Rafaella Commences 'Modified Dutch Auction' Debt Tender Offer To Purchase for Cash up to Approximately 51% of Its Outstanding 11 1/4% Senior Secured Notes Due 2011

NEW YORK, Feb. 22 /PRNewswire/ -- Rafaella Apparel Group, Inc. ("Rafaella") announced today that it has commenced a "Modified Dutch Auction" tender offer (the "Tender Offer") to purchase for cash up to an aggregate of approximately $36,380,000 principal amount at maturity (the "Maximum Tender Amount") but not less than an aggregate of $17,975,000 principal amount at maturity (the "Minimum Tender Amount") of Rafaella's 11 1/4% Senior Secured Notes due 2011 (the "Notes"), provided that in no event will Rafaella pay more than $19,100,000 to purchase the Notes, exclusive of accrued interest and costs of the transaction (the "Maximum Aggregate Purchase Price").  The Tender Offer is scheduled to expire at 11:59 p.m., New York City time, on March 19, 2010, unless extended (as such time and date may be extended or earlier terminated, the "Expiration Date").

Rafaella expects to fund the purchase of the Notes tendered in the Tender Offer with (i) cash on hand and (ii) borrowings to be available upon the closing of the amended and restated credit agreement with HSBC Bank USA, National Association (the "Amended Credit Agreement") pursuant to which, among other things, the Company's controlling stockholder or its affiliate will participate in such Amended Credit Agreement by providing up to $10 million in a senior secured term financing.  The Company has entered into the Amended Credit Agreement, but the Amended Credit Agreement will not close unless the Company purchases Notes pursuant to the Tender Offer on or before April 2, 2010, in which event the Amended Credit Agreement will close simultaneously with the consummation of the Tender Offer.

Under the "Modified Dutch Auction" procedure, Rafaella is offering to purchase the Notes at a price not greater than $600 nor less than $525 per $1,000 principal amount of such Notes (in multiples of $.25 per $1,000 principal amount) (the "Price Range").  Holders of the Notes will be able to indicate the principal amount of Notes that such holders desire to tender and the price within the Price Range at which they wish to tender such Notes.  No tenders will be accepted outside the Price Range.  

Rafaella will select a purchase price (the "Purchase Price") within the Price Range that will allow it to purchase a principal amount at maturity of the Notes that (i) is no less than the Minimum Tender Amount and no greater than the Maximum Tender Amount and (ii) does not exceed the Maximum Aggregate Purchase Price; although the Company may elect not to select the highest Purchase Price at which Notes are validly tendered and not properly withdrawn within the Price Range, even if in selecting such highest Purchase Price the Company would still be able to purchase all of the Notes validly tendered and not properly withdrawn for an amount equal to or less than the Maximum Aggregate Purchase Price.  

Only Notes validly tendered at prices at or below the applicable Purchase Price, and not properly withdrawn (if applicable), will be purchased.  All Notes will be acquired at the same Purchase Price, and holders who tender Notes that are accepted for payment will also receive accrued and unpaid interest on such Notes from the last interest payment date to, but excluding, the date on which such Notes are purchased.  In addition, if the aggregate principal amount of Notes validly tendered, and not withdrawn (if applicable), at or below the Purchase Price on or prior to the Expiration Date exceeds the Maximum Tender Amount or the Maximum Aggregate Purchase Price, then Rafaella will only accept for payment such Notes that are validly tendered at or below the Purchase Price on a pro rata basis from among such Notes validly tendered at or below the Purchase Price.  Any Notes not accepted for payment, for any reason, will be returned to their holders at no cost.

Notes tendered may not be withdrawn, provided that if Rafaella modifies the Price Range, the Minimum Tender Amount, the Maximum Tender Amount and/or the Maximum Aggregate Purchase Price of the Tender Offer (other than a 2% or less increase in the percentage of Notes sought) or is otherwise required by law to permit withdrawal, then previously tendered Notes may be validly withdrawn and the Tender Offer will be extended, if necessary, so that it remains open for at least 10 business days following notification of such modification to holders of the Notes.

As of February 22, 2010, there were $71,861,000 aggregate principal amount at maturity of the Notes outstanding.  The Minimum Tender Amount and the Maximum Tender Amount represent approximately 25% and 50.6% of the aggregate principal amount at maturity of the outstanding Notes, respectively.  

The Tender Offer and Rafaella's obligation to purchase and pay for the Notes validly tendered is conditioned upon at least the Minimum Tender Amount being validly tendered within the Price Range and the other conditions to the Tender Offer set forth in the Tender Offer to Purchase and accompanying Letter of Transmittal either being satisfied or waived on or prior to the Expiration Date.  If any of the conditions are not satisfied or waived, Rafaella is not obligated to accept for payment, purchase, or pay for, and may delay the acceptance for payment of, any tendered Notes, in each event, subject to applicable laws, and may terminate the Tender Offer.

Rafaella reserves the right, subject to applicable law, to extend, withdraw or terminate the Tender Offer.  Further, Rafaella reserves the right to modify the Price Range, the Minimum Tender Amount, the Maximum Tender Amount and/or the Maximum Aggregate Purchase Price in its sole discretion.

This press release is neither an offer to purchase nor a solicitation to buy any of the Notes nor is it a solicitation for acceptance of the Tender Offer.  Rafaella is making the Tender Offer only by, and pursuant to the terms of, the Tender Offer to Purchase and the related Letter of Transmittal. The Tender Offer is not being made in any jurisdiction in which the making or acceptance thereof would not be in compliance with the securities, blue sky or other laws of such jurisdiction.

The complete terms and conditions of the Tender Offer are set forth in the Tender Offer to Purchase and Letter of Transmittal that is being sent to holders of the Notes. Holders are urged to read the Tender Offer documents carefully when they become available. Copies of the Tender Offer to Purchase and Letter of Transmittal may be obtained from the Information Agent for the Tender Offer, MacKenzie Partners, Inc. at (800) 322-2885 (toll free) or (212) 929-5500 (collect).

Lazard Middle Market LLC is the Dealer Manager for the Tender Offer. Questions regarding the Tender Offer may be directed to the Dealer Manager at (212) 758-8575 (collect). The Depositary for the Tender Offer is The Bank of New York Mellon.

About Rafaella Apparel Group, Inc.

Rafaella, together with its subsidiaries, is a wholesaler, designer, sourcer, marketer and distributor of a full line of women's career and casual sportswear separates sold primarily under the Rafaella brand and private label brands of our customers.  The Company's products are sold to department, specialty and chain stores and off-price retailers located throughout the United States of America.  For more information, visit www.rafaellasportswear.com.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements included in this press release that address activities, events or developments that Rafaella expects, believes or anticipates, will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by such forward-looking terminology as "expects," "intends," "plans," "anticipates," "believes," "seeks," "estimates," "will," "may" and words or phrases of similar import.  Although Rafaella believes any forward-looking statements are based on reasonable assumptions, there can be no assurance that these expectations will be attained. Actual results and timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors, including but not limited to (i) dependence on management, (ii) dependence on vendors and distributors, (iii) reliance on foreign manufacturers, (iv) industry trends, (v) merchandise and fashion trends, (vi) competition, seasonality, and (vii) macroeconomic conditions in general, and microeconomic conditions that impact the clothing industry in particular, including but not limited to consumer spending patterns, as well as other risks set forth in Rafaella's Annual Report on Form 10-K for the fiscal year ending June 30, 2009, Quarterly Reports on Form 10-Q for the quarterly periods ending September 30, 2009 and December 31, 2009, and Current Reports on Form 8-K, in each case filed with the Securities and Exchange Commission.  Rafaella does not undertake any obligation to update forward-looking statements.

SOURCE Rafaella Apparel Group, Inc.

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