3) year aggregate annual cash performance bonuses actually paid to such Participant on a semi-annual basis or (b) a Participant’s annual target cash performance bonus opportunity relating to the fiscal year in which a Change in Control shall occur, as determined under an agreement between the Participant and the Employer, or under any written bonus plan, program or arrangement approved by the Board or the Compensation Committee of the Board. For purposes of calculating a year’s aggregate annual cash performance bonus referred to in Section 1.4(a), such aggregate annual bonus shall equal the sum of the two seasonal bonuses actually paid to a participant with respect to a fiscal year. Bonus shall not include any other bonus to be paid upon completion of any specified project or upon the occurrence of a specified event, including, without limitation, a Change in Control.
1.5      “ Cause ” shall mean the occurrence of any of the following with respect to an Eligible Employee:
(a)      if the Eligible Employee is a Participant in the Plan on the date that is immediately prior to the Restatement Date and continues to be a Participant until any time prior to September 23, 2017 (a “ Restatement Date Participant ”), the occurrence of any of the following: (i) conviction of a crime (including conviction on a nolo contendere plea) involving the commission by the Participant of a felony or of a criminal act involving, in the good faith judgment of the Board, fraud, dishonesty, or moral turpitude; (ii) material failure to satisfactorily perform employment duties reasonably requested by the Board after thirty (30) days’ written notice of such failure to perform, specifying that the failure constitutes cause (other than as a result of vacation, sickness, illness or injury); (iii) fraud or embezzlement; (iv) gross misconduct or gross negligence in connection with the business of the Employer or an Affiliate which has a substantial adverse effect on the Employer or an Affiliate; or (v) the Participant’s intentional and willful act or omission which is materially detrimental to the business or reputation of the Employer or an Affiliate; and
(b)      if the Eligible Employee either (i) becomes a new Participant in the Plan on or after the Restatement Date or (ii) is a Restatement Date Participant who continues to be a Participant in the Plan on or after September 23, 2017, the occurrence of any of the following: (i) conviction of a crime (including conviction on a nolo contendere plea) involving a felony or any other crime involving fraud, dishonesty or moral turpitude; (ii) failure to satisfactorily perform employment duties reasonably requested by his or her supervisor or the Board after thirty (30)

2




days’ written notice of such failure to perform, specifying that the failure constitutes cause (other than as a result of vacation, sickness, illness or injury); (iii) fraud, embezzlement or dishonesty; (iv) gross misconduct or gross negligence in connection with the business of the Employer or an Affiliate which has an adverse effect on the Employer or an Affiliate; or (v) the Participant’s intentional and willful act or omission which is detrimental to the business or reputation of the Employer or an Affiliate.
Termination of the Participant’s employment for Cause pursuant to Section 1.5(a) shall be made by delivery to the Participant of a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board at a meeting of the Board called and held for that purpose (after 30 days prior written notice to the Participant and a reasonable opportunity for the Participant to be heard before the Board prior to such vote) finding that in the good faith judgment of the Board, the Participant was guilty of conduct set forth in any of clauses (i) through (v) of Section 1.5(a) above and specifying the particulars thereof.
1.6      “ Change in Control ” shall mean (i)the consummation of any of the following events: (a) any “person,” as such term is used in sections 3(a)(9) and 13(d) of the Exchange Act, becomes a “beneficial owner,” as such term is used in Rule 13d-3 under the Exchange Act, during the twelve (12) month period ending on the date of the most recent acquisition by such person of 30% or more of the total voting power of the outstanding stock of the Company, excluding a person that is an affiliate (as such term is used under the Exchange) of the Company on the date hereof, or any affiliate of any such person; (b) during any period of twelve (12) consecutive months, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c), or (d) of this section) or a director whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such term is used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the twelve-month period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board; (c) all or substantially all the assets of the Company are disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they own the common stock of the Company, all the common stock or other ownership interests of the entity or entities, if any, that succeed to the business of the Company); or (d) the Company combines with another company and is the surviving corporation, but, immediately after the combination, the shareholders of the Company immediately prior to the combination hold, directly or indirectly, 50% or less of the common stock or other ownership interests of the combined company (there being excluded from the number of shares held by such shareholders, but not from the common stock or other ownership interests of the combined company, any shares or other ownership interests received by affiliates of such other company in exchange for stock of such other company). Notwithstanding anything herein to the contrary and except with respect to a Change in Control event described in Section

3




1.6(b), a Change in Control shall be deemed to have occurred under this Section 1.6 solely upon the occurrence of the closing of the transaction giving rise to the Change in Control event. Notwithstanding anything herein to the contrary, none of the foregoing events shall be deemed to be a “Change in Control” unless such event constitutes a “change in control event” within the meaning of Code Section 409A.
1.7      “ Change in Control Related Termination ” means a Pre-Change in Control Termination or a Post-Change in Control Termination, as applicable.
1.8      “ COBRA ” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
1.9      “ Code ” shall mean the Internal Revenue Code of 1986, as amended.
1.10      “ Code Section 409A ” shall mean Section 409A of the Code together with the treasury regulations and other official guidance promulgated thereunder.
1.11      “ Committee ” shall mean the Compensation and Stock Incentive Committee of the Board or such other committee appointed by the Board from time to time to administer the Plan.
1.12      “ Company ” shall mean Ascena Retail Group, Inc., a Delaware corporation, and any successor as provided in Article VI hereof.
1.13      “ Continuation Period ” shall mean a period commencing on the date of a Participant’s Separation from Service (or, the date of the Change in Control in the event of a Pre-Change in Control Termination as a result of a Participant’s resignation for Good Reason) until the earliest of:
(a)      solely in the event of a Non-Change in Control Termination, the expiration of the period during which the Participant is receiving Severance Payments;
(b)      solely in the Event of a Change in Control Termination, twelve (12) months (or, eighteen (18) months with respect to a Participant with the title “Executive Vice President” (or a higher level position) who experiences a Change in Control Related Termination) from such date;
(c)      the date the Participant becomes eligible for coverage under the health insurance plan of a subsequent employer; and
(d)      the date the Participant or the Participant’s eligible dependents, as the case may be, cease to be eligible under COBRA.
1.14      “ Continued Health Coverage ” shall mean the benefit set forth in Section 2.2(b) of the Plan.

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1.15      “ Delay Period ” shall mean the period commencing on the date the Participant incurs a Separation from Service from the Employer until the earlier of (a) the six (6)-month anniversary of the date of such Separation from Service and (b) the date of the Participant’s death.
1.16      “ Disability ” shall mean a Participant’s disability that would qualify as such under the Employer’s long-term disability plan without regard to any waiting periods set forth in such plan.
1.17      “ Eligible Employee ” shall mean any employee of the Employer at the level of vice president (or a higher level position) with an annualized base salary and seasonal (semi-annual) cash performance bonus target (for the fall and spring seasons) equal to at least two hundred thousand dollars ($200,000) (as would be reportable in Box 5 of Internal Revenue Service Form W-2 if earned, but excluding amounts attributable to vesting or payment of any stock-based award ) shall be eligible to participate in the Plan.
1.18      “ Employer ” shall mean the Company and any Affiliate.
1.19      “ Equity Vesting ” shall mean the benefit set forth in Section 2.2(b) of the Plan.
1.20      “ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.21      “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
1.22      “ Good Reason ” shall mean the occurrence of any of the following events within ninety (90) days prior to a Change in Control, or on or following a Change in Control without the Participant’s express written consent, provided the Participant gives notice to the Employer of the Good Reason event within ninety (90) days after the Participant has knowledge of the Good Reason event and such events are not fully corrected in all material respects by the Employer within thirty (30) days following receipt of the Participant’s written notification:
(a)      any material diminution of the responsibilities, duties or authority of the Participant (except in connection with the termination of Executive’s employment for Cause or due to Total Disability or as a result of Executive’s death, or temporarily as a result of the Participant’s illness or other absence);
(b)      any reduction in the Participant’s base salary and/or benefits, other than a reduction that is uniformly applied to similar situated employees;
(c)      relocation of the Participant’s principal place of work outside of a thirty (30) mile radius of the Participant’s then current location; or
(d)      the failure of any successor to the Company to assume the Plan.
1.23      “ Non-Change in Control Termination ” shall mean a termination event described in Section 2.1(a)(i) of the Plan.

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1.24      “ Outplacement Services ” shall mean the benefit set forth in Section 2.2(e) of the Plan.
1.25      “ Participant ” shall mean any Eligible Employee who is eligible to receive Severance Benefits under the Plan.
1.26      “ Plan ” shall mean the Ascena Retail Group, Inc. Executive Severance Plan.
1.27      “ Post-Change in Control Termination ” shall mean a termination event described in Section 2.1(a)(ii) of the Plan.
1.28      “ Pre-Change in Control Termination ” shall mean a termination event described in Section 2.1(a)(ii) of the Plan.
1.29      “ Pro-Rata Bonus ” shall mean the payment set forth in Section 2.2(d) of the Plan.
1.30      “ Restatement Date ” shall mean March 2, 2016.
1.31      “ Restrictive Covenant Agreement ” shall mean the Company’s form of Confidentiality, Non-Solicitation and Non-Competition Agreement as is in effect from time to time.
1.32      “ Separation from Service ” shall mean a Participant’s termination of employment with the Employer, provided that such termination constitutes a separation from service within the meaning of Code Section 409A and the guidance issued thereunder. All references in the Plan to a “termination,” “termination of employment” or like terms shall mean Separation from Service.
1.33      “ Severance Benefits ” shall mean, as applicable, the Severance Payment, the Continued Health Coverage, the Equity Vesting and the Pro-Rata Bonus.
1.34      “ Severance Payment ” shall mean the payments set forth in Section 2.2(a) of the Plan.
1.35      “ Specified Employee ” shall mean a Participant who, as of the date of his or her Separation from Service, is deemed to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by the Employer from time to time in accordance therewith, or if none, the default methodology set forth therein.

ARTICLE II

SEVERANCE BENEFITS
2.1      Eligibility for Severance Benefits .
(a)      Qualifying Event for an Eligible Employee .

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(i)      Non-Change in Control Termination . If, at any time prior to a Change in Control the employment of a Participant is terminated by the Employer without Cause (a “ Non-Change in Control Termination ”), then the Employer shall pay or provide the Participant with the Severance Payment, the Continued Health Coverage, the Pro-Rata Bonus and the Outplacement Services pursuant to the terms set forth herein.
(ii)      Change in Control Related Termination . If, during the ninety (90) day period prior to the date of a Change in Control (a “ Pre-Change in Control Termination ”) or the period commencing on the date of a Change in Control and ending twenty-four (24) months thereafter (a “ Post-Change in Control Termination ”) the employment of a Participant is terminated by the Employer without Cause or by the Participant for Good Reason, then the Employer shall pay or provide the Participant with the Severance Payment, the Continued Health Coverage, the Equity Vesting, the Pro-Rata Bonus and the Outplacement Services pursuant to the terms set forth herein, and in the event of a Pre-Change in Control Termination, the foregoing Severance Benefits shall be in lieu of any Severance Benefits the Participant is entitled to under Section 2.1(a)(i).
(b)      Non-Qualifying Events . A Participant shall not be entitled to Severance Benefits under the Plan if the Participant’s employment is terminated (i) by the Employer for Cause, (ii) by a Participant for any reason other than for Good Reason during the ninety (90) day period prior to a Change in Control or during the twenty-four (24) month period following a Change in Control, or (iii) on account of the Participant’s death or Disability.
2.2      Severance Benefits . In the event that a Participant becomes entitled to benefits pursuant to Section 2.1(a) hereof, the Employer shall pay or provide the Participant with the applicable Severance Benefits as follows:
(a)      Severance Payment . Subject to the provisions of Sections 2.3 through 2.8, the Employer shall pay to the Participant the following:
(i)      Non-Change in Control Termination . In the event of a Non-Change in Control Termination, the Employer shall pay the Participant an amount in cash equal to one-twelfth (1/12) of the Participant’s Base Salary, payable in accordance with the Company’s normal payroll practices for a period of twelve (12) months following the Participant’s Separation from Service, with the first payment thereof paid on the ninetieth (90 th ) day following the date of the Participant’s Separation from Service, which first payment shall include any amounts that would have been otherwise payable to the Participant during such ninety (90) day period. Notwithstanding the foregoing or anything in the Plan to the contrary, to the extent required by Code Section 409A, the payment of the Severance Payments under this Section 2.2(a)(i) shall be subject to the Delay Period as provided in Section 7.8(b) hereof.
(ii)      Change in Control Related Termination . In the event of a Change in Control Related Termination, the Employer shall pay the Participant an amount in cash equal to the sum of the Participant’s Base Salary plus Bonus, provided that with respect to a Participant with the title “Executive Vice President” (or a higher level position), such

7




sum shall be multiplied by one and one-half (1½). The Severance Payment under this Section 2.2(a)(ii) shall be payable, subject to Section 2.5, in a lump sum on (A) in the case of a Pre-Change in Control Termination, the later of (x) the ninetieth (90 th ) day following the date of the Participant’s Separation from Service and (y) the date of the Change in Control, and (B) in the case of a Post-Change in Control Termination, the ninetieth (90 th ) day following the date of the Participant’s Separation from Service. Notwithstanding the foregoing or anything in the Plan to the contrary, to the extent required by Code Section 409A, in the event of a Post-Change in Control Termination, payment of the Severance Payment under this Section 2.2(a)(ii) shall be subject to the Delay Period as provided in Section 7.8(b) hereof.
Participants shall be entitled to only one Severance Payment under this Plan as the result of a Change in Control Related Termination.
(b)      Continued Health Coverage . Subject to the provisions of Sections 2.3 through 2.8 and a Participant’s timely election pursuant to COBRA, during the Continuation Period the Employer shall pay the cost for continued coverage pursuant to COBRA, for the Participant and the Participant’s eligible dependents, under the Employer’s group health plans in which the Participant participated immediately prior to the date of termination of the Participant’s employment or materially equivalent plans maintained by the Company in replacement thereof. Following the Continuation Period, the Participant (or, if applicable, the Participant’s qualified beneficiaries under COBRA) shall be entitled to such continued coverage for the remainder of the COBRA period, if any, on a full self-pay basis to the extent eligible under COBRA.
(c)      Accelerated Vesting of Equity Awards . The Equity Vesting under this Section 2.2(c) shall apply only in the event of a Change in Control Related Termination. Subject to the provisions of Sections 2.3 and 2.4 and Sections 2.6 through 2.8, to the extent not vested immediately prior to a Change in Control, all stock based awards granted to the Participant prior to the Change in Control under the Company’s equity plans, each as amended, including, but not limited to, the Company’s 2010 Stock Incentive Plan (to be renamed the 2016 Omnibus Incentive Plan), or any predecessor or successor plan(s) thereto, that are outstanding as of the date of the Change in Control (including, but not limited to, stock options and shares of restricted stock), or, in the event such stock based awards are not assumed or substituted by the successor in connection with such Change in Control, outstanding immediately prior to the date of the Change in Control, shall become fully vested as of the date of the Participant’s termination of employment by the Employer without Cause or by the Participant for Good Reason. Any stock option, stock appreciation right or similar award that provides for a Participant-elected exercise shall become fully exercisable and will remain exercisable for the applicable period following termination as specified in the applicable equity plan and/or the applicable award agreement. In the case of restricted stock or similar awards that are not subject to a Participant-elected exercise, the Company shall remove any restrictions (other than restrictions required by Federal securities law) or conditions in respect of such award as of the date of the Participant’s termination of employment by the Employer without Cause. For the avoidance of doubt, this Section 2.2(b) shall apply to any equity awards that, in connection with a Change in Control, (1) are granted as

8




replacement of the equity awards held by the Participant immediately prior to the Change in Control, and (2) are outstanding immediately prior to the Change in Control, but are not assumed or substituted by the successor in connection with such Change in Control.
Notwithstanding the forgoing, in the event of a Pre-Change in Control Termination, in lieu of the foregoing under this Section 2.2(c), the Employer shall pay to the Participant a lump sum cash payment equal to the sum of (x) with respect to any unvested stock option, stock appreciation right or similar appreciation based award that expired on the date the Participant’s employment terminated, the excess, if any, of (A) the aggregate per share cash consideration, and the fair market value on such date of the aggregate per share non-cash consideration, paid or payable to the Company’s common stockholders in the transaction which is the basis for the Change in Control, (or if no such consideration was then payable, the last trading price of the Company’s common stock on the day immediately preceding the date of the event that resulted in the occurrence of the Change in Control), over (B) the strike price per share that would have been required to be paid in order to exercise each tranche of the unvested awards that expired on the date of the Participant’s termination of employment, times the number of shares of the Company’s common stock covered by each such tranche (such calculation to be performed separately for each tranche with a different strike price, and the aggregate amounts so calculated being the amount required to be paid under this provision), plus (y) with respect to any unvested restricted stock or similar whole share type of award that expired on the date the Participant’s employment terminates, the fair market value of such awards calculated based on the last trading price of the Company’s common stock on the day immediately preceding the date of the event that resulted in the occurrence of the Change in Control times the number of shares of the Company’s common stock covered by each such award. Any such payment shall be paid together with the Severance Payment payable on a Pre-Change in Control Termination pursuant to Section 2.2(a)(ii) above.
(d)      Pro-Rata Bonus . The Pro-Rata Bonus under this Section 2.2(d) shall apply in the event of either a Non-Change in Control Termination or a Change in Control Related Termination. Subject to the provisions of Sections 2.3 through 2.8, the Participant shall be entitled to receive a pro rata portion (based on the number of days employed during the applicable performance period) of the Participant’s seasonal (semi-annual) cash performance bonus for the performance period in which the Participant’s Separation from Service occurs, calculated based on actual results for such performance period, payable at the time that the semi-annual performance bonus would otherwise be paid. For the avoidance of doubt, a Pro-Rata Bonus shall not be based on any bonus to be paid upon completion of any specified project or upon occurrence of a specified event, including, without limitation, a Change in Control.
(e)      Outplacement Services . The Outplacement Services under this Section 2.2(e) shall apply in the event of either a Non-Change in Control Termination or a Change in Control Related Termination. The Company will assist the Participant for a period of one year from the date of the Participant’s Separation from Service in the search for new employment by directly paying the professional fees for the services incurred in the normal course of a job search with an outplacement organization arranged for by the Company in an amount not to exceed $10,000.

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2.3      Prior Agreements . The Severance Benefits under this Plan shall supersede and be in lieu of any severance benefits and/or payments provided under the Plan as in effect prior to the Restatement Date, or under any other agreements, arrangements or severance plans by and between the Participant and the Employer. Notwithstanding the foregoing or anything herein to the contrary, in the event that a Participant is entitled to the Severance Benefits under the Plan and if as a result of such termination of the Participant’s employment the Participant was also entitled to receive the payments and benefits provided under any other agreements, arrangements or severance plans by and between the Participant and the Employer, then the Participant shall continue to be entitled to receive such payments and benefits under and in accordance with the terms and conditions of such agreement, arrangement or severance plan and (i) the Severance Payment hereunder shall be reduced by the amount of any severance payment received by the Participant prior to the commencement of the Severance Payment hereunder, (ii) any severance payment payable under such other agreement, arrangement or severance plan following the commencement of the Severance Payment hereunder shall be offset on a dollar-for-dollar basis by the Severance Payment hereunder, and (iii) the Continued Health Coverage shall commence in the first month following the expiration of any health plan or health care reimbursement coverage provided to the Participant pursuant to such other agreement, arrangement or severance plan following a termination of the Participant’s employment and the Participant’s Continuation Period shall be reduced by the number of months the Participant received such coverage under such other agreement, arrangement or severance plan.
2.4      No Duty to Mitigate/Set-off . No Participant entitled to receive Severance Benefits hereunder shall be required to seek other employment or to attempt in any way to reduce any amounts payable to the Participant by the Company or Employer pursuant to the Plan, and, except as provided in Sections 1.13(b) hereof, there shall be no offset against any amounts due to the Participant under the Plan on account of any remuneration attributable to any subsequent employment that the Participant may obtain or otherwise. The amounts payable hereunder shall not be subject to setoff, counterclaim, recoupment, defense or other right which the Employer may have against the Participant. In the event of the Participant’s breach of any provision hereunder, including without limitation, Sections 2.5 (other than as it applies to a release of claims under the Age Discrimination in Employment Act, as amended), 2.7 and 2.8 hereof, the Company shall be entitled to recover any payments previously made to the Participant hereunder. Severance Benefits shall be reduced (offset) by any amounts payable under any statutory entitlement (including notice of termination, termination pay and/or severance pay) of the Participant upon a termination of employment, including, without limitation, any payments related to an actual or potential liability under the Worker Adjustment and Retraining Notification Act (WARN) or similar state or local law.

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2.5      Release Required . Any Severance Benefits (other than the Equity Vesting) payable or to be provided pursuant to the Plan shall be conditioned upon the Participant’s execution and non-revocation, within ninety (90) days following the effective date of the Participant’s Separation from Service, of a release substantially in the form attached as Appendix A hereto (or, at any time prior to a Change in Control, such other form of release (which may include restrictive covenants) as the Company may require in its sole discretion for any Participant (other than a Restatement Date Participant prior to September 23, 2017)) (with such changes thereon as are legally necessary at the time of execution to make it enforceable, including, but not limited to the addition of any federal, state or local laws) (the “ Release ”). The Company shall provide the Release to the Participant within seven (7) days following the date of the Participant’s Separation from Service. The Participant will be required to sign the Release within 45 days after the date it is provided to him or her and not revoke it within the time period set forth therein.
2.6      Code Section 280G .
(a)      In the event it is determined pursuant to clause (b) below, that part or all of the consideration, compensation or benefits to be paid to the Participant under the Plan in connection with the Participant’s termination of employment following a Change in Control or under any other plan, arrangement or agreement in connection therewith (each a “ Payment ”), constitutes a “parachute payment” (or payments) under Section 280G(b)(2) of the Code, then, if the aggregate present value of such parachute payments (the “ Parachute Amount ”) exceeds 2.99 times the Participant’s “base amount,” as defined in Section 280G(b)(3) of the Code (the “ Participant Base Amount ”) and would be subject to the excise tax imposed by Section 4999 of the Code (the “ Excise Tax ”), the amounts constituting “parachute payments” which would otherwise be payable to or for the benefit of the Participant shall be reduced to the extent necessary so that the Parachute Amount is equal to 2.99 times the Participant Base Amount; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate Payment to be provided, determined on a net after-tax basis (taking into account the Excise Tax imposed, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes).
(b)      Any determination that a Payment constitutes a parachute payment and any calculation described in this Section 2.6 (“ determination ”) shall be made by the independent public accountants for the Company, and may, at the Company’s election, be made prior to termination of the Participant’s employment where the Company determines that a Change in Control is imminent. Such determination shall be furnished in writing no later than thirty (30) days following the date of the Change in Control by the accountants to the Participant. If the Participant does not agree with such determination, he may give notice to the Company within ten (10) days of receipt of the determination from the accountants and, within fifteen (15) days thereafter, accountants of the Participant’s choice must deliver to the Company their determination that in their judgment complies with the Code. If the two accountants cannot agree upon the amount to be paid to the Participant pursuant to this Section 2.6 within ten days of the delivery of the statement of the Participant’s accountants to the Company, the two accountants shall choose a third accountant who shall deliver their determination of the

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appropriate amount to be paid to the Participant pursuant to this Section 2.6, which determination shall be final. If the final determination provides for the payment of a greater amount than that proposed by the accountants of the Company, then the Company shall pay all of the Participant’s costs incurred in contesting such determination and all other costs incurred by the Company with respect to such determination. However, if the determination of the accountants of the Company is supported by the third accountant, the Participant shall pay all reasonable costs incurred by both the Company and the Participant with respect to the determination.
(c)      If the final determination made pursuant to clause (b) above results in a reduction of the Payments that would otherwise be paid to the Participant except for the application of Section 2.6(a), the Equity Vesting shall be eliminated or reduced to the extent necessary in order to not exceed the limitation under Section 2.6(a), then, to the extent necessary pursuant to Section 2.6(a), the Severance Payment shall be reduced, and, finally, to the extent necessary pursuant to Section 2.6(a), the Continued Health Coverage shall be reduced. Within ten days following such determination, the Company shall pay to or distribute to or for the benefit of the Participant such amounts as are then due to the Participant under the Plan and shall promptly pay to or distribute to or for the benefit of the Participant in the future such amounts as become due to the Participant under the Plan.
(d)      As a result of the uncertainty in the application of Section 280G of the Code at the time of a determination hereunder, it is possible that payments will be made by the Company which should not have been made under Section 2.6(a) (an “ Overpayment ”) or that additional payments which are not made by the Company pursuant to Section 2.6(a) above should have been made (an “ Underpayment ”). In the event that there is a final determination by the Internal Revenue Service, or a final determination by a court of competent jurisdiction, that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Participant to the extent permitted by law, which the Participant shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. Nothing in this Section 2.6 is intended to violate the Sarbanes-Oxley Act of 2002 and to the extent that any advance or repayment obligation hereunder would do so, such obligation shall be modified so as to make the advance a nonrefundable payment to the Participant and the repayment obligation null and void to the extent required by such Act. In the event that there is a final determination by the Internal Revenue Service, a final determination by a court of competent jurisdiction or a change in the provisions of the Code or regulations pursuant to which an Underpayment arises under the Plan, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Participant, together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
2.7      Restrictive Covenants .
(a)      With respect to any Restatement Date Participant at any time prior to September 23, 2017, as a condition to receiving Severance Benefits (other than the Equity Vesting), such Participant shall be subject to the restrictive covenants described in the release substantially in the form attached as Appendix A hereto. Upon such Participant’s timely execution and non-revocation of such release, the restrictive covenants contained therein shall

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supersede any restrictive covenants contained in any agreement or arrangement between the Employer and the Participant, including any employment agreement.
(b)      With respect to an Eligible Employee who becomes a new Participant in the Plan on or after the Restatement Date or with respect to a Restatement Date Participant who continues to be a Participant in the Plan on or after September 23, 2017, as a condition to receiving Severance Benefits, such Participant shall be subject to any restrictive covenants described in the Release and, if applicable, the terms and conditions contained in the Restrictive Covenant Agreement.
(c)      This Section 2.7 shall lapse in its entirety upon the occurrence of a Change in Control.
2.8      Cooperation . By accepting the Severance Benefits under the Plan, subject to the Participant’s other commitments, the Participant agrees to be reasonably available to cooperate (but only truthfully) with the Employer and the Company and provide information as to matters which the Participant was personally involved, or has information on, during the Participant’s employment with the Employer and which are or become the subject of litigation or other dispute.

ARTICLE III
UNFUNDED PLAN
3.1      Unfunded Status . The Plan shall be “unfunded” for the purposes of ERISA and the Code, and Severance Payments shall be paid out of the general assets of the Employer as and when Severance Payments are payable under the Plan. All Participants shall be solely unsecured general creditors of the Company and the Employer. If the Company decides in its sole discretion to establish any advance accrued reserve on its books against the future expense of the Severance Payments payable hereunder, or if the Company decides in its sole discretion to fund a trust under the Plan, such reserve or trust shall not under any circumstances be deemed to be an asset of the Plan.

ARTICLE IV
ADMINISTRATION OF THE PLAN
4.1      Plan Administrator . The general administration of the Plan on behalf of the Company (as plan administrator under Section 3(16)(A) of ERISA) shall be placed with the Committee.
4.2      Reimbursement of Expenses of Plan Committee . The Company may, in its sole discretion, pay or reimburse the members of the Committee for all reasonable expenses

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incurred in connection with their duties hereunder, including, without limitation, expenses of outside legal counsel.
4.3      Action by the Plan Committee . Decisions of the Committee shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law. Subject to the terms of the Plan and provided that the Committee acts in good faith, the Committee shall have complete authority to determine a Participant’s participation and Severance Benefits under the Plan, to interpret and construe the provisions of the Plan, and to make decisions in all disputes involving the rights of any person interested in the Plan.
4.4      Delegation of Authority . Subject to the limitations of applicable law, the Committee may delegate any and all of its powers and responsibilities hereunder to other persons by formal resolution filed with and accepted by the Board. Any such delegation shall not be effective until it is accepted by the Board and the persons designated, and may be rescinded at any time by written notice from the Committee to the person to whom the delegation is made.
4.5      Retention of Professional Assistance . The Committee may employ such legal counsel, accountants and other persons as may be required in carrying out its work in connection with the Plan.
4.6      Accounts and Records . The Committee shall maintain such accounts and records regarding the fiscal and other transactions of the Plan and such other data as may be required to carry out its functions under the Plan and to comply with all applicable laws.
4.7      Indemnification . The Committee, its members and any person designated pursuant to Section 4.4 above shall not be liable for any action or determination made in good faith with respect to the Plan. The Employer shall, to the fullest extent permitted by law, indemnify and hold harmless each member of the Committee and each director, officer and employee of the Employer, and any person designated above, for liabilities or expenses they and each of them incur in carrying out their respective duties under the Plan, other than for any liabilities or expenses arising out of such individual’s willful misconduct or fraud.

ARTICLE V
AMENDMENT AND TERMINATION
5.1      Amendment and Termination . The Company reserves the right to amend or terminate, in whole or in part, any or all of the provisions of the Plan by action of the Board (or a duly authorized committee thereof) at any time, provided that in no event shall any amendment, except for amendments pursuant to Section 7.8(a), reducing the Severance Benefits provided hereunder or any Plan termination be effective prior to the later of (A) the third (3 rd ) anniversary of September 23, 2014 ( i.e. , the original restatement date of the prior version of the Plan in effect prior to the Restatement Date) and (B) one year after the Company provides written notice to the Participant that it wishes to amend or terminate this Plan and the nature of the amendments, if

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applicable, and further provided, that the Company shall not amend or terminate the Plan at any time after (i) the occurrence of a Change in Control or (ii) the date the Company enters into a definitive agreement which, if consummated, would result in a Change in Control, unless the potential Change in Control is abandoned (as publicly announced by the Company), in either case until two (2) years after the occurrence of a Change in Control, provided that all Severance Benefits under the Plan have been paid.

ARTICLE VI
SUCCESSORS
For purposes of the Plan, the Company shall include any and all successors or assignees, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company, and such successors and assignees shall perform the Company’s obligations under the Plan, in the same manner and to the same extent that the Company, would be required to perform if no such succession or assignment had taken place. In the event the surviving corporation in any transaction to which the Company is a party is a subsidiary of another corporation, then the ultimate parent corporation of such surviving corporation shall cause the surviving corporation to perform the Plan in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. In such event, the term “Company” as used in the Plan, shall mean the Company, as hereinbefore defined and any successor or assignee (including the ultimate parent corporation) to the business or assets of the Company, which by reason hereof becomes bound by the terms and provisions of the Plan.

ARTICLE VII
MISCELLANEOUS
7.1      Minors and Incompetents . If the Committee shall find that any person to whom Severance Benefits are payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, any Severance Benefits due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, child, parent, or brother or sister, or to any person deemed by the Committee to have incurred expense for such person otherwise entitled to the Severance Benefits, in such manner and proportions as the Committee may determine in its sole discretion. Any such Severance Benefits shall be a complete discharge of the liabilities of the Company, the Employer, the Committee, and the Board under the Plan.
7.2      Limitation of Rights . Nothing contained herein shall be construed as conferring upon a Participant the right to continue in the employ of the Employer as an employee in any other capacity or to interfere with the Employer’s right to discharge him or her at any time for any reason whatsoever.

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7.3      Payment Not Salary . Any Severance Benefits payable under the Plan shall not be deemed salary or other compensation to the Participant for the purposes of computing benefits to which he or she may be entitled under any pension plan or other arrangement of the Employer maintained for the benefit of its employees, unless such plan or arrangement provides otherwise.
7.4      Severability . In case any provision of the Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan shall be construed and enforced as if such illegal and invalid provision never existed.
7.5      Withholding . The Company and/or the Employer shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it may have to withhold federal, state or local income or other taxes incurred by reason of payments pursuant to the Plan. In lieu thereof, the Company and/or the Employer shall have the right to withhold the amounts of such taxes from any other sums due or to become due from the Company and/or the Employer to the Participant upon such terms and conditions as the Committee may prescribe.
7.6      Non-Alienation of Benefits . The Severance Benefits payable under the Plan shall not be subject to alienation, transfer, assignment, garnishment, execution or levy of any kind, and any attempt to cause any Severance Benefits to be so subjected shall not be recognized.
7.7      Governing Law . To the extent legally required, the Code and ERISA shall govern the Plan and, if any provision hereof is in violation of any applicable requirement thereof, the Company reserves the right to retroactively amend the Plan to comply therewith. To the extent not governed by the Code and ERISA, the Plan shall be governed by the laws of the State of New York, without reference to rules relating to conflicts of law.
7.8      Code Section 409A .
(a)      General . Although the Employer makes no guarantee with respect to the tax treatment of payments hereunder and shall not be responsible in any event with regard to non-compliance with Code Section 409A, the Plan is intended to either comply with, or be exempt from, the requirements of Code Section 409A. To the extent that the Plan is not exempt from the requirements of Code Section 409A, the Plan is intended to comply with the requirements of Code Section 409A and shall be limited, construed and interpreted in accordance with such intent. Accordingly, the Company reserves the right to amend the provisions of the Plan at any time and in any manner without the consent of Participants solely to comply with the requirements of Code Section 409A and to avoid the imposition of an excise tax under Code Section 409A on any payment to be made hereunder, provided that there is no reduction in the Severance Benefits hereunder. Notwithstanding the foregoing, in no event whatsoever shall the Employer be liable for any additional tax, interest or penalty that may be imposed on a Participant by Code Section 409A or any damages for failing to comply with Code Section 409A.
(b)      Separation from Service; Delay Period for Specified Employees . A termination of employment shall not be deemed to have occurred for purposes of any provision of the Plan providing for the payment of any amounts or benefits upon or following a termination

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of employment unless such termination is also a Separation from Service. If a Participant is deemed on the date of termination to be a Specified Employee, then with regard to any payment that is specified as subject to this Section, such payment shall not be made prior to the expiration of the Delay Period. All payments delayed pursuant to this Section 7.8(b) (whether they would have otherwise been payable in a single lump sum or in installments in the absence of such delay) shall be paid to the Participant in a single lump sum on the first Company payroll date on or following the first day following the expiration of the Delay Period, and any remaining payments and benefits due under the Plan shall be paid or provided in accordance with the normal payment dates specified for them herein.
(c)      Separate Payments and No Participant Discretion . For purposes of Code Section 409A, the Participant’s right to receive any installment payments pursuant to this Plan shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a payment period with reference to a number of days ( e.g. , “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the Employer.
7.9      Non-Exclusivity . The adoption of the Plan by the Company shall not be construed as creating any limitations on the power of the Company to adopt such other supplemental retirement income arrangements as it deems desirable, and such arrangements may be either generally applicable or limited in application.
7.10      Non-Employment . The Plan is not an agreement of employment and it shall not grant the Participant any rights of employment.
7.11      Headings and Captions . The headings and captions herein are provided for reference and convenience only. They shall not be considered part of the Plan and shall not be employed in the construction of the Plan.
7.12      Gender and Number . Whenever used in the Plan, the masculine shall be deemed to include the feminine and the singular shall be deemed to include the plural, unless the context clearly indicates otherwise.
7.13      Communications . All announcements, notices and other communications regarding the Plan will be made by the Company and/or the Employer in writing.
7.14      Legal Fees . This Section 7.14 shall apply only in the event of a Change in Control Related Termination. In the event that a Participant substantially prevails in a litigation between the Participant and the Company arising in connection with such Participant’s attempt to obtain or enforce any right or benefit provided by the Plan, the Company agrees to pay the reasonable attorney’s fees and other legal expenses incurred by such Participant in pursuing such litigation, including a reasonable rate of interest for delayed payment.

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ARTICLE VIII
WHAT ELSE A PARTICIPANT NEEDS
TO KNOW ABOUT THE PLAN
8.1      Claims Procedure . Any claim by a Participant with respect to eligibility, participation, contributions, benefits or other aspects of the operation of the Plan shall be made in writing to a person designated by the Committee from time to time for such purpose. If the designated person receiving a claim believes, following consultation with the Chairman of the Committee, that the claim should be denied, he or she shall notify the Participant in writing of the denial of the claim within ninety (90) days after his or her receipt thereof. This period may be extended an additional ninety (90) days in special circumstances and, in such event, the Participant shall be notified in writing of the extension, the special circumstances requiring the extension of time and the date by which the Committee expects to make a determination with respect to the claim. If the extension is required due to the Participant’s failure to submit information necessary to decide the claim, the period for making the determination will be tolled from the date on which the extension notice is sent until the date on which the Participant responds to the Plan’s request for information.
If a claim is denied in whole or in part, or any adverse benefit determination is made with respect to the claim, the Participant will be provided with a written notice setting forth (a) the specific reason or reasons for the denial making reference to the pertinent provisions of the Plan or of Plan documents on which the denial is based, (b) a description of any additional material or information necessary to perfect or evaluate the claim, and explain why such material or information, if any, is necessary, and (c) inform the Participant of his or her right to request review of the decision. The notice shall also provide an explanation of the Plan’s claims review procedure and the time limits applicable to such procedure, as well as a statement of the Participant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review. If a Participant is not notified (of the denial or an extension) within ninety (90) days from the date the Participant notifies the Plan Administrator, the Participant may request a review of the application as if the claim had been denied.
A Participant may appeal the denial of a claim by submitting a written request for review to the Committee, within sixty (60) days after written notification of denial is received. Receipt of such denial shall be deemed to have occurred if the notice of denial is sent via first class mail to the Participant’s last shown address on the books of the Employer. Such period may be extended by the Committee for good cause shown. The claim will then be reviewed by the Committee. In connection with this appeal, the Participant (or his or her duly authorized representative) may (a) be provided, upon written request and free of charge, with reasonable access to (and copies of) all documents, records, and other information relevant to the claim, and (b) submit to the Committee written comments, documents, records, and other information related to the claim. If the Committee deems it appropriate, it may hold a hearing as to a claim. If a hearing is held, the Participant shall be entitled to be represented by counsel.

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The review by the Committee will take into account all comments, documents, records, and other information the Participant submits relating to the claim. The Committee will make a final written decision on a claim review, in most cases within sixty (60) days after receipt of a request for a review. In some cases, the claim may take more time to review, and an additional processing period of up to sixty (60) days may be required. If that happens, the Participant will receive a written notice of that fact, which will also indicate the special circumstances requiring the extension of time and the date by which the Committee expects to make a determination with respect to the claim. If the extension is required due to the Participant’s failure to submit information necessary to decide the claim, the period for making the determination will be tolled from the date on which the extension notice is sent to the Participant until the date on which the Participant responds to the Plan’s request for information.
The Committee’s decision on the claim for review will be communicated to the Participant in writing. If an adverse benefit determination is made with respect to the claim, the notice will include: (a) the specific reason(s) for any adverse benefit determination, with references to the specific Plan provisions on which the determination is based; (b) a statement that the Participant is entitled to receive, upon request and free of charge, reasonable access to (and copies of) all documents, records and other information relevant to the claim; and (c) a statement of the Participant’s right to bring a civil action under Section 502(a) of ERISA. A Participant may not start a lawsuit to obtain benefits until after he or she has requested a review and a final decision has been reached on review, or until the appropriate timeframe described above has elapsed since the Participant filed a request for review and the Participant has not received a final decision or notice that an extension will be necessary to reach a final decision. These procedures must be exhausted before a Participant (or any beneficiary) may bring a legal action seeking payment of benefits. In addition, no lawsuit may be started more than two years after the date on which the applicable appeal was denied. If there is no decision on appeal, no lawsuit may be started more than two years after the time when the Committee should have decided the appeal. The law also permits the Participant to pursue his or her remedies under Section 502(a) of ERISA without exhausting these appeal procedures if the Plan has failed to follow them.


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APPENDIX A
AGREEMENT AND RELEASE

Ascena Retail Group, Inc. (the “ Company ”) and [name] (the “ Employee ”), agree to the terms and conditions set forth below:

1. Termination . Employee’s employment with the Employer (as defined under the Ascena Retail Group, Inc. Executive Severance Plan (the “ Severance Plan ”)) [ is] [was] terminated as of [________________ ___], 20[__] (the “ Termination Date ”). Employee acknowledges that the Termination Date [ is] [was] the termination date of [his/her] employment for purposes of participation in and coverage under all benefit plans and programs sponsored by or through the Employer. Employee acknowledges and agrees that the Employer shall not have any obligation to rehire Employee, nor shall the Employer have any obligation to consider [him/her] for employment, after the Termination Date. All capitalized terms used herein, unless defined otherwise herein, shall have the meaning set forth in the Severance Plan.

2. Severance Benefits . In exchange for the general release in paragraph 4 below and other promises contained herein, and in accordance with the terms of the Severance Plan, which Employee hereby acknowledges receiving, Employee will receive the applicable Severance Benefits under Section 2.2 of the Plan, paid or provided in accordance therewith.

3. Acknowledgment . Employee hereby agrees and acknowledges that the Severance Benefits exceed any payment, benefit or other thing of value to which Employee might otherwise be entitled under any policy, plan or procedure of the Employer, the Company or Affiliates or pursuant to any prior agreement or contract with the Employer, the Company or Affiliates.

4. Release . (a)    In exchange for the Severance Benefits and other valuable consideration, Employee, for [himself/herself] and for [his/her] heirs, executors, administrators and assigns (referred to collectively as “ Releasors ”), forever releases and discharges the Employer and any and all of the Employer’s parent companies, partners, subsidiaries, affiliates, successors and assigns and any and all of its and their past and/or present officers, directors, partners, agents, employees, representatives, counsel, employee benefit plans and their fiduciaries and administrators, successors and assigns (referred to collectively as the “ Releasees ”), from any and all claims, demands, causes of action, fees and liabilities of any kind whatsoever, whether known or unknown, which Releasors ever had, now have or may have against Releasees by reason of any actual or alleged act, omission, transaction, practice, conduct, occurrence or other matter up to and including the date Employee signs this Agreement and Release.

(b)    Without limiting the generality of the foregoing, this Agreement and Release is intended to and shall release Releasees from any and all claims, whether known or unknown, that Releasors ever had, now have or may have against Releasees arising out of




Employee’s employment with the Employer or any of the Releasees, the terms and conditions of such employment and/or the termination of such employment, including but not limited to: (i) any claim under the Age Discrimination in Employment Act, as amended (“ ADEA ”), and/or the Older Workers Benefit Protection Act which laws prohibit discrimination on account of age; (ii) any claim under Title VII of the Civil Rights Act of 1964, as amended, which, among other things, prohibits discrimination/retaliation on account of race, color, religion, sex, and national origin; (iii) any claim under the Americans with Disabilities Act (“ ADA ”) or Sections 503 and 504 of the Rehabilitation Act of 1973, each as amended; (iv) any claim under the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”); (v) any claim under the Family and Medical Leave Act; (vi) any claim or other action under the National Labor Relations Act, as amended; (vii) any claim under the Workers’ Adjustment and Retraining Notification Act; (viii) any claim under the New York State Human Rights Law, the New York Executive Law, the New York Labor Law, the New York City Administrative Code or any other applicable state or local labor or human rights laws; 1 (ix) the Sarbanes-Oxley Act of 2002; (x) any other claim of discrimination, harassment or retaliation in employment (whether based on federal, state or local law, regulation, or decision; (xi) any other claim (whether based on federal, state or local law, statutory or decisional) arising out of the terms and conditions of Employee’s employment with and termination from the Employer and/or the Released Parties; (xii) any claims for wrongful discharge, whistleblowing, constructive discharge, promissory estoppel, detrimental reliance, negligence, defamation, emotional distress, compensatory or punitive damages, and/or equitable relief; (xiii) any claims under federal, state, or local occupational safety and health laws or regulations, all as amended; and (xiv) any claim for attorneys’ fees [ ADD ONLY FOR A CHANGE IN CONTROL RELATED TERMINATION: , (other than claims for legal fees pursuant to Section 7.14 of the Severance Plan) ] , costs, disbursements and/or the like. By virtue of the foregoing, Employee agrees that [he/she] has waived any damages and other relief available to [him/her] (including, without limitation, money damages, equitable relief and reinstatement) under the claims waived in this paragraph 4; provided that nothing herein shall be a waiver of Employee’s right to report violations of federal law or regulation or provide truthful information about this Agreement and Release or Releasees or, to cooperate with any investigation being conducted by any governmental agency, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Notwithstanding anything herein to the contrary, the sole matters to which this Agreement of Release does not apply are: (A) claims to the Severance Benefits; (B) claims under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended; (C) claims arising after the date Employee signs this Agreement and Release; (D) claims relating to any rights of indemnification under the Employer’s organizational documents or otherwise, (E) claims relating to any outstanding stock options or other equity-based award on the Termination Date [ ADD ONLY FOR A CHANGE IN CONTROL RELATED TERMINATION: , including, without limitation, the Equity Vesting ] ; (F) claims to vested accrued benefits under the Employer’s tax qualified retirement plans or non-qualified retirement plans in accordance with, and subject to, the terms and conditions of such plans and applicable law;

1 Add relevant provisions of additional state and/or local lass, as applicable.


A-2




or (G) Employee’s right to seek enforcement of the terms of the Severance Plan [ ADD ONLY FOR A CHANGE IN CONTROL RELATED TERMINATION: , including, but not limited to, claims for legal fees pursuant to Section 7.14 of the Severance Plan ] . Employee acknowledges that Employee has been informed that Employee might have specific rights and/or claims under the ADEA. Employee specifically waives such rights and/or claims under the ADEA to the extent such rights and/or claims arose on or prior to the date this Agreement of Release is executed by Employee.

5. [ ADD ONLY FOR A RESTATEMENT DATE PARTICIPANT INCURRING A TERMINATION OF EMPLOYMENT PRIOR TO SEPTEMBER 23, 2017 PRIOR TO A CHANGE IN CONTROL: Non-Disparagement . Employee agrees that at no time will [he/she], in public or private, engage in any form of conduct or make any statements or representations that deprecate, impugn, disparage or otherwise impair the reputation, goodwill or commercial interests of, or make any remarks that would tend to or be construed to tend to defame, the Releasees, nor shall the Employee assist any other person, firm or company in so doing. Nothing in this Agreement and Release shall prohibit or restrict Employee from: (i) making any disclosure of information, as required by law, in a proceeding or lawsuit in which the Employer is a party, or additionally in any other civil proceeding or lawsuit upon ten (10) business days prior written notice to the Employer; (ii) providing information to, or testifying or otherwise assisting in an investigation or proceeding brought by any federal regulatory or law enforcement agency or legislative body or the Employer’s designated legal, compliance, or human resources officers; (iii) filing, testifying, participating or otherwise assisting in a proceeding relating to an alleged violation of any federal, state or municipal law relating to fraud or any rule or regulation of the Securities and Exchange Commission; or (iv) challenging the validity of this Agreement and Release as it applies to a release of claims under ADEA.]

6. Cooperation . Employee agrees to make [himself/herself] reasonably available at times and for durations reasonably acceptable to both parties to assist the Employer with respect to any issues wherein the Employer considers Employee’s knowledge or expertise reasonably beneficial. The Employer will reimburse Employee for all reasonable out of pocket expenses that incurred while [he/she] is engaged in such activity. Employee will also cooperate fully with the Employer in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Employer that relate to events or occurrences that transpired while the Employee was employed by the Employer. Employee’s full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Employer at mutually convenient times. Employee shall also cooperate fully with the Employer in connection with any such investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Employee was employed by the Employer. The Employer shall pay for any reasonable out-of-pocket expenses incurred by Employee in connection with [his/her] performance of the obligations pursuant to this paragraph 6. Employee’s performance under this paragraph 6 following the Termination Date shall be subject to [his/her] then current employment obligations.


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7. Return of Property . Employee represents that [he/she] has returned (or will return) to Employer all property belonging to the Employer, including but not limited to electronic devices (e.g., Blackberry and/or laptop computer), keys, card access to buildings and office floors, and business information and documents.

8. Severability . If any provision of this Agreement and Release is held to be illegal, void, or unenforceable, such provision shall be of no force or effect. However, the illegality or unenforceability of such provision shall have no effect upon, and shall not impair the enforceability of, any other provision of this Agreement and Release. Further, to the extent any provision of this Agreement and Release is deemed to be overbroad or unenforceable as written, such provision shall be given the maximum effect permissible under law.

9. Entire Agreement . This Agreement and Release represents the entire understanding between the parties hereto with respect to the subject matter hereof, and may not be changed or modified except by a written agreement signed by both of the parties hereto after the Effective Date of this Agreement and Release. In the event of any conflict between any of the provisions of this Agreement and Release and the provisions of the Severance Plan, the terms of the Severance Plan shall govern.

10. Governing Law . Except as may be preempted by federal law, this Agreement and Release shall be governed by the laws of the State of New York, without regard to conflict of laws principles, and the parties in any action arising out of this Agreement and Release shall be subject to the personal jurisdiction and venue of the federal and state courts, as applicable, in the County of New York, State of New York.

11. Non-Disclosure . The parties agree that this Agreement and Release and its terms are confidential and shall be accorded the utmost confidentiality. Employee hereby agrees to keep confidential and not disclose the terms and conditions of this Agreement to any person or entity without the prior written consent of the Employer, except to Employee’s accountants, attorneys and/or spouse, provided that they also agree to maintain the confidentiality of this Agreement. Employee shall be responsible for any disclosure by them. Employee further represent that Employee has not disclosed the terms and conditions of this Agreement to anyone other than Employee’s attorneys, accountants and/or spouse. This Section 11 does not prohibit disclosure of this Agreement by any party if required by law, provided that if Employee is required to make such disclosure the Employee has given the Employer prompt written notice of any legal process and cooperated with the Employer’s efforts to seek a protective order.

12. Confidential Information . Employee acknowledges that during the course of Employee’s employment with the Employer, Employee has had access to information relating to the Employer and its business that is not generally known by persons not employed by the Employer and that could not easily be determined or learned by someone outside of the Employer (“ Confidential Information ”). Such information is confidential or proprietary and may include but not be limited to customer or client contact lists, trade secrets, patents, copyrighted materials, proprietary computer software and programs, products, systems analyses, lists of suppliers and supplier contracts, internal policies and marketing strategies, financial information

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relating to the Employer and its employees, and other documents and information that provide the Employer with a competitive advantage and that could not be easily determined or learned or obtained by someone outside the Employer. Employee further acknowledges that: (i) such confidential and proprietary information is the exclusive, unique, and valuable property of the Employer; (ii) the businesses of the Employer depend on such confidential and proprietary information; and (iii) the Employer wishes to protect such confidential and proprietary information by keeping it confidential for the use and benefit of the Employer. Employee agrees not to disclose or use such Confidential Information at any time in the future, except if authorized by the Employer in writing or if required in connection with a subpoena or other legal process or investigation by any governmental, regulatory or self-regulatory agency or in connection with any legal proceeding brought against Employee, or in connection with a proceeding to enforce this Agreement.

13. [ ADD ONLY FOR A RESTATEMENT DATE PARTICIPANT INCURRING A TERMINATION OF EMPLOYMENT PRIOR TO SEPTEMBER 23, 2017 AND PRIOR TO A CHANGE IN CONTROL]: Restrictive Covenants . Employee agrees that for a period of one (1) year following Employee’s Termination Date (the “ Restricted Period ”), [he/she] will not, directly or indirectly:
(a)      Non-Competition . engage in, assist, or have any active interest or involvement whether as an employee, agent, consultant, creditor, advisor, officer, director, stockholder (excluding holdings of less than 1% of the stock of a public company), partner, proprietor or any type of principal whatsoever in any person, firm, or business entity which, directly or indirectly, is engaged in “Competition” (as defined below) with the Employer, the Company or an Affiliate; or
(b)      Non-Solicitation . recruit, solicit, hire, or cause to be hired, any individual who is then, or who has been within the preceding six (6) month period, an employee of the Employer, the Company or an Affiliate.
For purposes of this Agreement, “Competition” shall mean (x) the business of owning and/or operating one or more retail specialty stores that sell women’s or girls’ apparel, or (y) the business of selling women’s or girls’ apparel through catalogs or internet sales, or (z) any other business engaged in by the Employer, the Company or an Affiliate.]
[ ADD FOR ANY EMPLOYEE WHO BECOMES A PARTICIPANT ON OR AFTER THE RESTATEMENT DATE OR FOR ANY RESTATEMENT DATE PARTICIPANT INCURRING A TERMINATION OF EMPLOYMENT ON OR AFTER SEPTEMBER 23, 2017 IN EACH CASE OCCURRING PRIOR TO A CHANGE IN CONTROL:
[13.]     Restrictive Covenants . Employee acknowledges and agrees that, in consideration of [Employee’s employment or continued employment with the Employer or Employee’s eligibility to participate in the Company’s long-term incentive program under the Company’s 2016 Omnibus Incentive Plan], Employee executed a Restrictive Covenant Agreement dated [______], 20__. Employee hereby represents that he or she understands his or

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her contractual obligations under the Restrictive Covenant Agreement, and Employee agrees that the terms and conditions contained in the Restrictive Covenant Agreement shall survive the termination of his or her employment with the Employer and will continue in full force and effect. Employee hereby reaffirms his or her commitment and obligation to abide by the terms and conditions of the Restrictive Covenant Agreement.]
14. Remedies . Employee acknowledges and agrees that the Employer will suffer irreparable damage if any of the provisions of paragraphs 5, 12 or 13 of this Agreement and Release are breached and that the Employer’s remedies at law for a breach of such provisions would be inadequate and, in recognition of this fact, Employee agrees that, in the event of such a breach, in addition to any remedies at law, the Employer will be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available.

15. Binding Agreement . This Agreement and Release is binding upon, and shall inure to the benefit of, the parties and their respective heirs, executors, administrators, successors and assigns.

16. ADEA Provisions . Employee acknowledges that [he/she] : (a) has carefully read this Agreement and Release in its entirety; (b) has had an opportunity to consider the terms of this Agreement and Release [insert only if employees are over 40: and the disclosure information attached hereto as Exhibit I (which is provided pursuant to the Older Workers Benefit Protection Act) ] for at least [twenty-one (21)] [forty-five (45)] days; (c) is hereby advised by the Company in writing to consult with an attorney of [his/her] choice in connection with this Agreement and Release; (d) fully understands the significance of all of the terms and conditions of this Agreement and Release and has discussed them with an attorney of [his/her] choice, or has had a reasonable opportunity to do so; and (e) is signing this Agreement and Release voluntarily and of [his/her] own free will and agrees to abide by all the terms and conditions contained herein.

17. Revocation/ Effective Date . Employee may accept this Agreement and Release by signing it before a notary public and delivering it to [INSERT NAME AND ADDRESS OF CONTACT] on or before the [twenty-first (21 st )] [forty-fifth (45 th )] day after [he/she] receives this Agreement and Release. Notwithstanding the foregoing, Employee may not sign this Agreement and Release before [his/her] last day of employment and this Agreement and Release will not be accepted or effective if signed before the Termination Date. After signing this Agreement and Release, Employee shall have [seven (7)] 2 days (the “ Revocation Period ”) to revoke [his/her] decision by indicating [his/her] desire to do so in writing delivered to [INSERT NAME] at the above address by no later than the last day of the Revocation Period.
If the last day of the Revocation Period falls on a Saturday, Sunday or holiday, the last day of the Revocation Period will be deemed to be the next business day. Provided Employee does not

2  Replace with "fifteen (15)" for Employees working in Minnesota.


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revoke this Agreement and Release during the Revocation Period, the Effective Date of this Agreement and Release shall be the later of the [eighth (8 th )] 3 day after Employee signs this Agreement and Release or the day after the last day of the Revocation Period (the “ Effective Date ”).


Dated:
 
 
 
 
(signature)
 
 

[Employee]


ASCENA RETAIL GROUP, INC.


Accepted by:__________________________    Dated:_____________________

Name:_______________________________























3 Replace with "sixteenth (16 th )" for Employees working in Minnesota.

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AMENDMENT NO. 1 TO
ASCENA RETAIL GROUP, INC.
EXECUTIVE SEVERANCE PLAN
AMENDED AND RESTATED EFFECTIVE AS OF MARCH 2, 2016

WHEREAS , Ascena Retail Group, Inc. (the “ Company ”) sponsors the Ascena Retail Group, Inc. Executive Severance Plan (Amended and Restated Effective as of March 2, 2016) (the “ Plan ”);

WHEREAS , pursuant to Section 5.1 of the Plan, the Compensation and Stock Incentive Committee of the Board of Directors of the Company (the “ Committee ”) has the authority to amend the Plan at any time, subject to the terms and conditions of the Plan;

WHEREAS , pursuant to Section 4.3 of the Plan, the Committee has complete authority to interpret and construe the provisions of the Plan, subject to the terms and conditions of the Plan; and

WHEREAS , the Committee desires to make a clarifying amendment to the Plan to remove and eliminate any doubt that the references in Section 1.4 of the Plan to “annual cash performance bonuses” and “annual target cash performance bonus” mean only those cash bonuses paid or payable under the Company’s short-term incentive programs.
NOW, THEREFORE , effective as of December 7, 2016, the following sentence is hereby added at the end of Section 1.4 of the Plan:

“For the avoidance of doubt, any and all references in this Section 1.4 to “annual cash performance bonuses” and “annual target cash performance bonus” mean only those cash bonuses earned or to be earned under the Company’s short-term incentive programs in respect of actual performance.”

IN WITNESS WHEREOF , this Amendment No. 1 to the Plan has been adopted this 7 th day of December, 2016


ASCENA RETAIL GROUP, INC.

                            
By:
Duane D. Holloway
Title:
Executive Vice President, General Counsel and Assistant Secretary





EXHIBIT 31.1
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, David Jaffe, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of ascena retail group, inc.;
 
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 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; and
 
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 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:
 
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.
 
Date: June 8, 2017
 
/s/ David Jaffe
David Jaffe, Chairman of the Board,
President and Chief Executive Officer





EXHIBIT 31.2
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Robb Giammatteo, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of ascena retail group, inc.;
 
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 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; and
 
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 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:
 
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.
 
Date: June 8, 2017
 
/s/ Robb Giammatteo
Robb Giammatteo
Executive Vice President and Chief Financial Officer





EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of ascena retail group, inc. (the “Company”) on Form 10-Q for the quarter ended April 29, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David Jaffe, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:
 
(1)      The Report fully complies with the requirements of Section 13(a) or 15(d) 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.
 
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used for any other purpose.
 
/s/ David Jaffe
David Jaffe, Chairman of the Board,
President and Chief Executive Officer
June 8, 2017





EXHIBIT 32.2
 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with the Quarterly Report of ascena retail group, inc. (the “Company”) on Form 10-Q for the quarter ended April 29, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robb Giammatteo, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that:
 
(1)     The Report fully complies with the requirements of Section 13(a) or 15(d) 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.
 
The foregoing certification is provided solely for purposes of complying with the provisions of Section 906 of the Sarbanes-Oxley Act of 2002 and is not intended to be used for any other purpose.
 
/s/ Robb Giammatteo
Robb Giammatteo
Executive Vice President and Chief Financial Officer
June 8, 2017